Canada: FMC’s Overview of Significant Developments in the Canadian Energy Industry (August 2005)

Article by Doug Black, Q.C., Bill Gilliland, Nick Kangles, Alex MacWilliam, Miles Pittman, Francis Saville, Q.C. and Karim Mahmud

Alberta Oilsands News

Premier Ralph Klein announced that U.S. Vice President, Dick Cheney, is planning a trip to Alberta’s oil sands. The U.S. Administration’s concentration on Hurricane Katrina relief has temporarily put the trip on hold; however, the Administration has expressed its intention to make the trek in the near future. Mr. Cheney would be the highest ranking member of the Bush Administration to make a visit to the area. Alberta’s oil sands contain one of the largest known reserves in the world, containing an estimated 1.7 to 2.5 trillion boe. U.S. Treasury Secretary, John Snow, toured Fort McMurray, Alberta, this past June. Snow said, "I hadn’t realized till these briefings I’ve had, just how vast these facilities are, and what potential they have for the future." Following a meeting with Prime Minister Paul Martin and the Mexican president, President Bush said, "we appreciate the fact that Canada’s tar sands are now becoming economical, and we’re glad to be able to get the access toward 1 million bpd, headed toward 2 million bpd." It is estimated that by 2014, Alberta’s oil sands production will surpass that of all current OPEC members, with the exception of Saudi Arabia. (See number 1 on map)

Pembina Pipeline signed a $290 million expansion deal with Canadian Natural Resources ("CNR") for the pipeline servicing of CNR’s Horizon oil sands project. CNR’s $10.8 billion Horizon project is Canada’s 4th largest. The expansion will involve increasing the capacity of an existing line as well as adding a new line to service the project. Construction will commence in early 2006 and be fully operational by mid-2008. (See number 1 on map)

The Canadian subsidiary of France-based Total E&P has agreed to purchase Deer Creek Energy for $1.35 billion. Deer Creek Energy owns an 84% stake in the Joslyn oil sands project, which contains an estimated 2 bbbl of bitumen. (See number 1 on map)

Petro-Canada is currently planning construction of its Fort Hills mine and upgrader. Along with UTS, Petro-Canada is a 60% interest holder in the Fort Hills project. Though the first phase of the project has already been approved by government officials, Petro-Canada is seeking approval to double output capacity from 50,000 to 100,000 bpd. (See number 1 on map)

Oil sands land sales are hitting record highs. O&G Resource Group paid an unprecedented $45.2 million for 9,200 hectares of land north of Fort McMurray in the August 24 land auction. As of August 24, 2005 the province has made $1.11 billion through land sales, which is close to surpassing the all time annual record of $1.15 billion for all of 1997. (See number 1 on map)

Enbridge announced it may increase the capacity of its proposed condensate pipeline which will run from Prince Rupert or Kitimat, British Columbia to Edmonton, Alberta. The proposed increase would accommodate 265,000 bpd of condensate from the 150,000 bpd currently planned. The condensate will be used to dilute heavy oil produced from the oil sands, so that it can be transported back to the West Coast along the same route for export. The proposal is in response to higher than expected demand from shippers. (See number 2 on map)

Chicago Bridge and Iron Company was awarded a $110 million contract for the design and construction of storage tanks for Anadarko’s Bearhead LNG import terminal in Cape Breton, Nova Scotia. The project is designed to meet the growing demand for natural gas in markets in Eastern Canada and the U.S. Northeast and will have a send-out capacity of one bcfpd. First gas deliveries through the Bearhead terminal are targeted for late 2008. (See number 3 on map)

The Canada-Newfoundland and Labrador Offshore Petroleum Board has approved Petro-Canada’s plan to tap into an additional 40 mbbl of oil in the Far East Reservoir of the Terra Nova field, situated approximately 350 kilometres southeast of St. John’s, Newfoundland. Petro-Canada is the lead operator of Terra Nova, which also involves ExxonMobil, Norsk Hydro, Husky, Murphy Oil, Mosbacker Operating and Chevron. Including the additional reserves, Terra Nova contains approximately 410 mbbl and production is expected to be extended to 2025, with daily production to increase to approximately 140,000 bpd. Petro-Canada will be able to tap into the additional oil using extended-reach drilling, which means that no new drill sites will be required. (See number 4 on map)

On August 22, Husky’s floating production, storage and offloading vessel arrived at White Rose oilfield, 350 kilometres east of St. John’s, Newfoundland. The vessel will connect to a subsea production system and undergo approximately three months of offshore hook-up and commissioning in preparation for first oil later this year. At peak production, the oilfield will produce approximately 90,000 bpd. (See number 5 on map)

Corridor Resources has drilled the tenth well in the McCully field located near Sussex in New Brunswick. The McCully field is estimated to contain in excess of one tcf of gas in place. Corridor intends to connect the field to the Maritimes and Northeast Pipeline system. (See number 6 on map)

The Joint Review Panel conducting an environmental review of the proposed $7 billion Mackenzie Valley Pipeline expects to be in a position to set a detailed schedule of public hearings by late September 2005.

The State of Alaska has been negotiating to obtain partial ownership of the proposed Alaska North Slope natural gas pipeline, as current and projected gas prices indicate the project will likely be profitable.

• Teck Cominco, to join Petro-Canada and UTS in Fort Hills Oil Sands project.

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