Canada: Oh Canada - Significant Developments In Canadian Energy - June 2011

Last Updated: July 25 2011

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

Oil Sands News

1 CNRL intends to submit a regulatory application for a 50,000 bpd in situ oilsands project to be located in Lac La Biche County, approximately 23 km west of its proposed Kirby expansion project. The project, called Grouse, is expected to operate for approximately 20 years and will employ Steam Assisted Gravity Drainage (SAGD) to extract bitumen from the McMurray formation. As part of CNRL's commitment to achieving the 90% processed water recycle rate required by the Energy Resources Conservation Board (ERCB), the Grouse facility will minimize its overall requirement for make‐up water through produced water treatment. Most of the facility's steam generation will be from this recycled produced water. If the company's application is successful, construction is slated to commence in the third quarter of 2014, with first steam projected for the last quarter of 2017.

1 Citing a new strategy to accelerate the development of its oilsands properties, Cenovus expects to increase its oilsands production in Alberta to 400,000 bpd by the fourth quarter of 2021, representing a sizable increase over current production. As part of the strategy, one phase of a new oilsands project is to be brought online every 12‐18 months going forward. The bulk of the production gains are expected to come from the Christina Lake and Foster Creek plays, which account for about two thirds of the projected increase. At Foster Creek alone, production capacity expectations have been revised from 235,000 bpd up to the range of 270,000‐290,000 bpd.

1 Athabasca Oil Sands Corp. presently has 9.7 bbbl of in situ best estimate contingent bitumen resource, and expects production to exceed 800,000 bpd over a period of 40 years. Later this year, the company anticipates regulatory approval for its 150,000 bpd MacKay SAGD joint venture project, which is 60% owned by PetroChina. The first 35,000 bpd phase of that project is expected to be producing in 2014. Athabasca expects approval next year for its Dover SAGD project, which is another joint venture with PetroChina, the first phase of which will produce 50,000 bpd of the total 250,000 bpd anticipated from the facility. Athabasca is also moving ahead on its 12,000 bpd Hangingstone bitumen project, in which it has a 100% stake and from which it expects first production near the beginning of 2014.

East Coast News

2 The Hebron Development regulatory application is underway. Awaiting approval from the Canada‐Newfoundland Offshore Petroleum Board, the extensive development consists of three discovered fields: Hebron, West Ben Nevis and Ben Nevis. If approval is granted, the project will include construction of topside modules, delivery to Nalcor Energy and Trinity Bay for integration and construction of a gravity‐based structure. The Hebron project is located in the Jeanne d'Arc Basin, 340 km offshore of St. John's Newfoundland. Participating interest holders in the Hebron development include ExxonMobil Canada Properties, as operator, with 36%, Chevron Canada with 26.6%, Petro‐Canada Hebron Partnership with 22.7%, Statoil Canada with 9.7% and Nalcor Energy with 4.9%.

3 Exxon Mobil has begun producing from its 223 mmbbl Hibernia Southern Extension development. In May 2011, Hibernia produced 178,000 bpd of oil. With the addition of the Hibernia Southern Extension, Hibernia will continue to be Canada's most productive offshore oil project. The Hibernia platform is located 315 km southeast of St. John's Newfoundland. Participating interest holders in Hibernia include ExxonMobil with a 33% stake, Suncor Energy with 20%, Chevron with 26.8%, Murphy Oil with 6.5%, the government of Canada's Canada Hibernia Holding Corp with 8.5% and Statoil ASA with 5%. In addition, the Government of Newfoundland and Labrador holds a 10% interest in the Hibernia Southern Extension.

West Coast News

4 Subject to regulatory approval and the execution of definitive agreements, Progress Energy has agreed to sell 50% of its working interest in its Altares, Lily and Kahta properties in the Montney resource play. Petronas will pay 25% of the $1.07 billion transaction at closing, and will pay the balance in the form of a capital carry in which Petronas will cover future capital expenditures over the next 5 years. The two companies have named this project the North Montney Joint Venture, and plan to also establish an LNG Export Joint Venture, in which Petronas will have an 80% ownership interest. Both projects will be operated by Progress.

Canadian Arctic News

Chevron and Imperial Oil recently submitted to the National Energy Board (NEB) their filings regarding the Arctic Offshore Drilling Review. The filings discuss creative emergency response procedures to comply with safe drilling requirements in the north. The Arctic Offshore Drilling Review was set‐up to review safe drilling practices and emergency response procedures that would assist in preventing an environmental disaster in the Arctic.

Alternative Energy

5 Canadian Solar and Sky Power have entered into an engineering, procurement and construction (EPC) agreement for a 10.5 MW solar park in Thunder Bay, Ontario. This agreement is in addition to the two previous EPC agreements entered into in December of 2010, the first for a 10.5 MW solar park in Napanee and the second for a 8.5 MW 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 nearly 600 million kWh total over the next 20 years.

6 Greengate Power has received provincial approval for the construction of its 300 MW 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 purchased Cloudworks Energy in a $187.5 million deal. Cloudworks has 75 MW of operating hydro facilities and 76 MW currently under development, all with 40‐year power purchase agreements from BC Hydro.

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 utilized 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.

On the Horizon

A new report issued by the ERCB predicts that by 2015 in situ bitumen production will exceed that produced from mining operations. Considerably more optimistic than the recent 3 mmbpd estimate proffered by CAPP, the ERCB report anticipates total non‐upgraded bitumen production to be closer to 3.5 mmbpd by 2020. Last year, bitumen produced from in situ facilities accounted for 47% of total bitumen production, with 82% of the total 14,600 cmpd increase over the prior year attributable to SAGD operations. The Athabasca, Cold Lake and Peace River oilsands projects are themselves expected to account for more than half of the in situ bitumen production by 2020, approaching 1.92 mmbpd. The ERCB also expects the 795,300 bpd of synthetic crude oil produced in 2010 to double by 2020 up to 1.47 mmbpd.

A study conducted by AJM Petroleum Consultants estimates that oil in place in northern Alberta's Nordegg formation is in the range of 4.93 mmbbl to 6.48 mmbbl. The reservoir depth is between 1,160 and 2,400 meters, with net pay of 21 to 27 meters and reservoir porosity of approximately 15 to 18%. Though it is too early to estimate the recoverable resource, a separate study conducted by Macquarie estimated that oil in place among the highest of the plays evaluated is between 18‐24 mmbbl per section.

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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 ‐ kilometer; KW ‐ kilowatts; KWh ‐ kilowatt hours; cmpd ‐ cubic meters per day.

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