Canada: FMC´s Overview Of Significant Developments In The Canadian Energy Industry - January 2009

Last Updated: February 11 2009

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



Oil Sands News

1. Nexen announced it has produced the first synthetic crude from its $6.1 billion Long Lake oil sands project. The main process units in the upgrader were successfully started up. Synthetic gas from the upgrader is being used in the SAGD operations, which will reduce the requirement to purchase natural gas. Early synthetic production rates are in the range of 10,000 to 15,000 bpd of high quality synthetic crude. Nexen said it will take 12 to 18 months before the upgrading plant reaches the capacity rate of 60,000 bpd of synthetic crude. Nexen has completed the acquisition of an additional 15% interest in the Long Lake project and the joint venture lands from OPTI for $735 million. Nexen is now the sole operator of the resource and upgrader, and holds a 65% interest in the project and the joint venture lands.

Connacher Oil and Gas announced that it is resuming full output at its oil sands project after six weeks of reduction because returns on the extra-heavy crude have improved. The company cut output to 5000 bpd of bitumen when the operation became unprofitable. Connacher expects to reach full production of 9000 bpd of bitumen by the end of next month. It had been the first notable Canadian oil sands producer to chop production as oil prices tumbled. Connacher also suspended construction on its second steam-driven oil sands development, the Algar project.

Enbridge has put plans on hold for the $346 million Trailbreaker pipeline expansion that would have shipped western Canadian oil through Ontario and Quebec to markets in the Gulf of Mexico via tanker by mid-2010. There was not enough support from shippers and the Canadian Association of Petroleum Producers (CAPP) to move this project forward. Plans have been put on hold until there is renewed interest in the project from shippers and CAPP. Enbridge outlined the interim scheme in July to give Canadian producers access to the Gulf Coast by using the pipeline expansion and then shipping the crude by tanker down the Atlantic seaboard from Portland Maine. It would have provided transportation for 130,000 bpd of oil sands production to the US and up to 70,000 bpd to Montreal refiners. The project involved re-reversal of Line 9 from Montreal to Sarnia and the reversal of an existing 18-inch line from Portland to Montreal. The system would have also required expansion of the system from Chicago to Sarnia. There have been a variety of proposals for increasing transport of crude from Canada's oil sands to refineries in Texas and Louisiana, that have been hit with declining volumes of oil from Mexico and Venezuela.

French Oil Company major Total SA made an unsolicited $617 million takeover bid for UTS Energy Corp. to acquire an interest in the Fort Hills oil sands project in Alberta. UTS has a 20% stake in the Fort Hills project, as well as interests in two other undeveloped oil sands leases. Other partners in Fort Hills are Petro-Canada, who is also the operator, and Teck Cominco. Total also has a 74% stake in Joslyn project and a 60% stake in the Northern Lights project, neither of which has been developed and a 50% stake in the Surmont project which is producing.

East Coast News

2. Corridor Resources recently approved a total capital expenditure plan of $59.9 million for 2009. The budget for 2009 is aimed at increasing natural gas production from the McCully field in southern New Brunswick and to evaluate the potential of oil and shale gas in the surrounding basin.

The Newfoundland and Labrador offshore industry recently achieved a milestone when the 1 billionth bbl of oil was produced from Hibernia, Terra Nova and White Rose. The revenues received from these 3 projects accounted for 33% of the entire province's revenue for 2008/2009. Since 1997, the province has received over $5 billion in royalties from these projects.

Despite the recent drop in the price of oil, activity in Canada's East Cost offshore is continuing with a few wells expected, subject to rig availability, and planning underway to develop the Deep Panuke offshore Nova Scotia and Hebron off Newfoundland. White Rose is scheduled for a major expansion with plans to conduct development drilling on 3 White Rose satellite fields. Offshore Newfoundland, Statoil HydroCanada is having an exploration well drilled. Petro-Canada confirmed that it will drill in an exploration well in the East Coast offshore. Chevron and ConocoPhillips also have plans to drill off the East Coast.

Fluor Canada has been selected by Irving Oil to conduct front-end engineering design for a proposed $7 billion refinery that is to be constructed in St. John, New Brunswick. This refinery is expected to produce 300,000 bpd of oil. Construction on this project is expected to begin in 2011 with start-up operations scheduled for 2015.

West Coast News

4. EnCana Corporation plans to construct a natural gas processing plant 60 km northeast of Fort Nelson in northeastern British Columbia to help meet expected production growth from the Horn River shale gas play. First phase completion is planned for 2011. A project description has been filed with the British Columbia Environmental Assessment Office. The initial processing capacity is expected to be 400 mmcfpd of gas with final processing capacity expected to be 2.4 bcfpd. There are six phases planned with each one coming on-line as processing demand increases in the Horn River Basin. In the project description EnCana estimates the Horn River shale formation to contain as much as 600 tcf of gas with 10 - 30% of that being recoverable. If suitable formations can be found and fiscal programs can be implemented the project should include carbon capture and sequestration opportunities in the area. Where possible, pipelines will use existing pipeline corridors in order to reduce potential adverse environmental effects.

Canada Energy Partners Inc. reports it is beginning to sell gas from eight wells on its Peace River coalbed methane project in British Columbia. Canada Energy owns a 50% working interest in the project. GeoMet Inc., through its subsidiary Hudson's Hope Gas, Ltd., owns the other 50% and is the operator. This is the first commercial coalbed methane project in British Columbia. Canada Energy also holds a 50% interest in the gas treating and compression facilities on the project.

Canadian Arctic News

6. Environment Minister Jim Prentice said that the government of Canada has made an offer to the backers of the Mackenzie Gas Project of financial support for the $16.2 billion Arctic gas pipeline. The offer includes providing financial support for infrastructure as well as for pre-construction expenses. Minister Prentice indicated that the offer does include a sharing of risk and returns on the project.

MGM Energy reports that it has reached a deviated target depth at 2102 meters at its Ellice J-27 well in northern Canada. The Ellice J-27 well is the first of its three well drilling program for 2009. The well encountered a number of zones containing natural gas and also encountered net gas bearing sandstones in four zones. Testing on the natural gas zones is scheduled to occur in February.

Alternative Energy News

3. TransAlta is reporting that it has launched commercial operations at its $170 million Kent Hills Wind Farm in New Brunswick as of December 31st, 2008. The 96 MW wind farm is located 30 kilometres southwest of Moncton, New Brunswick.

Wal-Mart Canada opened its 1st environmental demonstration store in Burlington, Ontario. The store uses a geothermal technology which is the first of its kind in a large-scale Canadian retail operation. Wal-Mart has indicated that it will start rolling out these types of stores which, according to Wal-Mart, are 30% more energy efficient than its traditional retail outlets. The environmental demonstration store also includes a number of other energy efficient features.

Better Place, a company based in California is seeking to extend its electric car charging and battery exchange stations across Canada, starting first in Ontario. Better Place has partnered with Bullfrog Power and Macquarie Captial Markets. Better Place is planning on starting out in the Greater Toronto Area and then plans to move other major cities in Ontario.

Six long term green energy project contracts have been awarded by the Ontario Power Authority (OPA). According to the OPA these projects should create roughly 2,200 jobs, provide enough electricity for upwards of 120,000 homes and also produce cleaner energy for the province. The projects are also expected to create a combined 492.1 MW of renewable generation.

Alternative Energy News

TransAlta is reporting that it has launched commercial operations at its $170 million Kent Hills Wind Farm in New Brunswick as of December 31st, 2008. The 96 MW wind farm is located 30 kilometres southwest of Moncton, New Brunswick.

Wal-Mart Canada opened its 1st environmental demonstration store in Burlington, Ontario. The store uses a geothermal technology which is the first of its kind in a large-scale Canadian retail operation. Wal-Mart has indicated that it will start rolling out these types of stores which, according to Wal-Mart, are 30% more energy efficient than its traditional retail outlets. The environmental demonstration store also includes a number of other energy efficient features.

Better Place, a company based in California is seeking to extend its electric car charging and battery exchange stations across Canada, starting first in Ontario. Better Place has partnered with Bullfrog Power and Macquarie Captial Markets. Better Place is planning on starting out in the Greater Toronto Area and then plans to move other major cities in Ontario.

Six long term green energy project contracts have been awarded by the Ontario Power Authority (OPA). According to the OPA these projects should create roughly 2,200 jobs, provide enough electricity for upwards of 120,000 homes and also produce cleaner energy for the province. The projects are also expected to create a combined 492.1 MW of renewable generation.

On the Horizon

On January 27, 2009, the Federal Government unveiled its 2009 Federal Budget which included a stimulus package totalling $40 billion in measures over the next two years. The stimulus package includes over $10 billion in infrastructure spending and $20 billion in tax relief measures to help provide an economic boost and create more liquidity in the markets. The government has provided up to $200 billion in existing and new liquidity financing under "Extraordinary Financing Framework" in order to improve access to credit for businesses.

When President Barack Obama makes his first foreign trip to Canada, the Canadian oil sands will be on the agenda. The President's visit is planned for February 19, 2009. The oil sands deposits in Alberta, Canada are the biggest oil reserves outside of Saudi Arabia. Canada accounts for about 20% of US imports of crude and oil products.

Mergers and Acquisitions: Acquiring a Canadian Company

This publication has been prepared to provide a general overview of the principal securities, tax, competition, foreign investment, labour relations, employment and pensions considerations that would be applicable in the acquisition of a Canadian business. Most of the material contained in this publication focuses on federal, British Columbia, Alberta, Ontario and Quebec legislation. The material is not meant to be an exhaustive analysis of the law. Persons considering the acquisition of a business in Canada should obtain professional advice as it relates to their specific investment or activity. Additional information relating to the acquisition of a business in Canada may be obtained from any of the offices of Fraser Milner Casgrain LLP.

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Events from this Firm
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