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

Last Updated: November 22 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. 2. Petrobank Energy recently acquired Baytex Energy and Shell Canada's respective 50% interests in the Kerrobert and Dawson projects. This acquisition adds 41 million barrels of conventional heavy exploitable oil to Petrobank's reserves. The company has started development of its Kerrobert phase 1 expansion for which regulatory approval was received on August 6th. Production is projected to begin during the second quarter of 2011.

1. The Energy Resources Conservation Board (ERCB) has approved the development plan put forth by BlackPearl Resources for its polymer flood project at Moonie. The company's Black Rod project, a steam assisted gravity drainage (SAGD) project, was also approved. BlackPearl will begin its polymer injection during early 2011 and anticipates oil production 6 to 12 months thereafter.

1. Cenovus recently reported that its Foster Creek and Christina Lake in‐situ oil sands projects increased production by 25% in the third quarter of 2010 when compared to last year. Cenovus' production before royalties at Foster Creek was 50,269 bpd of bitumen during the third quarter of this year, and is expected to rise to 52,000 bpd during the fourth quarter with a yearly average of 51,000 bpd. At the Christina Lake project, the company's production before royalties was 7,838 bpd of bitumen during the third quarter, and is expected to average 7,800 bpd during the fourth quarter with a yearly average of 7,700 bpd. The company has also reported that it has received regulatory approval for the expansion of its project at Foster Creek, which will increase the production capacity at the project from 120,000 bpd of bitumen to 210,000 bpd. Additions at Christina Lake are estimated to add 40,000 bpd of bitumen production capacity.

1. Southern Pacific Resource Corp. announced that its STP‐McKay thermal project has received government approval for expansion. The McKay project will be a 12,000 bpd bitumen design, utilizing SAGD as its recovery mechanism. The company reported that the estimated amount of proven plus probable reserves suggests a 50 year reserve life for the facility. The company stated that, having worked on McKay for almost 3 years, it is now prepared to move ahead with the final financing and construction of the project.

1. Suncor reported that its oil sands production during September averaged approximately 264,000 bpd, with its year‐to‐date oil sands production averaging approximately 269,000 bpd at the end of September. The company is aiming to produce 280,000 bpd (plus or minus 5%) for the year 2010. Production numbers include upgraded sweet and sour synthetic crude oil and diesel, as well as bitumen, from all Suncoroperated facilities.

1. SilverBirch Energy has announced plans to drill 40 to 50 wells starting in February 2011 on its Frontier and Equinox projects. The company will file regulatory applications for the projects in 2011.

1. InterPipeline Fund announced that it has entered a 20‐year agreement to transport diluent to the Sunrise project being developed by Husky and BP. The company will invest $15 million to build a pipeline with 30,000 bpd capacity connecting the Sunrise project to the Edmonton market hub. InterPipeline Fund has also secured a similar contract with Imperial and Exxon Mobil for the Kearl project.

East Coast News

3. Hibernia oil field, Canada's largest producing offshore oil project located off the Atlantic Coast, is now estimated to contain 1.395 billion bbls of oil, a 12% increase from the 2006 estimate. Exxon Mobil‐led Hibernia Management and Development Co. recently received board approval to develop the Hibernia Southern Extension, which is estimated to contain 167 million bbls.

4. St. John's‐based Canadian Imperial Venture Corp. is exploring opportunities to add value to its shale oil resource by capturing and using the natural gas associated with the recovery process. Stantec Consulting has been hired to do a scoping study of the costs and benefits associated with the concept, which is consistent with the growing trend among energy producers to capture the maximum possible value in the upstream energy chain.

West Coast News

5. Painted Pony Petroleum has announced a discovery in the middle Montney interval of northeast British Columbia. The company holds a 20% interest in the discovery well with a capability to flow at approximately 7.5 mmcfpd. The middle Montney, present across Painted Pony's entire Montney land base, had not previously been tested horizontally in the region.

5. Cinch Energy has participated in three Montney horizontal wells in 2010, and plans to drill a total of 12 wells in the region by early 2011. Cinch reports that the drilling and completion results for these wells have been better than expected. The company is also planning to develop gas processing infrastructure with a capacity of 45 mmcfpd for the Dawson area.

Canadian Arctic News

6. Two competing proposals to build a pipeline connecting Alaska to Alberta have concluded their 90‐day open season bids. An Alaskan joint venture created by BP and ConocoPhillips envisions a 2,730 km pipeline capable of shipping 4.5 bcfpd, at a project cost of $35 billion. The other proposal, sponsored by TransCanada and Exxon Mobil, envisions a similar pipeline and similar volumes, with an estimated project cost between $32 billion and $41 billion. Both are keeping bidders' identities and bid conditions confidential pending further negotiations.

Alternative Energy News

7. Nova Scotia has adopted Canada's first feed‐in tariff (FIT) for small wind systems. Although small wind energy systems include any systems with a rated capacity of 300kW or less, the Nova Scotia FIT currently applies to those under 50kW. The Canadian Wind Energy Association (CanWEA) expects the FIT will create the economic stimulus needed to boost the small wind industry, which CanWEA predicts may sustain annual growth rates averaging 40% over the next 15 years with implementation of favourable polices.

8. Suntech and Calisolar have entered into a letter of intent to construct a solar silicon manufacturing facility in Vaughan, Ontario. Suntech has agreed to assist with the financing and to enter into a multi‐year agreement to purchase the solar silicon Calisolar produces at the facility.

On the Horizon

The Petroleum Services Association of Canada recently published its annual forecast projecting an increase in drilling activity in Saskatchewan and northern Alberta. The forecast predicts an 18% increase in oil wells to be drilled next year. A drilling increase of 35% is anticipated at the end of 2010 compared to 2009 totals.

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; kW – kilowatts; 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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