Canada: Oh Canada! Significant Developments in Canadian Energy – February 2011

Oil Sands News

1. The Canadian oil and natural gas industry had a banner year for equity financings in 2010, raising $19.9 billion in capital, which represents an increase of $1.3 billion over 2009. New equity in 2010 equaled $12.6 billion, which represents a year‐over‐year increase of 111% over 2009 and 28% over 2007, the previous record. The average size of equity issues in 2010 was $19.3 million, representing a 67% increase over 2009. The largest equity issue went to the Athabasca Oil Sands Corp. $1.4 billion IPO, directed at developing the Birch, Dover, Grosmont and Hangingstone projects.

1. As part of the Government of Alberta's new bitumen royalty‐in‐kind initiative (BRIK), and in conjunction with the North West Upgrading/CNRL partnership, the first phase of a new 50,000 bpd bitumen refinery is expected to be completed in 2014, with the possibility of two more 50,000 bpd phases to follow. The first phase will refine 37,500 bpd of Crown bitumen along with 12,500 bpd of bitumen from CNRL.

1. Alberta Oilsands production rose to 726,800 bpd of synthetic crude in 2010, approximately a 4% increase over the 699,396 bpd produced in 2009. Total synthetic crude oil production was up 10% in the fourth quarter of 2010, reaching 839,000 bpd. Syncrude's production increased from 280,800 bpd in 2009 to an average 293,000 bpd of synthetic crude in 2010. Averaging 325,900 bpd, Suncor Energy reported record production of in situ and mined bitumen in the fourth quarter of 2010, achieving an almost 17% increase over the 278,900 bpd produced in the last quarter of 2009.

East Coast News

2. Corridor Resources has submitted a project description to the Canada‐Newfoundland and Labrador Offshore Petroleum Board for the drilling of an exploration well within Exploration Licence 1105 on the Old Harry prospect located in the Laurentian Channel of the Gulf of St. Lawrence. The project description begins the official regulatory process for obtaining the necessary approvals to drill this offshore well between mid‐2012 and early 2014. The Old Harry geological structure is one of the largest undrilled geological structures in Eastern Canada at 30 kms long and 12 kms wide.

3. Shoal Point Energy signed a letter of intent with Ptarmigan Energy to acquire an option to explore the Green Point shale on Ptarmigan's Exploration Licence 1120, located off Newfoundland's western shore. The two companies are in negotiations hoping to reach an agreement in early March, allowing Shoal to earn an 80% interest by drilling a Green Point test well on the property by December 31, 2012. Under the terms of an Area of Mutual Interest agreement with Canadian Imperial Venture (CIVC), CIVC will have the right to participate in exploration activities to earn up to 40% of Shoal's interest in the subject lands.

West Coast News

4. The NEB has set down June 7, 2011 for public hearings to begin on the proposed Kitimat LNG terminal, which will export up to 468 bcf per year of Horn River shale gas to Asian markets beginning in 2015. If approved, the 20 year licence will represent Canada's first export licence for LNG.

4. The Kitimat LNG partners, Apache Canada Ltd. (Apache) and EOG Resources Canada Inc. (EOG), announced plans to purchase the remaining 50% interest in the Pacific Trail Pipelines Limited Partnership (PTPLP) from Pacific Northern Gas. The $50 million deal is expected to be completed very soon, following which, Apache and EOG will hold respective shares of 51% and 49% of the partnership interest. The PTPLP plans to construct a 463 km pipeline that will reach from Summit Lake, BC to the Kitimat LNG terminal.

5. The NEB approved TransCanada's $310 million pipeline project that will transport shale gas from Horn River into the Alberta System. The pipeline is scheduled to be brought online in the second quarter of 2012 and is expected to exceed 630 mmcfpd by 2014. Shippers have committed to transport a combined 1.9 bcfpd by 2014 through Horn River pipeline and the Groundbirch pipeline, which has been in service since December 2010.

Canadian Arctic News

The Department of Indian and Northern Affairs and Northern Development posted over a million hectares of land for sale in the Beaufort Sea, Mackenzie Delta, and Central Mackenzie Valley. The posted land, which roughly follows the route of the Mackenzie Valley pipeline that recently received National Energy Board approval, will be sold in a sealed bid process, detailing work commitments that will fund future exploration and drilling. Speculation suggests that the interest in this land is a positive sign that bodes well for the future of the Mackenzie pipeline project.

The National Energy Board initiated a review of the safety and environmental requirements for offshore drilling in the Arctic, the results of which will be used to inform its decisions on future offshore drilling applications in the region. The NEB intends to prepare a report on safety and environmental protection requirements for offshore drilling in the Canadian Arctic. American regulatory agencies are in the process of conducting a similar review of offshore drilling in Alaska. Speculation suggests both Canada and the U.S. will put together a regulatory regime in the next 24 months, and that regulations between Canadian and American Arctic waters could be uniform.

Alternative Energy News

6. One of the largest utilities in the U.S.A., Pacific Gas and Electric (PG&E), will be meeting its renewable standard portfolio (RSP) compliance requirements by purchasing renewable energy credits (RECs) from two large wind projects in Alberta, Canada. PG&E has entered into two 20‐year purchase contracts with Greengate Power to purchase RECs from Greengate's 150 MW Halkirk 1 project and 300 MW Blackspring Ridge 1 project. PG&E will buy RECs and energy from Greengate at each project's point of grid interconnection, then, retaining the green attributes, will sell the energy back to Greengate to be marketed separately in Alberta. Greengate aims to complete Halkirk 1 in 2012 and Blackspring Ridge 1, which will be Canada's largest wind farm, by 2013.

7. Enbridge entered into a $91.9 million deal with First Solar to purchase two Ontario solar projects, the 15 MW Amherstburg 2 project and the 5 MW Tilbury project. First Solar will continue to develop the Amherstburg 2 project, which it will build, operate, and maintain. First Solar completed the Tilbury project in December, which it will also continue to operate and maintain. Project output will be sold to the Ontario Power Authority under a 20‐year agreement.

8. Enfinity commenced construction on a 36 MW solar farm in East Hawkesbury, Ontario, adding to the several Photovoltaic projects in the province. Ontario is currently the second‐largest solar market on the continent, behind California.

9. EDF Energies Nouvelles entered into an agreement with RES Canada to purchase a 1 GW portfolio of seven wind projects in Quebec and an interest in Saint Laurent, the company formed to develop the projects. EDF Energies Nouvelles has yet to select an engineering, procurement and construction (EPC) contractor for this portfolio and is currently reviewing EPC contractors with the capacity to realize the projects.

On the Horizon

1. According to the newly released Alberta Government budget, revenues from bitumen are projected to account for almost half of Alberta's total resource revenues for 2011/2012. The Government is anticipating bitumen production approximating 1.9 billion bpd, which will equate to royalty revenues of $4.1 billion of the total $8.3 billion in expected total resource revenue in the upcoming year.

1. The Alberta Government and Enhance Energy have agreed to establish the first carbon capture and storage (CCS) facility in the province, which is expected to capture approximately 3,000 tonnes of carbon dioxide per day, to be transported to the Tees oilfield through the Alberta Carbon Trunk Line, a 240 km pipeline being constructed by Enhance. As the world's largest CCS project, it is expected to be able to store 14.6 million tonnes of carbon dioxide per year at capacity.


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.

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