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

Last Updated: June 20 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

Shell Canada made a friendly takeover bid to acquire all issued and outstanding shares of heavy oil operator BlackRock Ventures for $2.4 billion. Shell offered $24 per share, which represented a 27 percent premium over the May 5th closing price of $18.88 per share. (See number 1 on map)

Enbridge is requesting formal commitments from shippers for its proposed Southern Lights pipeline. The new pipeline, slated to be operational by 2009, would move up to 150,000 bpd of diluents from Chicago to Edmonton. The diluents would then be used to thin bitumen so that it can be transported southbound on pipelines for upgrading in the U.S., so producers do not have to build expensive upgraders in Alberta. The 2,500 kilometre pipeline will cost US$920 million to build. (See number 2 on map)

Synenco Energy has hired Citigroup to help its to raise capital for its $5.3 billion Northern Lights oilsands project, which it owns with China Petroleum & Chemical (Synopec). Synenco owns 60 percent of the project, while Synopec owns the remaining 40 percent interest. The companies have ruled out issuing equity to the public, instead expressing an interest in selling an equity stake to a strategic investor, or one looking solely for financial returns. (See number 1 on map)

West Coast News

The British Columbia government is encouraged by the new federal government's favourable response towards lifting the moratorium on B.C. offshore oil and gas activity. The province has suggested that the moratorium needed to be lifted in order to bolster private sector investment required to collect more seismic information participants. Lifting the moratorium would also commence a dialogue between stakeholders, including First Nations who have recognized rights to offshore resources under the Nishga Treaty. The province is optimistic that aboriginal groups would be keen to participate in the economic opportunities from working cooperatively with industry participants. (See number 3 on map)

Canadian Arctic

The federal government has made an offer to the Deh Cho First Nation, which is the final First Nation with significant unresolved outstanding land claims along the route of the proposed Mackenzie Valley pipeline. The offer would give the Deh Cho full rights of surface and subsurface ownership to 39,000 square kilometres of land, allowing the Deh Cho to set royalty rates and keep 100% of the royalties collected. The federal offer also includes a financial component made up of both cash payments and resource-sharing revenue. It also proposes giving the Deh Cho the power to make laws on their own lands while maintaining clear lines of authority for the Deh Cho, territorial and federal governments. However, the offer does not cover the entire settlement region the Deh Cho had suggested. Federal negotiators will be meeting with the Deh Cho in late June to provide them with further information about the self government and jurisdiction settlement issues. (See number 4 on map)

A bidding war is shaping up for oil and gas junior Canada Southern Petroleum, which owns natural gas production rights in the Arctic, north-eastern British Columbia, the Yukon, and Southern Alberta. From a valuation standpoint, Canada Southern's most valuable asset are its natural gas rights on various Arctic islands, which hold an estimated 927 bcf equivalent of natural gas reserves. (See number 5 on map)

East Coast News

The Canada-Newfoundland and Labrador Offshore Petroleum Board has revised its estimate of proved plus probable crude oil reserves for the Hibernia offshore oil field to 1.24 bbbl, an increase of 379 mbbl from its 2003 estimate, and more than twice the original estimate of about 600 mbbl. Production to date for the Exxon Mobil-led project has totalled 456 mbbl, leaving 788 mbbl still to be recovered. In 2005, production averaged about 200,000 bpd. The Canada-Newfoundland and Labrador Offshore Petroleum Board also increased its estimate for the Hebron offshore oil complex, which includes the Hebron, Ben Nevis, and West Ben Nevis fields, to 731 mbbl of proven and probable oil resources, an increase of 317 mbbl. These latest increases boosted the total estimate of oil reserves/resources in the Newfoundland-Labrador offshore area to 2.75 bbbl. As well, the estimate of natural gas resources in that area increased from 9.65 tcf to 10.23 tcf, and the estimate of natural gas liquids resources rose from 436 mbbl to 478 mbbl. (See number 6 on map)

Canaport LNG has awarded the contracts for the design and construction of its LNG import and regasification terminal and for the terminal's offshore facilities. Site preparation, blasting and levelling construction work were completed in spring 2006, and the terminal is scheduled to be operational in the fourth quarter of 2008. The Saint John, N.B. facility, which will be operated by Irving Oil and Repsol YPF, will have an initial send-out capacity of one bcfpd of natural gas that will be imported from Trinidad. (See number 7 on map)

Alternative Energy News

ENMAX has begun construction of an 80 megawatt wind power generating facility near Taber in southern Alberta. Construction of the $140 million project is scheduled to be completed in the first quarter of 2007. ENMAX has entered into a 20-year agreement with the City of Calgary to supply electricity to Calgary from the facility, which will be enough to power about 75% of city operations.

Canada has already this year surpassed its previous annual record for construction of wind power projects. In 2005, 239 megawatts of wind power projects were established, and by April of this year, 260 megawatts of new capacity had already been installed, at a total investment cost of over $500 million, and with at least an additional 250 megawatts expected to be installed before the end of 2006. Canada currently has 943 megawatts of installed wind energy capacity, but provincial government objectives seek a minimum of 8,500 megawatts of wind energy to be in place nationally by 2015.

On the Horizon

Anadarko receives regulatory approval for construction of Bear Head LNG terminal in Nova Scotia.

Abbreviations

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.

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