Canada: Oh Canada - Significant Developments in Canadian Energy - March 2011

Oil Sands News

1. The new Federal Budget proposes to treat the cost of acquiring oil sands leases and certain oil sands resource property as a Canadian oil and gas property expense, as opposed to its current treatment as a Canadian development expense. The result will be a deductible rate of 10% per year on a declining basis, instead of the current 30% per year, effective for acquisitions made on or after March 22, 2011. The Budget also proposes new treatment for pre-production development expenses incurred for the purpose of bringing new oil sands mines into production. Instead of treating such expenses as Canadian exploration expenses, the proposal will treat them as Canadian development expenses, deductible at a rate of 30% per year. The current Canadian exploration expense treatment will continue with respect to expenses incurred before March 22, 2011, and for expenses incurred before 2015 on new mines on which major construction commenced prior to March 22, 2011.

1. ConocoPhillips has announced plans to spend approximately USD $1.2 billion in Foster Creek/Christina Lake and Surmont in 2011, and between $1 billion to $1.5 billion per year for the foreseeable future. Site work has commenced and engineering work is nearing completion for the 83000 bpd expansion project at Surmont. Steam injection at the expansion is expected by the end of 2014, with oil production commencing in 2015.

1. BlackPearl Resources plans to inject steam into its Blackrod pilot SAGD project in the second quarter of this year. BlackPearl has a 100% working interest and is the operator of the oilsands project. The company expects results late in the year, following which it expects to apply for a 40,000 bpd commercial development in early 2012.

1. Anglo-Dutch Shell has announced that the 100,000 bpd expansion to its oilsands project, which is expected to produce 255,000 bpd, will be up and running by the second quarter of 2011. Shell's interest in the northern Alberta project is 60%, with Marathon Oil and Chevron each holding a 20% stake.

East Coast News

2. Following favourable identification and interpretation of seismic anomalies, Forent Energy is moving forward with the conventional exploration of its 750,000 acre onshore Alton Block in Nova Scotia. Forent Energy intends to accelerate its exploration drilling program in the fall, aiming to initiate drilling operations in the fourth quarter of this year.

3. Production of the Hibernia South oilfield is projected to begin between April and June of this year. Production is expected from the southern part of the field, which is estimated to contain approximately 260 million barrels of crude. The Hibernia South partners are ExxonMobil, Chevron Resources Canada, Statoil Canada, Suncor, and Nalcor Energy.

West Coast News

4. Subject to regulatory approval, Encana has agreed to acquire a 30% stake in the Kitimat Liquefied Natural Gas (LNG) terminal, which has planned initial capacity of 700 mmcfpd of LNG in the first of two potential phases. The deal for the facility is expected to close in the second quarter of this year, leaving operator Apache and partner EOG Resources with interests of 40% and 30%, respectively.

4. In addition to the Encana-Apache-EOG Resources application to the National Energy Board (NEB) for a license to export LNG from the Kitimat terminal, B.C. LNG Export Co-Operative has filed an application to export LNG for a period of 20 years. The latter has received firm commitments through a purchase and sale agreement for the purchase of the full capacity of the LNG facility throughout the 20 year term. Pending regulatory approval, it is expected that the facility will be commissioned and sales will commence by fourth quarter 2013.

5. Murphy Oil announced that production has commenced at its 180 mmcfpd Tupper West gas processing plant. By the end of this year, production at the facility is expected to exceed 120 mmcfpd. The first phase of the development is expected to have 275 wells drilled, with another 244 wells in a possible second phase.

Canadian Arctic News

6. The NEB has issued a certificate of public convenience and necessity for the 1,196 km $16 billion Mackenzie Valley Pipeline. With this final approval in place, the next step is to negotiate a fiscal agreement with the federal government that could possibly include a federal loan guarantee, reducing the cost of capital of the pipeline and resulting in lower tolls. The pipeline will transport as much as 1.2 bcfpd of natural gas from the Mackenzie Delta on the Beaufort Sea to southern markets. The NEB approval requires that the construction of the pipeline begin by Dec. 31, 2015.

7. The Canadian Northern Economic Development Agency is funding more than $300,000 over 2 years for a feasibility study and business plan to assess the viability of oil and gas development in the Eagle Plain region of Northern Yukon. Vuntut Gwitchin Limited Partnership will lead the project on behalf of North Yukon Economic Partnership, which includes the four First Nations of Vuntut Gwitchin, Tr'ondek Hwech'in, Nacho Nyak Dun and Gwitch'in Tribal Council.

8. Paramount Resources is currently evaluating the potential of its 175,000 acreage for prospective shale gas from the Liard Basin. Paramount Resources plans to drill its first shale gas well in the Liard Basin in the first quarter of 2012.

Alternative Energy News

9. Canadian Solar and Sky Power have entered into a third engineering, procurement and construction (EPC) agreement for a 10.5MW solar park in Thunder Bay, Ontario. This EPC agreement is in addition to two previous EPC agreements entered into by the companies in December 2010, the first consisting of a 10.5MW solar park in Napanee and the second consisting of an 8.5MW solar park located on Thunder Bay International Airport Authority land. The construction of all three projects is expected to be completed by third quarter 2011. Together, the projects are expected to generate approximately 28 million kWh in their first full year of operation and almost 600million kWh total over the next 20 years.

10. Greengate Power has received provincial approval for the construction of its 300MW Blackspring Ridge 1 project in Vulcun County, which will be the largest wind farm in Canada. Construction of the wind farm is targeted for 2012, and it is expected to be in service in 2013.

Innergex Renewable Energy has purchased Cloudworks Energy in a $187.5m deal. Cloudworks' portfolio includes 75MW of operating hydro facilities and 76 MW currently under development, all with 40-year power purchase agreements with BC Hydro, as well as 800MW of prospective projects.

On the Horizon

A report from independent UK analyst Verdantix forecasts that the Canadian sustainable business market will grow at 12% per year and be worth $3.7 billion by 2014. The report used a market driver analysis tool called the Critical Moments model to gauge investment by companies across 29 sustainability initiatives, including energy efficiency, carbon management, risk management, cleantech innovation, sustainable operations, human capital investments and industrial emission reductions.

About Fraser Milner Casgrain LLP (FMC)

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