The Oil Sands Weekly

The Oil Sands Weekly

In the news this week:
  • CNRL asks Alberta for production quotas, OPEC style
  • Canadian Light and C5+ discounts hit record highs
  • PSAC warns fewer wells to be drilled next year
  • Enbridge restores natural gas supply in BC and PNW
  • Calgary's Encana becomes a lot more American
  • Goldboro LNG moves one step closer to FID
  • Trump gives eight countries a pass on Iranian imports.
ALBERTA

Just when you thought things couldn't get any worse, the discounts on Canadian Light and Edmonton Condensate blew out to record highs this week, sending prices plunging back to the lows of early 2016, when West Texas crude (WTI) and Brent were trading closer to US$30 a barrel. Western Canadian Select (WCS) also tumbled to just US$18 a barrel this week, a whopping 70% discount to WTI. Although crude-by-rail volumes are increasing, refineries in the US Midwest are still running at just 75% of capacity, reducing demand for Canadian crude. 

Canadian Natural Resources (CNRL) Executive Vice-Chairman Steve Laut is asking the Alberta government to consider putting a cap on production, in light of the abnormally-high differentials. Laut says former Alberta Premier Peter Lougheed curtailed volumes in the 70s and 80s in order to manage the pipeline space and ensure Albertans got a "fair price" for their oil. Alberta's energy ministry says a quota system would be far too complicated to implement. CNRL says it drilled fewer wells in the third quarter, and plans to shut in about 50,000 bbl/day of heavy oil in November and December.

RBC Capital Markets has called on the province to consider a royalty holiday, which would take almost 200,000 bbl/day of crude off the grid and drain over 7 million barrels from storage. That request was also rejected by the province.

Cenovus says it will slow production at its Foster Creek and Christina Lake in-situ facilities due to low prices and lack of take-away capacity. The company says both facilities are operating at reduced volumes, but promises to adjust production if prices recover. CEO Alex Pourbaix calls the current pricing environment a "massive destruction of value."

Pembina Pipeline announced new long-term, take-or-pay agreements for pipeline and processing infrastructure. The projects include a Phase VII expansion of its Peace Pipeline system, a natural gas transmission service agreement with Veresen Midstream and NuVista Energy, as well as additional gas-processing and liquids-handling for Chevron Canada at its Duvernay Complex. Pembina expects the projects to cost about $1.3 billion.

Keyera Corp announced the start of a two-week shutdown of its Alberta EnviroFuels (AEF) facility for unspecified preventative maintenance work. The company says the plant operated "very well" this year and continues to maintain high utilization rates. AEF is the largest iso-octane manufacturing facility in the world, sold to refineries in Western Canada and the US for blending into gasoline.

Calgary-based Encana has agreed to buy Newfield Exploration for US$5.5 billion in an all-stock deal. The deal will widen Encana's footprint in the Permian, Eagle Ford and Anadarko shale basins, as well the Montney and Duvernay regions in BC and Alberta. The deal makes Encana the second largest producer of unconventional oil and gas, boosting production from 378,000 to 577,000 boe/day, weighted 52% liquids.

Encana's founder and former CEO Gwyn Morgan, weighed in on the merger this week, expressing extreme disappointment over the Americanization of what was once one of Canada's most prominent energy companies. Morgan says he is "deeply saddened" that "what was once the largest Canadian-headquartered energy producer now sees both its CEO and the core of its asset base located in the US," blaming the move on "disastrous policies of the Trudeau government." Morgan served as Encana's CEO from 2002 to 2005.

CANADA

The Petroleum Services Association of Canada (PSAC) is warning that depressed Canadian oil and gas prices will reduce drilling demand by about 5% in 2019, translating into a $1.8 billion reduction in capital spending. PSAC says 2019 will mark the third year of stalled activity, blaming the sluggishness on lack of pipeline export capacity.

Enbridge says it has completed repairs on its 36” natural gas pipeline that ruptured near Prince George at the beginning of October. The line is currently being put back into service, with flows gradually increasing to normal operating pressures. The adjacent 30” pipeline, which was also taken out of service after the incident, is also being restored to normal service. The company says both lines will return to full capacity once they confirm it is safe to do so. Enbridge's T-South system normally delivers up to 900 MMcf/day of gas to BC's Lower Mainland and the US Pacific Northwest.

Pieridae Energy says the Nova Scotia Utility and Review Board has granted the company regulatory permits required to begin construction of its Goldboro LNG Facility. Engineering firm Hatch has been selected to act as an adviser on the $10 billion project. Pieridae has already secured $4.5 billion in loan guarantees from the German government, and recently announced the purchase of Calgary-based Ikkuma Resources to supply gas to the export terminal. A positive final investment decision is expected before June 2019. 

The Trudeau Liberals are considering giving coal-fired power plants a pass on pending carbon tax levels, lowering the tax rate to just $1 per tonne. Coal-fired power plants would be subjected to the highest carbon levies, which start at a minimum of $20/t next year and rise to $50/t by 2022. The Environment Ministry says Ottawa has already committed to phasing out coal-fired power by 2030, making the carbon tax unnecessary.

USA/GLOBAL

The Trump Administration has granted waivers to 8 countries, including China, India, Japan, South Korea, and possibly Turkey, allowing them to continue importing Iranian crude once sanctions get reinstated. The government says although it remains committed to choking off Iran's source of income, it does not want to see oil prices move much higher. Waivers are considered temporary and subject to review every 180 days. Since sanctions were announced last spring, Iranian exports have fallen from 2.7 to 1.6 million bbl/day.

Private equity firm Carlyle Group signed an agreement with the Port of Corpus Christi to develop a crude export terminal on Harbour Island. The terminal would be the first US onshore location capable of loading Very Large Crude Carriers (VLCCs), which have a capacity of 2 million barrels. Along with several other terminal expansions announced in recent months, commodities trader Trafigura also recently announced plans to build its own terminal about 15 miles offshore Corpus Christi. Several new pipelines are currently being built to transport oil out of the landlocked Permian region to marine terminals in Texas and Louisiana. However, US crude exports have been stuck at about 2.5 million bbl/day due to insufficient depth required to load large crude carriers.

Ecopetrol has asked government regulators for a license to conduct fracking tests that could unlock its unconventional deposits. The company is looking to run a pilot program within the La Luna and Tablazo geological formations, estimated to contain between 2 and 7 billion barrels of oil. Colombia currently has 1.78 billion barrels of proven reserves, but unconventional reserves, if proven recoverable through fracking, could triple those numbers.

NEXT WEEK'S EVENTS

Monday:

  • IEA 2018 CO2 Emissions from Fuel Combustion
  • Start of US sanctions on Iranian crude

Tuesday:

  • US midterm elections
  • API Weekly Statistical Bulletin released @ 4:30pm ET
  • Q3/2018 earnings: Keyera Corp

Wednesday:

  • EIA Weekly Petroleum Status Report released @ 10:30am ET
  • Imperial Oil Investor Day meeting in Toronto, ON
  • Q3/2018 earnings: Devon Energy, Marathon Oil, Pioneer Natural Resources

Thursday:

  • FOMC interest rate decision @ 2:00pm ET
  • Q3/2018 earnings: Inter Pipeline, Pengrowth Energy

Friday:

  • Baker Hughes Rig Count released @ 1:00pm ET
  • Q3/2018 earnings: TC Pipelines
The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

The Oil Sands Weekly

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