January 2010

[Ally]

Can Stelmach make amends?

CALGARY -- Oil executive Barry Olson is unapologetically harsh when he describes the mess Alberta Premier Ed Stelmach has made with the province`s royalty regime. There is distrust, he says bluntly, in Calgary and on Bay Street and Wall Street over the government`s handling of the royalty structure, which has been amended five times since it underwent a major overhaul in late 2007.

"I`m putting it politely when I say [the relationship between the government and the energy industry] is strained," said Mr. Olson, chief executive of Orleans Energy Ltd., a Calgary-based junior.

"The [energy] industry and the investment community feel there`s a substantial lack of credibility with regards to past measures that have been put in place that are short-term in nature and don`t really address a long-term] solution for Alberta to remain competitive."

Mr. Stelmach may soon have a chance to redeem himself.

Within weeks, the competitive review the Conservative Premier instructed his energy department to conduct will be in his hands. The review was announced this past summer when it became clear the downturn in the economy, coupled with prolific sources of unconventional natural gas, such as shale gas fields, substantially changed the energy industry.

The review may prompt the government to rewrite Alberta`s royalty deal, with the hope that oil and gas companies that left the province to take advantage of British Columbia and Saskatchewan`s more attractive royalty rates will return.

Read the full article here.

 

[Ally]

Canadian Natural sticks with oilsands projects

CALGARY - Canadian Natural Resources Ltd. expects to move forward with two major oil sands projects this year, extending a string of recent developments in the sector as industry conditions improve with higher oil prices and falling costs.

John Langille, vice-chairman of Canadian Natural, the country`s largest independent oil explorer, said the company aims to announce by the end of this year how it will proceed with the expansion of its Horizon oil sands project in northern Alberta.

The first phase of Horizon, which started producing synthetic crude from mined oil sands last year, should be pumping reliably at its 110,000 barrel a day design rate by the middle of 2010, after start-up pains are ironed out, Mr. Langille said.

Long-term plans call for output of about 250,000 barrels a day at the project.

"In 2010 we will look at all the methods of execution to get to that level," he told investors at a conference in Whistler, B.C. "And I think, hopefully by the end of 2010 ... we`ll be at a point where we`ll sanction the next expansion, and what terms that will be and how we`ll go about it, and the size of it, et cetera."

The first phase of the project cost $9.7-billion to build, following several overruns as the Alberta construction scene became overheated with companies rushing to develop oil sands projects.

Read the full article here.

 

[Ally]

Nisku factory moving to Ontario

A company that makes heavy industrial conveyor belt parts for the oilsands is moving its Nisku manufacturing operation to Ontario after 35 years.

Precismeca Ltd. is the third longtime oilpatch service company in less than a month to pull up stakes. The move is expected by summer.

It hopes to take advantage of lower labour costs and greater availability of skilled workers in Ontario.

Precismeca CEO Joe Hartney was out of town Thursday and not available for comment.

Mike Slade, past chairman of Leduc-Nisku Economic Development Authority, said Precismeca, like many manufacturers, is feeling the pinch of trying to compete with oilpatch wages. And with many of its materials, including steel tubing, coming from Ontario, it decided to take advantage of that province`s incentives, huge labour pool and empty buildings, Slade said.

But the Nisku building likely won`t be empty for long, he said. "I have a feeling local real estate companies are quite happy another property has become available."

Read the full article here.

 

[Ally]

Oilsands stage $8B rebound in 2010

More signs of Alberta`s oilsands revival emerged Thursday, as revived plans moved forward to push the spending tally past $8 billion less than a month into 2010.

Canadian Natural Resources Ltd. says it expects to give the go-ahead for a pair of projects, while Cenovus Energy Inc. has already given the green light to another expansion.

The moves add an estimated $2.5 billion in oilsands spending to nearly $6 billion in plans unveiled earlier this week.

"We`re out of the doldrums," said Bob Dunbar, president of oilsands consulting firm Strategy West.

"There is quite a bit of activity underway."

The news follows announcements this week by Husky Energy, moving forward with its $2.5-billion Sunrise oilsands project, and approvals by Total and ConocoPhillips for an expansion of the Surmont operation, estimated to cost about $3.3 billion.

"It is a vote of confidence," said Randy Ollenberger, analyst with BMO Capital Markets in Calgary.

Read the full article here.

 

[Ally]

Yedlin: What`s different in the Oilands?

Is the resurgence in oil sands activity too good to be true? This week alone has seen three projects announce plans for expansion – Surmont, Sunrise and Horizon. This, on the back of Kearl Lake receiving the green light last year, Voyageur starting up again and Foster Creek and Christina Lake setting out plans for growth.

A year ago this would have been impossible to consider. Oil prices were sliding, projects were being slammed into neutral and the associated layoff announcements seemed a daily occurrence.

What`s changed?

For starters, while oil prices are almost double where they were at this time last year and are expected to stay between the $70 and $80 US per barrel range in 2010, projects are never given a green light based on a 12-month commodity price outlook.

The decisions announced this week underscore the long-range macro supply and demand analysis that has been consistently showing that the oil sands are going to play a significant role in meeting global energy needs in the future – especially those of Canada`s neighbor south of the border. The consequences of not investing increases the likelihood of price spikes that may temporarily boost bottom lines but are damaging from the perspective of global economic growth.

The fact the green light has been given to all these projects also shows costs have dropped dramatically from 2006, as well as the fact that the capital markets are open to financing the energy sector again.

Read the full article here.

 

[Ally]

CNRL plans launch for oilsand projects

CALGARY - Canadian Natural Resources Ltd., said Thursday it expects to give the go-ahead to a pair of oilsands project later this year.

But president John Langille said Thursday the firm is not concerned that costs will start to soar again, with other oilsands projects also now starting to move forward. Earlier this week, Husky Energy said it will move ahead with its Sunrise oilsands project, while Total and ConocoPhillips approved a four-fold expansion of its Surmont operation.

Those projects, as well as Kirby, are in situ, meaning the resource is recovered by drilling wells and injecting steam to heat and pump out the tar-like bitumen.

In situ projects didn`t experience the same cost escalations as oilsands mining projects, Langille said.

"Those projects still had reasonalbe good handle on the costs," he told an investment conference in Whistler. B.C.

Read the full article here.

 

[Ally]

Will Alberta cut royalty rates?

The hot rumour in the oil patch on Friday has the Alberta government preparing to dramatically scale back its controversial royalty tax rate.

The speculation on equity desks at the dealers - and this is just traders talking - is that Premier Ed Stelmach will chop the royalty tax rate to 35 per cent from 50 per cent. Again, this is just rumour, but chatter in Calgary circles has the policy shift being directed primarily at natural gas producers. Alberta is expected to announce the change in rates by the end of the month.

Any cuts in Alberta`s royalty rate would likely spur exploration, which would benefit drillers and oil field services firms, along with oil and gas companies.

Read the full article here.

 

[Ally]

Why the U.S. needs all the tar sands oil it can get

Governor Arnold Schwarzenegger and his Midwestern colleagues had better think twice before banning carbon-dirty fuels such as the oil made from Canadian tar sands. If they don`t like the fuel Canada has to offer, their only other choice is to get off the road entirely.

Like it or not, synthetic oil from Alberta`s tar sands is going to figure ever larger at American fuel pumps in the future (provided that it isn`t siphoned off to China by a pipeline to the west coast first).

American oil demand may be diminishing as more and more drivers take the exit lane, but available supply is shrinking even faster. Domestic production, formerly 10 million barrels per day, is already down by half. The longer the U.S. economy has run on oil, the more dependent it has become on energy imports. Only finding those imports is becoming more challenging all the time.

Sources of oil from Mexico are already collapsing, and in a few years` time that country will cease exporting it at all. The flow of oil at its once-huge Cantarell field, representing almost half the country`s oil production, will soon slow to a fifth of its former peak rate.

And I hope Governor Schwarzenegger isn`t counting on Venezuela, the western hemisphere`s other major oil producer, to fill that gap. The only additional production that country will have to offer is from its Orinoco tar sands, the same stuff he says is too dirty to take from Canada. Moreover, fueling carbon-conscious gringos in California as they cruise down their sprawling freeways probably doesn`t rank high on President Hugo Chávez`s to-do list.

Read the full article here.

 

[Ally]

Economic revival sweeping Western Canada

Mere months after Alberta took the crown as Canada`s fastest-growing home to the unemployed, the province finds itself at the heart of an economic revival that is sweeping Western Canada.

Confidence has come roaring back to the resource sector that dominates the western provinces, as new hope for global economic growth fuels optimism that the see-saw of the past few years has given way to a more stable future for crude, metals and fertilizer.

All of that has translated into a sudden upshift on the levers of investment in Western Canada, as corporate leaders who have spent the past year biding their time and refining their plans now move billions of dollars to seize a moment for which they`ve been waiting. The latest came Thursday, when Canadian Natural Resources Ltd. (CNQ-T70.31-0.01-0.01%) said it is nearing a major new spending outlay in the oil sands .

"The West is on fire," said Adam Waterous, Scotia Capital`s Calgary-based head of global investment banking . "It`s fantastic news for the country. These are big, big projects that are going to get developed. And there`s no question that the West is going to lead the country out of the recession."

The change has been propelled largely by signs of an economic recovery and forecasts of accelerating growth, which all point to renewed demand for the products the West has to offer.

Read the full article here.

 

[Ally]

Oilsands not returning to overheated development, analysts say

A revival of interest in Canada`s oilsands has yet to spark worries of a return to the overheated development that fuelled painful cost overruns and construction delays before the recession.

In fact, a little inflation would be good for the northern Alberta region`s oil and gas industry, which saw $90 billion worth of projects shelved as crude prices tumbled in the downturn of 2008 and 2009, one industry official said.

Several big-name companies said last week they plan to move forward with projects in the oilsands, the biggest crude oil reserve outside the Middle East, where the construction sector is now operating well under capacity.

"In terms of inflation, my view is the economy could use a little growth. It`s a positive thing," said Don Thompson, president of the Oilsands Developers Group, an association that deals with industry issues. "And I would expect that the rate of growth would not be as rapid as we previously saw and so I think that inflationary concerns are not an issue right now."

It was a busy week. On Tuesday, ConocoPhillips and Total SA said they will proceed with the second phase of their Surmont project, which will quadruple output to 110,000 barrels a day.

The following day, Husky Energy Inc and BP said they were nearly ready to proceed with their $2.5-billion Sunrise project after taking the past year to find ways to work down the costs.

Read the full article here.

 

[Ally]

Analysis: Inflation not worrying the reviving Canada Oil Sands

CALGARY, Alberta, Jan 26 - A revival of interest in Canada`s oil sands has yet to spark worries of a return to the overheated development of the sands that fueled painful cost overruns and construction delays before the recession.

In fact, a little inflation would be good for the northern Alberta region`s oil and gas industry, which saw C$90 billion ($85 billion) worth of projects shelved as crude prices tumbled in the downturn of 2008 and 2009, one industry official said.

Several big-name companies said last week they plan to move forward with projects in the oil sands, the biggest crude oil reserve outside the Middle East, where the construction sector is now operating well under capacity.

"In terms of inflation, my view is the economy could use a little growth. It`s a positive thing," said Don Thompson, president of the Oil Sands Developers Group, an association that deals with industry issues. "And I would expect that the rate of growth would not be as rapid as we previously saw, and so I think that inflationary concerns are not an issue right now."

It was a busy week. On Tuesday, ConocoPhillips <COP.N> and Total SA <TOTF.PA> said they will proceed with the second phase of their Surmont project, which will quadruple output to 110,000 barrels a day.

The following day, Husky Energy Inc <HSE.TO> and BP Plc <BP.L> said they were near ready to proceed with their C$2.5 billion Sunrise project after taking the past year to find ways to work down the costs.

Read the full article here.

 

[Ally]

Suncor Energy climbs to 22nd spot on global list of energy companies

CALGARY - Canada`s biggest energy companies traded places last year, but the larger one still wound up at No. 22 on a list of the 50 most valuable energy companies in the world by market capitalization.

In an odd coincidence, the PFC Energy 50 list shows that Canada`s top energy company as of Dec. 31 was Suncor Energy Inc. -- fattened through the absorption of Petro-Canada last year -- in exactly the same position as EnCana Corp. 12 months earlier, before it spun off Cenovus Energy Inc.

The skinnier EnCana fell to 45th on the list compiled by the Washington-based energy consultants. Suncor had been 37th.

No Canadian company has cracked the top 20 since 2005, when EnCana was 17th, and local analysts agreed it seems unlikely one will any time soon.

"The bigger conglomerates, the bigger integrated entities are well established throughout the world," said Andrew Boland, head of research for Peters & Co. in Calgary.

"Most of our homegrown companies have tended to stick closer to home. There may be a time when Suncor or Canadian Natural grows to that size, or even EnCana and Cenovus but, for now, when the world is your opportunity set, there`s a lot to choose from and, if you`ve had decades to build the company, you`re probably going to be up there."

Read the full article here.

 

[Ally]

Alberta keeps edge as Venezuela`s oil reserves surge

The numbers sound huge, but what do they mean? That`s the big question after the United States Geological Survey bumped up the heavy oil reserves in Venezuela`s Orinoco region to 513 billion "technically recoverable" barrels.

The agency said this mother-lode is "the largest accumulation ever assessed by the USGS." But it`s unlikely to change the world rankings of oil producers.

On the industry-accepted Oil & Gas Journal list, Saudi Arabia comes first, with 264 billion barrels of largely easy flowing crude, followed by Canada`s 175 billion barrels of oil, mostly from the oilsands. With 99 billion barrels, Venezuela trails Iran, Iraq and Kuwait.

"It all depends on how you count your reserves, and in Canada our data are open, transparent and reviewable. You can even look at the drilling logs and core samples," Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, said Monday.

Canada`s tally starts off with the 1.7 trillion barrels in place. Technology challenges in recovering the tar-like bitumen drop the recoverable number to 311 billion barrels, and the hard economics of bitumen recovery drive that down further to 170 billion barrels. All projects currently running have reserves of 21 billion barrels.

Read the full article here.

 

[Ally]

Drilling outlook brightens in Alberta

Alberta`s improving exploration outlook has boosted the number of Canadian oil and gas wells expected to be drilled this year, but the numbers remain mired near the lowest level since 1992.

The Petroleum Services Association of Canada on Wednesday predicted 9,000 wells will be drilled in 2010, an increase of 1,000, or 12 per cent, from its original 2010 forecast released in early November. It`s slightly higher than 2009, which was the lowest since 1992, when 4,680 wells were drilled.

In an earlier forecast, the Canadian Association of Oilwell Drilling Contractors predicted 8,523 wells will be drilled this year. Investment bank Peters & Co. recently updated its 2010 forecast to 11,000 wells in Western Canada.

Petroleum Services Association president Roger Soucy said an unexpected squall of activity in Alberta in the fourth quarter of 2009 is expected to carry on through the peak winter drilling season, when frozen ground allows better movement of equipment in the backcountry of Western Canada.

"In the last quarter of 2009, there were almost 500 more wells drilled than we had forecast in early November," he said. "So what we`ve done is extrapolate those numbers forward.

Read the full article here.

 

[Ally]

Shale worries rattle investors

A group of shareholders who focus on the environment said Tuesday they are targeting companies operating in the Marcellus shale to ensure development of natural gas does not pollute or endanger human health.

The shareholder proposal campaign, aimed at 12 companies, including Chesapeake Energy Corp., EOG Resources Inc. and Exxon- Mobil Corp., was sparked by mounting worry about chemicals used in a process to extract gas from rock called hydraulic fracturing, the groups said.

"There is real business risk here," said Larisa Ruoff , an offi cial with the $100-million US Green Century Funds. "Companies and regulators must ensure this development is done in a way that protects the environment and drinking water."

Hydraulic fracturing -- where water, sand and chemicals are pumped into formations at pressures high enough to crack the rock and allow gas to escape -- has helped fuel a drilling boom in the United States.

That technology and others have allowed companies to tap vast supplies of natural gas locked in big formations such as the Marcellus shale, which spans parts of New York, Pennsylvania and West Virginia.

But environmentalists and critics say the drilling chemicals have polluted aquifers in Pennsylvania and Colorado and can cause cancer and other serious illnesses.

Read the full article here.

 

[Ally]

Alberta drillers still climbing out of a hole

Alberta`s improving exploration outlook has boosted the number of Canadian oil and gas wells expected to be drilled this year, but the numbers remain mired at the lowest level since 1992.

The Petroleum Services Association of Canada on Wednesday predicted 9,000 wells will be drilled in 2010, up 1,000 or 12 per cent from its original 2010 forecast, released in early November. It`s also slightly higher than last year`s total -- but that was the lowest since the 4,680 wells drilled in 1992.

In an earlier forecast, the Canadian Association of Oilwell Drilling Contractors predicted 8,523 wells would be drilled this year. Investment bank Peters & Co. recently updated its 2010 forecast to 11,000 wells in Western Canada.

PSAC president Roger Soucy said unexpected activity in Alberta in the fourth quarter of 2009 is expected to carry on through the peak winter drilling season, when frozen ground allows easier movement of equipment.

"In the last quarter of 2009, there were almost 500 more wells drilled than we had forecast in early November," he said. "So what we`ve done is extrapolate those numbers forward.

Read the full article here.

 

[Ally]

Drillers face labour shortage

A new set of hopeful oil and gas drilling predictions could be stymied by an unexpected labour crunch in Canada`s oil field service industry.

After a year spent laying off huge swaths of their work force , oil patch drillers are now so strapped for qualified workers that they have begun aggressive advertising in places such as the East Coast. Some companies are even being forced to say no to much-needed work.

"We`re out of people," said Duane Mather, the president of Nabors Canada, one of the largest drilling companies in the country. "We`re turning jobs down that we have equipment for because we can`t hire qualified people."

The worker shortage illustrates the problems caused by the dramatic crash into recession, which saw Nabors, for example, slash its personnel count to 1,200 from about 3,500. Now that a recovery has begun - one industry group boosted its 2010 drilling forecast by 12 per cent yesterday - companies are having trouble cashing in.

"We`ve called back everybody that we laid off, and the door is wide open. The advertising is going on in every place we ever hired people during those boom times," Mr. Mather said.

Read the full article here.

 

[Ally]

Korea National Oil puts Canada on its radar

Korea National Oil Corp. (KNOC), sitting on a multi-billion-dollar warchest, is setting its sights on Canada as the state-owned company aims to ramp up production and catch up to Asian rivals.

Seoul said this month that cashed-up KNOC will spend $6.5-billion (U.S.) on M&A in 2010 in an effort to cut South Korea`s almost total dependence on imported oil. That goal will put the company in direct competition with Asian energy giants such as PetroChina, Malaysia`s Petronas, and India`s ONGC.

KNOC may be eyeing assets offered by such Canadian companies as its top oil firm Suncor Energy (SU-T) , No.2 independent petroleum producer EnCana Corp. (ECA-T) and No.3 independent oil explorer Talisman Energy (TLM-T) , UBS said in a recent report.

In addition, Canadian oil sands company Opti Canada (OPT-C) and its peer Nexen Inc. (NXY-T) are seen as potential acquisition targets. Their shares moved up as recently as late last year on speculation of bids from Chinese energy giants. So far, no public offers have emerged.

"KNOC, Sinopec – they are all here and they are all looking at Canadian oil and gas," an investment banker at a major Canadian bank told Reuters. "I guarantee you will see some M&A activity in Canada this year. The government is being very welcoming."

Read the full article here.

 

[Ally]

Alberta Oilpatch vital to nation, group says

CALGARY - Western Canada`s oil and gas sector is a vital national industry that is underpinning the fiscal framework of the country, according to a report to be issued today by the Canada West Foundation dubbed Look Before You Leap: Oil and Gas, the Western Canadian Economy and National Prosperity.

As such, care must be taken not to impose economic and environmental policies that could unintentionally damage other regions and the country as a whole, said Roger Gibbins, the think-tank`s president and chief report author.

Unduly harsh greenhouse gas reduction targets, for example, would have a ripple effect that could hurt manufacturing in Ontario, employment in Newfoundland and transfer payments to provinces like Quebec.

Gibbins said too many people in the rest of Canada think that penalizing the energy industry will confine negative economic impacts to Alberta and the West. Although the West accounts for slightly more than half of Canada`s greenhouse gas emissions, there are "better and worse ways" to reduce them without negating the economic benefits of the energy sector, he said.

"To focus only on the production side, you target the western Canadian and the Alberta economy. I think that`s fundamentally wrong. There`s nothing really rocket science to this; it`s really a cautionary message," Gibbins told the Herald ahead of the report`s release. "The more immediate crisis is to the fiscal relationships that have been built in this country."

Read the full article here.

 

[Ally]

Government mulls Alberta bitumen royalty plan projects

EDMONTON — A $4-billion bitumen upgrader project near Edmonton is first out of the gate under Alberta`s modified royalty regime.

The North West Upgrading plant near Redwater became a 50/50 joint venture Thursday after it was revealed that oilsands giant Canadian Natural Resources will supply some bitumen feedstock and financial support.

The joint venture, which would employ up to 3,000 construction workers in each of its three planned phases, is almost ready to go, said North West chairman Ian MacGregor.

"We have more detailed engineering to do, but could sink piles this fall and start major work in 2011 with an opening in 2013."

The upgrader would be a big shot in the arm for Alberta`s Industrial Heartland, said Don Rigney, mayor of Sturgeon County, site of the proposed project.

"It`s huge. We`ve really been pushing for value-added (projects) in Alberta. This means many long-term jobs as well as billions of dollars over the life cycle to both the Alberta and federal governments in taxes and the GDP it generates."

Read the full article here.