The Oil Sands Weekly

The Oil Sands Weekly

Cenovus takes a big risk and moves into the big leagues . . . 

ConocoPhillips is the latest global energy player to divest Canadian assets this week, this time to Cenovus Energy. Cenovus has agreed to buy-out its partner's 50% interest in the FCCL Partnership for $17.7 billion, including $14.1 billion in cash and 208 million Cenovus shares. FCCL includes the Christina Lake and Foster Creek SAGD operations, both operated by Cenovus.

The acquisition boosts Cenovus' 2017 bitumen production guidance from 178,000 to 356,000 bbl/day, making it the fourth largest player in the sandbox (after Suncor, CNRL and Imperial Oil). The purchase also includes ConocoPhillips' Deep Basin conventional assets in BC and Alberta. The acquisition effectively doubles Cenovus' total production from 290,000 to 588,000 bbl/day.

Cenovus says it plans to resume construction of the phase G expansion at Christina Lake, which has already recommenced module assembly. The company will update its shareholders in June on expansion plans for Foster Creek and the new Narrows Lake SAGD project. The company says it expects to top 500,000 bbl/day of bitumen production in about 5 years time.

Cenovus has also agreed to pay ConocoPhillips a contingency payment if Western Canadian Select (WCS) rises above $52/barrel (CAD). WCS ended the week a hair below $52/bbl.

The company has taken on a $10.5 billion bridge loan and also announced the issuance of $3 billion in new common shares through a bought-deal offering. Cenovus has also put its non-core Pelican Lake and Suffield conventional assets up for sale.

ConocoPhillips retains its 50% stake in the Surmont development, owned jointly with French energy giant Total. The company says it will use the funds to pay down debt and buy-back US$6 billion worth of shares.

Mildred Lake on the road to recovery . . . 

Suncor and Imperial Oil provided an update this week on Syncrude's Mildred Lake facility, following an explosion and fire that occurred on March 14.

As previously disclosed by Syncrude, the fire was caused by a leaking naphtha line in the hydrotreating area. Suncor says the damage was mostly isolated to a piperack adjacent to the hydrotreater.

In order to mitigate the production impact of the fire, Syncrude will advance its planned eight-week turnaround, which was originally scheduled to begin in late April. Suncor also says it has agreed to process volumes of "untreated Syncrude production" in order to assist in inventory management. There is no pipeline connecting the Syncrude and Suncor upgraders, although the two facilities are relatively close to each other.

All shipments of upgraded synthetic crude out of Syncrude have now ceased. However, Syncrude is expected to resume shipments at about 50% of capacity starting in April. The plant is expected to return to normal operation by the end of May or early June.

So far, Syncrude's 2017 production guidance has not been impacted.

Unhappy in Alberta? Consider moving to Saskatchewan . . . 

Saskatchewan Premier Brad Wall has sent several courtship letters to a number of Alberta's oil & gas firms asking them to consider relocating their head office from Calgary to Saskatchewan. Wall says Saskatchewan offers lower corporate taxes, lower income taxes, no carbon tax, lower royalties and relocation subsidies.

Calgary Economic Development President Mary Moran was displeased by Wall's attempt to poach Calgary businesses. The move by Saskatchewan may also be in violation of the New West Partnership agreement, designed to reduce trade barriers between western provinces.

Alberta Premier Rachel Notley was especially critical of Saskatchewan's recent budget, noting that Albertans still enjoy no provincial sales tax or health-care premiums. Wall shot back on Twitter noting he isn't about to take budgeting advice from Alberta's NDP government.

Other notable Canadian energy news . . . 

The National Energy Board (NEB) has won a legal battle against the City of Burnaby in BC's Lower Mainland. Burnaby Mayor Derek Corrigan argued that cities should have the right to veto any work that violates municipal bylaws. Corrigan is peeved that the NEB granted Kinder Morgan permission to clear trees and operate heavy machinery on Burnaby Mountain in order to carry out soil testing in preparation for the Trans Mountain Expansion pipeline. The BC Court of Appeal ruled that pipelines are federal jurisdiction. Corrigan has filed yet another appeal, this time in federal courts.

TransCanada announced its CFO Alex Pourbaix will retire in May after 23 years of service. Reasons for the unexpected departure were not disclosed. Pourbaix was responsible for growth projects, including Keystone XL, during his time as head of development. The 51-year old CFO was considered a front-runner to succeed current CEO Russ Girling.

Keyera has confirmed that its Alberta EnviroFuels facility in Edmonton will be back to normal by the middle of April. The facility was shut down in February to repair a damaged process reactor. The plant produces iso-octane, a premium gasoline blending component.

It's game over for Western Energy Services as Total Energy Services confirms it now owns a majority of Savanna Energy shares (51.6% to be exact), purchased at an average price of $1.96 a share. Savanna has now terminated its agreement with Western Energy, who had offered a higher price for the company. Western says it is disappointed by the outcome.

Canada has been chosen to host the 46th session of the Intergovernmental Panel on Climate Change. The international event will take place in Montreal in early September.

Public consultations on the "modernization" of the NEB wrapped up this week. The four-member expert panel will now submit a list of recommendations to the Ministry of Environment and Climate Change.

Unleashing an energy revolution (south of the border) . . . 

US President Donald Trump signed yet another Executive Order this week, effectively putting an end to the government's perceived war on coal and vowing to start a "new energy revolution."

The President rescinded a number of climate change related executive orders and presidential memos enacted under President Obama, including the Climate Action Plan, carbon pollution standards, plans to reduce methane emissions and consideration of greenhouse gas (GHG) emissions during environmental reviews.

In addition, calculating the "social cost of carbon" will no longer be the official position of the federal government. President Trump says the EPA will drop their obsession with climate change and instead refocus their efforts on clean air and water. 

The President says this latest executive order is intended to stop "government intrusion" and "job killing" regulations. The Executive Order also lifts the ban on federal leasing for coal production and returns power to the states.

Although the President has made noise about pulling the US out of the Paris Accord, the current Administration has so far remained silent on the issue.

When asked about Trump's latest initiatives, Prime Minister Justin Trudeau said Canada's environmental policies will be determined in Ottawa, not Washington. The PM doesn't buy the argument that Canada's oil & gas industry will become much less competitive, noting that carbon taxes will be "revenue neutral," at least from the federal government's point of view.

Other notable US energy news . . .

Oilfield service company Schlumberger announced a new a joint-venture with Weatherford International for a one-time cash payment of US$535 million. The new joint-venture, OneStim, will provide oilfield products and services for unconventional resource plays in the US and Canada. Schlumberger will own 70% of the JV.

Schlumberger also bought a stake in upstart rig operator Borr Drilling through a newly created venture fund. The company did not disclose the size of the stake.

Reuters is reporting that Royal Dutch Shell and Anadarko Petroleum may divorce their 10-year joint-venture in the Texas Permian Basin. The division of assets would give each company more autonomy over development in the region, allowing for quicker decision making and faster expansion of shale production.

Several environmental groups are suing the US State Department for granting TransCanada a Presidential Permit for Keystone XL last week. Following the lead of Canadian litigation teams, the groups are claiming insufficient public input and an incomplete environmental assessment. 

Total announced it has entered into a new joint-venture with Borealis and Nova to expand its footprint in the Gulf Coast petrochemicals sector. The consortium have agreed to build a new Borstar polyethylene plant in Bayport, Texas, adjacent to Total's existing polyethylene facility. A new US$1.7 billion ethane steam cracker will also be built in Port Arthur, Texas, adjacent to Total's refinery.

CB&I (formerly known as Horton CBI) was awarded the EPC contract for the new facility, which will have an ethylene capacity of 1 million tons/year. The contract was reported to be worth US$1.3 billion. The facility is expected to come on-line by 2020.

Elsewhere in the world . . . 

ExxonMobil and its partners announced the discovery of yet another "high-quality, oil-bearing sandstone" reservoir off the coast of Guyana in the Stabroek Block. This latest discovery is one of many deepwater discoveries made in the region. The field is jointly owned with Hess, CNOOC and the government of Guyana. Reserves estimates were not disclosed.

ExxonMobil has also agreed to sell its upstream operations in Norway to private equity firm HitecVision and Point Resources for an undisclosed amount. The assets include various producing fields in the Norwegian Continental Shelf, oil platforms, floating storage facilities, offloading vessels, office buildings and about 300 staff. The US major retains a stake in more than 20 fields throughout the country, representing about 170,000 bbl/day of production, but will no longer operate any assets. Norwegian sources value the deal at about US$935 million. The divested assets produce about 54,000 boe/day.

Italian energy major Eni says its recent discovery off the coast of Mexico could be a lot bigger than its initial estimates of 800 million barrels. CEO Claudio Descalzi says the company has discovered "new layers of good light oil" in the field, located about 7 km offshore. Eni was the first international company to drill offshore Mexico after the country opened its energy sector to foreigners. Shell, Chevron and ExxonMobil have recently won deepwater exploration blocks in the region.

Chevron confirmed the start of a third and final train of production at its Gorgon LNG project offshore Western Australia. The US$54 billion project has three trains with a combined production capacity of 15.6 million tonnes/year. The facility started up in March of 2016 but has been unable sustain its nameplate capacity due to numerous glitches. Train 2 was taken offline earlier this week for another maintenance turnaround to improve reliability.

BP says it has absolutely no plans to build new greenfield refineries. Tufan Erginbilgic, head of BP's downstream operations, says the company will instead focus on modernizing existing plants, expanding its network of gas stations and potentially sell some downstream assets to generate US$3 billion in additional cash. Erginbilgic added he would like to see BP expand its trading activities, taking advantage of differentials between expanding production out of the US, Canada and Brazil and growing refining demand in Asia and the Middle-East.

BP also announced a third gas discovery in the East Nile Delta, offshore Egypt. CEO Bob Dudley calls the Nile Delta a "world-class basin."

Royal Dutch Shell announced 230 layoffs in Norway this week as several major projects come to a close. Statoil also confirmed the elimination of over 500 positions in the country over the next three years.

Shell has also accepted liability for two 2008 oil spills that occurred in the Niger Delta region. The spill was thought to be caused by pipeline corrosion. International contractors will oversee the clean-up, expected to begin next month.


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

million bbl/day • data by EIA & Baker Hughes

-114k ▼ 3.4%
+18k ▲ 0.2%
+0.87M ▲ 0.2%
+10 ▲ 1.5%

The US added another 10 rigs this week, the 11th weekly increase in a row. A total of 137 rigs were added in the first quarter, the most since Q2/2011.

In contrast, rig counts declined in Canada, for both oil and gas service.

A joint meeting between OPEC and non-OPEC producers last weekend in Kuwait concluded that production quotas will likely need to be extended to the second half of the year. Production cuts initiated last November have failed to dent global oil inventories. The group blames the lack of progress on refinery maintenance, rising supply from the non-OPEC countries (notably the US and Canada) and low seasonal demand. Members will reconvene in April to re-examine compliance and the need to extend production ceilings. 

OPEC compliance was reported at 95% for the month of March, with total production estimated at 32.01 million bbl/day. Libya's output was crimped by about 500,000 bbl/day this week after the pipeline from Sharara field stopped operating.


Friday close • data by Bank of Canada & ICE

+0.78 ▲ 0.8%
+0.46 ▲ 0.6%
+0.00 ▲ 0.0%
US 10Y Bond
+0.00 ▲ 0.0%
CDN 10Y Bond

This week's notable Canadian economic data . . . 

  • Canada's GDP expanded 0.6% in January (m/m), driven by a 1.1% increase in goods-producing industries and a 0.4% increase in service sectors. After contracting in December, oil and gas extraction was up 2.0% in January, with increases in both conventional and non-conventional oil extraction.
  • Weekly payrolls across the country were relatively unchanged in January at $967. Canadian paycheques remain on average 1.8% higher than the same time last year.
  • Alberta's payroll numbers were also unchanged for the month of January. The average salary in Alberta is still down 0.5% y/y, although StatsCan notes that wage declines have started to subside. 
  • The Industrial Product Price Index (IPPI) edged up 0.1% in February despite a 0.7% decline in energy and petroleum products. Lower natural gas and gasoline prices partially offset higher prices for refinery products.
  • The Raw Materials Price Index (RMPI) increased 1.2% in February. Crude oil prices posted a 0.8% gain for the month.

US Q4 GDP was revised to an annualized growth rate of 2.1%, up from a previous estimate of 1.9%.

Friday close, USD/bbl • data by CME Group

+2.03 ▲ 4.0%
+2.63 ▲ 5.5%
+3.43 ▲ 7.4%
+3.90 ▲ 11.1%

Disruptions out of Libya and muted gains in US oil inventories helped boost oil prices this week. However, crude oil was one of the worst performing asset classes for the first quarter of 2017.

Outage of the Syncrude upgrader has taken over 300,000 bbl/day of light oil off the market, narrowing the Canadian Light differential to about US$1/bbl. Wastern Canadian Select had a spectacular week, gaining over 10%. The heavy oil discount (WTI-WCS) has also fallen below US$12. 

Average oil prices for the month of March dipped slightly from February:

  • Brent US$52.54 (-6% m/m)
  • WTI US$49.67 (-7% m/m)
  • Canadian Light US$47.11 (-6% m/m)
  • Western Canadian Select US$36.31 (-8% m/m)

The average heavy oil discount narrowed slightly from about US$14 in February to US$13.40/bbl in March.

Alberta's AECO "C" natural gas prices averaged US$1.85/MMBtu for the month of March (down 3% from the February average). In contrast, US Henry Hub prices gained almost 3% for the month, averaging US$2.99/MMBtu.

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

Friday close • data by TSX & NYSE

Billionaire Seymour Schulich has purchased an additional 2.5 million shares in Birchcliff Energy (BIR). Schulich's Nevada Capital Corp and The Schulich Foundation now owns 37.5 million shares, representing about 14.2% of the company.

Enbridge (ENB) has raised $500 million by issuing shares in subsidiary Enbridge Income Fund (ENF). The company says it will use the funds to pay down short-term debt.

Camp-operator Black Diamond Group (BDI) has closed on previously announced $31.9 million in bought deal financing.

Concerns over bursting debt loads and a potential dividend cut sent Cenovus Energy (CVE) stock tumbling this week, reaching a fresh 52 week low. Baytex Energy (BTE) also hit another 52-week low. This week's new 52 week highs include pipe manufacturer Shawcor (SCL) and Veresen (VSN).


Rig contractor Ocean RIG has filed for Chapter 15 bankruptcy protection. The company says it has been hit by several cancelled deep water projects blamed on low oil prices. The company's stock (ORIG) has since been delisted from the NASDAQ.

  • Basic Energy Services (NYSE:BAS): Upgraded from Neutral to Buy at Seaport Global Securities.
  • ConocoPhillips (NYSE:COP): Upgraded from Neutral to Buy at UBS.
  • Key Energy Services (NYSE:KEG): Upgraded from Neutral to Overweight at Piper Jaffray.
  • Painted Pony Petroleum (TSX:PPY): Downgraded from Buy to Neutral at Credit Suisse.





  • February Trade Balance released by Statistics Canada @ 8:30am ET
  • API Weekly Statistics Bulletin released @ 4:30pm ET


  • EIA Weekly Petroleum Status Report released @ 8:30am ET
  • FOMC minutes released @ 2:00pm ET


  • EIA Weekly Natural Gas Storage Report


  • March Labour Force Survey released by Statistics Canada @ 8:30am ET
  • Baker-Hughes Rig Count released @ 1:00pm ET

Next edition of the Oil Sands Weekly: Friday April 7, 2017 @ 10pm MT.

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly