The Oil Sands Weekly

The Oil Sands Weekly

IN THE NEWS THIS WEEK:
  • Fort Hills off the ground and running
  • Suncor banks on automation to save operating costs
  • Kearl's plan to boost output by another 65,000 bbl/day
  • Connacher lives to fight another day
  • Fewer wells planned in 2018
  • Alberta's crude output tops another record high
  • The new Gibson Energy ... more infrastructure, less services
  • Saskatchewan's new premier has an old message
  • BC government throws another grenade over the fence
  • US crude production hits 47-year high
  • ExxonMobil praises President Trump (indirectly)
  • Chevron and Shell strike more oil in US GoM
  • BP strikes more oil in UK North Sea
  • Mexico eyes US$93 billion in capex spending from latest auction.

ALBERTA

Fort Hills off the ground and running
Suncor Energy, Teck Resources and Total jointly announced first oil out of the Fort Hills oil sands mine this week, located 90 km north of Fort McMurray. The facility has a nameplate capacity of 194,000 bbl/day of bitumen, which will be diluted with condensate and sold directly to market as heavy crude. The project partners say the mine should exit 2018 at about 180,000 bbl/day, while operating costs are expected to decline to a range of $20 to $30 per barrel. The new addition brings Alberta's diluted bitumen production from about 1.8 million bbl/day to almost 2 million bbl/day.

Suncor hopes for another technological step-change
Suncor Energy also announced the roll out of autonomous hauling systems (AHS) this week, or self-driving dump trucks. The company says it will start with its North Steepbank mine and eventually ramp up to 150 autonomous vehicles over the next 6 years. Suncor has been working with Japan's Komatsu, testing several of their autonomous trucks over the past few years. The trucks are guided by GPS, equipped with collision avoidance, route mapping and obstacle detection. The technology has the potential to reduce vehicle wear-and-tear, improve fuel efficiency, lower emissions and improve mine safety. Suncor has about 800 heavy equipment operators at its Base Plant mines, and another 600 drivers at Fort Hills. The switch to driverless trucks, if successful, could mean major cost savings, and potentially major layoffs. 

Output at Kearl set to rise another 65,000 bbl/day by 2020
Imperial Oil provided an update on its Kearl Mine this week as part of the company's fourth-quarter earnings release. CEO Rich Kruger says the company has made "substantial progress" towards addressing reliability issues at oil sands mine. Kearl's bitumen production facility has a nameplate capacity of 220,000 bbl/day but has never been able to sustain those production rates due to reliability issues. The company says it has already seen reliability improvements, boosting output from an average of 169,000 bbl/day in 2016 to 178,000 last year, and potentially 200,000 bbl/day for the full year 2018. Imperial is now working to add  more capacity at its front-end by the end of 2019, boosting production to 240,000 bbl/day by 2020.

Connacher lives to fight another day
Bankrupt oil sands producer Connacher Oil & Gas was granted another stay of its creditor protection by an Alberta court, this time to June 29, 2018. The courts have allowed the company to grant a bitumen royalty to Burgess Energy Holdings in its oil sands rights in exchange for cash, which will be used to repay its US$16.5 million interim revolving credit facility. Connacher owns and operates the 15,000 bbl/day Great Divide SAGD plant, which is still operating normally despite the company's financial distress. Burgess has a similar royalty agreement in place with Athabasca Oil Corp, owner of the Hangingstone SAGD facility.

More infrastructure, less services at Gibson Energy
At its Investor Day meeting this week, Gibson Energy says it wants to "accelerate its transition to a focused oil infrastructure growth company," and announced plans to divest some of its trucking and environmental services divisions. The company says oil infrastructure will account for 85% of its profits by the end of this year, mostly at the Edmonton and Hardisty storage terminals. Gibson would like to see at least one or two tanks sanctioned every year and is targeting a 10% growth in free cash flow.

Alberta hits another record high
The province of Alberta toppled another production record last December, hitting 3.48 million bbl/day of crude output. Most of those gains were seen in light upgraded bitumen, which also managed to eke out a record high of 1.227 million bbl/day.


CANADA

Onion Lake ahead of schedule
BlackPearl Resources says the Phase 2 expansion of Onion Lake is ahead of schedule and tracking within budget. Onion Lake is a conventional heavy thermal facility located on the Saskatchewan side of the AB/SK border, near Lloydminster. President John Festival says the 6,000 bbl/day expansion is approximately 5 months ahead of schedule due to "committed operations staff and favourable weather conditions." The company has begun commissioning the central processing facility and first steam is planned for sometime in February. First oil is expected before the summer, ramping up to peak production in about 12 months.

PSAC sings a familiar tune ...
In its first 2018 Canadian Drilling Activity Forecast, the Petroleum Services Association of Canada (PSAC) has revised its forecast for the number of wells expected to be drilled this year to 7,600, 300 less than its October forecast. Provincially, those numbers are split 50% Alberta, 39.5% Saskatchewan, 7% BC and about 3.5% Manitoba. PSAC CEO Mark Salkeld says despite higher oil prices, the lack of export pipelines and regulatory gridlock has widened the discount for Canadian oil, causing investment dollars to flee Canada "for regions of the world offering a more competitive environment for investment and where there is greater confidence in getting projects approved and completed." Salkeld also warns it may take many years for the oilfield services sector to recover, as companies focus on drilling fewer, but more productive, wells.

... and so does the CD Howe Institute
Canadian think tank CD Howe Institute says lack of export pipelines, not carbon taxes, are to blame for the energy sector's competitive disadvantage. The research firm also says Canada needs to re-examine its tax code in light of recent tax cuts in the US, and more local levels of government should examine property taxes levied on oil and gas producers. CD Howe gives kudos to the province of Alberta for not raising royalty rates during the most recent royalty review process.

New premier, same message
Saskatchewan welcomed its 15th premier this week, Scott Moe, replacing Brad Wall who retired after 10 years at the helm. Moe says he will continue Wall's fight against carbon taxes, warning Prime Minister Trudeau "if you are wondering how far I will go ... just watch me." The new premier says his province already has a climate change plan in place, that Ottawa should recognize. Before becoming premier, Moe last served as Saskatchewan's environment minister. 

Same objective, different angle
BC's NDP government stirred the pot again this week by announcing another round of public consultations for its marine emergency response plan in the event of a diluted bitumen spill. The province says it wants to limit additional exports of bitumen until it gets certainty over its "ability to adequately mitigate spills." The move is yet another attempt to throw up roadblocks in Kinder Morgan's expansion of its Trans Mountain pipeline (TMEP). PM Trudeau says his government remains committed to helping Kinder Morgan get the line built. Alberta Premier Rachel Notley called the move an attack on jobs, Canada's Constitution and Confederation, since export terminals fall under federal jurisdiction. BC says they will appoint an "independent scientific advisory panel" who will determine "if and how" diluted bitumen can be safely transported and cleaned up in the event of a spill. TMEP will boost Alberta's export capacity by 590,000 bbl/day and increase tanker traffic out of the Port of Vancouver to about one per day. TMEP's in-service date has already been delayed by one year to the end of 2020. So far, Kinder Morgan has not yet commented on BC's latest move.


USA

US hits the 10 million barrel milestone, barely
In this week's Petroleum Supply Monthly, the US Energy Information Administration (EIA) estimates the country hit the 10 million bbl/day crude production milestone during the month of November, or 10.038 million to be exact (excluding NGLs). The biggest gains were seen out of the Gulf of Mexico (+209,000 bbl/day) and Texas (+114,000 bbl/day). This is the highest monthly average since November 1970, when the country's crude production peaked at 10.044 million bbl/day. The numbers are considerably higher than the agency's preliminary weekly estimates of about 9.65 million bbl/day for last November. 

Crude-by-rail offloading terminal in WA suffers another set-back
Washington State Governor Jay Inslee has rejected Andeavor's Vancouver Energy Project, a rail-to-marine crude loading terminal. The project would see about 360,000 bbl/day of crude, primarily from the Bakkens, transported by train into the Port of Vancouver, WA, for shipment to other US refineries along the West Coast. Andeavor says the terminal will reduce America's reliance on foreign oil. The WA governor says his decision was based on concerns of seismic activity, oil spills and the potential for fire and explosions at the proposed facility. Andeavor says they are evaluating their options for the next step.

Exxon thanks President Trump (indirectly)
ExxonMobil announced plans to invest more than US$50 billion in the US over the next five years, thanks to "historic tax reform recently signed into law." CEO Darren Woods says this is in "complement" to the "substantial capital spending" already on the books domestically. These additional funds will be used to increase production out of the Permian Basin, expand existing facility, and improve infrastructure. Woods says this is good news for workers, Exxon shareholders and the American economy in general.

Trump looking for spots to save money
According to the Washington Post, the Trump administration will ask Congress to consider a substantial cutback in clean energy research spending. The Office of Energy Efficiency and Renewable Energy currently has a budget of US$2 billion, spent mostly on state grants and research into renewables. The 2019 budget proposal would see those funds slashed 72% to about US$575 million.

Striking oil in US GoM - Part 1
Chevron and Total announced a "significant oil discovery" at the Ballymore prospect in the deepwater US Gulf of Mexico. The field is located 3 miles from Chevron's Blind Faith platform, set to contain "excellent reservoir and fluid characteristics." Chevron is the majority owner (60%) and operates the field. The size of the find has yet to be confirmed.

Striking oil in US GoM - Part 2
Royal Dutch Shell also announced one of its largest finds in the US Gulf of Mexico this week, from the Whale deepwater well located in the Alaminos Canyon Block. The field is located about 10 miles from Shell's Perdido platform and is co-owned by Chevron. The size of the field has also yet to be confirmed. Shell says it has added more than one billion barrels of oil equivalent resources in the last decade in the Gulf of Mexico.


GLOBAL

OPEC's #2 supplier working on boosting output
Iraq says it plans to increase production at its giant Majnoon oilfield from the current 240,000 bbl/day to 450,000 bbl/day by 2021. Chevron, Total and PetroChina are rumoured to be working on a consortium-venture to take over operation of the field from Royal Dutch Shell, set to exit the facility by the end of June. According to Reuters, Iraq has a production capacity of 5 million bbl/day but is currently producing closer to 4.4 million bbl/day. 

Striking oil in the North Sea (again)
BP announced two major oil discoveries in the North Sea, one located in the Central North Sea and the other just west of Shetland. The size of the field is still under investigation but the company says it might be possible to tie the facilities back to existing infrastructure. BP says it expects to double production out of the region to 200,000 bbl/day by 2020 and keep producing beyond 2050. Despite the recent run-up in oil prices, BP says it has no plans to increase spending, insisting on keeping its breakeven costs below US$40 a barrel.

Shell does a Take 2 in Thailand ...
Shell announced the sale of its stake in a Thai gas field and adjoining acreage offshore Thailand to state-owned PTT Exploration for US$750 million. Last October, Shell tried and failed to sell the field to Kuwait Foreign Petroleum Exploration for US$900. The company says the two deals are not comparable so it will not give a reason for the discrepancy.

... and comes up roses in Mexico
Shell was the big winner in Mexico's lucrative offshore auctions this week's, winning nine deepwater blocks, jointly owned with partners Pemex and Qatar Petroleum. This is Mexico's largest auction since opening its energy sector to international oil majors, putting 29 blocks up for sale. A total of 19 blocks were sold in the end, potentially bringing US$93 billion in capital to the country. Mexico estimates it needs a sum closer to US$600 billion to bring production from the current 1.9 million bbl/day back to its 2004 peak of 3.4 million bbl/day.


NEXT WEEK'S EVENTS

Monday:

  • 2018 Energy Council of Canada: Energy Trade in North America kicks-off in Ottawa, ON

  • Q4/2017 earnings: Hess

Tuesday:

  • December trade balance data released by StatsCan @ 8:30am ET

  • API Weekly Statistical Bulletin released at 4:30pm ET

  • Q4/2017 earnings release: BP

Wednesday:

Thursday:

Friday:

  • January Labour Force Survey 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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