Canada: FMC’s Overview of Significant Developments in the Canadian Energy Industry - March, 2006

Last Updated: May 15 2006

Article by Doug Black, Bill Gilliland, Nick Kangles, Alex MacWilliam, Karim Mahmud, Miles Pittman, Rich Miller, John Hurley, Roxanna Benoit, Jerry Farrell & Ron Stuber

Alberta Oilsands News

North American Oil Sands has agreed to purchase land from Paramount Resources for a 160,000 bpd oilsands project in northern Alberta that will include a refinery. In exchange for the lands, North American will give Paramount a 50% stake in its company. North American estimates production of 10,000 bpd of oil by late 2008 and 160,000 bpd oil by 2015. The upgrading refinery will be built in two stages, with the first phase scheduled to process 70,000 bpd of oil by 2011.(see number 1 on map)

Shell acquired 88,576 hectares of Crown oilsands leases west of Fort McMurray for $467.7 million. The largest single day sale of oilsands leases to date. Shell also announced it has established SURE Northern Energy, a Canadian subsidiary, to work the new leases. (see number 1 on map)

The Fort McKay First Nation announced its intention to become the first Canadian aboriginal community to enter the oilsands business as a producer. Located approximately 65 kilometres (40 miles) northwest of Fort McMurray, the Fort McKay First Nation plans to develop a $1 billion mining project with the help of Shell. The group believes their 8,200 acres of oilsands lands, acquired in a land claim with the federal government in 2003, could hold as much as 500 mbbls of oil. (see number 1 on map)

Husky plans to proceed with detailed engineering to increase capacity at its Lloydminster heavy oil upgrader from the present capacity of 80,000 bpd to 150,000 bpd. The estimated cost for the expansion is approximately $2.3 billion. The increased capacity would help process forecasted growth from Husky's operations near Lloydminster and the Tucker oilsands project near Cold Lake, Alberta. Engineering work is expected to take 15 to 18 months before Husky is ready to seek the appropriate regulatory approvals.(see number 1 on map)

Marathon Petroleum announced its interest in leveraging its refining and marketing position in the United States for an equity position in Alberta's oilsands. The company noted that a recent expansion of its refinery in Detroit puts it in a good position to take Canadian crude. The Detroit refinery would be capable of processing 100,000 bpd of heavy sour Canadian dilbit (70% bitumen and 30% condensate). Marathon also noted the possibility of building a new refinery in Robinson, Illinois, adjacent to an existing facility, to accommodate up to 150,000 bpd of synbit (50% bitumen and 50% synthetic crude). (see number 1 on map)

Enbridge announced that FERC approved its Offer of Settlement with respect to tolls on its Southern Access expansion pipeline. The new stretch of pipeline will run from Superior, Wisconsin, to Flanagan, Illinois, where it will connect with Enbridge's existing Spearhead line, which began delivering oil to Cushing, Oklahoma on March 1, 2006.(see number 2 on map)

West Coast News

Kinder Morgan has submitted an application to the NEB with respect to a $600 million expansion of its TransMountain pipeline between Edmonton, Alberta, and Vancouver, British Columbia. The proposed expansion is anticipated to feed refining markets in southern British Columbia, Washington State and offshore markets in Asia with crude oil from the Alberta oilsands. The application to the NEB requests permission to add a 160 kilometre (99 mile) loop and two new pump stations. The proposed expansion will add 40,000 bpd of crude oil capacity to the system by late 2008, bringing total capacity to approximately 300,000 bpd.(see number 3 on map)

Arctic News

The federal government and Imperial Oil are currently in negotiations regarding fiscal terms for the Mackenzie Valley pipeline project. Imperial has advocated that the project proceed with mutual risk sharing, with the government possibly taking a shipping contract on the pipeline. Imperial hopes to resolve several of the substantive issues under discussion with the federal government by mid-year, and is continuing to meet with explorers and exploration leaseholders in the North regarding shipping commitment agreements.(see number 4 on map)

Another Mackenzie Valley Natural Gas Project partner, the Aboriginal Pipeline Group, is planning to raise $1.3 billion this summer for its share of the pipeline costs. The Aboriginal Pipeline Group must have its partnership finalized before going to the markets and as a result, it has given the Deh Cho until June 30, 2006 to exercise its options in the group. If the Deh Cho fail to pick up the options before they expire, the pipeline will proceed without them. Concurrently, the Deh Cho are negotiating their outstanding land claims with the federal government.(see number 4 on map)

East Coast News

Keltic Petrochemicals, which has plans for a large scale petrochemical complex in Nova Scotia that will consist of ethylene, polyethylene, propylene and polypropylene plants, a co-generation plant and an LNG receiving terminal, recently entered into an agreement with 4Gas, a London based LNG company recently formed by Petroplus International. Under the agreement, 4Gas's Canadian affiliate, Maple LNG, acquired 100% of the LNG project plus permits and land options in exchange for staged payments leading to acceptance of LNG shipments.

The Rabaska LNG project in Quebec, involving Enbridge, Gaz Metro and Gaz de France, submitted an environmental study to federal and provincial authorities in January and the regulatory process is scheduled to commence with public hearings after the summer. Construction is scheduled to begin in 2007 with operations expected in 2010. The project includes an $840 million, 500 mmcfpd LNG terminal and a 50 kilometre (31 mile) pipeline to connect the terminal to the Trans Quebec and Maritime Pipeline system.

TransCanada Pipelines and Petro-Canada have planned a 500 mmcfpd LNG import facility for Gros Cacouna in Quebec. The $660 million project is in the midst of an environmental assessment and is scheduled to be in service around 2009. Recently, Petro-Canada and Gazprom agreed to proceed with an initial engineering design to build a gas liquefaction plant near Saint Petersburg, Russia. LNG supply from the Russian plant would be shipped to the proposed Gros Cacouna facility.

Alternative Energy News

AltaGas and GreenWing Energy formed a limited partnership to develop wind power projects in western Canada and the western United States with a potential capacity of up to 800 MW. The limited partnership has entered into agreements with land owners for more than 70,000 acres and has also responded to the expression of interest issued by Manitoba Hydro for 1,000 MW of wind energy. AltaGas also announced its first investment in renewable generation in January, in the proposed Bear Mountain Wind Power Project near Dawson Creek, British Columbia.

On the Horizon...

Devon to announce results from the first offshore exploration well in the Arctic in 17 years.

In this newsletter, all dollar amounts are Canadian dollars. 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 - million barrels; bbbl - billion barrels; boe - barrels of oil equivalent.

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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