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

Last Updated: July 26 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. Enbridge announced it has finalized a deal with the operators of the Kearl oil sands plant, Imperial Oil and ExxonMobil, to build a pipeline from the plant to Edmonton. The pipeline still needs detailed engineering work and regulatory approval prior to proceeding.

1. Connacher Oil and Gas Limited announced it is re-activating its Algar oil sands project after raising approximately $205.6 million through a sale of senior secured notes. Connacher is expecting to drill 15 steam-assisted gravity drainage well pairs. It will take about one month to commission the SAGD facility and three months to steam the wells prior to initial production. Full plant capacity is estimated at 10,000 bpd of bitumen. This announcement is positive for smaller oil sands players and according to the Canadian Energy Research Institute, an indication that global investors are recognizing the long-term viability of the Alberta oil sands industry.

1. Osum Oil Sands Corp. has announced it plans to submit an application by the end of 2009 for its Taiga project, a proposed 35,000 bbl/day, steam-assisted gravity drainage project at Cold Lake. Osum has stated that it is going right to a commercial application because of the proven reserves in the area. Between the company's two laterally contiguous zones, Taiga and Saleski, Osum estimates that it holds 11 billion net bbls of oil in place. First production from Taiga, which is currently on time and on budget, is expected in early 2014.

1. Ivanhoe Energy Inc. plans to submit regulatory applications in June 2010 for the first phase of its Tamarack project in the Fort McMurray oil sands area. According to Ivanhoe, the project will use steam-assisted gravity drainage and Ivanhoe's own field partial upgrading technology which will negate the need for natural gas thermal operations and for diluent to transport the heavy oil. The first phase of the project is expected to cost $1.25 billion and first production is expected in late 2013. Ivanhoe projects that the Tamarack property is ultimately capable of operating at production rates of at least 30,000 barrels of bitumen per day for 25 years.

1. The ERCB approved an application from Murphy Oil Company for up to 150 heavy oil horizontal wells near Seal Lake in the Peace River oil sands. The wells will be drilled over the next four years beginning in September of this year. Murphy Oil will use roughly 25 to 32 multi-well pads each consisting of four to six wells. Primary recovery from the wells is expected to last from six to 10 years.

1. A new test centre near Fort McMurray has been established by UTS Energy Corporation and Teck Cominco Limited to develop a technology to reduce diluent requirements so bitumen can be more compatible with a larger number of upgraders. The process is called paraffinic froth treatment and will work by removing asphaltenes and fine clays from bitumen so the heavy crude can move more easily through pipelines. Imperial Oil Limited and Royal Dutch Shell plc each use their own versions of paraffinic froth treatment according to UTS.

East Coast News

2. The provincial government of Newfoundland and Labrador announced that the province will take a 10% equity stake in the Hibernia Southern Extension project offshore Newfoundland. The maximum royalty rate will be 50%. The premier estimated that over the course of the project's life it would bring in another $10 billion in revenue for the province, and $3.5 billion in revenue for the federal government.

West Coast News

3. The National Energy Board has announced it will hold a public hearing on Nova Gas Transmission Ltd.'s application for a Certificate of Public Convenience and Necessity to build the Groundbirch Pipeline. The proposed pipeline would extend for 77 kilometres from the Gordondale Lateral in northwest Alberta, on the TransCanada Alberta System, to the Montney formation in northeast British Columbia. It is expected the pipeline would transport approximately 1.66 bcfpd of natural gas from British Columbia into the TransCanada System.

3. British Columbia's land sale in June brought in just under $173 million for eight licences in the Horn River Basin area and a grand total of $178.38 million for the province. Both ExxonMobil Canada and Imperial Oil Resources Limited were bidders for large portions of the Horn River Basin, just north of Fort Nelson. The province's Energy, Mines and Petroleum Resources Minister cited the earnings as an indication of the positive investment climate in the province.

Canadian Arctic News

4. BP Exploration is proposing to undertake the Pokak three-dimensional seismic program this summer, in an 1,800 square kilometre area approximately 180 kilometres offshore the Mackenzie Delta. The program area could expand if environmental conditions are favourable. If the ice and/or weather conditions are not co-operative, such that sufficient seismic data cannot be collected in the period between late July and October 2009, BP will go back into the Beaufort during that same period in 2010.

Alternative Energy News

5. A consortium made up of Boralex Inc. and Gaz Metro have received environmental approval from the Province of Québec to build to wind power projects in the Seigneurie de Beaupre located northeast of Trois-Rivières, Québec. The two wind projects will be installed with a total capacity of 272 MW. The decision will now allow the consortium to seek construction permits and financing for the projects. The approval is the first under the latest Hydro-Québec call for tenders.

On the Horizon

Shareholders of Petro-Canada and Suncor Energy Inc. voted in favour of the planned merger on June 4, 2009. Suncor executives reported the merger was approved by 96% of Petro-Canada shareholders and 98% of Suncor shareholders. Review of the merger by the Canadian Competition Bureau is still ongoing, however, meaning the companies cannot estimate when the deal will close. Suncor also indicated that a decision on the future of Petro-Canada's Fort Hills oil sands project, and other oil sands projects put on hold by the merger, would be decided within the first three months of the deal closing.

The U.S.-based Council on Foreign Relations reported that expansion of Canadian oil sands will aid United States energy security and does not need to come at the expense of climate change. The authors of the report note that currently "the economic and security value of oil sands expansion" outweighs climate change concerns. This coincides with statements from U.S. Energy Secretary, Steven Chu, that he believes technology can work to solve environmental problems associated with the oil sands.

Preliminary figures from the Canadian Energy Research Institute expect the oil sands to contribute just over $1.4 trillion to the Canadian economy over the next 25 years. Additionally, emerging shale gas production in the Horn River Basin and Montney formations in British Columbia may contribute roughly $279 billion to the economy during that same time period. The study was conducted with a view toward showing how investments in new developments and expenditures in ongoing operations can generate jobs and economic spinoffs benefitting the economy, generally.

FMC Publications

Doing Business in Canada: Practical Considerations for Investors

FMC has recently updated our Doing Business in Canada publication. The document provides a general overivew and practical considerations on the establishment, acquisition or conduct of a business in Canada.

Click here to open the publication.

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To keep pace with our growth, the Calgary office of Fraser Milner Casgrain LLP will be moving into a new state-of-the-art building as of August 7, 2009. Bankers Court is located in the heart of downtown Calgary on the corner of 9th Avenue and 2nd Street S.W. immediately easy of the landmark Bankers Hall complex. Although we'll have a new address, our phone numbers and email addresses will remain the same.

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