Canada: FMC's Overview Of Significant Developments In The Canadian Energy Industry - September, 2010

Last Updated: October 26 2010

Article by Doug Black Q.C., Anne Calverley Q.C., Douglas E. Crowther, Bill Gilliland, Alex MacWilliam, Rich Miller, Claude Morency, Cyrus Reporter, Ron Stuber and Helen T. Newland

Oil Sands News

1. Canadian Natural Resources reported September production of synthetic crude oil at its Horizon project of 108,800 bpd. Horizon production was 50,500 bpd in August and 93,300 bpd in July. The company has been engaged in maintenance at the project and stated that September production volumes were close to design capacity.

1. Connacher announced that bitumen production for its Pod One and Algar steam assisted drainage (SAGD) operations surpassed 12,000 bpd during September. Bitumen production at Pod One averaged nearly 6,700 bpd for the seven days ending October 2, 2010, with bitumen production at Algar averaging approximately 5,015 bpd for that same period. The company expects bitumen production volumes from Pod One to approach 9,000 bpd towards the end of this year.

1. Cenovus recently received regulatory approval to build Phases F, G and H of its Foster Creek in Situ Oil Sands operation. These additional Phases are expected to increase production to 210,000 bpd of bitumen from the current 120,000 bpd of bitumen. Each of the three phases will add an estimated 30,000 bpd, with production from the new phases anticipated to begin in 2014. Overall, the company anticipates its expansion program will result in a five‐fold increase in its oil sands production by the end of 2019. The company also discussed expansion initiatives at its Foster Creek and Christina Lake oil sands projects. Cenovus has also recently made an application for another oil sands project at Narrows Lake, for which it has partnered with ConocoPhillips.

1. Devon announced it will go ahead with its third SAGD project on its Jackfish leases in the Athabasca oil sands. Jackfish 3 still awaits regulatory approval, but the company expects to begin construction on the facilities towards the end of 2011, with a plant start‐up target of 2015. Jackfish 3 is expected to produce an average of 35,000 bpd of bitumen before royalties. The company stated that "Devon's oilsands projects provide visible, low‐risk oil production growth through the end of the decade while serving as a natural hedge to North American natural gas."

1. Total E&P Canada has received regulatory approval to construct and operate a 300,000 bpd upgrader in Strathcona County, Alberta. This approval is subject to conditions focused on sulphur recovery, emergency response, noise impact assessments, sound monitoring, and beginning construction prior to October 1, 2016. Total stated that it believes this additional upgrading capacity is necessary to match the projection for bitumen production in Alberta expected to surpass 3 million bpd by 2020.

1. Royal Dutch Shell, operator of the Athabasca oil sands project, announced the start of production of a 100,000 bpd expansion of its oil sands operations at Jackpine. The company stated that the new mine is one of a series of major projects that is expected to raise Shell's global oil and gas production by 11%.

1. BA Energy, a subsidiary of Value Creation Inc. (VCI), has filed an application with the Energy Resources Conservation Board (ERCB) to build a pilot SAGD project producing 1,000 bpd on its TriStar leases in the Athabasca oilsands area. This new upgrading technology aims to simplify the complexity of the production process by directly upgrading the SAGD wellhead slurry of bitumen emulsion, which means refiners can process the modified crude and avoid double processing in the upgrader

East Coast News

2. WorleyParsons has been awarded a contract by ExxonMobil Canada Property in front‐end engineering and design on the Hebron oil project under development offshore Newfoundland‐ Labrador, and the option, at ExxonMobil's discretion, to subsequently provide engineering, procurement and construction services. Hebron is a heavy oil field in the Jeanne d'Arc Basin and is estimated to have 400‐700 million bbls of recoverable resource. The project's partners include ExxonMobil (36%) Chevron Canada Resources (26.7%), Suncor Energy Inc. (22.7%), Statoil Canada (9.7%) and Nalcor Energy (4.9%).

3. Encana is forecasting first gas from its Deep Panuke project offshore Nova Scotia for Q3 2011. Encana's production estimates for the project are 200‐300 mmcfpd for at least the next decade when it comes onstream.

West Coast News

The British Columbia Oil and Gas Commission reported that, for the ninth straight year, the province's established remaining reserves of raw natural gas have increased. The Commission stated, "B.C. is experiencing its highest ever yearend remaining raw gas reserves due to industry exploration and improvements in technology." The commission report states that British Columbia has 658 billion cubic metres (about 23.4 tcf) of remaining raw gas reserves, up from 605.3 billion cubic metres (21.5 tcf) at the end of 2008. The Commission explained that "[t]here has been a decrease in drilling activity, but an increase in overall established reserves, which really highlights the significance of B.C.'s unconventional gas reserves and signifies potential for increased activity in the coming years."

4. Canada Energy Partners has recently completed drilling operations on a horizontal Montney well located in northeast British Columbia on its Peace River project. The well has been cased pending a completion test expected to occur during the month of October. The operator, Crew Energy, has planned a nine‐stage frac job for the well.

Canadian Arctic News

Canada's National Energy Board (NEB) has announced the details of a broad Arctic offshore drilling review that will address topics such as: drilling safely while protecting the environment, effective response when things go wrong, learnings, and environmental regulation for offshore drilling, including filing requirements. The review, which will begin this fall and be conducted in three phases, will examine the best available information on hazards, risks and mitigation measures associated with offshore drilling in the Canadian Arctic.

The federal Environment Department has announced that the governments of Canada and the North West Territories and the Joint Review Panel (JRP) for the proposed Mackenzie gas project have come to an agreement intended to allow the "consult‐to‐modify" process to proceed in a timely manner, reinvigorating the regulatory process for the project. Following receipt of comments from the JRP relating to a review of the federal government's interim government response (IGR), the governments will consider the JRP's comments and, where appropriate, revise the IGR and submit it to the NEB. It will take approximately a month following receipt of the government's final report for the NEB to make a final decision on the proposed $16.2 billion project.

Alternative Energy News

5. Suncor announced that it is moving forward with construction of the 88 MW Wintering Hills Wind Power Project. Suncor has signed a Joint Venture Agreement with Teck Resources, pursuant to which Suncor will own a 70% interest in and operate the project. The project, which will be located southeast of Drumheller, Alberta, received regulatory approval on June 7, 2010, and is expected to be complete at the end of 2011.

The Canadian Wind Energy Association's (CanWEA) projection for investment this year by wind power developers in Canada is $1.7 billion to install 754 MW of additional wind energy capacity.

On the Horizon

The Conference Board of Canada released its Canadian Industrial Outlook: Canada's Oil Extraction Industry – Summer 2010 report in which it stated that the upward trend of crude production and profits resulting from the revival in global demand and rising prices will allow oil companies in Canada more success this year and on into 2014. The Conference board estimated that crude prices will reach U.S.$117 in 2014 based on a prediction that global demand will steadily rise over the course of the next few years.

Increased activity in the coming winter season, compared to the past few years, is expected by geophysical contractors as a result of a variety of factors which include renewed investment interest in the oil sands and a continuing interest in shale gas. The majority of seismic jobs are found in Alberta, but some geophysical companies are now also doing work in Quebec, Nova Scotia and New Brunswick. Provided there is a reasonable freeze‐up, the busy season for seismic companies should begin around mid‐ December.

ABBREVIATIONS

In this newsletter, all dollar amounts are Canadian dollars unless otherwise stated. We have also used the following abbreviations: bpd ‐ barrels per day; mmcfpd ‐ million cubic feet per day; bcfpd ‐ billion cubic feet per day; tcf ‐ trillion cubic feet; bbl ‐ barrel; mbbl ‐ thousand barrels; mmbbl ‐ million barrels; bbbl ‐ billion barrels; boe ‐ barrels of oil equivalent; MW – megawatts; kV – kilovolt; km – kilometre.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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