Canada: FMC´s Overview Of Significant Developments In The Canadian Energy Industry - October, 2008

Last Updated: November 23 2008

Article by Doug Black, Q.C., Bill Gilliland, Alex MacWilliam, Karim Mahmud, Miles Pittman, Rich Miller, John Hurley, Cyrus Reporter, Jerry Farrell & Ron Stuber

Oil Sands News

EnCana is proposing to develop its first cyclic steam stimulation (CSS) pilot project with plans to file an application with the ERCB before the end of December 2008. The pilot project would be located in the Clearwater formation in the Cold Lake oilsands near EnCana's existing Foster Creek development. Phase I of the pilot would include 12 wells, with production expected to be 1,000 bpd of bitumen. Results from the first six to eight months should demonstrate whether the pilot will be successful. The development plan includes 50 wells with production of 5,000 bpd of bitumen over a lifetime. The CSS project would be integrated into the Foster Creek approval scheme. EnCana will also seek approval to expand its Foster Creek development area by 13.5 sections (4,500 hectares) to accommodate the pilot project. (See number 1 on map)

Deep Well Oil & Gas has received approval from the ERCB to drill six wells as part of the Sawn Lake oil sands development. Deep Well has a 100% working interest in six contiguous sections of a petroleum and natural gas licence, an 80% working interest in 51 contiguous sections of oil sands development leases, a 40% working interest in an additional 12 sections of oil sands development leases and an 80% working interest in 6.5 sections of oil sands permits in the Sawn Lake heavy oil area in Alberta. The permits and leases cover 47,759 acres. (See number 1 on map)

The NOVA Gas Transmission's North Central Corridor project has been approved by the Alberta Utilities Commission. This $923 million project will transport natural gas from Northwestern Alberta to Northeastern Alberta to meet the growing oilsands demand. Work on the North Star section will begin this quarter and work on the Red Earth section, the second phase, will occur in winter of 2009/2010. The in-service target date of the 1.5 bcf per day pipeline is April 1, 2010. (See number 1 on the map)

AOSC plans to drill 20 to 30 appraisal wells in the area next winter, focusing on the Devonian Grosmont and Nisku formation targets. The ERCB estimates that these formations hold up to 415 billion bbl of bitumen. Timing of the pilot project will be determined after the winter appraisal drilling. AOSC is now the biggest leaseholder in the Athabasca region with a net working interest of over 1.3 million acres. (See number 1 on map)

Nexen and OPTI have announced that they delay its decision to twin the Long Lake project until at least next year. Concerns over current market conditions were cited for the reason to delay the decision. (See number 1 on map)

Partners of the Fort Hills oil sands project have stated that they are contemplating only to make an initial investment decision with respect to the mining and extraction portion of the project and deferring the decision for the construction of an upgrading refinery until the new year. This decision is based on several factors including costs, current commodity, equity and credit market conditions. (See number 1 on map)

CNRL has decided to cut its 2009 capital spending budget by 47% including reducing its estimated 2008 capital program for its Horizon oilsands project by $3.4 billion. CNRL stated that the budget will allow it to address the challenges of a lower and more volatile commodity price environment. (See number 1 on map)

Suncor Energy announced that it will slow near-term spending on its $20.6 billion expansion, called Voyageur, delaying completion of its own new upgrader by a year. It also cut its 2009 budget by a third. The company said this will reduce the risk on a go-forward basis and increase flexibility. Suncor's 2009 plan maintains spending and construction timelines for the third and fourth stages of the company's Firebag in-situ operations. (See number 1 on map)

EnCana has revised its original schedule for a corporate reorganization to split into two companies - one focused on shale gas plays in North America and a separate integrated oil sands company. Market concerns and uncertainty were cited as the reason for the change. EnCana has stated that it will move ahead with the split at the appropriate time.

East Coast News

Corridor Resources reported that completion and production operations at its McCully gas field in New Brunswick are progressing and that this year's program is anticipated to be completed by the end of November. Corridor expects the seven new wells to initially supply between 18 mmcf and 24 mmcf per day of gross new gas capacity to supplement the 22 mmcf a day of gross current production from previous wells in the field. (See number 2 on map)

ExxonMobil Canada, as operator of the Sable Offshore Energy Project (SOEP), stated that it continues to explore its options to spud a new well in the Alma field in 2009, including the possibility of sharing a rig with EnCana with respect to its Deep Panuke project in the waters southeast of Halifax. The Alma field is ready for another well, but it would be more economical if the cost of bringing in a rig could be shared. (See number 3 on map)

West Coast News

The last section of Kinder Morgan Canada's TMX pipeline (TransMountain expansion) anchor loop marks the successful completion of one of the most environmentally-sensitive pipeline projects in Canadian oil industry history. The looping project involved running a 36-inch pipeline through Jasper National Park, Mount Robson Provincial Park and the Burgess Shale UNESCO World Heritage site in Yoho National Park. The project will increase capacity on the TransMountain system by 40,000 bpd of oil taking the total capacity to 300,000 bpd of oil. The 158 kilometer system runs from west of Hinton, Alberta to Jackman, British Columbia and is ahead of schedule. (See number 4 on map)

Geoscience B.C., the Horn River basin shale gas producers group and the government of British Columbia have partnered to pledge $5 million towards a geoscience program in the Horn River basin. The funding will be used for geoscience studies, focused on identifying and evaluating potential water sources for shale gas production. Identification and characterization of subsurface water source aquifers as water sources for production and as sites for used water disposal and carbon dioxide sequestration is a top priority for producers. (See number 5 on map)

Canadian Arctic News

Negotiations between TransCanada and Alaska North Slope are anticipated to speed up over the next 18 months as the pipeline company tries to sign up shippers on its proposed $26 billion (U.S.) natural gas pipeline. TransCanada expects to be granted a licence from the state of Alaska in the near future. TransCanada stated that discussions with the existing North Slope producers (ConocoPhillips, BP and ExxonMobil) is the most important step in moving the project forward. TransCanada is also currently in the process of obtaining its regulatory permits from FERC for the Alaska section of the pipeline and the Northern Pipeline Agency for the portion of the Pipeline going through the Yukon and northeastern British Columbia. (See number 6 on map)

Alternative Energy News

Burnaby, British Columbia, has become one of the largest municipalities to start collecting used cooking oil from residences in order to recycle the oil into biodiesel. This is the first comprehensive initiative to get the residential market to deliver their used cooking oil to a central depot to be collected by Effective Resource Management, Inc. (ERM). ERM believes that this program could lead to similar initiatives being launched across the province and throughout western Canada. (See number 7 on map)

The government of Alberta has invited EPCOR to submit more detailed proposals for its two carbon capture and storage (CCS) projects that were submitted during the Expression of Interest phase of the province's $2 billion CCS funding program under the climate change action plan. EPCOR has indicated that the next steps will require that it prepare a fully integrated full project proposal with specific information on capturing, transporting and storing carbon dioxide emissions, and that work has already begun to design and engineer the Genesee IGCC project which is the first commercial-scale, near-zero-emission, thermal power plant in Canada with the potential to capture more than 1.25 million tonnes of carbon dioxide emissions a year.

Shell unveiled plans to begin a $20-million research project on storing carbon dioxide that could eventually result in one million tonnes of carbon dioxide from the Scotford upgrader injected down deep wells. The upgrader is near Fort Saskatchewan, about 30 kilometres northeast of Edmonton. The field tests are expected to be completed by June 2010. Engineering and design work on the bitumen upgraders to add carbon capture is already in progress. (See number 1 on map)

On the Horizon

The government of Alberta stated that it is still moving forward with plans to have the legislation for the new royalty framework in place by January 1, 2009. A year ago, the Province announced a complex new royalty structure designed to increase the Province's total royalty revenue by 20%. The Energy Minister stated that the new royalties will be price sensitive, which will provide fairness to energy companies even when prices fall as they have in recent months.

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