The Oil Sands Weekly

The Oil Sands Weekly

ConocoPhillips spills condensate . . . 

ConocoPhillips reported that condensate was spilled on June 9 near their Resthaven gas plant, 65 km northeast of Grande Cache, Alberta. The company estimates 380 m³ of condensate was spilled and has since shutdown the pipeline. The AER (Alberta Energy Regulator) has issued an Environmental Protection Order to ensure the incident is fully investigated and remediated as soon as possible.

Pembina Pipeline shuts Western Pipeline in northern BC . . . 

Pembina Pipeline has shutdown its crude oil-carrying Western Pipeline in northern BC after heavy rains exposed a section of the line. The Western Pipeline carries around 50,000 bbl/day of conventional crude from Taylor, BC (near Fort St. John) to Prince George and Kamloops. Pembina did not provide an estimate as to when normal operation would resume.

Wildfire costs still being tallied . . . 

Reuters is reporting that internal sources have pegged the wildfire outages will cost Suncor about $1 billion, or roughly $50 million per day. Reuters is also reporting that a 32 km Enbridge pipeline connecting MacKay River to their terminal is plugged up with cooled bitumen, preventing the restart of the SAGD facility. MacKay River has a production capacity of 38,000 bbl/day.

Suncor did not confirm or deny the reports, except to say the company is in the process of returning to normal operations. All of Suncor's oil sands facilities were taken offline for about a month during the wildfires. The affected sites have the capacity to produce 350,000 bbl/day of upgraded light oil and about 120,000 bbl/day of heavy diluted bitumen. Suncor also refuelled Petro-Canada gas stations throughout Alberta this week after a disruption at their Edmonton refinery caused a gas shortage.

In contrast, Husky Energy is reporting that all is well at the Sunrise SAGD facility, which is on its way back to pre-fire levels of 30,000 bbl/day. Husky doesn't think the wildfire costs will be substantial.

ConocoPhillips also announced that 73% of its wells at the Surmont thermal in-situ facility are back in service. The company resumed production at the SAGD facility on June 7th, after being shutdown due to the wildfires for several weeks. The plant was producing about 60,000 bbl/day prior to the outage. Surmont is a 50/50 joint venture with Total and has an ultimate production capacity of 150,000 bbl/day.

Clock starts ticking for Energy East . . . 

The National Energy Board (NEB) has officially kicked-off its review of TransCanada's Energy East Pipeline. The hearings will begin on August 8th in Saint John, New Brunswick, moving west into Quebec, Ontario, Manitoba, Saskatchewan and Alberta.

For the first time ever, non-registered intervenors will be able to participate in the hearings. The NEB normally requires intervenors to formally register their opposition which helps keep the hearings to a manageable size. The NEB also retained the right to accept/reject the intervener's request to participate depending on the legitimacy of their claim. It will be interesting to see how many opponents and/or supporters will attend the consultations now that pre-registration is not required.

The NEB review is expected to last 21 months with a recommendation report due to the federal government by March 2018.

Vancouver's only refinery is up for sale . . .

Chevron has reportedly put their Burnaby Refinery up for sale. The refinery is located in BC's Lower Mainland and is the only refinery operating in the Vancouver area. 

Vancouver was once a major refining hub on the West Coast. However, construction of the Trans Mountain line in 1953 changed the dynamics considerably, since the pipeline carries both refined products and crude oil from Edmonton. Three refineries in the Vancouver area were shutdown in the 1990s, along with a small refinery in Kamloops, which also happens to be along the Trans Mountain route.

The shutdowns have left BC's Lower Mainland with a huge shortage of refined products, forcing the area to import most of their gasoline and jet fuel from Washington State. The refinery's Unifor union is a vocal opponent of the Trans Mountain expansion, expressing concerns that Chevron may close the plant completely if the new pipeline is built. Although the West Coast has some of the best refining margins in the world, expanding the Trans Mountain line from 300,000 to 890,000 bbl/day will likely increase the price of Alberta crude and lower the price of gasoline on the West Coast, reducing the crack spread and making the small refinery less profitable.

A spokesperson for Chevron says the company has made no official decision and is just testing the waters. The company has also put its Chevron-branded gas stations and marine terminal up for sale. 

Husky Energy continues to ramp up heavy oil production . . .

Husky has commenced steaming operations at the 4,500 bbl/day Edam West Thermal in Saskatchewan, its third thermal project to be brought online this year.

Edam East achieved first oil in April and is now producing 11,000 bbl/day. Oil production has also begun at the 10,000 bbl/day Vawn Thermal Project. Husky's total heavy thermal production (including Tucker) is expected to exceed 100,000 bbl/day by the end of 2016. Operating costs for the thermal facilities are reported to be $7 per barrel.

Suncor shopping for more assets - in Texas?

Suncor Energy has apparently put in a bid for a 50% stake in a 225,000 bbl/day refinery located in Port Arthur, Texas. The refinery is operated by Total, who had put a 50% stake up for sale in the summer of 2015. Total has since pulled their offer of sale due to lack of suitable bids. The Port Arthur refinery is Total's only operation in the US. Total apparently has no other plans to sell anymore refineries.

Suncor has also reportedly put its Petro-Canada lubricants division up for sale. Petro-Canada is the world's largest manufacturer of white mineral oil, which is used in health and beauty products, pharmaceuticals, adhesives, plastics and elastomers. The Mississauga-based division has an estimated value of $800 million.

Conference Board of Canada not so optimistic on Alberta . . . 

The Conference Board of Canada (CBOC) telegraphed this week that things might get worse before they get better in Alberta, changing its provincial GDP forecast to -2.0% for 2016, revised lower from its Q4/2015 estimate of -1.1%. This would make the province's recession the worst downturn in 30 years. The CBOC sees major improvement in 2017, with Alberta's GDP increasing to 2.5%. About 0.4% of that growth will come from rebuilding efforts in Fort McMurray.

TransCanada continues to debottleneck Keystone . . .

TransCanada will begin crude shipments on its Houston Lateral pipeline by July. The Houston Lateral pipeline and tank terminal connects the existing Keystone Pipeline to Houston, Texas. The terminal has an initial storage capacity of 700,000 barrels of crude oil. The US$50 million project is a joint venture with Magellan. Tariffs from Alberta to Houston will be US$7.73/bbl for heavy crude.

Cenovus moves to protect the woodland caribou . . . 

Cenovus Energy will invest $32 million over the next 10 years to restore caribou habitat in northeastern Alberta. The Caribou Habitat Restoration Project will involve restoring linear disturbances around old oil & gas plants and planting 4 million trees. The woodland caribou live in the boreal forest and are considered a threatened species under the federal Species at Risk Act. The move is voluntary and comes one week after the provincial government announced its own plans to restore caribou habitat.

Federal carbon tax may be in the works . . . 

Rumours are swirling that federal Finance Minster Bill Morneau is looking at implementing a federal carbon tax as a way to generate revenue and lower greenhouse gas emissions. PM Trudeau maintains he wants to see a minimum carbon price across the country. The plan could be something as simple as raising the federal gas tax. Many provinces have been slowly creeping up the provincial portion of the gas tax as the price of oil has come down (hoping no one would notice) but the federal gas tax has remained unchanged for several years.

The feds have the full support of the OECD, who this week said Canada needs a "big fat price" on carbon to shut down the last remaining coal plants in the Prairies and encourage more investment in renewables.

Saskatchewan Premier Brad Wall on a mission . . . 

Saskatchewan Premier Brad Wall was in Toronto this week, talking up Energy East. Speaking at the Empire Club, the premier insists Canada needs a more balanced discussion on pipelines with more emphasis on the economic benefits for the country. Wall is a vocal opponent of carbon taxes, reiterating now is not the time to increase the tax burden in his province, already suffering under the weight of low oil prices. The province has already spent $1 billion in taxpayer funds to build the world's first commercial carbon capture plant. The Boundary Dam Carbon Capture Project sequesters 1 million tonnes of CO₂ per year from a coal-fired power plant near Estevan, SK. The CO₂ is then pumped into oil wells to enhance recovery.

Jim Prentice has a new job . . .

Former Alberta premier Jim Prentice has landed a new gig as an energy analyst with NY-based private equity firm Warburg Pincus. Prentice served as a federal MP under Stephen Harper from 2004 to 2010, where he took on cabinet positions as Environment Minister and Minister of Indian Affairs & Northern Development. He then became leader of Alberta's Progressive Conservative Party in late September 2014 after Allison Redford's resignation.

This week's Canadian economic data . . . 

Statistics Canada released the national balance sheet this week:

  • National net worth declined 1.5% to $9.57 trillion in Q1 due a decrease in the value of foreign assets. 
  • Excluding financial assets, national wealth rose to $9.3 trillion driven by higher real-estate prices. Household net worth rose 1.2% to $9.63 trillion.
  • Consumer credit debt was $573 billion while mortgage debt rose to $1.27 trillion. Household debt to disposable income held steady at 165.3%.
  • Natural resource wealth declined by $36 billion.

StatsCan also reported a 1.0% increase in manufacturing sales, rising to $50.4 billion in April. This follows two consecutive months of declines:

  • Sales of petroleum and coal products were up 8.3% to $4.1 billion in April, following a 13.4% increase in March. Petroleum and coal product prices rose 2.5% in April.
  • Sales in Alberta increased 3.5% in April, following a 0.1% rise in March.
  • Despite the gains made in April, manufacturing sales in Alberta are still down 11.8% year/year.

Lower gas prices helped lower the Consumer Price Index (CPI) to 1.5% in May (yr/yr), following a 1.7% increase in April. Excluding gasoline, the CPI was up 1.9% yr/yr in May. The Bank of Canada's core index increased 2.1% yr/yr in May.

Bank of Canada Governor Stephen Poloz gave a rather optimistic speech in the Yukon this week, noting he sees signs of "real progress" in the Canadian economy due to robust consumer spending.

In contrast, the TD Bank lowered expectations for economic growth in Canada due to the Alberta wildfires. The bank now expects the economy to grow 1.3% in 2016, down from an earlier prediction of 1.9%.

 The IMF has more friendly advice for Canada . . . 

The International Monetary Fund (IMF) thinks Canada is on the right track and doing okay despite the drop in oil prices. However, the agency thinks the oil shock has not yet been fully played out and warns more federal government spending may be warranted. The IMF also sees a bursting of the housing-bubble as a real risk to the economy and suggests a tightening in mortgage credit. Other helpful suggestions include more infrastructure spending, diversification of Canada's economy, more generous childcare subsidies and publicly-funding training programs to help workers retrain for new jobs.

OPEC optimistic on energy markets . . . 

In their Monthly Market ReportOPEC predicts oil markets will rebalance by year end. Among the key highlights:

  • World oil production averaged 95.67 million bbl/day in the first quarter.
  • OPEC's Reference Basket price averaged US$43.21/bbl in May, versus US$47.65 for Brent and US$46.80/bbl for WTI. In contrast, Western Canadian Select averaged US$34.60/bbl.
  • Improved pipeline and rail infrastructure in North America, coupled with a lifting of the US oil export ban, is reducing the Brent-WTI spread. The cheaper Brent is making it more cost effective for refineries on the East Coast to buy Brent versus purchasing domestic crude since tanker transport is much cheaper than pipeline tolls or crude-by-rail.
  • OPEC production in May fell to 32.36 million bbl/day, down 100,000 bbl/day from the previous month. Production declines in Nigeria, Venezuela and Iraq were offset by gains in Kuwait, Iran and Saudi Arabia.
  • Non-OPEC production will shrink by 740,000 bbl/day in 2016 thanks to outages in Canada, Brazil and Columbia. Canadian oil production is now expected to average 4.48 million bbl/day this year, revised lower by 25,000 bbl/day due to the Alberta wildfires.
  • World oil markets were oversupplied by 2.59 million bbl/day in May, up from 2.17 million in 2015. However, OPEC projects rising demand (mostly from China and India) will bring the markets into balance later in the year.

The IEA not as optimistic . . . 

The Paris-based International Energy Agency (IEA) released its own oil market report this week. Among the key highlights:

  • World oil production was estimated at 95.4 million bbl/day in May, down 590,000 bbl/day from the previous year.
  • The agency sees demand rising to 97.4 million bbl/day in 2017.
  • OECD commercial stockpiles are pegged at 3.065 billion barrels, up 222 million barrels in the previous year. Note that OECD countries exclude Asia and the Middle-East, who have massive stockpiles of their own.
  • The IEA also highlights that refinery outages are currently running much higher than normal, but run-rates are expected to bounce back by the third quarter.
  • The agency also sees oil markets balancing by year end but returning to being oversupplied by 2017.

US$1 trillion in capex expected to be cut but production keeps climbing . . .

Wood Mackenzie estimates that up to US$1 trillion in capital and exploratory spending will come out of the global energy sector between 2015 and 2020. The US accounts for US$200 billion of those cuts.

The consulting firm estimates Canadian oil & gas companies have cut US$25 to US$40 billion in spending since Q4/2014. Canadian oil production is expected to keep rising due to several projects that are already under construction.

Despite the dramatic cuts, oil production has yet to be affected. Wood Mackenzie estimates production won't be affected until the late 2020s since many large projects take up to 5 years to come online.

US$50 oil may be as good as it gets . . . 

Goldman Sachs is warning that US$50 oil will be enough to restart production for many of the small US shale producers, keeping a lid on oil prices. Oil rig counts have increased for the past few weeks after steadily declining since the summer of 2015. The investment firm points to the very slow decline in US production versus the total collapse they had initially predicted.

Goldman sees a modest deficit later this year due to global production outages but sees the markets returning to surplus early next year, noting the current supply disruptions are unusually high but temporary in nature.

The ECB changes its mind . . . 

The European Central Bank (ECB) finally admits that cheap oil might not be so good for the global economy after all. This marks a reversal of initial projections than cheap oil would boost spending in oil importing countries. The ECB now admits that any benefits have been offset by the huge contraction in spending in the energy patch and recessions in oil-exporting nations. The bank blames weak demand for the decline in oil prices and notes oil-importing countries may be encouraged to spend more if oil prices stay lower for longer.

This week's global energy news . . . 

Exxon Mobil has asked a US court to throw out a subpoena that would force the oil company to hand over decades of documents as part of an on-going investigation into whether Exxon misled investors about climate change risks. Exxon is claiming the subpoena is in violation of the company's constitutional rights. The US Securities and Exchange Commission (SEC) legally requires all publicly traded companies to disclose any information that may affect share prices. Various US states are seeking financial compensation from Exxon for knowingly contributing to climate change. 

Devon Energy has agreed to sell non-core assets in Texas for US$858 million and raised its 2016 capital budget by US$200 million. The company also raised its production forecast to a range of 540,000 to 560,000 boe/day, up 7,000 boe/day. The company maintains it is close to selling its 50% stake in the Access Pipeline but has not yet announced a buyer.

TransCanada announced plans to build and operate a US$2.1 billion natural gas pipeline in Mexico. The Sur de Texas-Tuxpan project will be a joint venture with IEnova, a subsidiary of US-based Sempra Energy. TransCanada will own a 60% stake in the 800 km pipeline with IEnova owning the remaining 40%. The new pipeline is the largest of 3 projects TransCanada currently has in Mexico, including the US$500 million Tuxpan-Tula Pipeline and the US$550 million Tula-Villa de Reyes line. TransCanada's investments in Mexico now tops US$5 billion.

Nearly 300 employees on oil & gas drilling rigs off the coast of Norway could go on strike unless a wage deal is agreed by June 22. The strike could affect as many as 3,000 workers but is unlikely to meaningfully impact production.

The European Commission is looking at doubling the capacity of Russia's natural gas supply to Germany. The move has angered many EU members who have been trying to wean themselves off Russian gas since Russia's invasion of the Ukraine. About 40% of Russia's gas deliveries to Europe go through the Ukraine, earning the country US$1.9 billion in transit fees. State-owned Gazprom is apparently not worried about the global natural gas supply glut and the growing popularity of LNG.

Still in Russia, state-owned Rosneft and BP announced a joint venture to conduct onshore oil & gas exploration in East and West Siberia. BP will commit US$300 million to the JV to be named Yermak Neftegaz LLC. BP CEO Bob Dudley says his company remains committed to belt-tightening initiatives over the next 3 years and is encouraged by much improved cost structures in the global energy patch.

The IMF has agreed to provide US$5.4 billion in loans to Iraq, provided the country increases taxes, electricity rates and vows to fight government corruption and money laundering. Falling oil prices has left the OPEC nation struggling to fight ISIS, which controls the north and west part of the country. Iraq has secured over US$18 billion in emergency loans over the past 3 years from agencies that include the G7 nations and the World Bank. Iraq will also be issuing $2 billion worth of Eurobonds later this year.

The Niger Delta Avengers have tentatively agreed to peace talks with the Nigerian government provided an independent international mediator is brought in. Up to 1 million bbl/day of oil production remains offline in the country due to widespread destruction of onshore oil infrastructure in the Niger Delta region.

million bbl/day • preliminary data by EIA
million bbls • data by EIA
million bbl/day • data by EIA & Baker Hughes
-307 ▼ 10.0%
-29 ▼ 0.3%
-0.9 ▼ 0.2%
+9 ▲ 2.7%

A much larger than expected drawdown in oil inventories helped stem the losses in oil prices this week. However, rig counts continue to rise in the US, raising speculation that US production has bottomed and will soon begin climbing.

Gasoline inventories are unusually high despite strong demand. The EIA is reporting that US refiners are shifting their production towards more gasoline and less distillates, which is increasing gasoline inventories and reducing the gasoline crack spread.

Friday close • data by Bank of Canada & ICE

-0.29 ▼ 0.3%
-0.74 ▼ 0.9%
-0.02 ▼ 1.2%
US 10Y Bond
-0.00 ▼ 0.0%
CDN 10Y Bond

Federal Reserve Chair Janet Yellen surprised no one this week, making no change to the US overnight lending rate. Yellen cited a weakening labour market, contraction in energy sector spending and Brexit worries as reasons to pause any rate increases. The famous Dot Plots are now forecasting only one rate hike this year, down from previous estimates of 2 rate hikes by year-end.

The Bank of JapanBank of England and the European Central Bank also held rates unchanged this week, citing concerns of economic calamity should the UK vote to exit the EU. A departure of the UK from the EU would cause both the pound and Euro to tumble and spike the US dollar, which could add further financial stress to global markets. The Brexit vote is on June 23rd.

Bond yields around the world continued to tumble to record lows. German 10 year bonds went negative for the first time ever this week, following the lead of Japan, Sweden, Denmark and Switzerland. US and Canadian bond yields also hit record lows.

Global currencies took a beating this week, following bond yields lower. Money piled into the Japanese Yen and treasury markets, reflecting a flight to safety as money comes of the out equity markets.

Friday close, $/bbl • data by CME Group
-1.37 ▼ 2.7%
-1.09 ▼ 2.2%
-1.99 ▼ 5.4%
-2.12 ▼ 4.5%

Oil prices were down 6 days in a row as of Thursday before rebounding sharply on Friday on a pullback of the US dollar. The July contract for Western Canadian Select expired this week (on Thursday). Friday's close reflects the new August contract. The WTI July contract will expire on June 21st.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Independent refiners in the US got slaughtered this week on weakening crack spread. Worst hit names on the S&P500 include Marathon Petroleum (MPC -8.0%), Tesoro (TSO -6.1%) and Valero Energy (VLO -3.2%). Independent refiners have benefited the most from the collapse in oil prices but are now getting squeezed by rising oil prices, which have doubled from the lows of February.

Canadian Natural Resources (CNQ +3.2%) has almost doubled its 2016 cash flow forecast given the recent rally in oil prices and expanded production at Horizon. Fourth quarter free cash flow estimates were raised to $670 million from an initial estimate of $338 million. The next phase of Horizon expansion should come online by the fall, adding another 45,000 bbl/day to the company's production profile. CNRL's Horizon oil sands mine and bitumen upgrader was not affected by the Alberta wildfires. The final phase of Horizon expansion is on track to be completed by the end of 2017. President Steve Laut told investors that the company could increase capital spending to $4.5 billion in the next 2 years if oil prices go above US$60/bbl and stay at that level.

Suncor Energy (SU -0.1%) has offered to buy about US$1.5 billion worth of former Canadian Oil Sands (COS) debt. The move would lower Suncor's interest payments and eliminate COS notes that were sold at a higher interest rate. The offer is open until June 22nd.

Penn West Petroleum (PWT +49%) shares soared this week as the company continues to sell over $1 billion in assets. The sale reduces the company's debt covenants to only $600 million (from over $2 billion at the start of 2015). The stock was upgraded by several investment firms.

Lightstream Resources (LTS +11%) has deferred a US$32 million interest payment due in mid-June. The company will officially be in default if it doesn't make the payment by July 15. Lightstream has $20 million in cash on hand and has been aggressively selling assets over the past few months. The company has light oil assets in southeastern Saskatchewan and north-central Alberta. Dragon's Den celebrity W. Brett Wilson is one of the company's directors. The penny-stock was once a high-flyer, trading at over $25/share before the 2008 collapse.

Exxon Mobil hit another 52-week high this week, gaining 0.8% for the week. Valero Energy hit a fresh 52-week low. Many Canadian medium and large cap energy stocks went ex-dividend this week.


  • Canadian Natural Resources (TSX:CNQ): Upgraded from Outperform to Top Pick at RBC Capital.
  • Cenovus (TSX:CVE): Upgraded from Equal Weight to Overweight at Morgan Stanley.
  • BP (NYSE:BP): Upgraded from Neutral to Buy with price target increased from US$31.15 to US$39 at Citigroup.
  • Royal Dutch Shell (NYSE:RDS.A): Upgraded from Sector Perform to Outperform at BMO Capital Markets.


  • Phillips 66 (NYSE:PSX): Downgraded from Overweight to Equal Weight with price target decreased from US$105 to US$90 at Morgan Stanley.


  • Canadian Natural Resources (TSX:CNQ): Price target increased from $43 to $50 at RBC Capital and from $37 to $44 at Citigroup.
  • Encana (TSX:ECA): Price target increased from $10 to $11 at Deutsche Bank.
  • TransCanada (TSX:TRP): Price target increased from $62 to $63 at TD Securities.
  • Devon Energy (NYSE:DVN): Price target increased from US$35 to US$40 at BMO Capital Markets and from US$40 to US$41 at Wunderlich.
  • Halliburton (NYSE:HAL): Price target increased from US$37 to US$45 at Howard Weil.



  • Canadian Wholesale Sales data for April released by StatsCan @ 8:30am ET
  • Finance Minister Bill Morneau meets with provincial and territorial finance ministers in Vancouver, BC.


  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • Federal Reserve Chair Janet Yellen testimony @ 10:00am ET
  • Last trading day for West Texas Intermediate (WTI) July contract


  • Canadian Retail Sales data for April released by StatsCan @ 8:30am ET
  • Federal Reserve Chair Janet Yellen testimony @ 10:00am ET
  • Columbia Pipeline shareholder vote on TransCanada takeover in Houston, TX @ 9:00am CT.
  • EIA Petroleum Status Report released @ 10:30am ET


  • Finance Minister Bill Morneau delivers speech in Toronot @ 7:45am ET.
  • Canadian Producer Price Index (PPI) and April GDP released by StatsCan @ 8:30am ET
  • Employment Insurance (EI) data for April released by StatsCan @ 8:30am ET
  • EIA Natural Gas Report released @ 10:30am ET
  • Penn West Annual General Meeting in Calgary, AB @ 10:00am CT.
  • UK referendum on leaving the EU; polls close at 5pm ET


  • Baker-Hughes Rig Count released @ 1:00pm ET

Next edition of the Oil Sands Weekly: Friday June 24, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly