The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Notley heads out in search of social licence
  • Chevron bullish on Alberta's Duvernay shale
  • ConocoPhillips seeks better diluent flexibility at Surmont
  • Frontier's environmental assessment pushed back 8-months
  • CNRL's big plans for 2018
  • AER hopes to catch a break on orphaned wells
  • Saskatchewan backs Alberta in TMEP fight
  • Atlantic Sunrise the new Dakota Access
  • France's Total leaps to #2 spot of global LNG exporters
  • China parters up with Alaska on massive natgas project
  • Oil prices forecasts for 2018 slowly creep higher
  • Big oil gets on the blockchain bandwagon
  • Pemex makes big find in Veracruz
  • Real life Game of Thrones unfolds in Riyadh

ALBERTA

CNRL releases 2018 outlook
After reporting stellar third quarter results last week, Canadian Natural Resources (CNRL) provided an update on its plans for next year. Production is forecasted to rise 17% from the current 1.0 million to about 1.1 to 1.2 million boe/day, weighted about 75% liquids. The company's capital spending plans were reduced by $500 million to $4.3 billion, about $1.6 billion dedicated to its Canadian operations. Thermal in-situ is expected to average 107,000 to 127,000 bbl/day next year at a capital spend of $960 million, about half dedicated to the continued construction of Kirby North. 2018 guidance for its oil sands mining operations is 415,000 to 450,000 bbl/day, including both Horizon and Albian Sands. The company is assuming a 2018 average WTI price of about US$52/bbl.

ConocoPhillips looks to improve diluent flexibility
In this week's 2018-2020 operational update, ConocoPhillips says it is looking at modifying its Surmont SAGD facility to use condensate as a diluent for its heavy oil. Production from Surmont is normally diluted with SCO to produce a Synbit stream knows as the Surmont Heavy Blend. Last summer's outage of Syncrude's Mildred Lake upgrader sent SCO prices soaring, causing widespread shortages for Synbit producers, forcing both ConocoPhillips and Nexen's Long Lake facility to curtail production. Aside from Surmont and Long Lake, most other in-situ operators use condensate as a diluent, producing a Dilbit stream which is slightly lighter than Synbit. ConocoPhillips says modifications are underway to allow Surmont the flexibility of using either SCO or condensate as a diluent, allowing it to improve netbacks. Surmont is 50/50 joint-venture with French energy major Total.

Lindbergh completes its first maintenance turnaround
Pengrowth Energy says its Lindbergh thermal in-situ facility suffered "significant production downtime" in the third quarter, blamed on its first-ever major maintenance turnaround of the plant's central processing facility. The SAGD operation averaged 12,086 bbl/day in Q3 at an average steam-to-oil ratio (SOR) of 2.9. Production has since stabilized at about 14,500 bbl/day at an average SOR of 2.6. Pengrowth says it plans to drill three additional well pairs in the fourth quarter, which will bring total production to 17,000 bbl/day next year. The company also says engineering and design work on the second expansion phase at Lindbergh will be 70% complete by year end. Phase 2 has an estimated price tag of $600 million for an additional 20,000 bbl/day of production capacity.

Final report on Frontier Mine pushed back by 8-months
The Canadian government has approved a 240-day extension requested by the joint-review panel in charge of completing an environmental assessment of Teck Resources's Frontier Oil Sands Mine. The panel says they have over 30,000 pages of material to review including five rounds of supplemental information requested by both levels of government. A major sticking point is the mine's proximity to the 4.5 million hectare Wood Buffalo National Park, a UNESCO World Heritage site. If constructed, Frontier would be most northern oil sands operation in Alberta, located about 110 km north of Fort McMurray and 30 km south of the park's southern border. The final report will now be submitted 8 months later than originally planned, roughly in the second half of 2018. Teck has yet to make a final investment decision on the $21 billion project.

Chevron green-lights Duvernay development project
Chevron Canada has given the green light to its first ever shale development in the East Kaybob region in central Alberta's Duvernay formation near Fox Creek. The initial phase will see the development of 55,000 acres of land, with a potential for future development of the remaining 275,000 acres. Chevron says it plans to use its learnings from the Texas Permian shale. As a result of the development, Pembina Pipeline announced plans to spend $290 million building out infrastructure to process and ship the gas and condensate. The Duvernay shale is one of Canada's biggest unconventional oil and gas deposits.

Keyera green-lights expansion of Montney gas processing capacity
Keyera Corp announced plans to construct the North Wapiti Pipeline System, adding another 150 MMcf/day of processing capacity for Montney producers located north of the Wapiti River. The new line is an extension of the recently approved Wapiti Gas Gathering and Processing Complex, including a sour gas gathering pipeline, condensate and water lines, as well as a compressor station. The expansion has an estimated price tag of $120 million and is expected to be in-service in the second half of 2019. The company says it has already secured a long-term take-or-pay contract with privately-held Pipestone Oil Corp.

Canada's Supreme Court gives AER a second chance
The Supreme Court of Canada has agreed to hear an appeal from the Alberta Energy Regulator (AER) over a recent ruling that absolves bankrupt energy companies from having to remediate old wells. Creditors in the energy patch argued that environmental liabilities made it impossible to sell assets from insolvent producers. An Alberta court ruled in favour of the creditors, leaving the AER to clean-up the abandoned wells. Since the decision was rendered, about 1,600 sites have been handed over to the Orphan Well Association (OWA) for clean-up, at an estimated cost of $100 million. The OWA is funded by the energy sector but has been left severely underfunded due to the downturn in oil prices.


CANADA

And then there were four
Cenovus Energy has narrowed the list of potential buyers for its Weyburn assets in southern Saskatchewan to just four - Whitecap Resources, Cona Resources, Spartan Energy and NAL Resources (a subsidiary of Manulife Financial). The assets are reported to be worth at least $1 billion. This the last major property Cenovus put up for sale after it purchased $16.8 billion in oil sands and natural gas assets from ConocoPhillips earlier this year. According to Reuters, Whitecap is the current front-runner.

Saskatchewan throws weight behind Alberta
The Saskatchewan government has joined Alberta in its application for intervener status on upcoming National Energy Board (NEB) hearings for the Trans Mountain expansion project. Operator Kinder Morgan accuses the city of Burnaby of deliberately stalling on the issuance of permits required to continue construction of the line. Saskatchewan Justice Minister Don Morgan says his province is disappointed that one city is threatening to choke off an industry that's just starting to recover from the 2015 collapse in oil prices. Burnaby and the province of BC are officially opposed to the project and have filed a judicial appeal to have federal approvals overturned. Earlier this week, the NEB denied Kinder Morgan's request to speed up its review of municipal permits and constitutional rights, setting a December 4th date for the next set of hearings.

Notley heads-out across Canada in search of a social licence
Alberta Premier Rachel Notley heads out on a cross-country tour later this month to remind Canadians that everyone benefits from the jobs and tax revenues collected from the energy sector. The premier says "there is not a school, hospital, road or bike lane anywhere in the country that doesn’t owe something to oil and gas ... to stifle the oil and gas industry would be economically negligent. I will continue engaging with people across the country until this project becomes a reality." Notley promises to stress the importance of opening new markets for Alberta’s oil and remind Canadians of the province's Climate Leadership Plan. The tour begins in Toronto on November 20, then on to Ottawa, Calgary, Vancouver and Edmonton.

Husky and BP win round in Newfoundland
Husky Energy and BP's Canadian subsidiary were awarded one parcel offshore Newfoundland in the Jeanne d'Arc region for $15 million. The duo was the only bidder for the parcel while two other parcels received no bids. The province has seen a dramatic drop in interest this year, down to just $15 million from as much as $1.2 billion in 2015. Jeanne d'Arc is located about 340 kilometres off the coast of St. John's, NL.


USA

Atlantic Sunrise in the cross-hairs
Pipeline opponents south of the border have set their sites on Williams Partners' Atlantic Sunrise project. Atlantic Sunrise is an expansion of the existing Transco Pipeline, which delivers up to 10.9 Bcf/day of natural gas from the Gulf Coast to states along the Atlantic seaboard, terminating in New York City. The US$3 billion expansion will connect production from Pennsylvania's Marcellus shale, adding another 1.7 Bcf/day of capacity. The US Federal Energy Regulatory Commission (FERC) approved the project last February. Earlier this week, a US Court of Appeals put a temporary stay on that approval, halting construction within the state of Pennsylvania pending a legal challenge. The stay was lifted just two days later, allowing construction to resume despite pending lawsuits against FERC. Atlantic Sunrise is expected to put into service by the middle of next year.

China parters up with Alaska on mega-LNG project
China's Sinopec and its partners have teamed up with the state of Alaska on the US$43 billion Alaska LNG project. The project will be designed to transport natural gas from Alaska's North Slope through an 800 mile (1,300 km) pipeline through the state and into an LNG plant designed to export up to 20 million tons/year. A final investment decision is expected in the first quarter of 2019. The state of Alaska retains majority ownership of the project through its subsidiary AGDC. The deal was announced during President Trump's visit to China, where more than US$250 billion in deals were announced, much of it in the energy patch.

EIA sees higher oil prices ahead
In this month's Short Term Energy Outlook, the US Energy Information Administration (EIA) says it expects Brent to average US$53/bbl this year, rising to US$56 next year, an increase of US$2 and US$4 from September's forecast. Expectations for the WTI discount have also been revised higher from US$2 to about US$5 per barrel. The EIA sees oil production hitting an average of 9.9 million bbl/day in 2018, surpassing the record high of 9.6 million bbl/day in 1970.


US PRODUCTION & INVENTORY DATA

US crude oil inventories unexpectedly rose over 2 million barrels last week as production rose to a multi-decade high of over 9.6 million bbl/day. Gasoline and distillates inventories continue to decline on strong demand.

 
us-inventory-report.jpg

WEEKLY US INVENTORY REPORT

NOV 8, 2017

CRUDE INVENTORIES UNEXPECTEDLY RISE AS PRODUCTION INCREASES AND EXPORTS COLLAPSE

 

AROUND THE WORLD

Old school companies go high tech
A consortium of oil majors, including BP, Royal Dutch Shell and Statoil announced plans to collaborate with banks and trading houses to create a blockchain-based digital platform for the energy commodity trading industry. Blockchain is information storage within a secured real-time database, seen as being more secure and less cumbersome than paper contracts. The companies say the plan will "reduce administrative operational risks and costs of physical energy trading ... while also opening the door to innovative funding and financing solutions." The new digital platform is expected to come online by the end of 2018.

Total catapults to #2
French energy giant Total has purchased ENGIE's entire upstream LNG assets for US$1.49 billion and up to US$550 million in contingency payments. The acquisition boosts Total's LNG export capacity to about 40 million t/yr by 2020, making it the world's second largest LNG exporter with 10% of global marketshare. ENGIE also signed a 10-year deal to become Total’s preferred supplier for all additional volumes of renewable hydrogen and biogas supply. ENGIE says this is part of the company's greater plan to divest its upstream operations and "decarbonize" its portfolio.

Keeping your money offshore, but not for reasons you think
Total was also on the defensive this week after it was named in the Paradise Papers, a list of several thousand corporations, politicians and private citizens holding money in offshore tax-havens. Total says it does not support illegal tax evasion and its holdings in Bermuda were well telegraphed to the media and French government. The company operates a Bermuda-based subsidiary that conducts business in Qatar and the UAE. Several of the world's largest corporations were named in the leak, including Apple, Facebook, Walmart, Disney and MacDonald's, as well as three former Canadian prime ministers. It's worthwhile to note that holding money offshore is not necessarily illegal.

Pemex hits the motherlode in Veracruz
Mexican President Enrique Pena Nieto announced the discovery of a massive onshore oil field in Veracruz. The field is estimated to hold 350 million barrels of proven reserves or 1.5 billion barrels of oil in place, making it the largest onshore discovery in 15 years. After years of production declines, the country says total output should begin increasing in 2018.

The world according to OPEC
OPEC released their latest World Oil Outlook to 2040 this week, outlining their forecast for demand/supply over the next 22 years. The 341-page document can be summarized as follows: global growth is expected to average 3.5%/yr through 2040 ... production from US shale is set to explode, peaking at 9 million bbl/day by 2030 (up from current 5 million) ... Brazil and Canada are also large sources of non-OPEC supply growth ... oil and gas will still account for 52% of the world's energy needs by 2040 ... world oil demand will top 111 million bbl/day by 2040 (up from current 98 million) ... US$10.5 trillion in capital investment is required to prevent a supply shortage ... plenty of oil refineries are expected to close in developed nations, while new facilities are expected to be built in China, India and the Middle-East.

And the magic number is ... 261 billion
Baker Hughes and Dallas-based Gaffney, Cline & Associates continue to evaluate reserves held by Saudi Aramco. Current estimates put the company's holdings at about 261 billion barrels, valuing Aramco at about US$2 trillion. Despite wild swings in oil prices and 30 years of production, the company has stuck to its estimate of 261 billion through the past few decades. The audit is part of the Saudi kingdom's plans to IPO a 5% stake in the oil giant. The companies say the audit is about two-thirds complete and should be wrapped up sometime early next year. The Saudi government insists the IPO is on-track for sometime in 2018, despite an offer from the Chinese government to directly purchase a 5% stake, which would eliminating disclosure requirements imposed on publicly traded companies.

Real life Game of Thrones unfolds in Saudi Arabia
Oil markets were jolted earlier this week on news that 32-year old Crown Prince Mohammed bin Salman, the next heir to the throne, has arrested more than 60 people, including dozens of princes and ministers, include chief rival Prince Miteb and Prince Alwalweed, long-time face of the Saudi Kingdom one of the world's richest people. The government says this is all part of an anti-corruption sweep. However, some are speculating this might be part of a bigger power struggle as many of those arrested did not agree with bin Salman's plans for the regime. As much as US$800 billion in assets have been seized while one prince was reported to have been killed while resisting arrest. Despite the new prince's plans to diversify the country's economy away from oil revenues, he is seen as being largely supportive of OPEC's recent strategy and has stated a preference for US$70 oil. The detainees are being held at a Ritz-Carlton in Riyadh, which is being converted into a luxury prison.


NEXT WEEK'S EVENTS

Monday:

  • November OPEC Monthly Oil Market Report
  • ADIPEC kick-off in Abu Dhabi, UAE
  • COP23 continues in Bonn, Germany

Tuesday:

Wednesday:

Thursday:

Friday:

  • October Consumer Price Index released by StatsCan @ 8:30am ET
  • Fifth round of NAFTA talks kick-off in Mexico City
  • Baker Hughes Rig Count released @ 1:00pm ET
  • Bank of America 2017 Global Energy Conference kicks-off in Miami, FL
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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