The Oil Sands Weekly

The Oil Sands Weekly

Federal Liberals kicks off NEB "modernization" . . . 

Canada’s Minister of Natural Resources Jim Carr unveiled his timetable for modernizing the National Energy Board (NEB). A five-member Expert Panel will zig-zag across Canada, beginning in Saskatoon on January 25 and ending in Montreal at the end of March. 

The Expert Panel will submit its report and recommendations to the federal government by May 15, which will be made public. Canadians are invited to participate in the sessions and/or provide feedback on the NEB's website

Despite being headquartered in Calgary, the only NEB review session in Alberta session will be held in Edmonton on March 7, 2017.

Crude-by-rail volumes continue to be sluggish across North America . . . 

Crude-by-rail transportation volumes continue to decline at CP Rail. The company reported fourth quarter volumes at just 9,000 carloads, down from 25,000 carloads in Q4/2015. For the full year 2016, volumes declined to 38,000 carloads, down from 91,000 in the previous year. Last year's crude-by-rail revenues are down 70% from 2015 levels.

US-rail company CSX also reported another quarterly decline in crude-by-rail transport volumes south of the border. 

According to the NEB, crude-by-rail exports to the US bottomed at about 40,000 bbl/day in June 2016, but have since recovered to 100,000 bbl/day in October (the latest available figures). The rail sector was hit particularly hard by the wildfires in Northern Alberta last spring. Volumes remain well below the highs seen in 2014, when over 150,000 bbl/day of crude was shipped to the US by rail. US domestic crude-by-rail transport is also down almost 70% from the highs of almost 950,000 bbl/day in late 2014.

Almost half of Canada's crude exports by rail are destined for the US Gulf Coast, an area thirsty for Alberta's heavy oil but underserved by the current pipeline infrastructure.

Alberta looks to follow Texas model in diversifying economy . . . 

The Alberta government has tapped Laura Kilcrease to lead Alberta Innovates. Kilcrease has over 25 years of experience in helping to commercialize new technologies through her venture capitalist firm Triton Ventures. The UK-born accountant has been working in Texas since the mid-1980s. 

The Alberta government recently restructured Alberta Innovates to put more focus on diversification away from energy, providing funding for biotech, environmental and health initiatives.

Paramount pipeline damaged on purpose . . .

A pipeline belonging to Paramount Resources needs replacing after the line was found to have been damaged intentionally by an act of vandalism. The RCMP speculate a piece of construction equipment was used to dig up a section of the line in the town of Hythe, Alberta, causing damages in excess of $500,000. No arrests have been made on the case. 

The line was still under construction at the time of the incident and was not carrying any liquids.

Labour markets in Calgary and Edmonton not showing signs of recovery just yet . . . 

November data out of Statistics Canada revealed another 3.4% m/m increase in the number of Albertans receiving regular Employment Insurance (EI) benefits, estimated at 96,900. Most of that rise was attributed to gains in the Calgary (+5.1% m/m) and Edmonton (+4.9% m/m) metropolitan areas. Outside of the two major cities, the number of new recipients was approximately unchanged. 

Over a 12 month period, Alberta has seen a 57% increase in EI beneficiaries. November's EI figures are still below the July 2016 record of 103,000, which resulted from the Fort McMurray wildfires.

As a point of comparison, the 2008/09 oil shock saw a peak of 70,000 EI recipients in July 2009. Prior to the oil price crash of 2014/15, about 30,000 Albertan normally collected EI.

Coal phase-out for the sake of better air quality . . . 

The Fraser Institute is questioning the environmental benefits of coal power phase-out in Ontario, suggesting that taxpayers would have been much better served by retrofitting scrubbers on the power plants, which would have reduced particulates by 95% at a much lower cost.

The Ontario government maintains that the phase out of coal-fired power is directly responsible for $3 billion in health-care savings due to improvements in air quality across the province. 

Although clean-coal technology exists for reducing pollution and GHGs, most enviro-activists don't accept the technology as a legitimate method of combating climate change.

Trump's America First Energy Plan . . .

The White House website got a major redesign on Friday, following the inauguration of President Donald Trump. The US government outlined their plan for "putting America first", which includes an extreme makeover of the country's energy policy. 

The US government says they plan to lower energy costs for all Americans and reduce dependance on foreign oil imports, specifically from OPEC and other "hostile" nations. The Trump Administration plans to "embrace the shale oil and gas revolution", promising to tap an estimated US$50 trillion of oil and gas reserves held on federal lands. 

President Trump will refocus the Environmental Protection Agency (EPA) towards protecting air and water, and promised to get rid of the "harmful and unnecessary" Climate Action Plan. The Administration estimates the changes will increases wages by US$30 billion over the next 7 years.

All references to "climate change" have since been deleted from the government's website.

Other energy news out of the US this week . .  .

The Federal Energy Regulatory Commission (FERC) has approved TransCanada's Leach XPress and Rayne XPress projects. The $1.8 billion pipelines will transport natural gas from the Marcellus and Utica shale to the US Midwest and Gulf Coast markets. Construction is scheduled to begin in February with an in-service date of November 2017.

Royal Dutch Shell also got the green light to proceed with construction of its US$6 billion Pennsylvania Petrochemical Project. The project will convert "low cost" ethane from shale gas producers in the Marcellus and Utica basins to produce 1.6 million tonnes of polyethylene per year. The facility will be located on the banks of the Ohio River in Beaver County, about 50 km northwest of Pittsburgh.

Exxon Mobil has doubled its footprint in the Texas Permian Basin through the purchase of several companies held by the Bass family of Fort Worth, Texas. The assets hold an estimated 3.4 billion barrels of oil equivalent, of which 75% is liquids. The 275,000 acres of land currently produce about 18,000 boe/day. Exxon will make an upfront payment of US$5.6 billion in XOM shares and several contingent cash payments valued up to US$1 billion.

Exxon also announced it has extended its agreement with Synthetic Genomics to conduct joint research into advanced biofuels. The two companies have been researching oil extraction from algae since 2009. Algae biofuels are estimated to have about half the greenhouse gas emissions over petroleum-derived fuels. Financial terms of the deal were not disclosed. 

Total's 225,500 bbl/day Port Arthur refinery is back to normal operation after a problem with the co-generation plant on January 11 trimmed production. Motiva Enterprises also restarted their 603,000 bbl/day Texas refinery this week (also in Port Arthur), after a Fluidic Catalytic Cracking Unit was shutdown last weekend due to a malfunction. Motiva is a 50/50 joint-venture between Royal Dutch Shell and Saudi Aramco.

The oil-rich state of North Dakota has apparently run out of lawyers as the number of anti-pipeline protestors arrested exceeded 600 this week. The North Dakota Supreme Court has agreed to temporarily allow lawyers not licensed in the state to handle protest cases. The courts want to ensure all defendants have access to a fair and speedy trial. The Dakota Access Pipeline remains in limbo after the US Army Corps of Engineers have been cleared to relaunch a full environmental review of the project.

The US Department of Energy (DOE) estimates that 6.4 million Americans were employed in the country's traditional and renewable energy sector in 2016, a 5% increase from the previous year. In their latest US Energy and Employment Report, the DOE estimates 1.1 million Americans are directly employed in traditional coal and oil & gas extraction while renewables (including wind, solar and nuclear) accounted for 800,000 positions. The largest sector is power transmission and distribution, accounting for 2.3 million jobs. The energy sector accounted for 14% of all new jobs created last year and the DOE expects another 320,000 jobs to be created this year. About three-quarters of employers reported difficulties in finding qualified workers.

Energy Secretary nominee Rick Perry now says he regrets calling for a complete abolishment of the DOE in 2011, noting "after being briefed on so many of the vital functions of the Department of Energy, I regret recommending its elimination." Perry says he will advocate and promote American energy in all forms, including renewables. While serving as the governor of Texas, Perry oversaw heavy investment in the state's wind energy capacity, making Texas one of the world's largest wind-power generator.

Billionaire enviro-activist Tom Steyer says he plans to spend an unlimited amount of cash combating Trump's presidency. The founder of NextGen Climate says “If you ask me can I put a limit on how much I value the health, the safety, the employment and the civil liberties of Americans, there’s no limit to what I think that’s worth.” Steyer spent US$87 million trying to get Hillary Clinton elected last year. NextGen Climate is arguably the largest "clean energy" lobby group south of the border and a major backer of anti-pipeline and anti-oil sands propaganda.

Elsewhere in the world . . .

Energy consultants Rystad Energy estimates only 2.3 billion barrels of liquids were discovered offshore in 2016, 90% lower than 2010 levels. The company says total global discovered volumes (including both oil and gas) are at lows not seen since the 1940s.

Norway's Statoil began 2017 on a high note, announcing a major oil and gas discovery close to the Norne oil field this week. The field is estimated to hold between 20 and 80 million barrels, more than the company was expecting. Statoil also obtained approval to develop the Utgard and Byrding fields in the North Sea and was awarded 29 new production licences on the Norwegian Continental Shelf.

Oil exports from Russia's Sakhalin-1 have been crimped this month due to a mechanical failure at Exxon's Chayvo onshore processing facility. Exxon says exports will soon return to normal and output will be within its full year guidance. 

Speaking at the Davos World Economic Forum this week, BP CEO Bob Dudley says he has no plans to increase spending just yet. BP will keep capital spending below US$17 billion this year, US$6 billion lower than 2014 levels. Dudley says he will continue to be “very selective on projects this year.” BP plans six major developments in 2017, primarily focused in the US Golf of Mexico, Indonesia, the Middle-East and Africa.

Rumours are rampant that asset managers Carlyle Group will soon close on a deal to acquire Shell's Gabon assets for an estimated US$700 million. About 400 Shell workers in Gabon began strike action last week, cutting output by as much as 50%. Despite the fact that workers are expected to be retained by the new owners, employees are worried the investment firm may not be as generous with salaries and benefits as the oil major.

China's state-owned CNOOC will raise capital spending to about US$10 billion this year, the first increase since 2014. The company has set a production target of about 1.23 million boe/day in 2017. Last year saw the company's first output decline since 1999. A big chunk of CNOOC's spend this year will be in the Gulf of Mexico.

The Church of England has concluded that fracking can be a "morally acceptable practice" and does not conflict with climate change policy, provided adequate safeguards are in place. Church advisors says shale gas is a "potentially useful element in achieving a transition to a much lower carbon economy." The research was conducted in response to various Christian NGOs who oppose fracking and had ask the church to divest of its shale gas holding. Church of England holds about US$9 billion in assets managed by the Ethical Investment Advisory Group.

million bbl/day • preliminary data by EIA
million bbls • data by EIA
million bbl/day • data by EIA & Baker Hughes

+100k ▲ 2.9%
-2k ▼ 0.0%
+2.35M ▲ 0.5%
+29 ▲ 5.6%

US imports of Canadian crude oil rose another 100,000 bbl/day last week, bringing the 4-week average to a record high of almost 3.5 million bbl/day. To put that number into context, Canada produces about 3.8 million bbl/day. Higher volumes of oil exported to the US therefore increases the volume of oil imported back into Canada (mostly from the US), required to meet the country's 2 million bbl/day demand.

Baker Hughes reported a 5.6% jump in US rig counts this week, increasing the most since April 2013. Oil rigs in service south of the border is now 551, the highest since November 2015. That number is still very far from the record high of 1,609 reached in October 2014. In Canada, the number of oil rigs in service jumped from 170 to 193, matching the highs of February 2015.

US exports of LNG from the newly-minted Sabine Pass hit another record in December, where 12 cargo loads were exported carrying 42.8 billion cubic feed of natural gas. A majority of those exports were destined for Asia, where a colder-than-normal winter has boosted heating demand for natural gas. Sabine Pass is the first LNG export facility in the Lower-48 and has been in operation since February 2016. The plant is now operating above nameplate capacity and a third train of expansion is expected to come online later this year.

For the fourth month in a row, the International Energy Agency (IEA) is reporting a drawdown in global oil stockpiles held in OECD countries. The IEA raised its demand forecast by 110,000 bbl/day for 2016 due to abnormally cold weather experienced in Europe and Asia in the fourth quarter. The agency expects non-OPEC supplies to grow by 385,000 bbl/day in 2017, driven almost entirely by US shale.

The Chinese government expects oil output to drop by 7% by 2020, while natural gas supplies will increase by over 30%. The country expects to produce 4 million bbl/day in 2020, down from a peak of 4.4 million bbl/day in 2015. Consulting firm Wood Mackenzie estimates China's production will be even lower, closer to 3.5 million bbl/day, blamed on mature oil fields and insufficient investment in its energy sector. China says it will prioritize the expansion of LNG terminals and aggressively increase its gas pipelining capacity.

OPEC says its members pumped 33.085 million bbl/day in December (excluding Indonesia), down 221,000 bbl/day from November. Output rose in Iraq, Angola, and Libya, while Saudi Arabia, Nigeria and Venezuela all saw declines. In their latest Monthly Oil Market Report, the cartel says they see signs of stabilization in oil markets, but concedes increases in US oil production will offset the effects of its production cuts.

Among this week's OPEC highlights:

  • OPEC Secretary-General Mohammed Barkindo met with Venezuelan President Nicolas Maduro on Monday, noting that he expects "the situation of our economies will improve tremendously" in 2017. Maduro estimate's Venezuela's crude basket to average US$60/bbl in the first half of the year, rising to US$70 in the latter half.
  • The Nigerian government says the country's output is currently about 1.7 to 1.8 million bbl/day, but production "could improve very quickly as soon as we sort out things in the Delta." Nigeria produced about 2 million prior to the militant attacks. The country was exempted from OPEC's production quotas.
  • Oil production out of Libya was reported at just over 700,000 bbl/day this week, according to government officials. The government says fighting among factional rivals has eased since militia groups began working together in December. Production was hampered by a power outage in recent weeks, which was reported to be an act of sabotage. Libya produced 1.6 million barrels per day prior to 2011.
  • Most recent production figures out of Saudi Arabia peg production to now be below 10 million bbl/day, suggesting the country is doing more than its "fair share" in helping to reduce the oversupply. Saudi Arabian Energy Minister Khalid al-Falih says he does not expect the output quotas to be extended into the second half of 2017, but remains open to reassessing the situation in May.

Back in November, OPEC and several non-OPEC members committed to reducing output by 1.8 million bbl/day in the first half of 2017. A committee consisting of OPEC and non-OPEC members will meet in Vienna over the weekend (January 21-22) to review quota compliance.

Friday close • data by Bank of Canada & ICE

-0.50 ▼ 0.5%
-1.15 ▼ 1.5%
+0.08 ▲ 3.3%
US 10Y Bond
+0.03 ▲ 1.8%
CDN 10Y Bond

The Bank of Canada left the country's overnight lending rate unchanged at 0.5% this week. Governor Stephen Poloz says he remains "particularly concerned" about President Trump's US trade policy and thinks a corporate tax cut in the US could see companies moving investments south of the border. Poloz says the relatively strong Canadian dollar remains a "headwind" for exporters and a rate cut remains "on the table for as long as downside risks are still present." The Bank is projecting Canada’s real GDP will grow by 2.1% in both 2017 and 2018. 

On a more positive note, the Business Development Bank of Canada (BDC) sees improved confidence in the Canadian economy this year, with 70% of entrepreneurs expecting business to improve. Alberta businesses are the most optimistic, expecting a 17% increase in investment spending this year.

Economic data out of Statistics Canada this week:

  • After declining 0.6% in October, manufacturing sales rebounded 1.5% m/m in November to $51.8 billion. Petroleum and coal sales rose 3.7% to $4.5 billion, the highest since September 2015.
  • After two consecutive monthly declines, sales in Alberta rose 3.9% to $5.4 billion in November.
  • Canada's Consumer Price Index rose 1.5% in December, less than economists were expecting. Gasoline prices led the rise, increasing +5.5% y/y.

The Canadian dollar was one of the worst performing currencies this week, falling more than 1.5%. The loonie has somewhat decoupled from oil prices in recent weeks.

President Trump tried to talk down the US dollar this week, tweeting out that the greenback is too high for his liking. Treasury Secretary nominee Steven Mnuchin later clarified Trump's position, stating that a strong US dollar is important to the President in the long run.

In their latest World Economic Outlook, the International Monetary Fund (IMF), remains cautiously optimistic on the global economy, raising its forecast for growth in the US, China, Europe, and Japan. Among the key highlights:

  • The IMF sees a sharp increase in US long-term interest rates due to expansionary government policy, increasing its US GDP growth forecast from 1.6% in 2016, to 2.3% this year and 2.5% in 2018. 
  • Riding on the coat-tails of a strong US economy, Canada's GDP growth was also bumped up slightly to 1.9% this year and 2.0% in 2018, up 0.1% from its previous forecast. 
  • This year's GDP growth forecasts for Saudi Arabia was slashed from 2.0% to just 0.4% on expectations of reduced oil output.

Friday close, USD/bbl • data by CME Group
+0.04 ▲ 0.1%
+0.05 ▲ 0.1%
+0.03 ▲ 0.1%
+0.28 ▲ 0.7%

TD Securities says breakeven costs for integrated mining projects in the oil sands have declined 22% since last July, to about US$25/bbl (operating costs only, excluding sustaining capital). The decline was attributed to improved utilization and muted inflationary pressures. TD's top picks are Suncor and Canadian Natural Resources, who reported Q3/2016 breakeven costs of US$27 and US$24/bbl, respectively. When sustaining capital costs are factored in, breakeven costs are in the low to mid-US$30s.

Breakeven operating costs for non-integrated in-situ operations was left unchanged at US$41/bbl due to higher condensate prices.

The International Energy Agency (IEA) says 2017 will see much more volatile oil prices, as oil markets come into balance sometime in the first half of the year. Executive Director Fatih Birol sees a big increase in US shale production and remains concerned about the lack of investment over the past few years.

Energy traders remain very, very bullish on oil prices, with net longs outnumbering shorts by a ratio of 6-to-1. Exactly one year ago, traders were at record bearish levels.

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Trilogy Energy has approved a 2017 capital budget of $130 million, up from $72.8 million spent in 2016. The company expects to generate enough internal cash flow to fund its capital spend this year. Production averaged 21,800 boe/day in 2016 but Trilogy expects to boost output to an 24,000 boe/day this year.

Pengrowth Energy has approved a preliminary 2017 capital expenditures budget of $125 million, about $80 million to be allocated towards optimization of its existing Lindbergh Phase One SAGD facilities, as well and continued engineering and design of its Phase Two expansion. Lindbergh exited 2016 at 15,600 bbl/day. Overall, the company expects to produce 50,000 to 52,000 boe/day this year. Pengrowth still hopes to divest more assets in order to reduce its debt load.

Pembina Pipeline (PPL) announced plans to issue $600 million in medium-term debt, to be put towards repaying its short-term debt and its 2017 capital spending program.

This week's new 52 week highs on the TSX include Canadian Energy Services (CEU), Enbridge Income Fund (ENF), Encana (ECA), Enerflex (EFX), Gibson Energy (GEI) and Savanna Energy (SVY).

The top gainers in the TSX energy patch were all service providers, including Canadian Energy Services (CEU +10.4%), Precision Drilling (PD +8.6%), Enerflex (EFX +8.1%) and Secure Energy Services (SES +7.0%). Presumably the gains can be attributed to enthusiasm over the impending resurgence of fracking south of the border.


Kinder Morgan (KMI) reported fourth quarter revenues of US$3.39 billion, 2% below what analysts were expecting. Net profit was US$170 million, up substantially from a net loss of US$721 million reported in Q4/2015. The company says it has a project backlog of US$12.0 billion and expects to invest US$3.2 billion in growth projects this year, to be funded entirely from internally generated cash flow. Kinder Morgan Canada still expects to find a partner to help fund half of the Trans Mountain Expansion Project, but has yet to announce any potential suitors. The company is sticking to its in-service date of late 2019.

Schlumberger (SLB) reported a fourth-quarter loss of US$204 million, narrower than the US$1.0 billion loss reported for the prior year quarter. Revenues declined from US$7.7 billion to US$7.1 billion on continued weakness in international drilling. The world’s largest oilfield service provider say they expect business to pick up in 2017. Most of Schlumberger's revenues are outside the US. Schlumberger was the only energy stock to hit a 52 week high on the NYSE this week.

GE also missed revenue expectations for the fourth quarter, blamed on a 22% decline in its oil and gas business unit. GE sees brighter days ahead in the energy patch and is working on the merger of its oil & gas unit with Baker Hughes, which would create the world’s second-largest oilfield service provider. GE also announced plans to sell its water and industrial solutions, freeing up cash for more acquisitions.

Phillips 66 Partners (PSXP) announced a 5% increase in its quarterly dividend, now US$0.558 per share.

Valero Energy Partners (VLP) also increased their quarterly dividend by 5.6% to US$0.4065 per share.


  • Devon Energy (NYSE:DVN): Upgraded from Accumulate to Buy at KLR Group and downgraded from Buy to Hold at Jefferies.
  • Encana (TSX:ECA): Upgraded from Accumulate to Buy at KLR Group.
  • ExxonMobil (NYSE:XOM): Downgraded from Neutral to Sell at UBS.
  • Precision Drilling (TSX:PD): Upgraded from Hold to Buy at Deutsche Bank.
  • Valero Energy (NYSE:VLO): Downgraded from Buy to Neutral at Citigroup.



  • November wholesale trade released by StatsCan @ 8:30am ET
  • PM Justin Trudeau begins two-day cabinet retreat in Calgary
  • Halliburton Q4/2016 earnings release @ 9:00am ET


  • API Weekly Statistics Bulletin released @ 4:30pm ET
  • UK Supreme Court ruling on parliamentary approval requirement for Brexit
  • US Congressional Budget Office: Budget and Economic Outlook


  • EIA Petroleum Status Report released @ 8:30am ET
  • BP Energy Outlook - 2017 Edition


  • November payroll data released by StatsCan @ 8:30am ET
  • EIA Natural Gas Report released @ 10:30am ET


  • Chevron Corp Q4/2016 earnings released @ 11:00am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET

Next edition of the Oil Sands Weekly: Friday January 27, 2017 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly