The Oil Sands Weekly

The Oil Sands Weekly

Get ready for another Fort Mac housing boom . . .

The Canada Mortgage and Housing Corporation (CMHC) expects a construction boom in Fort McMurray, with new housing starts expected to be the highest in 20 years. However, most of that construction isn't expected to begin until next year.

Some 2,000 homes were destroyed, mostly in the neighbourhoods of Waterways, Beacon Hill and Abasand. However, Mayor Melissa Blake has said that some of these these neighbourhoods may not be rebuilt, which will push more buyers into the resale market.

Oil companies have opened up some 3,000 camp spaces to Fort McMurray residents. However, many of these camps are too remote or not family-friendly. As a result, the city's rental market is also expected to tighten considerably.

ATB Financial betting on Alberta's recovery . . . 

ATB Financial has launched a "Choose Alberta" GIC with yields tied to the province's unemployment rate. The 27 month GIC will pay out a minimum rate of 1.65% with a bonus payout of up to 0.75% depending on the unemployment data at the time of maturity. The bank has committed to investing the funds into the Alberta economy. ATB Financial is owned by the government of Alberta.

A rough week for Husky . . . 

Husky Energy spilled 1,570 barrels of oil into the North Saskatchewan River, about 40 kms upstream of North Battleford, SK. The leak occurred on its Saskatchewan Gathering System which carries diluted heavy oil from Husky's thermal facilities to its Lloydminster upgrader.

The North Saskatchewan River is a source of drinking water to North Battleford, which is home to 14,000 residents. The city shutdown its water intake plant on Friday after an oil slick was detected. Saskatchewan's environment minister applauded Husky's quick response to the spill. The North Saskatchewan River is a major tributary to the Saskatchewan River, which flows east across Saskatchewan and Manitoba into Lake Winnipeg.

Earlier this week, Husky suspended operations off the coast of Newfoundland due to a leak of hydraulic fluid. An official with Husky says efforts are underway to resume operations on the Henry Goodrich offshore drill rig. The spill was comprised primarily of water and glycol, and would have "dissipated through the water column." Husky did not confirm when operations will resume. There were no injuries reported.

If you're not part of the solution, you're part of the problem . . .

In their latest 2016 Sustainability Report, Suncor Energy has pledged to reducing the total emission intensity of their operations by 30% by 2030. The reductions will come through technological improvements, increased usage of natural gas and power co-generation. CEO Steve Williams says "Climate change is happening. Doing nothing is not an option."

The company's total GHG emission are expected to rise to over 10 million tonnes of CO₂ equivalent by 2019 as production from the Fort Hills mine comes online. However, emissions per barrel will fall from the current 0.425 to 0.340 t CO₂/m³ of oil equivalent by 2020.

The company also pledged to work more closely with Aboriginal peoples, vowing to improve business relationships, improving retention and providing more career opportunities.

Federal carbon tax back in the spotlight . . .

At this week's meeting of provincial and territorial leaders in Whitehorse, PM Trudeau has signalled intentions to implement a minimum federal carbon price, with or without provincial approvals.

Saskatchewan Premier Brad Wall has threatened legal action if the federal government acts unilaterally. Yukon Premier Darrell Pasloski called the plan a "made-in-the-South" tax that would dramatically increase the cost of living in the north. Atlantic provinces are also opposed to the plan, noting they are already working towards reducing carbon emissions but should have the right to decide on the right way forward. 

Enbridge fined $180 million for Kalamazoo River spill . . .

The US Justice Department and Environmental Protection Agency has fined Enbridge and its subsidiaries US$62 million for the 2010 Kalamazoo River oil spill. Enbridge also agreed to spend over US$110 million in spill prevention.

The company spilled about 19,500 barrel of oil into the Kalamazoo River in July of 2010 after a piping defect on its Line 6B caused the pipeline to burst near the city of Marshall, Michigan. The spill site stretched over 60 kms, impacting marshlands, residential areas, farmland and businesses. Enbridge reached a settlement last year to pay US$75 million over the incident and has spent as estimated $1.2 billion on clean-up, site remediation, environmental assessments and public awareness campaigns.

This week's other Canadian energy news . . . 

ConocoPhillips is planning to cut another 1,000 jobs this year, or 6% of its workforce. As many as 300 of those cuts will come from Alberta, mostly in its Calgary office. Company spokesman Rob Evans noted "Low commodity prices, combined with our inability to get product to new markets, has resulted in lower prices in Canada relative to other parts of the world .... Coupled with increased local cost pressures such as corporate taxes, regulatory compliance costs and property taxes, staying competitive in a global portfolio is a challenge for some parts of our Canadian business." The Houston-based company cut 1,800 jobs last year.

Reuters reported that Canadian Natural Resource (CNRL) has quietly purchased about 12,000 natural gas wells across Alberta over the past 2 years, overtaking Encana as Canada's largest natural gas producer.

Husky Energy closed on a previously announced $1.7B deal, resulting in a new company named Husky Midstream Limited Partnership to be based in Calgary. The new company will assume ownership of select midstream assets in the Lloydminster region of Alberta and Saskatchewan, which includes 1,900 kms of pipeline and 4.1 million barrels of oil storage capacity. Husky Midstream retains a 35% stake in the partnership. Cheung Kong Infrastructure Holdings will own 16.25% while Power Assets Holdings (PAH) has a 48.75%.

Gibson Energy has hired RBC Capital Markets to find a buyer for its industrial propane business. The company plans to use the funds to grow its infrastructure business unit. Gibsons has already received several offers but did not disclose the expected value of the sale.

Keyera has secured $300 million in private debt financing with a group of institutional investors both in Canada and the US. Proceeds will be used in part to repay short-term debt incurred to fund the company's capital spending program.

As part of an ongoing effort to reduce debt, Bellatrix Exploration has announced another $80 million in bought deal debt and equity financing as well a renewal and extension of its credit facilities. Bellatrix owns and operates a number of oil and natural gas facilities in Alberta, BC and Saskatchewan. 

The GOP united in their support of Keystone XL . . . 

Republicans held their Republican National Convention in Cleveland this week, releasing their 2016 party platform. Although there are many divisions within the GOP, the Republicans are united in their support for Keystone XL and the energy sector in general. The Republican manifesto notes "To advance North America's energy independence, we intend to reverse the current Administration's blocking of the Keystone XL Pipeline. Apart from its economic value, that project has become a symbol in the contest between the public's desire for economic development and the government's hostility to growth. We stand with the people."

Team Trump have vowed to repeal many of Obama's clean energy policies, worrying many environmental groups and casting doubt over future government funding in renewables. Trump's VP pick Mike Pence is on Obama's list of climate change deniers.

This week's Canadian economic news . . .

Statistics Canada reported a sharp jump in May's Employment Insurance (EI) recipients due to (you guessed it) the Fort McMurray wildfires and evacuations. Alberta saw a whopping 12.1% m/m gain in beneficiaries, but increases were also recorded in Newfoundland and Labrador (+2.9%) and BC (+1.8%). Year to date, the number of EI recipients in Canada is up 2.4%.

The number of new EI claims rose by a staggering 69.8% in Alberta during the month of May, the biggest increase since 1997. Claims also shot up in PEI (+21.5%), Saskatchewan (+9.7%), Nova Scotia (+6.0%) and New Brunswick (+4.1%). Across the country, the number of EI claims rose 9.7% m/m and remains 5.7% higher than the same time last year.

Canadian wholesale trade expanded by 1.8% m/m in May to $55.9 billion, thanks mostly to record demand for motor vehicles. Alberta was the notable exception as the May wildfires cut sales by 1.6% to $6.0 billion, the second consecutive monthly drop.

Canada's Consumer Price Index (CPI) rose 1.5% m/m in June, powered higher by food, shelter and gas prices. Sales receipts in Alberta declined 0.4% in May. Gasoline sales surged by 2.3% thanks to higher prices at the pump. Newfoundland, Thunder Bay, Vancouver and the Northern Territories pay over $1.20/L for regular unleaded gasoline. The Bank of Canada's core index rose to 2.1% y/y in June, slightly higher than the bank's target.

In a recent report, TD Economics has called Alberta's current recession the worst on record. There have been 5 recessions in the province since the early 1980s. The bank says the current contraction is about twice as bad as the average, although labour markets and housing prices have remained stable thanks to heavy government spending, low interest rates, a low Canadian dollar and a strengthening US economy. TD is predicting a "return to normal" by the end of 2018.

The Conference Board of Canada (CBOC) expects the Canadian economy to grow by an "underwhelming" 1.4% in 2016, revised lower from its previous forecast of 1.6%. The CBOC cites Brexit, an anemic US economy, the Fort McMurray wildfires and little signs of life from non-energy related firms as reasons to remain pessimistic on the Canadian economy. The board expects non-energy related investments to improve next year and into 2018.

The International Monetary Fund (IMF) has also cut Canada's growth forecast to 1.4% this year, increasing to 2.1% next year (revised from January's forecast of +1.5% and +1.9%, respectively). Much like the Bank of Canada, the IMF credits the federal government's fiscal stimulus program. The IMF warned that Brexit has increased economic, political and institutional uncertainty and reduced its global growth to 3.1% in 2016 and 3.4% in 2017, 0.1% lower than the previous estimate.

The US anti-pipeline movement shifts focus to natural gas . . .

Various special interest groups are vowing to fight the installation of new natural gas pipelines in the US. A group of 12 non-profit agencies have taken offence to the "clean energy" label being attached to natural gas, noting that gas production and combustion still produces significant GHG emissions. 

The groups are calling on the Federal Energy Regulatory Commission, which is responsible for pipeline construction applications, to weigh climate change impacts into new approvals. Thanks to the persistence of Bernie Sanders' supporters, the "climate test" for new infrastructure projects is now part of the Democratic Party 2016 Platform. Hillary Clinton had previously called natural gas a bridge fuel between coal and renewable energy.

American Petroleum Institute (API) President Jack Gerard told reporters he would like to take "shrill politics" out of the country's energy discussions. Good luck with that, Jack.

Oil majors battle it out for lucrative PNG LNG market . . .

ExxonMobil declared victory in its US$2.5 billion takeover of InterOil, beating out a US$2.2 billion bid by Australia's Oil Search. The deal already has the approval of both Board of Directors. 

The takeover gives Exxon control over InterOil's lucrative Elk-Antelope gas field in Papua New Guinea (PNG), which holds at least 6.2 trillion cubic feet of natural gas. Oil Search's offer was backstopped by French energy giant Total. Total already has a 40.1% stake in Elk-Antelope and is the currently the operator of the asset.

Exxon is also offering to pay a contingent resource payment of $7.07/share for each 1 trillion equivalent cubic feet of additional natural gas reserves discovered, up to a maximum of 10 trillion cubic feet. PNG's gas is reportedly better quality, closer to Asian customers and cheaper to produce than in neighbouring Australia. Political turmoil in the island nation has so far not deterred investments in PNG. Despite increasing revenues from energy exports, corruption and violence remain rampant across the country, leading to widespread anti-government protests across the South Pacific nation.

Other global energy news . . . 

Canadian Natural Resources announced the deferral of $300 to $400 million in spending and is suspending drilling operations off the Ivory Coast due to low oil prices. CNRL has spent $1.5 billion on new wells on its Espoir and Baobab fields over the last two years, increasing output from 18,000 bbl/day in 2013 to almost 45,000 bbl/day. The company thinks it could increase production by another 10,000 bbl/day once oil prices recover and drilling activities resume.

Joy Global's Board of Directors has unanimously approved a merger with Japan's Komatsu for US$3.7 billion including debt. The combined company will be better positioned to compete against Caterpiller, the world's largest supplier of mining equipment. Komatsu has committed to operate Joy Global as separate subsidiary and retain the Joy Global brand names. The deal will still require approval of regulators and shareholders. Komatsu CEO Tetsuji Ohashi told reporters he thinks the bottom is in for the mining sector and now is a good time to do acquisitions. Caterpillar, Joy Global and Komatsu are all major suppliers of mining equipment to the oil sands.

Russia's oil minister has rejected plans to coordinate production quotas with OPEC and instead intends to increase output to a 30 year high of 9 million bbl/day by the end of this year. Goldman Sachs notes that Russia is one of the world’s lowest-cost producers, requiring oil prices of only US$10 a barrel to general free cash flow. The country also has a very progressive tax structure and incentives for greenfield developments. The former Soviet Union produced a record 11.41 million bbl/day in 1987. Goldman expects Russia to beat that record by 2018 thanks to new production in East Siberia.

Guards protesting salary holdbacks temporarily delayed oil shipments out the eastern Libyan oil terminal of Hariga this week. Operations resumed on Wednesday but strained government finances have dampening hopes of a quick recovery in Libya's oil exports. OPEC reported that Libya's production increased to 332,000 bbl/day in June, up from 271,000 bbl/day in May. Some analysts are forecasting a doubling of output in the near term.

Exports of Nigeria's largest crude oil stream, Qua Iboe, will remain under force majeure for at least one month while operator ExxonMobil repairs a leak on the pipeline feeding the terminal. Exxon says the leak was unrelated to any militant activity and did not give a specific timeline for repairs. Two of Nigeria's largest fields are now under force majeure, including the Shell-operated Forcados crude oil exports which were halted after a militant attack on its subsea pipeline in February. The ongoing problems have dampened hopes for a "return to normal" of Nigeria'a oil exports.

million bbl/day • preliminary data by EIA
million bbls • data by EIA

million bbl/day • data by EIA & Baker Hughes

-28 ▼ 1.0%
+9 ▲ 0.1%
-2.3 ▼ 0.4%
+14 ▲ 3.9%

Canadian oil exports to the US continues to tick lower, falling another 1% last week, bringing the 4-week average to 2.85 million bbl/day.

An extra 14 oil rigs were deployed in the US, the fourth consecutive weekly gain. According to Baker Hughes, an extra 4 oil rigs were put into service in Canada, bringing the total to 48.

Total US oil production rose slightly this week on big gains in output from Alaska. Production in the lower 48 states fell by 29,000 bbl/day. The Energy Information Agency (EIA) is expecting production to stop declining, noting "Higher and more stable crude oil prices are contributing to increased drilling in the United States, which may slow the pace of production declines."

Friday close • data by Bank of Canada & ICE

+0.96 ▲ 1.0%
-1.23 ▼ 1.6%
-0.03 ▼ 1.9%
US 10Y Bond
-0.03 ▼ 2.7%
CDN 10Y Bond

The Japanese Yen stabilized this week (-1.1%) after President Abe squashed rumours of a $180 billion spending spree. The Bank of Japan will announce details of its next stimulus plan on June 29th.

The UK economy contracted sharply in July, to levels not seen since 2009. Pressure is on Governor Mark Carney to "do something drastic" to prevent the country from sliding into recession. IMF president Christine Lagarde blames Brexit for holding back an otherwise recovering global economy. The pound sterling declined another 0.6% against the greenback.

European Central Bank President Mario Draghi kept interest rates unchanged this week but remains ready to act if necessary. Draghi is adopting a "wait-and-see" approach on the fallout of Brexit.

G20 finance ministers and central bank governors are in China this week discussing global trade and Brexit. China promised not to further devalue its currency and noted it can no longer shoulder the burden of supporting the entire global economy. The G20 ministers have all pledged to avoid currency manipulation.

Better than expected housing and employment data in the US, coupled will falling global currencies helped the US Dollar Index squeak out another 1% gain this week. This is the fifth consecutive weekly gain, a bad omen for oil prices.

Friday close, USD/bbl • data by CME Group
-1.92 ▼ 4.0%
-1.76 ▼ 3.8%
-2.67 ▼ 6.3%
-2.81 ▼ 8.7%

Gasoline imports into the US are unusually high this summer, putting downward pressure on gasoline spot prices (-5.2% w/w). Refineries typically go down for maintenance in September and October but those shutdowns may be pulled forward due to low refining margins. That's another reason to be bearish on crude oil prices.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

BlackRock is warning investors to brace for much weaker returns from the TSX, which is up 20% from the January lows. Global Chief Investment Strategist Richard Turnill called the TSX "a market today where the valuations are no longer as compelling, it's exposed to global growth and it is held back by that low interest rate environment ... Like other markets, Canadian investors need to prepare themselves for low returns." 

This week's notable second quarter earnings:

  • Despite deep cost cuts and asset sales, Husky Energy (TSX:HSE +4.1%) reported a loss of $196 million in the second quarter, much worse than analysts were expecting. Cash flow fell 58% y/y to $488 million. Total production fell 6% to 316,000 boe/day blamed in part on the Fort McMurray wildfires which forced the shutdown of its Sunrise SAGD operation. Husky is working towards lowering its breakeven costs below US$40 WTI by the end of the year.

  • Encana (TSX:ECA +4.7%) surprised the street this week and reported an operating profit of US$89 million in the second quarter, thanks to aggressive cost cutting. The company has boosted capital spending by US$200 million, to be funded by proceeds of recent asset sales. The move should help boost production by 13,000 boe/day. CEO Doug Suttles has narrowed Encana's focus to just 4 main assets - the Permian and Eagle Ford basins in Texas, as well as the Duvernay and Montney basins in Alberta/BC. Encana's net loss narrowed to $601 million, down from $1.6 billion a year earlier. Almost 78% of the company's oil production this year is hedged at US$56/bbl while 86% of its natural gas production is hedged at US$2.63/Mcf. The company expects to reduce transportation, processing and operating costs by $100 million this year and has no plans for jobs cuts in the near term.

  • CP Rail (TSX:CP +5.4%) released dreadful Q2 results that were actually not as bad as expected. The company had already warned investors that revenues would be significantly impacted by production outages caused by the Fort McMurray wildfires, which reduced crude carloads to just 7 million in the second quarter, down from 17 million in Q1. CP's crude-by-rail business now represents just 1.7% of the company's total revenues, down from 5% in Q1. Oil transport represented over 8% of CP's revenues in 2014.

  • Precision Drilling (TSX:PD -6.7%) posted a $58 million loss, the largest in its history, due to ongoing weakness in drilling activity. Revenues were cut in half to $164 million. Earnings declined 75% y/y to $22 million. Drill rig utilization has declined 48% in Canada, 58% in the US and 44% internationally over the same period last year. CEO Kevin Neveu thinks the energy sector is in the early stages of recovery and hopes to start re-hiring former employees as drilling activity picks up.

  • Altagas (TSX:ALA 6.9%) pleasantly surprised shareholders this week by boosting their dividend by over 6%. Revenues rose to $426 million (+2% y/y) bringing their net income to $29 million, versus a loss of $22 million for the previous year/quarter. Altagas is in the business of natural gas, power and utilities distribution. The company is hoping to build a $500 million propane export terminal near Prince Rupert, designed to export 1.2 million tonnes/year of propane to lucrative Asian markets.

  • Mullen Group (TSX:MTL +9.9%) also reported better than expected earnings, particularly in its trucking and logistics division. Revenues declined by 13.3% y/y to $247 million, due mostly to lover revenues from their oil field services business. The company generated a net income of $13.7 million, mostly on accounting charges (forex gains, tax savings and lower financing charges). Mullen cites lack of investment in capital projects, on-going economic slowdown in Alberta and little demand for drilling activity as headwinds that still remain for the sector.

  • Kinder Morgan (NYSE:KMI +0.9%) posted second quarter net income of US$333 million on revenues of US$3.14 billion. The bulk of the company's earnings come from its natural gas distribution business. Kinder Morgan Canada reported Q2 earnings of US$40 million, up from US$37 million for the same time last year. The company reported high demand for capacity on the Trans Mountain pipeline system in Q2 with deliveries into Washington state up 25% from the same period last year.

  • Halliburton (NYSE:HAL -3.6%) reported a US$3.2 billion operating loss for the second quarter, thanks mostly to a US$3.5 billion breakup fee for its failed deal to buy Baker Hughes. The oil field service company reported a 9% decline in Q2 revenues, falling to $3.85 billion. However, CEO Dave Lesar remains optimistic noting "We believe the North America market has turned. We expect to see a modest uptick in rig count during the second half of the year." Halliburton is planning another US$1 billion in cuts this year and generates about half of its sales from the US and Canada.

  • Schlumberger (NYSE:SLB +2.9%) reported a second quarter loss of US$2.16 billion on revenues of US$7.17 billion, which was actually better than analysts were expecting. Schlumberger has cut 50,000 jobs over the past 2 years. The Netherlands based company is the world's largest oil field services provider.

Advantage Oil & Gas (AAV +5.9%), ARC Resources (ARX + 2.9%), Painted Pony Petroleum (PPY+11.5%) and Peyto Exploration (PEY +4.4%) all reached new 52 week highs on the TSX this week. Chesapeake Energy (NYSE:CHK) was the big winner in the US energy sector, surging 22% for the week. The stock has climbed over 250% from its February lows.


  • Crescent Point Energy (TSX:CPG): Upgraded from Equal Weight to Overweight at Barclays.

  • Encana (TSX:ECA): Upgraded to Buy at Cormark.

  • Penn West Petroleum (TSX:PWT): Upgraded from Underweight to Equal Weight at Barclays.

  • Teck Resources (TSX:TCK/B): Upgraded from Neutral to Buy at Clarkson Capital.

  • Tesoro (NYSE:TSO): Upgraded from Neutral to Buy at Citigroup.


  • Devon Energy (NYSE:DVN): Downgraded from Buy to Accumulate at KLR Group.

  • Enbridge (TSX:ENB): Downgraded from Buy to Neutral at Goldman Sachs and from Outperform to Sector Perform at National Bank Financial.

  • Pembina Pipeline (TSX:PBA): Downgraded from Outperform to Sector Perform at National Bank Financial.

  • Pengrowth Energy (TSX:PGF): Downgraded from Equalweight to Underweight at Barclays.


  • Calfrac Well Services (TSX: CFW): Price target increased from $3.50 to $4.50 at CIBC.

  • Devon Energy (NYSE:DVN): Price target increased from US$40 to US$45 at Citigroup.

  • Enerflex (TSX:EFX): Price target increased from $12.70 to $14.50 at National Bank Financial.

  • Enerplus (TSX: ERF): Price target increased from $10.50 to $11.50 at CIBC and from $10 to $12 at Barclays.

  • Inter Pipeline (TSX:IPL): Price target decreased from $30 to $29 at CIBC.

  • Keyera (TSX: KEY): Price target decreased from $46 to $45 at CIBC and increased from $48 to $49 at National Bank.

  • TransCanada (TSX:TRP): Price target increased from $57 to $62 at National Bank Financial.



  • Transport Minister Marc Garneau announcing new crude-by-rail safety measures in Montreal @ 1:30pm ET

  • CN Rail Q2 earnings release

  • Prairie Sky Royalty Q2 earnings release

  • Democratic National Convention kicks-off in Philadelphia


  • API Weekly Statistics Bulletin released @ 4:30pm ET

  • Bonavista Energy Q2 earnings release

  • Western Energy Services Q2 earnings release

  • BP Q2 earnings release

  • Valero Energy Q2 earning release


  • UK GDP figures released @ 4:30am ET

  • EIA Petroleum Status Report released @ 8:30am ET

  • US Federal Reserve rate decision released @ 2:00pm ET

  • Suncor Energy Q2 earnings release

  • Athabasca Oil Q2 earnings release

  • SECURE Energy Services Q2 earnings release

  • Statoil Q2 earnings release


  • EIA Natural Gas Report released @ 10:30am ET

  • Canadian payroll data for May released @ 8:30am ET

  • Cenovus Q2 earnings release

  • MEG Energy Q2 earnings release

  • TransCanada Q2 earnings release

  • Teck Resources Q2 earnings release

  • Baytex Energy Q2 Q2 earnings release

  • ARC Resources Q2 earnings release

  • Calfrac Well Services Q2 earnings release

  • Royal Dutch Shell Q2 earnings release

  • ConocoPhillips Q2 earnings release

  • Baker Hughes Q2 earnings release

  • Marathon Petroleum Q2 earnings release


  • Canadian GDP for May released @ 8:30am

  • Canadian Industrial Products and Raw Materials Price Index released @ 8:30am

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

  • Enbridge Q2 earnings release

  • Imperial Oil Q2 earnings release

  • ExxonMobil Q2 earnings release

  • Chevron Q2 earnings release

Next edition of the Oil Sands Weekly: Friday July 29, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly