The Oil Sands Weekly

The Oil Sands Weekly

A more subdued Calgary Stampede kicks off this week . . .

The Calgary Stampede kicked off in Alberta this week. Organizers have noted the high-rollers are nowhere to be found this year and there are far fewer large corporate events. About 1.1 million visitors are expected to pass through the gates this year, adding more than $300 million to Calgary's economy. The weaker Canadian dollar has been a great boost to Alberta's tourism sector. 

Horizon down for maintenance . . .

Canadian Natural Resources began a 31 day maintenance turnaround on its Horizon Upgrader this week. Horizon was the only oil sands mine and upgrader not affected by the Alberta wildfires due to its location. Operations at the facility are expected to return to normal on August 16th.

NEB hits pause button for Northern Gateway . . . 

The National Energy Board (NEB) has suspended its review of Enbridge's requested extension of Northern Gateway's sunset clause. The suspension comes after the Federal Court of Appeal overturned Ottawa's approval of the project. Last spring, Enbridge and its partners requested an extension to the sunset clause to give the company more time to begin building the pipeline. The project now goes back to the federal government for review.

Fort McMurray fires will cost insurers $3.6 billion . . . 

The Insurance Bureau of Canada (IBC) estimates the Fort McMurray wildfires will cost insurers $3.58 billion, making it the largest payout in Canadian history. In total, there were 27,000 personal claims, 12,000 auto claims and 5,000 commercial claims.

Although the 2013 Calgary floods resulted in more damage (estimated at $6 billion), only $1.7 billion was covered by insurance, leaving the government and Albertans to pay the remainder. Insurance premiums spiked considerably in the province after the floods and is likely to increase again as insurers attempt to recoup their payouts.

This week's energy patch deals . . . 

Gran Tierra announced a US$525 million acquisition of privately-held PetroLatina Energy, an exploration and production company with assets primarily in the Middle Magdalena basin of Colombia. This is Gran Tierra's third deal in Columbia this year. The Latin American country has been plagued by a series of supply disruptions due to attacks by Marxist guerrilla groups.

7 Generations (7G) announced plans to buy NGL-rich Montney assets from Paramount Resources for $1.9 billion. The Alberta properties currently produce about 30,000 boe/day. 7G will be issuing $650 million worth of bought deal common shares to partially finance the purchase. Paramount will use the cash to reduce its debt load.

Bellatrix Exploration has sold another 35% interest in its Alder Flats Gas Plant to Keyera for $112.5 million. Keyera now owns 70% of the facility. Bellatrix remains the owner and operator of the plant and will use the cash to pay down debt.

Bank of Canada warns of more pain ahead for energy patch . . .

The Bank of Canada's (BoC) latest Business Outlook Survey doesn't have much good news for Alberta's oil & gas sector. Sales prospects remain dim in the energy patch and warns credit conditions have tightened despite ultra-low interest rates as Canadian banks become more cautious. The bank sees slower sales growth into the third quarter and is forecasting further investment cuts in energy firms. Hiring intensions remain subdued across most sectors of the Canadian economy. However, the BoC remains optimistic on growing demand from the US, which is expected to improve.

A tale of two jobs reports . . . 

Statistics Canada reported 700 job losses in May, a statistically insignificant number. Economists were expecting a gain of 5,000. Another 40,000 jobs shifted from full time to part-time, mostly in the lower paying food and accommodations sector. Manufacturing continues to be weak across all provinces.

Alberta's job losses appear to be slowing but still declined for the third month in a row. The province's unemployment rate rose to 7.9%. Canada's unemployment rate fell to 6.8% as more people exited the workforce. The labour participation rate dropped to 65.5%, the lowest since December 1999.

In contrast, US jobs numbers were much better than expected, adding 287,000 jobs during the month of June. Economists were expecting 180,000. The US jobless rate increased from 4.8 to 4.9% as more people entered the workforce. However, May's dismal job numbers were revised lower to just 11,000. US job growth has been slowing almost every quarter since 2014.

This week's notable economic data . . . 

Trade deficits widened in both Canada and the US as imports continue to rise in both countries but exports decline. Manufacturing in both countries continues to deteriorate but consumer spending remains unexpectedly strong, spurring demand for imports.

RBC's latest Canadian Manufacturing Survey revealed ongoing weakness in Alberta and BC's manufacturing sector, still reeling from significant cuts in capital spending from the energy patch. 

Highlights from Statistics Canada's international trade account balance for May:

  • Exports of energy products increased 7.1% to $5.3 billion for the month. Prices were up 9.7%, while volumes were down 2.3%.
  • Exports of crude oil and bitumen rose 10.5% to $3.8 billion, on a 9.9% increase in prices and 0.6% increase in volumes, despite the production outages caused by Fort McMurray wildfires.
  • StatsCan concludes that throughput at Canadian refineries was reduced in May, freeing up crude for export. The balance was made up from oil inventories.
  • Imports of energy products rose for the third month in a row, gaining another 18.2% to $2.1 billion.
  • Excluding the US, exports to other countries declined 13.6% to $9.1 billion for the month. Shipments to the UK were especially hard hit, falling 45% leading into the Brexit vote.

The MLI (McDonald Laurier Institute) composite leading indicator rose by 0.4% in May due to improved commodity prices. However, the think-tank warns that the full impact of Brexit and fallout from the Fort McMurray wildfires may not have yet been fully factored in. April's MLI indicator was revised higher to +0.2%.

This week's global energy news . . . 

Royal Dutch Shell CEO Ben van Beurden warned investors that Brexit could slow its US$30 billion asset divestitures plan, particularly for its rapidly depleting North Sea assets. Shell was hoping to raise at least US$2 billion for its lucrative Buzzard oilfield but warns of uncertainty over taxes and regulations.

Chevron and partners have approved a US$38.8 billion expansion of the Tengiz oil field in Kazakhstan. Tengiz is one of the world's largest oil field, accounting for one-third of the country's oil production. The move will boost production from approximately 550,000 bbl/day to over 800,000 bbl/day. Chevron has a 50% stake in the project, which is one of the largest sanctioned since the latest downturn in oil prices. The remaining stake is owned by Exxon (25%), the Kazakhstan government (20%) and Russia's Lukoil (5%).

Indian Oil Corp. has announced plans to spend US$6 billion over the next 6 years to boost the country's refining capacity by 30%. India is set to surpass Japan as the world’s third-largest oil consumer by the end of 2016. Paris-based International Energy Agency estimates India will be the fastest-growing crude consumer in the world through 2040.

Adding insult to injury, a Nigerian trade union representing 10,000 refinery workers and office staff commenced strike action this week. The union wants government to inject more cash into its joint-venture oil and gas projects and meet its obligations to workers. The strike has not yet affected the country's refineries. The union has committed to negotiations before shutting down operations.

June production numbers . . . 

Russia exported a record 5.55 million bbl/day last month. Production rose to 10.84 million bbl/day, up 1.1% yr/yr. The country has increased output every month since July 2014.

Nigerian output rose to 1.53 million bbl/day in June, up 90,000 bbl/day m/m. The Niger Delta Avengers blew up another 5 oil facilities shortly after the government reached a cease-fire agreement to allow it to repair infrastructure and restore output to 1.8 million bbl/day. The latest round of attacks have dampened expectations of a return to normal this summer. 

Nigeria's increase helped boost OPEC's production by 240,000 in June to 32.88 million bbl/day. Production in Saudi Arabia rose by 70,000 to 10.33 million bbl/day. Iraq posted the biggest decline, with production falling 70,000 to 4.3 million bbl/day.

Libya also raised output by 40,000 to 320,000 bbl/day. Rival leaders of Libya’s National Oil Corp. reached an agreement to unify the state company under a single management, a step that could help end conflict between waring factions over who controls the crude oil exports which account for 95% of the Libya's export revenues. However, the bulk of the country’s oil infrastructure is either damaged or located in disputed territory, which makes increasing output a difficult task. Libya contains Africa's largest proven crude oil reserves.

million bbl/day • preliminary data by EIA
million bbls • data by EIA
million bbl/day • data by EIA & Baker Hughes
-419 ▼ 13.8%
-194 ▼ 2.3%
-2.2 ▼ 0.4%
+10 ▲ 2.9%

The US Energy Information Administration (EIA) reported another decline in Canadian oil imports last week, falling to 2.62 million bbl/day at the end of June. Canadian oil exports to the US peaked at a record 3.4 million bbl/day in February and have been slowly declining ever since. Part of that decline is the recent reversal of Enbridge's Line 9, now bringing Alberta oil to refineries in Quebec and Ontario.

The number of active oil rigs in service rose again this week, up another 10 rigs to 351. Despite the rise in rig counts, US oil production fell sharply last week, falling by 194,000 bbl/day. Recent declines in US production have been coming from Alaska, which has been suffering due to a lack of exploration. Alaskan oil production peaked at 2 million bbl/day in 1988 and has declined almost 70% to date.

The EIA reduced its US oil demand to 9.21 million bbl/day in April, revised lower from previous estimates of 9.49 million. Crack spreads at refineries have fallen to their lowest level since February. Record high gasoline storage inventories forced several product tankers to be diverted from the Port of New York.

Morgan Stanley is warning investors that US oil producers are "high-grading", which may put a stop to recent decline in US oil production.

Friday close • data by Bank of Canada & ICE

+0.61 ▲ 0.6%
-0.73 ▼ 0.9%
-0.09 ▼ 6.2%
US 10Y Bond
-0.10 ▼ 9.4%
CDN 10Y Bond

The British pound hit yet another low this week, falling below 1.30£/USD for the first time since 1985.

China continues to slowly devalue their currency, as the renminbi hit its lowest level in 6 years. Previous devaluations in January and August caused equity markets to sell-off sharply as a a lower Chinese currency exports deflation around the world.

A new week brings another new low in global bond yields. US 30 year bonds hit an all-time record low this week sending US treasures to record highs. Oddly enough, US equities (which normally trade opposite to treasuries), also hit near-record highs this week as money continues to flow out of the UK, Europe and Japan and into US markets, helping to support the US dollar. It remains to be seen which market (treasuries or equities) is on the right side of the trade.

Friday close, USD/bbl • data by CME Group
-3.59 ▼ 7.1%
-3.58 ▼ 7.3%
-3.76 ▼ 8.3%
-4.08 ▼ 11.6%

A glut of gasoline inventories have been a drag on gasoline spot prices, which fell 10% this week. West Texas had one its worst week since January, declining 7%. OPEC's basket of 14 crudes ended the week at US$44.18 a barrel.

The heavy oil differential has continued widening, ending the week at US$14.20 a barrel. The discount was below US$12/bbl at the beginning of June.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Canadian billionaire Seymour Schulich has signalled intentions to buy another 3 million Birchcliff Energy shares, as part of the company's previously announced $634 million bought-deal financing. Schulich's foundation now owns about 30% of the company. Birchcliff shares (BIR) soared 11.5% w/w on the TSX this week.

Several other small-cap energy names were also big winners on the TSX, including:

  • Trilogy Energy (TET +12.8%)
  • Paramount Resources (POU +11.3%)
  • Petyo Exploration (PEY +5.6%).

TransCanada (TRP), Canadian Natural Resources (CNQ), 7 Generations (VII), Birchcliff Energy, Trilogy Energy, Peyto Exploration and North American Energy Partners (NOA) all hit 52 week highs this week. Gran Tierra (GTE) was one of the worst performers in the Canadian energy sector, falling 12.4% w/w.

US independent refiners were hit hard on the NYSE this week, including Philips 66 (PSX -6.2%), Tesoro (-6.2%), Valero (-7.2%) and Marathon Petroleum (MPC -7.3%). Valero hit a fresh 52 week low. Exxon Mobil reached another 52 week high on Thursday during intraday trading.


  • Paramount Resources (TSX:POU): Upgraded from Underweight to Equal Weight at Barclays. 
  • BP (NYSE:BP): Upgraded from Underperform to Neutral at Credit Suisse.
  • Marathon Oil (NYSE:MRO): Upgraded from Buy to Strong Buy at Citigroup and from Outperform to Strong Buy at Raymond James.
  • Statoil (NYSE:STO): Upgraded from Hold to Buy at Societe Generale


  • Occidental Petroleum (NYSE:OXY): Downgraded from Strong Buy to Outperform at Raymond James.
  • Phillips 66 (NYSE:PSX): Downgraded from Outperform to Market Perform at Wells Fargo.
  • AMEC Foster Wheeler (LSE:AMFW): Downgraded from Buy to Neutral at Citigroup.


  • Gran Tierra Energy (TSX:GTE): Price target increased from $4 to $4.75 at CIBC and from $5.25 to $5.60 at Mackie.
  • Suncor Energy (TSX:SU): Price target decreased from $40 to $39 at Simmons.
  • Devon Energy (NYSE:DVN): Price target increased from US$41 to US$45 at Deutsche Bank and from US$39 to US$41 at Piper Jaffray.
  • Marathon Oil (NYSE:MRO): Price target increased from US$14 to US$16 at RBC Capital.
  • Tesoro (NYSE:TSO): Price target increased from US$67 to US$94 at Mizuho.
  • BP (LSE:BP): Price target increased from GBX410 to GBX495 at JPMorgan Chase, from GBX565 to GBX600 at Barclays and from GBX420 to GBX510 at Canaccord Genuity.
  • Royal Dutch Shell (LSE:RDS/A): Price target increased from GBX2450 to GBX2600 at Barclays.



  • OPEC Monthly Oil Market Report
  • API Weekly Statistics Bulletin released @ 4:30pm ET


  • Bank of Canada Interest Rate Decision @ 10:00am followed by press conference
  • EIA Petroleum Status Report released @ 8:30am ET
  • Chinese Balance of Trade (June imports/exports)


  • EIA Natural Gas Report released @ 10:30am ET
  • Bank of England Interest Rates Decision


  • Canadian Manufacturing Sales released by Statistics Canada @ 8:30am
  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Chinese Q2 GPD growth & June industrial production
  • Bank of England Governor Mark Carney and Federal Environment Minister Catherine McKenna speak at the Toronto Board of Trade on Climate Change and Financial Markets.

Next edition of the Oil Sands Weekly: Friday July 15, 2016 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly