Canada: Oh Canada - Significant Developments In Canadian Energy, April 2012

Last Updated: May 31 2012
Article by National Renewable Energy Group

Oil Sands News

Suncor announced that it has resumed normal operations after completing maintenance on Upgrader 2 at its oil sands facility. Output from the facility during the maintenance was approximately 205,000 bpd of bitumen, which far exceeded the anticipated 140,000 bpd of production. The company also reported that construction at its Firebag Stage 3 expansion is nearly complete and production ramp is proceeding in line with expectations. Production from that facility in the first quarter of this year was up more than 12,000 bpd of bitumen relative to the last quarter of 2011, reaching 96,000 bpd.

MEG Energy began the year with its thirdstrongest quarter on record, producing an average of 28,446 bpd in the first quarter with a steam‐to‐oil ratio (SOR) of approximately 2.5. Even accounting for a planned three week shutdown in September of this year, the company still anticipates annual bitumen production of 26,000 to 28,000 bpd. Following the shutdown, during which the company will tiein infrastructure related to Phase 2B of its Christina Lake project, production is expected to ramp up to 29,000 to 31,000 bpd by the end of 2012.

Following an outstanding performance with its ramp up of Phase C at Christina Lake, Cenovus expects to be able to reduce the ramp up time on future phases to between 6 to 12 months, rather than the historical 12 to 18 months. The company boasted a 23 percent improvement in the production from Christina Lake and Foster Creek in the first quarter, with Christina Lake producing around 24,700 bpd on average with a SOR of 2.1. The company also reported that construction on the 40,000 bpd Phase D is approximately 75% complete and is on schedule to be operational before the end of the year.

East Coast News

Husky's 2012 plans for White Rose and North Amethyst were recently reported in its first quarter results, published on April 25, 2012. Husky plans to continue development drilling at North Amethyst and is planning an in‐fill at the main White Rose field in order to facilitate increased oil recovery from the reservoir. Overall, the company delivered a strong performance in the first quarter with net earnings amounting to $591 million.

The province of Newfoundland and Labrador tabled its provincial budget this month, and therein reported a surplus of $776.4 million for the 2011/2012 fiscal year. Finance Minister Thomas Marshall said during his budget speech "[s]ince Budget 2011, commodity prices have strengthened and, more specifically, offshore oil production increased at approximately 15.7 million bbls over our budget expectations, resulting in a projected surplus for 2011/2012 [...]." For the 2012 fiscal year, oil production at Hibernia (including AA Blocks and HSE Unit) is projected at 51.8 million bbls, Terra Nova is expected to produce 10.5 million bbls, and White Rose (including North Amythist and West White Rose) is expected to produce 14.2 million bbls. In addition, there is anticipation that in 2012 several companies will be pursuing exploration and development opportunities in the province's offshore area. It was reported that as of March 31, 2012, in the offshore Newfoundland and Labrador area there were 33 active exploration licences, 54 active significant discovery licences and 10 active production licences.

West Coast News

Kinder Morgan reported increasing demand for new oil storage capacity as producers look to hedge production in favour of higher prices a few months into the future. The company currently has 2.2 mmbbl of storage above ground at Trans Mountain pipeline's Edmonton terminal, and is working on a $284 million project to add an additional 3.6 mmbbl of capacity. The company has also signed a 20‐year contract that will underpin the construction of an additional 2.4 mmbbl in storage capacity, which facility is expected to be online by the end of 2013.

Crescent Point Energy is set to acquire privately held Cutpick Energy for a purchase price of $425 million. The deal, expected to close on or around June 19, 2012, involves the assumption of $83 million in debt and would represent an increase of approximately 5,500 boepd in Crescent Point's Provost‐area production. Following Bakken and Shaunavon area plays, the acquisition of Cutpick would move Provost into position as Crescent Point's third‐largest producing area.

Canadian Arctic News

Husky has successfully drilled and cased two pilot wells in the Northwest Territories. The vertical wells were drilled on exploration licenses acquired by the company in 2011. Data from the pilot wells will provide Husky with information to assess the reservoir characteristics and resource scope of the Canol shales. In addition, the company has recently completed a 220 square km 3D seismic program in the area.

MGM Energy, a Canadian energy company focused on the acquisition and development of resources in Canada's Northwest Territories and Arctic regions, is searching for a partner to assist in the development of its Canol oil shale play Located in the Central Mackenzie Valley of the Northwest Territories, MGM Energy anticipates that there will be considered interest in the lands given the significant potential of the reserve.

Alternative Energy

Canada Solar, one of the world's largest solar panel producers, expanded its portfolio by acquiring a major interest in 16 Ontario solar projects from SkyPower, a leading solar developer in Canada. The transaction cost was approximately $185 million and represented near 190‐200 MW of energy. The 16 projects are currently in the regulatory stage, and are expected to be constructed and in operation by 2014.

The Energy Minister of Manitoba made an announcement this month that the Manitoba government was establishing a $30 million fund to assist local businesses remain competitive in the renewable energy field. Specifically, the fund will target companies that produce equipment for hydro dams, electricity transmission and other forms of renewable energy. The fund will also assist local business bid on national and international projects.

On the Horizon

Kinder Morgan has launched a binding open season to determine the level of interest in carrying condensates to Canada through its reversed Cochin pipeline. The open season will conclude at the end of May, and seeks contracts for a minimum of 5,000 bpd over a term of 10 years. The project would modify the existing eastern leg of the multi‐product Cochin Pipeline, connect it with the Explorer pipeline in Kankakee County, Illinois, and carry an estimated 75,000 bpd of light condensate to northern Alberta as a new source of diluent for the oil sands. Subject to shipper support, the project could be online by July 2014.

Abbreviations

In this newsletter, all dollar amounts are Canadian dollars unless otherwise stated. We have also used the following abbreviations: bpd ‐ barrels per day; boepd ‐ barrels of oil equivalent 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; GJ ‐ gigajoule.

About Fraser Milner Casgrain LLP (FMC)

FMC is one of Canada's leading business and litigation law firms with more than 500 lawyers in six full-service offices located in the country's key business centres. We focus on providing outstanding service and value to our clients, and we strive to excel as a workplace of choice for our people. Regardless of where you choose to do business in Canada, our strong team of professionals possess knowledge and expertise on regional, national and cross-border matters. FMC's well-earned reputation for consistently delivering the highest quality legal services and counsel to our clients is complemented by an ongoing commitment to diversity and inclusion to broaden our insight and perspective on our clients' needs. Visit: www.fmc-law.com

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