Canada: FMC’s Overview of Significant Developments in the Canadian Energy Industry - November, 2005

Last Updated: January 31 2006

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

Alberta Oilsands News

Canadian Natural Resources announced that it will invest $25 billion over the next fifteen years in the Alberta oilsands. Less than a year after going ahead with the $10.8 billion Horizon Oilsands Project, the Calgary-based company’s investment would represent the largest in the oilsands to date. The company plans to expedite the Horizon Project, which was projected to produce 232,000 bpd of oil by 2011, and add two new phases to the Project to push total output of synthetic crude to approximately 500,000 bpd following the completion of all phases. (See number 1 on map.)

EnCana announced it will invest $5 billion to more than double its planned crude production in the next decade. EnCana plans to increase oil production at its Foster Creek and Christina Lake facilities to 150,000 bpd and 250,000 bpd respectively, by 2015. EnCana also unveiled Borealis, its new oilsands project northeast of Fort McMurray, which it expects to add another 100,000 bpd of oil production over the next ten years. (See number 1 on map.)

ConocoPhillips announced plans to ship oilsands crude on TransCanada’s proposed $2.1 billion Keystone Pipeline. The pipeline is expected to be operational by 2009 and would transport up to 435,000 bpd of oil from Hardisty, Alberta to Patoka, Illinois. The two companies entered into a Memorandum of Understanding that commits ConocoPhillips to ship oil on Keystone and gives it the right to acquire up to a 50% ownership interest in Keystone. (See number 2 on map.)

Petro-Canada and its partners in the Fort Hills Oilsands Project, UTS Energy and Teck Cominco, announced that a decision would be made by the end of March as to where to build an upgrader for the project. Alberta Energy recently approved an amendment to the Fort Hills Development Plan to double capacity from 50,000 bpd in 2009 to 100,000 bpd of raw bitumen by 2011. Potential locations for the upgrader include Fort McMurray and the Edmonton area. (See number 1 on map.)

Suncor is boosting its capital spending next year by 30% to $3.5 billion, with $2.5 billion of that allocated to the oilsands. $1.8 billion will be spent on increasing output from its Fort McMurray oilsands mines, operations and upgrading refineries. The company expects production over the course of the next year to average 260,000 bpd of synthetic crude; and, expects production to climb to 360,000 bpd in 2008 and 500,000 bpd by 2012. (See number 1 on map.)

Energy stocks were up on news that the Federal government will not levy a new tax on income trusts as was originally feared. Trusts are effectively exempt from most taxes because they pay out much of their cash flow to investors. Taxation of income trusts became a hot issue when the Federal Finance Minister launched a review of the tax issues surrounding the income trust sector in September of this year.

West Coast News

The British Columbia government has expressed interest in developing unconventional shale gas in northeast B.C. The province estimates that shale gas accounts for five tcf, or 12% of the forty-three tcf of estimated remaining undiscovered gas reserves. Unconventional gas production, which includes tight gas and coal bed methane, accounts for 25 to 30% of the province’s current gas production.

Canadian Arctic News

Imperial Oil has informed the National Energy Board that it is ready to proceed with the public hearing stage on the Mackenzie Valley Pipeline project. By making the decision to move forward, Imperial resumes the $7 billion project, which has been at a standstill since late April 2005. Since that time, Imperial has been negotiating with several First Nations communities in the Northwest Territories. The deals with four of the five First Nations groups have passed beyond the "handshake" stage and are currently being ratified. Negotiations are continuing with the remaining native group, the Deh Cho. The federal government was in contact with Imperial in November to provide increased clarity about its position with regard to the proposed fiscal framework for the pipeline. The government has said it will consider taking on some of the risk of building a pipeline if it gets a share of the rewards. (See number 3 on map.)

As a result of these developments, the NEB prehearing planning conference will begin the week of December 5, 2005. With the process re-started, NEB hearings could begin in mid-January 2006 and their review could be completed in early 2007. This would enable construction to begin that year and transportation of gas to begin by 2010. The pipeline will carry an estimated 1.9 bcfpd of gas from the Mackenzie Delta through a hub in Northern Alberta that connects to the United States and Eastern Canada. (See number 3 on map.)

The British Columbia government has expressed interest in developing unconventional shale gas in northeast B.C. The province estimates that shale gas accounts for five tcf, or 12% of the forty-three tcf of estimated remaining undiscovered gas reserves. Unconventional gas production, which includes tight gas and coal bed methane, accounts for 25 to 30% of the province’s current gas production.

East Coast News 6 The first oil has begun to flow from Husky and Petro- Canada’s White Rose project. White Rose is the third producing East Coast off-shore oil development, and is located about 350 kilometres east of St. John’s, Newfoundland in the Jeanne d’Arc basin. Production began at 25,000 bpd of light oil and is expected to peak in the first half of next year at 100,000 bpd. The field has estimated total reserves of between 200 and 250 mbbls and is expected to have a life of 12 to 15 years. Combined with the Hibernia and Terra Nova fields, the addition of the White Rose production will increase Newfoundland’s oil output to about 450,000 bpd by the middle of 2006. (See number 4 on map.)

The Hibernia offshore oilfield was previously estimated to hold about 900 mbbl of recoverable reserves, but there may be an additional 200 to 300 mbbl in the south part of the field, now being referred to as "Hibernia South". The Hibernia partners, headed by Exxon Mobil, are currently drilling a well to better estimate the size of the extension and results are expected early in the new year. Hibernia currently produces 200,000 bpd. (See number 5 on map.)

The province of Nova Scotia also announced that the Deep Panuke project, a potential natural gas offshore development, will likely proceed. EnCana recently drilled a well to further assess the extent of the Deep Panuke prospect in an area where several wells have already found gas. The Government of Nova Scotia and EnCana are currently discussing a fiscal regime for the project. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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