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March 11, 2010

by Jeff Lewis

The Stelmach government at long last announced the results of its much ballyhooed "competitiveness review" today, Thursday March 11, at a news conference in Calgary. "We are not announcing a new royalty framework," stressed energy minister Ron Liepert, who joined premier Ed Stelmach in presenting the results of a months' long consultation with the oil and gas industry. Instead, tweaks were the order of the day. In brief, recommendations are as follows:

• The current five per cent, front-end  incentive for natural gas and conventional oil wells will become a permanent feature of the royalty regime.
• The maximum royalty rate for conventional oil will be reduced from 50 to 40 per cent effective Jan. 1, 2011
• The maximum royalty rate for conventional and unconventional natural gas will be reduced at higher price levels (the exact threshold remains a question mark) from 50 to 36 per cent effective Jan. 1, 2011.
• The bottom rate for both will remain at five per cent.
• Exact royalty curves will be finalized by May 31.

On the regulatory side, there was a lot of talk about unburdening industry from the status quo. "I regret we didn't start acting on it back in 1995," Liepert said in response to a question about whether the government thought it should have overhauled the regulatory process earlier. Among other changes anounced, expect the ERCB to streamline the process for harmonizing well spacing. In addition, a task force has 90 days to report back on ways to further slash red tape.

The premier and energy minister were asked about shale gas, but said little to indicate a B.C. style incentive program was in the works. Stelmach noted U.S. shale supplies are "putting a lot of pressure on us" because the province is shipping less of its traditional supply south of the border.

On a general note, Liepert said Alberta's oil and gas sector is poised to contribute $2.5 trillion to the provincial GDP over the next quarter-century. He stressed that the changes announced wouldn't impact the government's pledge to balance the books by 2012-13.

March 1, 2010

by Jeff Lewis

An interesting, though hardly impartial, take on the so-called dead duck fiasco appeared in this morning's Edmonton Journal. Oil sands consortium Syncrude is in a St. Albert courtroom today for the first day of a two-month trial stemming from charges filed after 1,600 water fowl perished in one of its tailings ponds two years ago.

If convicted, the company could be fined up to $500,000 under Alberta law and up to $300,000 with a six month jail sentence for executives under federal penalties. Momentarily eschewing the fence-sitting vantage common to his trade, reporter Darcy Henton speculates that the ducks could very well be the canaries of the tar pits.

Could be, but there's a sense, too, that the bird brouhaha obscures the forest for the trees. The controversy hasn't, for example, prompted a dramatic rethink among firms looking to capitalize on Alberta's energy assets. Nor has it caused foreign investors to lose sleep.

Korean National Oil Corp. certainly isn't coasting. The firm snapped up Calgary-based Harvest Energy for $1.8 billion last October, and is poised to spend upwards of $6.5 billion more on foreign acquisitions this year, according to the Journal's Gary Lamphier.

In fact, evidence suggests it's business as usual in the bitumen belt. More than a dozen projects - the majority of them using comparatively benign in situ extraction methods - have come off the shelf in recent weeks.

Elsewhere, another Asian entity, Korea Gas Corp., recently gained a $1.1 billion toehold in the shale gas plays of northeastern B.C. The firm expects to extract a trillion cubic feet of gas from a tract of land owned by EnCana Corp. of Calgary, the Globe and Mail reports.

The move is no doubt bolstered by plans to build an export terminal at Kitimat, B.C. Korea Gas has a 40 per cent stake in designs for the $3 billion export hub, which is being developed by Kitimat LNG Inc. and has also attracted investment from U.S. gas producer Apache Corp.

What does Syncrude's day in court amount to? A blemish, sure, but development could well trump duck deaths as western Canada increasingly becomes a target for energy-hungry Asian tigers.

February 3, 2010

by Jeff Lewis

A flurry of projects have been revived since Jan. 1, 2010; interestingly, the majority use in situ technology. Here's a round-up:

• Husky Energy Inc. is proceeding with its $2.5 billion Sunrise oil sands project in northern Alberta. The firm announced Jan. 20 that it had completed front-end engineering and design work for the project's first phase, which company officials say will yield 60,000 barrels per day using Steam Assisted Gravity Drainage (SAGD) technology. Well pads are being built and site prep for central facilities continues, with construction anticipated to start in the second half of 2010. Phase 1 production will begin in 2014. Husky estimates Sunrise contains 3.7 billion barrels of proven reserves.
• Total E&P and ConocoPhillips Canada announced Jan. 19 that the second phase of the Surmont oil sands project is moving ahead. Initial construction will begin in 2010. Gross production is pegged at between 27,000 and 110,000 barrels per day using SAGD technology. Phase 2 won't begin production until at least 2015. It's expected Surmont will yield 2,500 construction jobs and 300 permenant operating positions.
• Despite fears of renewed labor shortages, Canadian Natural Resources Ltd. has given a green light to its Horizon and Kirby projects. The Horizon mine began producing last year and is expected to ramp up to 110,000 barrels per day. CNR expects Kirby, yet another in situ operation, to produce 45,000 barrels per day, but it must first gain regulatory approval.
• Meanwhile, Royal Dutch Shell, in spite of acitivty at Scotford and its Muskeg River Mine, was labelled a black sheep after the company signalled it would look to conventional energy projects for new production. Plans to scale oil sands production from a 250,000 bpd outlook to 700,000 bpd have been shelved. Still, the firm is seeking regulatory approval to expand operations (from 12,500 bpd to 80,000 bpd) at Carmon Creek north of Peace River, the Edmonton Journal reports. Following the pullback, Calgary Herald columnist Deborah Yedlin argued Shell was out of step with the oil patch.
• Suncor is moving ahead on Firebag 3, another in situ effort. Work is also progressing on the first stage of ExxonMobil and Imperial Oil's $8 billion Kearl megamine.
• A smaller firm, Calgary-based Osum Oil Sands Corp., is seeking regulatory approval for a 35,000 bpd in situ project in Cold Lake.

February 2, 2010

by Jeff Lewis

Canada's biggest energy company, Suncor Energy Inc., posted a $457 million profit in the final quarter results from 2009, the Globe and Mail reports.  The figure is below analyst expectations, but improves on a net loss of $215 million in the fourth quarter of 2008.

Suncor CEO Rick George said the firm will continue to shed assets (between $2 billion and $4 billion) in 2010 following its merger with Petro-Canada last August. The company earned 29 cents per share in the final three months of 2009.

The results follow news that Canadian Oil Sands Trust, which boasts the largest stake in a Syncrude Canada Ltd. oil sands partnership, suffered a 23 per cent drop in fourth quarter profit over 2008 results. The profit slide comes amid oil prices that averaged $76.13 U.S. throughout the quarter.

February 1, 2010

by Jeff Lewis

U.S. lawmakers appear to be playing hide-and-seek with cap-and-trade legislation. Following last week's State of the Union address, in which President Barack Obama renewed his call for tough action on the climate file, the federal government has included a 'placeholder' in its $3.8 trillion budget proposal for revenue generated by cap-and-trade provisions.

The Obama administration is championing a net-zero appraoch to emission reduction legislation, the NY Times reports. A climate bill currently making the rounds would increase government revenues by $873 billion through 2019 but would cost $864 billion to implement.

Revenue would stem from the auction of carbon credits. But, the Times points out, the government has yet to fully endorse a cap-and-trade system for reducing emissions, and it remains unclear  how emission allowances would be divided or what percentage of credits would be auctioned.

The president's address also included an olive branch for Republicans favoring nuclear power and increased offshore oil exploration. Whether or not nuclear enters the climate debate in a significant way remains to be seen. In Alberta, the greenest power of them all remains in limbo, although a new report from the University of Alberta's Environmental Research Studies Center has attached a $9.4 billion price tag to the Bruce Power proposal in Peace River.

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