The Oil Sands Weekly

The Oil Sands Weekly

Keystone XL clears another hurdle . . .

As promised during his election campaign, President Donald Trump signed a Presidential Permit required to advance the Keystone XL Pipeline.

The President made the announcement in the White House, flanked by TransCanada CEO Russ Girling, Energy Secretary Rick Perry, Commerce Secretary Wilbur Ross and various heads of contractors and construction unions.

Trump called the announcement a "historic day for North America and energy independence". The President went on to say that Keystone XL will reduce US dependance on "foreign" oil, and this permit is just the first of many energy infrastructure projects soon-to-be approved under his watch.

The project still requires state-level permits from Nebraska, where it faces the most opposition. Trump jokingly promised to give the Governor of Nebraska a call, although he probably doesn't need convincing. Republican Pete Ricketts is a long-time supporter of Keystone XL. State permits fall under the jurisdiction of the Nebraska Public Service Commission. TransCanada already submitted its application for routing approval in the state back in February. Four out of five of Nebraska's commissioners are Republican.

Girling called the Presidential Permit "a significant milestone" in the project's history, promising not to let the President down.

Keystone XL will deliver 830,000 bbl/day of Alberta crude to the US Gulf Coast, one of the largest refining hubs in the world with a refining capacity of about 10 million bbl/day. Most of Alberta's existing export pipelines currently funnel Western Canadian crude to refineries in the US Midwest.

TransCanada drops a hint on Pacific Northwest LNG . . . 

Just one week after giving the green-light to shipping Western Canadian gas to Ontario, TransCanada is now asking asked the National Energy Board (NEB) for permission to accelerate its North Montney Mainline (NMML) Project. 

The 300km pipeline network already has provincial and federal approval, contingent on a positive final investment decision (FID) from Petronas on its Pacific NorthWest LNG Project near Prince Rupert, BC. TransCanada says it would like to start building portions of the line prior to any FID announcement. The company says is has already secured 20-year contracts with 11 shippers representing 1.5 Bcf/day of natural gas transport.

It is unclear what will happen if the LNG export terminal is not built. TransCanada refused to confirm any advanced knowledge of Petronas' decision.

Subject to approval by the NEB, TransCanada would like to begin construction in the next few months, with the facilities being phased into service starting in April next year. BC's Natural Gas Development Minister Rich Coleman said last year he expects Petronas to make a go/no-go announcement sometime before this summer.

The BC Liberals approved the $11.4 billion LNG project last September, subject to 190 conditions.

However, the Liberals are up for re-election in May. NDP opposition party leader John Horgan was initially opposed to the Pacific NorthWest LNG project, but his party has since gone quiet on the topic. As a consolation prize for BC's "green" voters, Horgan says he remains committed to stopping the Trans Mountain Expansion, noting that BC's economy should be focused on tourism, fishing and film production.

Kinder Morgan takes another step forward . . .

Still on the topic of Trans Mountain, Kinder Morgan announced it has concluded its open season for the pipeline, with 80% of volumes allocated to 13 different customers. The remaining 20% is left open to spot contracts, as required by the NEB. 

The expansion will triple the line's capacity to 890,000 bbl/day of crude and refined products from Edmonton through Kamloops and BC's Lower Mainland, terminating at the Port of Vancouver.

Enbridge puts 1,000 employees on notice . . . 

Energy infrastructure giant Enbridge announced plans to destaff about 1,000 employees, representing 6% of its total workforce. A spokesperson for the company attributed the layoffs to its recent merger with Spectra Energy, which has resulted in duplication across the company's organizational structure.

Last year, Enbridge promised investors its merger with Spectra would result in $540 million in annualized savings through "synergies", mostly realized in general overhead costs.

Enbridge says it will make the staffing cuts over the next few months but did not disclose how those cuts will be distributed through its offices. At the end of 2016, Enbridge had 9,600 employees, including contractors. Post-merger with Spectra, the number of employees increased to over 17,000.

Uniting the right to topple the NDP . . . 

Former federal MP Jason Kenney was elected the new leader of Alberta’s Progressive Conservatives Party. Kenney's platform has been largely based on "uniting the right" pushing for a merger with the Wildrose Party

If elected in 2019, Kenney says he would "repeal each element of the disastrous NDP legislative and regulatory record" starting with the provincial carbon tax.

Wildrose leader Brian Jean says he has his "dancing shoes on" on the subject of merging the two parties and looks forward to beginning discussions with Kenney.

Federal Liberals throw Alberta a bone . . . 

The federal Liberals unveiled their long-awaited Federal Budget 2017. The federal deficit will be about $28.5 billion this fiscal year, including a $3 billion risk adjustment. Buried on page 93 is a $30 million one-time payment to the Government of Alberta to "stimulate economic activity and employment" in the province's resource sector. 

Alberta's energy patch and the province of Saskatchewan had asked for about $500 million to help tackle the thousands of abandoned wells left behind by bankrupt oil & gas producers. Alberta Premier Rachel Notley called the small sum "good news" and plans to put the funds towards cleaning up some 3,000 orphaned wells. 

The federal government also reduced tax incentives for the country's oil and gas drillers, now allowing only 30% of costs to be deducted annually. The change is expected to generate $145 million in new tax revenues over the next 5 years. The Liberals say this change is part of Canada’s "international commitments to phase out inefficient fossil fuel subsidies." CAPP President Tim McMillan says the move will disproportionately affect smaller producers, putting Canadian companies at a "further disadvantage to the US" who is moving to lower the tax burden.

Among the billions allocated to climate change initiatives and "clean energy" R&D, $74 million was also allocated to Transport Canada and Environment & Climate Change Canada to develop a new clean fuel standard, including the retrofitting of heavy-duty vehicles for reducing emissions from the transportation sector.

The Liberals point out that the Canadian economy is quite strong, outside of the energy-producing provinces of Alberta, Saskatchewan and Newfoundland. The government is banking on US$54 oil this year, rising to US$64 a barrel by 2021. The Liberals have abandoned all plans to return to balance any time in the near future.

Saskatchewan government takes a different path . . . 

The Province of Saskatchewan also unveiled its 2017/18 budget this week, announcing "a significant enhancement to the regulatory oversight" of the oil and gas industry, in the form of $1.4 million in additional funding and 13 new full-time positions. The spending will come out of an administrative levy to be paid on well and pipeline licenses.

In contrast to its neighbour to the west, the province of Saskatchewan plans to cut public sector compensation by $25 million. The province expects to run a $685 million deficit this fiscal year, returning to balance by 2019/20. Part of that return to balance includes a 1% point increase in the PST, now levied on a much wider variety of goods and services.

Finance Minister Kevin Doherty said the province's resource revenues have "declined by more than $1.0 billion and has stayed low for three years, depleting reserves and the rainy day fund." Doherty added that the province needs to move away from relying on resource revenues.

Other Canadian energy news . . . 

Alberta's provincial court has cleared the way for the Alberta Energy Regulator (AER) to begin selling assets belonging to Lexin Resources. Accounting firm Grant Thornton will be in charge of the sale, but the company's wells will remain the responsibility of the government. The AER shutdown all of Lexin's operations last month after it said it had lost confidence in the company's ability to operate safely. This is the first time the AER has forced a company into receivership.

The AER is also responding to a light oil spill near Bragg Creek, just west of Calgary. The pipeline, operated by Husky Energy, remains shut-in and depressurized. Husky estimates the size of the spill at about 160 barrels. Clean-up efforts are still underway and no contaminated water is flowing into the creek. The cause of the spill was not disclosed.

Enbridge reported another spill at its Edmonton Terminal, this time light synthetic crude. The company says the leak occurred from a tank valve last Monday, flowing into a run-off drainage ditch. Enbridge says the spill was contained on its industrial site but did not provide an estimate of volumes. The spill is still under investigation.

Employees at Regina's Co-op Refinery unanimously rejected management's final offer, putting the company on strike notice. Federated Co-operatives Executive VP Vic Huard says he hopes to avoid a lock-out but the company has "a very robust business continuity plan" which includes plenty of "highly-trained, highly motivated people" ready to run the refinery. The two sides have been negotiating since December 2015. The union's previous contract expired over a year ago. A major sticking point is proposed changes to pension plans for new hires.

Reuters is reporting that commodity traders SilverPeak Financial Partners have put Newfoundland's Come-By-Chance Refinery up for sale, citing weak refining margins and rising regulatory costs. The 115,000 bbl/day refinery was purchased by SilverPeak from South Korea's National Oil Corp in November of 2014.

The Conference Board of Canada (CBoC) expects the country's natural gas producers will lose $2.8 billion this year, down from a loss of $7.6 billion last year. The CBoC warns that rising production of US shale gas is displacing gas produced in Western Canada, but remains optimistic on recent pipeline commitments and the potential to export Canadian gas out of LNG terminals in the US Gulf Coast.

The C.D. Howe Institute warns that business investment per Canadian worker has hit a 25 year low, blamed squarely on lower capital investments in the oil patch. The steepest declines were seen in Alberta and Saskatchewan. The authors warn that this year also "looks bleak" particularly in comparison to the US. Canada's business investment also lags behind Germany, Japan and the UK. The research institute recommends more trade, a less cumbersome regulatory process, affordable electricity and lower taxes on capital investments.

This week's Canadian M&A news . . . 

Pengrowth Energy has sold a stake in its Swan Hills conventional light oil assets for $180 million. The company says it will use the proceeds to pay down short term debt due in July, reducing its debt load to $970 million. The divested assets produce about 4,920 boe/day, weighted 82% liquids. As a result of the sale, 2017 production guidance has been reduced to a range of 47,000 to 49,000 bbl/day. Pengrowth also sold non-producing lands in northeastern BC this week for $92 million. 

Birchcliff Energy announced intentions to sell its Charlie Lake Light Oil assets in the Peace River Arch area, straddling the Alberta/BC border. The company says the sale will help it focus its attention on its core assets in the Montney/Doig area. Charlie Lake produces about 4,000 boe/day, weighted 56% liquids. Birchcliff has opened its book to potential buyers but notes there is no guarantee a buyer will be found.

Trican Well Service has agreed to buy Canyon Services Group for $637 million, including about $40 million in debt. Canyon shareholders will receive 1.7 Trican shares for each share they own, representing a 32% premium to the previous day's close. Once the deal closes, Trican shareholders will own 56% of the newly combined company while Canyon shareholders will own the remaining 44%. 

The fight for Savanna Energy Services continued this week, with Total Energy Services reaffirming reasons for Savanna to accept their offer and Western Energy Services insisting it offers better value. Western's offer for Savanna is about 9% higher than Total Energy's deal.

This week's notable US energy news . . .

Authorities have confirmed there have been at least two incidents of "felony vandalism" against the Dakota Access Pipeline in the states of South Dakota and Iowa. In both cases, blow-torches were allegedly used to burn a hold through the pipe at above-ground valve sites. Thankfully, no oil was flowing through the line at the time. No groups have claimed responsibility.

Kinder Morgan has launched a non-binding open season for its proposed Gulf Coast Express Pipeline. The 42 inch natural gas pipeline will run 430 miles (692 km) from the Permian Basin to the Gulf Coast. The company says the project "connects growing natural gas supplies in the Permian Basin with expanding markets for natural gas on the Texas Gulf Coast, including export markets via liquefied natural gas and deliveries into Mexico." Subject to sufficient demand, the line should be in service in the later half of 2019.

Marathon Oil has bought additional lands in the Permian's Northern Delaware basin for US$700 million. This is the company's second purchase in the Permian in less than two weeks, bringing the company's net position in the area to 90,000 acres.

Western Refining shareholders have unanimously approved being acquired by Tesoro Corp. The US$6.4 billion takeover was announced last Novermber.

Around the world this week . . . 

Royal Dutch Shell has agreed to sell its assets in Gabon to a division of the The Carlyle Group for US$587 million, including US$285 million in debt. The assets include 100% of Shell’s five operating fields, interest in four non-operated fields and related infrastructure. The divestitures represent 41,000 boe/day. 

Shell has also leased a sizeable volume of storage capacity at a Panama oil terminal, previously being used by Tesoro. The Petroterminal de Panama has up to 14 million barrels of storage and a pipeline network that connects to both the Atlantic and Pacific. Terms of the deal were not disclosed.

After sitting empty for two years, a 770 km pipeline running between Myanmar and southwest China is finally getting ready to be put into service. The two sides were not able to agree on export fees and transportation tariffs. The line will allow PetroChina to pipeline oil imports from the port city of Kyauk Phyu (in Myanmar) into a 260,000 bbl/day refinery in the landlocked Yunnan province. The pipeline has an ultimate transport capacity of 400,000 bbl/day.

China Petroleum and Chemical Corp (Sinopec) has agreed to buy 75% of Chevron's South African subsidiary for US$1 billion. The assets include a 100,000 bbl/day refinery in Cape Town, a lubricants plant in Durban, 820 retail gasoline stations and several oil storage facilities. Sinopec has agreed to retain the entire workforce and keep the existing Caltex brand for up to six years.

Royal Dutch Shell has promised the government of Australia it will drill 161 new gas wells in Queensland by the end of 2018. The deal is part of the company's commitment to supply at least 10% of the country's domestic gas consumption. Prime Minister Malcolm Turnbull has been in discussion with some of the world's largest oil majors on how to mitigate an imminent gas shortage as the country aggressively ramps up LNG exports.

Still in Australia, Chevron says it has no plans to sanction any new LNG projects in Western Australia and poured cold water on future expansion of its US$54 billion Gorgon and US$34 billion Wheatstone developments. The company says "mega projects of the past decade are giving way to smaller, more targeted investments with quicker economic returns."


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

million bbl/day • data by EIA & Baker Hughes

+92k ▲ 2.8%
+20k ▲ 0.2%
+4.95M ▼ 0.9%
+21 ▲ 3.3%

Investment firm Goldman Sachs predicts the next two years will likely "see the largest increase in mega projects' production in history, as the record 2011-13 capex commitment yields fruit." Goldman says the November OPEC cuts will have the "unintended consequence" of boosting shale activity, which should add 1 million bbl/day annually for the next few years.

Libya's output has returned to 700,000 bbl/day now that fighting has subsided at its export terminals. National Oil Corp Chairman Mustafa Sanalla says he expects to reach 800,000 bbl/day by the end of April and 1.1 million bbl/day by August.

After a sharp increase at the beginning of the year, Saudi Arabia's energy minister says he expects exports to the US will fall by 300,000 bbl/day this month. The US imported about 1.3 million bbl/day of Saudi crude in February, up from about 1 million bbl/day in December. The decline is expected to put a small dent in US crude inventory levels.

The Saudis have also pledged to keep output steady at about 10 million bbl/day, in line with OPEC's production quota. The country has been selling oil out of its inventory volumes to maintain supply to its customers. Stockpiles in the country were estimated at 273 million at the end of last year.

OPEC meets "informally" in Kuwait this weekend to discuss compliance and a potential extension of its production cuts.


Friday close • data by Bank of Canada & ICE

-0.67 ▼ 0.7%
-0.24 ▼ 0.3%
-0.10 ▼ 4.0%
US 10Y Bond
-0.13 ▼ 7.4%
CDN 10Y Bond

Statistics Canada reported little change in the number of Employment Insurance beneficiaries in January, falling just 0.3% from the previous month. However, Alberta registered a sizeable decline of 6,100 recipients (-6.2% m/m), the largest percentage decrease since April 2012. StatsCan warns that some of the decline is attributed to people who have exhausted their EI benefits. Year-over-year, there number of EI recipients in Alberta is still up 41.2%.

Retail sales surged 2.2% in January, powered higher by new auto sales. Sales receipts at gasoline stations rose 0.5% m/m, the seventh monthly increase in the past eight months. Wholesale sales also rose 3.3% in January to a record high of $59.1 billion in January, the largest monthly gain since November 2009.

The national inflation rate rose 2.0% y/y in February, down slightly from a rate of 2.0% the previous month. Gasoline prices are up 23% y/y, driving much of that inflation. The Consumer Price Index (CPI) excluding gasoline is up 1.3% for the year.

Friday close, USD/bbl • data by CME Group

-0.96 ▼ 1.9%
-0.81 ▼ 1.7%
-0.31 ▼ 0.7%
-1.10 ▼ 3.0%

Brent crude prices briefly touched below $50 a barrel this week for this first time since OPEC announced coordinated production cuts last November.

Friday close • data by TSX & NYSE
Friday close • data by TSX & NYSE

Friday close • data by TSX & NYSE

Enerplus (ERF) has filed for a mixed shelf offering of $2 billion (or US$1.5 billion), including the issuance of new common and preferred shares.

This week's new 52 week lows on the TSX include Baytex Energy (BTE), Peyto Exploration (PEY) and Ranging River Resources (RRX).


  • Cenovus Energy (TSX:CVE): Upgraded from Hold to Buy at TD Securities.
  • Encana (TSX:ECA): Upgraded from Neutral to Buy at UBS.
  • Pengrowth Energy (TSX:PGF): Upgraded from Underperform to Sector Perform at RBC and from Hold to Buy at Canaccord Genuity.
  • Tesoro (NYSE:TSO): Downgraded from Outperform to Neutral at Credit Suisse.




  • Bank of Canada Governor Stephen Poloz delivers speech "Canada's Economic History" at  Durham College in Oshawa, ON
  • Quebec tables Budget 2017/18
  • API Weekly Statistics Bulletin released @ 4:30pm ET


  • EIA Weekly Petroleum Status Report released at 8:30am ET
  • UK parliament triggers Article 50 and begins Brexit negotiations


  • February Industrial Products & Raw Materials Price Index released by StatsCan @ 8:30am ET
  • US Q4/2016 GDP (third estimate) released by US BEA @ 8:30am ET 
  • EIA Weekly Natural Gas Storage Report


  • January payroll, earnings and hours released by StatsCan @ 8:30am ET
  • January GDP released by released by StatsCan @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET
  • Brent crude May contract expiry

Next edition of the Oil Sands Weekly: Friday March 31, 2017 @ 8pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly