The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Adding crude storage capacity in Edmonton
  • Pengrowth's plan to expand output at Lindbergh
  • Kinder Morgan not hopeful on help from the NEB
  • Keystone XL takes a small step forward
  • Alberta farmers vs abandoned wells
  • Husky Energy versus the iceberg
  • API head to step down in August
  • Venezuelan crude production in free-fall
  • Norway awards record number of licences
  • Shell returns to the North Sea
  • BP and Chevron return to northern Iraq
  • Nigeria on the hunt for US$21 billion in lost revenues.

ALBERTA

More crude storage available in Edmonton
Kinder Morgan Canada and partner Keyera Corp announced the start of operations for the first four of twelve crude oil storage tanks at their jointly-owned Base Line Terminal in Sherwood Park, Alberta. The remaining eight tanks are expected to be phased into service throughout the remainder of this year. Once completed, the terminal will have a crude oil storage capacity of 4.8 million barrels, with room for another 1.8 million barrels of expansion, if there's sufficient demand.

Keystone XL takes a small step forward
TransCanada has confirmed it has secured 500,000 bbl/day of firm 20-year commitments on the Keystone XL pipeline, successfully wrapping up open season on the line. Included in those barrels is 50,000 bbl/day of oil from the Alberta government's Bitumen Royalty-in-Kind program. Keystone XL is designed to transport 830,000 bbl/day of crude from Alberta into the Gulf Coast, with about 100,000 bbl/day of volumes reserved for light Bakken crude from North Dakota. The company says interest in the project remains strong and it looks forward to securing additional long-term contracted volumes. However, TransCanada stopped short of sanctioning the project, except to say it is continuing to work with landowners along the right-of-way and has commenced site preparation work. "Primary construction" is expected to start in 2019. 

Pengrowth makes progress at Lindbergh
Pengrowth Energy says it has allocated about $45 million towards continued expansion and maintenance of its Lindbergh thermal project. Lindbergh is a 12,500 bbl/day SAGD facility, located in the Cold Lake area. The company is working towards expanding capacity to 40,000 bbl/day. Pengrowth says the wells that were drilled last year as part of its optimization program are now producing oil. The company expects bitumen production to reach 16,000 bbl/day by the end of the first quarter. Eight additional infill wells are expected to be drilled in Q2, bringing year-end production volumes closer to 18,000 bbl/day.

Carillion's bankruptcy trickles down to the oil sands
Fort McKay-based Bouchier Group has repurchased Carillion's minority stake in the company, returning Bouchier to a 100% ownership position. Earlier this week, Carillion, the second largest construction company in the UK, was forced into liquidation after failing to reach an agreement with its bank lenders. The company says its Canadian operations have not been forced into liquidation and continue to operate normally. The Bouchier Group is one of the largest Aboriginal-owned and operated companies in the Athabasca Region, providing contracting and construction services to the oil sands. Carillion employs about 50,000 people worldwide, about 6,000 located in Canada, and the impacts of its looming bankruptcy have yet to be quantified.

Alberta farmers versus abandon wells
Farming-advocacy group Action Surface Rights Association will address the Supreme Court in February as part of the Alberta government's appeal against the 2016 Redwater decision, which allowed creditors of bankrupt producers to walk away from environmental liabilities associated with abandoned well sites. The farmers say allowing producers to walk away from polluted wells is in violation of their land rights and often lowers the value of their properties. The farmers also lose out on promised lease payments. Alberta's Orphan Well Association has been forced to take over 1,800 wells and more than $100 million in environmental liability since the 2016 court ruling.


CANADA

Kinder Morgan not hopeful on help from the NEB
Kinder Morgan Canada warned again this week that permitting delays in the province of BC will again push back its in-service date for its Trans Mountain Expansion Pipeline (TMEP). The line was initially supposed to be up and running by the of 2019, then pushed back to the fall of 2020, and now likely delayed another three months to the end of 2020. Although the company recently won a case against the City of Burnaby on permitting requirements at its Westridge Marine Terminal, Kinder Morgan says numerous provincial and municipal permits are still pending, while various federal conditions have yet to be addressed. TMEP's focus for 2018 will shift from construction to getting all its permits in place. The National Energy Board also released its conflict resolution process this week, promising a decision within three to five weeks of filing a request.

Husky versus The Iceberg
Newfoundland and Labrador's offshore regulator has ordered Husky Energy to suspend operations at its SeaRose platform, after the company failed to follow its own emergency procedures last March when an iceberg came too close to the facility. The FSPO (floating production, storage and offloading) vessel was staffed with 84 employees, holding about 340,000 barrels of crude. According to procedures, the company should have disconnected the FSPO and moved away from the "threatening iceberg." At one point, employees were warned to "brace for impact" although contact was ultimately never made and no injuries or damages were reported. NL's offshore regulator says it has "serious" concerns about the company "organizational decision-making," noting it "lacks full confidence" in Husky's ability to take "appropriate action" during an emergency situation. Husky CEO Rob Peabody says the company "could have and should have responded differently," promising to learn from this incident. SeaRose is located in the White Rose oil field, about 350 km off the coast of St. John's. The field produces is jointly owned with Suncor Energy and produces about 37,000 bbl/day. The platform will remain out of service until provincial regulators are satisfied with Husky's corrective measures.


USA

Layoffs in refining sector, despite record profit margins
Both Marathon Petroleum and Hess announced layoffs this week as part of their efforts to streamline operations and improve margins. Marathon destaffed 64 salaried employees at its Galveston Bay Refinery in Texas. The layoffs are part of its US$2 billion South Texas Asset Repositioning project, which will see its Galveston Bay operations merged with its adjacent Texas City refinery. Hess also begun laying off about 300 employees this week, bowing to pressure from activist investors to boost profitability. The layoffs represent about 13% of its workforce, mostly focused in the Houston area.

ETP back in the headlines, for all the wrong reasons
Energy Transfer Partners (ETP) moved back into the spotlight this week after regulators in the state of Ohio warned FERC of a potential spill of drilling fluids during construction of the Rover pipeline. The spill allegedly occurred while drilling under the Tuscarawas River in Stark County, Ohio, the same site of another spill last spring which led FERC to temporarily ban further drilling activity. Ohio's regulators would like to see a similar ban put in place until the company releases more details on its construction work under the river. The US$4.2 billion Rover pipeline will carry up to 3.25 Bcf/day of natural gas from the Marcellus and Utica shale to the US Midwest and Ontario. Certain sections of the line are already in service. ETP says the whole system should be operational by the end of the first quarter.

US$65 billion and counting
UK-energy giant BP warned it will take another US$1.7 billion non-operating impairment charge in the fourth quarter for "significantly higher claims" for ongoing settlements in its 2010 Deepwater Horizon spill in the Gulf of Mexico. A spokesperson for the company says hundreds of outstanding claims have yet to be closed. Total costs for the disaster have now risen to about US$65 billion.

Technology licensors team up
CB&I, Chevron Lummus Global and Saudi Aramco have signed a Joint Development Agreement to develop, commercialize and market their respective petrochemical technologies, specifically, CB&I’s ethylene cracker technology, Chevron's hydroprocessing technologies and Saudi Aramco’s Thermal to Crude Chemicals (TC2C™) technology. Chevron Lummus Global is a joint venture between Chevron and CB&I, a leading process technology licensor for upgrading heavy oil residues. 

API head stepping down
After 10 years at the helm of the American Petroleum Institute (API), President and CEO Jack Gerard announced he will step down in August, when his contract expires. API is primarily an advocacy and lobby group representing America's oil and gas industry, with an annual budget of about US$250 million. Gerard was a vocal opponent of the Obama Administration and remains one of the highest paid association heads in Washington. The group is now on the hunt for a new CEO.


GLOBAL

Norway awards of dozens of exploration licences ... like its going out of style
Norway has awarded a record 75 offshore oil exploration licences, 45 located in the North Sea, 22 in the Norwegian Sea and 8 in the Barents Sea, a record number of licenses for a single round. The 75 licences were awarded to 34 firms, with 31 awarded to state-owned Statoil. Other big winners included BP, Shell, Total, ConocoPhillips, Lundin Petroleum and ExxonMobil. Suncor Energy was also awarded 5 licences. Norway's energy minister says "access to new, prospective exploration acreage is a central pillar in the Government's petroleum policy."

Shell returns to UK's North Sea
Royal Dutch Shell has sanctioned an expansion of the Penguins oil and gas field in UK's North Sea, about 150 miles north of the Shetland Islands. The project is a 50/50 JV with ExxonMobil, expected to produce up to 45,000 boe/day at a breakeven of less than US$40 a barrel. This is the first new manned installation for Shell in the northern North Sea in almost 30 years. Texas-based Fluor was awarded the EPC contract for the FPSO vessel. Capital costs for Penguin are rumoured to be about US$2.5 billion.

BP and Chevron return to Northern Iraq
BP is reportedly preparing to return to northern Iraq for the first time in three years, partnering up with the government to boost output from the northern Kirkuk oil fields. The company has agreed to double production out of Kirkuk to about 750,000 bbl/day. Chevron also announced plans to resume drilling in the Iraqi Kurdistan region "in the near future." The company had ceased drilling activities last October after Iraqi forces moved into Kirkuk and took over its oil fields. Chevron says it is in the process of remobilizing its people and equipment back to the region. Kirkuk is one of the largest and oldest fields in the Middle East, estimated to hold about 9 billion barrels of recoverable oil.

Nigeria on the hunt for US$21 billion in lost revenues
The Nigerian government has launched an investigation into whether the country has received its fair share of revenues from international oil companies. The country's oil minister claims the government had failed to enforce collection of royalty payments on crude sales at prices above US$20 a barrel. The minister estimates about US$21 billion is to be collected from the world's largest oil majors, including Shell, ExxonMobil, Chevron, Total and Eni.

Niger Delta Avengers back in the headlines
Still in Nigeria, the Niger Delta Avengers are once again back in the spotlight and threatening to attack production facilities and pipelines. The group called a ceasefire last summer but now say the government has failed to address their grievances, particularly lack of oil revenue sharing with impoverished residents in the Delta region. Militant attacks cut Nigeria's production from 2.2 million bbl/day to about 1 million bbl/day in 2016, plunging the country into a deep recession.

World oil markets according to the IEA - Part 1
According to the International Energy Agency (IEA), OPEC's December output declined to 32.23 million bbl/day as output from Venezuela continues to fall. The OPEC member's crude output declined 13% last year to a 28-year low of 2.1 million bbl/day. Coupled with lower production out of the North Sea, total world oil output declined to 97.7 million bbl/day. The IEA expects non-OPEC producers will add another 1.7 million bbl/day this year, primarily from the US, Canada and Brazil. 

World oil markets according to OPEC - Part 2
In this month's Monthly Oil Market Report, OPEC tweaked its 2017 oil demand slightly higher and 2017 supply slightly lower, reiterating their view that the cartel's production pact has succeeded in rebalancing markets. OPEC also sees the US, Canada, Brazil and Kazakhstan as majors drivers of supply growth in 2018, while Norway, Mexico and China are expected to lead declines in production.


NEXT WEEK'S EVENTS

Sunday

  • OPEC/Non-OPEC Joint Ministerial Monitoring Committee meeting in OMAN

Monday:

Tuesday:

  • NAFTA negotiations continue in Montreal, QC
  • World Economic Forum kicks off in Davos, Switzerland
  • API Weekly Statistical Bulletin released at 4:30pm ET

Wednesday:

Thursday:

  • November Labour Force Survey released by StatsCan @ 8:30am ET
  • November retail trade data released by StatsCan @ 8:30am ET
  • EIA Weekly Natural Gas Storage Report released @ 10:30pm ET

Friday:

  • December Consumer Price Index released by StatsCan @ 8:30am ET
  • Baker Hughes Rig Count released @ 1:00pm ET
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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