Canada: FMC’s Overview of Significant Developments in the Canadian Energy Industry - October, 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

The Government of Alberta recently announced its Mineable Oil Sands Strategy ("MOSS"). MOSS will implement a new long term policy for Alberta’s mineable oilsands. The strategy is focused on increased coordination and development of mineable oilsands, and will first target the Fort McMurray area. MOSS will see the area managed as a single development zone rather than on a project-by-project basis. Alberta Energy suggests MOSS "will set out clear, long-term objectives to assist government and industry in managing the mining and the environment" and will "bring a more coordinated regulatory, development and reclamation approach to all mining projects in the region." (see number 1 on map)

Suncor recently completed an expansion of its oilsands upgrading operations located near the Ft. McMurray area in Alberta, increasing its production capabilities to 260,000 bpd of upgraded crude. The expansion was estimated at $425-million in 2002. The project has come in within budget and ahead of the planned completion date. Suncor indicates it is now focused on plans to further increase production to 350,000 bpd by 2008. (see number 1 on map)

Total SA has expressed interest in using nuclear power to fuel its oilsands production, in the wake of soaring natural gas prices. The French based company which recently purchased Deer Creek Energy is not alone in considering alternatives to the high costs associated with natural gas fueled operations. EnCana has indicated that nuclear power is not its first choice and has instead focused on reducing the amount of steam it requires by injecting solvents into the ground as a substitute for steam. (see number 1 on map)

Alberta’s oilsands have been estimated to be worth $1.4-trillion according to a study by the Calgary-based Canadian Energy Research Institute. The estimate is based on a synthetic crude price of $32 (US) a barrel. By 2020, oilsands could account for approximately 3% of Canada’s GDP. (see number 1 on map)

Teck Cominco announced that it has not ruled out moving into more oilsands projects. The Vancouver based company recently entered the oilsands arena when it purchased a 15% stake in the Fort Hills project with Petro-Canada and UTS and is considering its options for additional oilsands plays. (see number 1 on map)

Enbridge announced that Kitimat, British Columbia, will be the site of the terminal that will be the end point for its $4.1 billion Gateway pipeline. The Gateway pipeline will run from Edmonton to Kitimat and should be operational by 2010. The announcement is welcome news for Kitimat which had been competing with Prince Rupert for the terminal. The terminal will create large economic spinoffs for the community, which has suffered from a stagnant economy in recent years. (see number 2 on map)

Terasen and Pembina announced the creation of a new partnership to create the $1-billion Spirit Pipeline. The proposed pipeline would transport up to 100,000 bpd of diluent from Kitimat to Edmonton, and would compete with Enbridge’s proposed Gateway line. Terasen was acquired by Kinder Morgan earlier this year. (see number 3 on map)

The Alaska natural gas pipeline moved forward when ConocoPhillips and the Alaska government agreed to fiscal terms in late October. ConocoPhillips accepted a contract proposed by the state that would establish tax, royalty and other financial conditions for the gas pipeline from the North Slope. The two other major North Slope producers, BP and Exxon Mobil are still considering the state’s proposal. The Prudhoe Bay and other North Slope fields hold about 35 tcf of known natural gas. The gas pipeline will be one of the largest construction projects in history, at a cost of about $25 billion, and would run more than 3,000 miles through Western Canada and into the U.S. Midwest, delivering 4 bcfpd of gas. (see number 4 on map)

The Yukon government has moved to make its rights disposition process more efficient, with a similar process to the one used in Western Canada. The territory is making the changes in time to proceed with its fifth oil and gas disposition since taking over management of its oil and gas regime from Ottawa in 1998. It has also issued four exploration permits. Although only 73 wells have been drilled in the Yukon in the past 25 years, Devon has already drilled two wells this year. (see number 5 on map)

Earlier this year the Yukon Geological Survey and the Geological Survey of Canada, completed a multi-year project to revise and update the resource assessments in the Eagle Plain and Peel Plateau regions of the Yukon. Initial exploration of the Eagle Plain Basin identified 83.7 bcf of natural gas and 11.05 mbbl of oil. The current assessment suggests that 5.97 tcf of gas and 425 mbbl of oil remain to be discovered. The Yukon Geological Survey is currently updating the Whitehorse Trough assessment, which they expect to complete in the spring of 2007. (see number 5 on map)

East Coast News

Anadarko is beginning construction of its $800 million Bear Head LNG facility on Cape Breton Island. Construction is also expected to begin shortly on the $750 million Canaport LNG project in St. John, New Brunswick. This project involves partners Irving Oil and Repsol YPF of Spain and is currently in the site preparation stage. There is also a chance that a third LNG facility will be built in the region as Keltic Petrochemicals is proposing to build an LNG facility in Goldboro, Nova Scotia as part of a petrochemical complex. (see numbers 6,7 and 8 on map)

Maritimes & Northeast Pipeline, which owns the pipeline that transports natural gas from the Sable Island Gas Field to New England, has begun the process of obtaining approval for the expansion that will be required to accommodate gas output from the Canadian LNG facilities. The pipeline company hopes to have sufficient pipeline capacity in place by 2008, the year that both confirmed LNG facilities are expected to come on-stream.

Husky Energy expects first oil from the White Rose offshore project before year end. The White Rose field, located 350 kilometres east of St. John’s, Newfoundland, is estimated to contain 200 to 250 mbbl of recoverable oil and will produce 67,500 bpd of light oil. Husky also began drilling two delineation wells to further define reserves in the South and West Avalon pools of the White Rose field. (see number 9 on map)

The National Energy Board expects that deliverability from Nova Scotia’s Sable Offshore Energy Project will remain at approximately 400 mmcfpd for 2005 and 2006. In 2007, when new compression facilities are installed, the Project is expected to briefly return to near its original production peak of 500 mmcfpd. (see number 10 on map)

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