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

Last Updated: January 21 2009

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

Nexen Inc. announced it has signed an agreement to acquire an additional 15% interest in the Long Lake oilsands project and the joint venture lands in northern Alberta from OPTI Canada. This increases Nexen's interest in the project and joint venture lands to 65%. Nexen will also become operator of the upgrader. Nexen announced that it expects 2009 production guidance to increase by approximately 5,000 boe per day to average between 255,000 and 270,000 boe per day before royalties. Phase 1 expenditures will be focused towards sustainable capital for the steam assisted gravity drainage (SAGD) operation, including the drilling of the first sustaining well pad, the upgrader and costs associated with the start-up of the SAGD debottlenecking project. Final construction of the ash processing unit has been deferred until 2010.

Excelsior Energy announced that drilling operations have begun in its Hangingstone oilsands area. The first rig has been deployed and has drilled two core holes within the demonstration focus area. Excelsior holds operated working interests in both the Hangingstone and West Surmont prospective oil sands areas.

Total has withdrawn its application for the Northern Lights oilsands mine. The company said that before proceeding with Northern Lights they want to focus on the Joslyn North mine and other projects. Northern Lights is still part of Total's long-term investment strategy in the oilsands. The associated oilsands upgrader in Sturgeon County, 40 km northeast of Edmonton, is going ahead. The application for Northern Lights was submitted to Alberta Energy in 2006 by Synenco Energy Inc., which was bought by Total in August 2008. Joslyn North is scheduled to produce 100,000 bpd of bitumen by 2012/2013. The south mine is being contemplated for production of an additional 100,000 bpd of bitumen with start-up planned for four years after operation at the Joslyn North mine.

StatoilHydro is continuing the regulatory process for field development of its Alberta bitumen leases, despite withdrawing its regulatory application for a bitumen upgrader last month. StatoilHydro still believes its Alberta bitumen leases will eventually yield more than 200,000 bpd, but the timing will be dictated by economics. StatoilHydro currently has approval for a 10,000 bpd SAGD project at Leismer, which is under construction. First steam is planned for mid-2010 with a further expansion of this project to 20,000 bpd that could potentially be reached in 2012.

Imperial Oil says work on its Kearl Oilsands Project will continue into 2009, as it did in 2008. Detailed design engineering, procurement of long lead items, site preparations such as access road construction and draining of the overburden is all continuing. This will help the company make a final decision in 2009 as to whether to go ahead with the project. The last estimate for the project was an on stream date in 2012 with production of 100,000 bpd of bitumen. Two additional planned phases will bring the ultimate capacity to 300,000 bpd of bitumen.

East Coast News

According to Irving Oil Ltd., it's plan to split the building of Canada's first new oil refinery into two $4 billion stages may protect this project from failing due to market uncertainty, a fate that has claimed some of its rivals. Even though splitting the projects into two stages could add an additional four years to the original schedule, the project will likely become easier to manage and less susceptible to changes in the refining market, according to an Irving spokesperson.

Vulcan Minerals is planning a significant drilling program in 2009 to occur in the onshore Bay St. George Basin in Western Newfoundland. This will be financed by way of a joint venture with Investcan Energy. Robinson #1 has been selected as the site for the deepest well ever drilled in the Bay St. George Basin. Commencement of drilling is expected to begin in the winter or spring.

Corridor Resources announced that it has made a potentially significant oil discovery at one of its wells situated three kilometres southeast of the McCully natural gas field in southern New Brunswick. After completing the initial interpretation of the new seismic in early 2009, Corridor is planning to drill an offset well to begin appraising the discovery. The oil discovery has been termed the 'Caledonia'.

Husky Energy added to its list of exploration properties in the Atlantic by submitting a winning bid of $1.8 million on an exploration parcel in the untapped Sydney Basin, south of the south-western tip of Newfoundland.

West Coast News

TransCanada submitted a Preliminary Information Package (PIP) to the National Energy Board (NEB) for construction and operation of the Groundbirch Pipeline. This pipeline, up to 42 inches in diameter, would serve the developing Montney tight gas play in northeast British Columbia and would be an extension of TransCanada's Alberta system. TransCanada plans to file an application with the NEB in the first quarter of 2009. A binding open season was recently completed, allowing producers from northeastern British Columbia to express interest in firm transportation. The pipeline would be about 77 km in length transporting up to one bcfpd of natural gas by 2012. The in-service date is late 2010.

Kitimat LNG, which is developing a liquefied natural gas export plant in British Columbia, announced that it has received interest for a stake in the company. This announcement follows an invitation for expressions of interest which Kitimat LNG submitted in November. The proposed plant will have two LNG storage tanks with capacities of 210,000 cubic metres, with potential future expansion to three tanks. Kitimat LNG plans to begin exporting gas produced in Western Canada by 2013.

Canadian Arctic News

Alaska Governor Sarah Palin signed a license allowing TransCanada to start construction on the $26 billion pipeline to run from Prudhoe Bay, Alaska to northwest Alberta. Previous agreements signed by TransCanada with Alaska provide for an array of benefits for the people of Alaska, its businesses as well as the State. In return for these benefits, $500 million has been authorized for the 'reimbursement' of the project. The State has also agreed to make certain royalty concessions to North Slope producers who are prepared to make commitments during the bid tender process as well as providing some certainty on taxes in the future. The next challenge for TransCanada will be to reach agreements with potential shippers prior to the opening of the bid tender process which begins in July 2010. TransCanada is offering the producers an equity stake in the pipeline.

Indian and Northern Affairs Canada is planning to issue a call for bids for Crown Reserve land in Nunavut in February 2009. A nine year exploration license will be issued in a subsequent call for bids. This nine year exploration license will be for two consecutive periods of six and three years each. The nomination deadline is set for January 28th, 2009.

A report by the Joint Review Panel that is considering a proposal for the $16.2 billion Mackenzie Valley Pipeline will be delayed by one year. The pipeline was expected to be completed by 2011, however due to soaring costs and regulatory delays this target date will likely pushed to a later date. The National Energy Board cannot determine if the project should proceed without the Panel's findings.

Alternative Energy News

The Alberta Electric System Operator (AESO) is recommending that a 240 kilovolt loop system to connect up to 2,700 megawatts of wind power throughout southern Alberta be constructed over the next 10 years. This 240 kilovolt loop system will collect wind power produced at wind farms across southern Alberta and feed the electricity to the grid. The AESO is also proposing that the development of this transmission be built in phases. It is estimated that the first phase of the transmission development will cost approximately $750 million and that the final two phases will cost $800 million and $280 million respectively.

TransCanada Pipelines will join with TransAlta to develop Canada's first fully-integrated carbon capture and storage (CCS) plant. The project, name Project Pioneer, will be one of the largest CCS facilities in the world and will be the first to have an integrated underground storage system. The project will be designed to capture one megatonne of carbon dioxide from an existing coal plant, some of which will be used for enhanced oil recovery. The remaining captured carbon dioxide will be injected into a permanent geological storage site. TransAlta is submitting proposals to the Alberta and federal governments for funding from government CCS initiatives. If funding commitments are made in 2009, Project Pioneer will begin construction in early 2010 with operations planned to start-up in 2012. Front-end engineering and design is already underway.

HAWKEYE Energy of Vancouver has put forward its proposal for a multi-billion dollar run-of-river hydroelectric project into BC Hydro's 2008 Clean Power Call. The first stage of HAWKEYE's 'Green Energy Grid' includes the construction of 12 run-of-river hydroelectric projects amounting to 180 megawatts of 'green energy' power as well as the construction of 159 kilometre transmission line. The projects are to be located in the Toba Valley, Power River and Jervis Inlet regions of British Columbia. The projects have the ability to generate a sufficient amount of energy to meet the annual needs of some 68,000 homes and offset approximately 540,000 tonnes of carbon dioxide emissions per year.

On the Horizon

The Federal Conservative minority government has announced that a federal budget will be tabled on January 27, 2009.

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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