Business & Technology - August 2008Selected Articles from the Current Issue
Canada’s Oil & Gas Industry Today – Energy Update: Tracking Trends
A new era of challenges and opportunitiesAPP Releases 2008 Canadian Crude Oil Forecast and Market Outlook
Canada’s Oil & Gas Industry Today – Energy Update: Tracking Trends
With the price of oil at record highs, exploration and the use of new technology have become more practical economically. And the search to get oil and gas out of the ground that the last generation of technology left behind is becoming a more expeditious and competitive search. Over the course of the Global Petroleum Show, we’ll report on some of the recent activities and trends unfolding as we move into the latter part of 2008.Shale gas. Previously only a common term in the United States, shale gas exploration is exploding in Canada. British Columbia land sales hit a record high in May largely in part because companies scrambled to get a stake in the Horn River Basin, where companies such as Nexen and EnCana already have claims.
EnCana was the first to get in on land in the Horn River play, now holding the rights to 338 sections. Nexen and EOG have since scooped up some land. At the end of April, Imperial Oil and ExxonMobil Canada acquired exploration rights in the area for 46,500 hectares of holdings, about 70 kilometres northeast of Fort Nelson. Each company holds a 50 per cent interest.
Such wells are expensive to drill — in the order of $10 million — and many companies are crediting the feasibility of drilling there to the favourable royalty program and incentives offered by the B.C. government.
The B.C. government partnered with EnCana to build an all-weather road into the area. The royalty rate in B.C. is two per cent of gross revenues until capital costs are recovered, rising in stages to a maximum of five per cent of gross revenues or 35 per cent of net profits, whichever is greater.
The Horn River Basin was a key area for the recent record-breaking B.C. land sale with a group of five parcels about 95 kilometres northeast of Fort Nelson generating $52.1 million in tender bonus.
But British Columbia doesn't have the lock on shale gas. Calgary-based PanTerra Resource Corp., for example, has big plans for shale gas production in Saskatchewan. The company has built up a land base of 1.1 million acres in that province, with large parcels near Moose Jaw, Foam Lake and Shell Lake.
Coalbed methane. Coalbed methane exploitation is also still relatively in its infancy in Alberta, only getting underway in 2002. Because it has been happening in other countries for a number of years, it came to Alberta with a reputation.
Working in co-operation with industry, a University of Calgary research project is hoping to help shed more light on it. Dr. Bernhard Mayer, professor of geoscience and head of the U of C’s applied geochemistry group, is leading a project to develop an accurate fingerprinting tool to assess whether methane in groundwater is naturally occurring or derived from industrial coalbed methane operations.
“Immediately concerns were raised about whether shallow groundwater would be impacted,” Mayer said. “Many concerns are raised simply because problems occurred elsewhere. But the situation here is quite different.”
The Horseshoe Canyon Formation, a main coalbed formation in Alberta, has very little water to begin with and companies don't release the small amounts of produced water to surface environments, he said.
Findings so far show that carbon isotope ratios are in principle a suitable tool for distinguishing between coalbed derived gases and bacteriogenic gases in shallow water. The research will continue until the spring of 2009.
Oilsands. While the face of oilsands has been the huge heavy haulers and black sand, that is only part of the equation today.
The first player on the scene was Suncor Energy. On its opening day in 1967, then Alberta premier Ernest Manning said, “No other event in Canada’s centennial year is more important.
More than 40 years later, the number of companies involved in the oilsands has skyrocketed, as has the price they are getting for a barrel of oil. If all the projects currently proposed go ahead, oil production in northern Alberta will quadruple to more than four million barrels a day by about 2020.
The Long Lake Project, a joint Nexen Inc. and OPTI Canada venture, is the first to combine SAGD, (steam assisted gravity drainage) with hydrocracking and gasification in order to produce premium sweet crude. In addition to producing and selling its first bitumen,,Long Lake recently sold its first electricity to the Alberta power grid. Full production of 70,000 barrels per day for Phase I is expected within 18 months of startup, targeted for the third quarter of 2008, as plant reliability continues to increase.
A much smaller player in the oilsands game is Laricina Energy, which has made applications to the government for two pilots that would produce 1,800 barrels per day each. This year, the company is moving tests from the lab into the field to fine-tune the oilsands recovery processes. Laricina is moving ahead with pilot demonstrations for thermal recovery in the Grand Rapids and Grosmont formations.
The goal at the Germain pilot (about 100 kilometres southwest of Fort McMurray) is to test the best attributes of the insitu project before it goes commercial. That project will utilize existing SAGD technology and consists of a small pilot processing facility.
Upgrading. Most of the oilsands activity is happening in the Fort McMurray region, but much of the upgrading activity will be happening around Edmonton, providing thousands of construction jobs.
North West Upgrading is building new upgrader about 45 kilometres northeast of Edmonton, in what is being called Upgrader Alley. Originally, it was believed Phase I of the project would cost around $3 billion, but the company soon found that actual costs would be substantially higher. Start up of Phase I of the three phase project is slated for 2011.
The Athabasca Oil Sands Project plans to build four new bitumen upgraders in the area in the next five years.
Stumbling blocks. While the oilsands are contributing to the $1.4 billion the Alberta government is expected to draw in from oil and gas revenues in 2009, there are detractors.
When 500 or so ducks landed on a Syncrude tailings ponds and subsequently perished, environmental organizations such Greenpeace demanded a public inquiry. Environment Minister Rob Renner said he has full confidence in the province's investigation.
Syncrude is partially owned by Imperial Oil Ltd. which is facing delays on its $8-billion Kearl oilsands project after the Department of Fisheries and Oceans retracted its federal water permit. Lawyers for EcoJustice argued on behalf of environmental groups against the project, which according to them, would devastate fish habitat.
The Globe and Mail reported that the court case was widely seen as a sign that oilsands development will be increasingly tough, with longer and more detailed regulatory processes, a greater likelihood of legal challenges and ever-higher costs.
Kearl could be back on track as early as June 5, with Ottawa poised to allow Imperial Oil to proceed on sitepreparation work blocked by the court.
Tightening focus. In what analysts say may be the start of a trend, the board of directors of EnCana Corporation unanimously approved a proposal to split EnCana into two highly focused energy companies – one a natural gas company and the other a fully integrated oil company. The transaction is designed to enhance long-term value for shareholders by creating two sustainable, independent entities.
CEO Randy Eresman said, “with greater transparency and focus, the investment community will be able to more easily follow and more accurately assess and value these companies.”
Meanwhile, Talisman Energy also made significant changes to its increasing bulk, although via a different method. CEO John Manzoni said the market has been telling the company that Talisman is too complex and needs to focus on fewer, larger assets.
Talisman also announced plans to focus on three core areas — British North Sea, Southeast Asia and North American unconventional gas — and dispose of between $1.5 and $2 billion in assets by the end of next year.
# A new era of challenges and opportunities
The PSAC Perspective
With the ups and downs in the price of natural gas, industry activity has been like a pendulum, swinging from the extreme side of good, to bad, and back to good. Amidst this, all-time record high oil prices are creating a shift in the Western Canadian Sedimentary Basin, whereby the traditional focus primarily on gas is shifting to a dual focus on both gas and oil.
At the same time, industry is grappling with cost pressures, a negative public perception and a new royalty regime in Alberta. As well, labour shortages abound, and, while public controversy over the oilsands is now challenging the development of this resource, if the mega projects proposed for the area move forward, experts say that the worst is yet to come in terms of labour shortages. On top of this, don’t forget that investors are calling for diversification and investment into alternative energies, and oh-yes – the government is calling for lower emissions and carbon capture.
Clearly, the upstream petroleum sector is operating in a new environment, with a sea of new challenges. Within those challenges though, particularly for the petroleum service sector, there exists significant opportunity – opportunity to increase efficiencies, access new markets, and capitalize on the need for new technologies. For petroleum service companies to seize these opportunities it will take leadership, and as the national trade association representing service, supply, and manufacturing companies within Canada’s upstream petroleum industry, the Petroleum Services Association of Canada (PSAC) is working to assist its Members in making this shift to a higher level of leadership.
Members are telling PSAC that the key issues impacting their businesses include the ongoing challenge of finding and keeping workers; realizing efficiency to ensure competitiveness and better margins; determining feasibility of and ability to pursue international opportunities; and dealing with a mass exodus of the retiring “boomers”, both in terms of how to fill the void, but also how to sell a company and realize the best returns.
As an opportunity to provide strategic insights related to these important issues, PSAC will be hosting a one-day Optimizing Corporate Potential Fal l Conference on September 25th, 2008 in Calgary. Designed for senior leaders within service, supply, and manufacturing companies, delegates will walk away with high-level information and insights designed to provide a strategic understanding of how to maximize success in the new and ever-changing operating landscape of the industry.
It is times like this that separate the strong from the weak. Make sure that your company stays strong by recognizing
the challenges facing both your company and the industry, and by being open to new ideas, new conversations, and new ways to improve success.
For more information on the Optimizing Corporate Potential PSAC Fall Conference, visit: www.psac.ca.
# CAPP Releases 2008 Canadian Crude Oil Forecast and Market Outlook
The Canadian Association of Petroleum Producers (CAPP) has released its annual crude oil production, supply, markets and pipelines outlook for 2008.
CAPP’s 2008 Canadian crude oil supply outlook has two cases, both looking out to 2020. The Moderate Growth Case represents the “expected” outlook while the more aggressive Pipeline Planning Case has been developed to ensure the industry is planning for adequate pipeline capacity. In the Moderate Growth Case, total Canadian crude oil production (conventional, oil sands and Atlantic offshore) is projected to increase from 2.7 million barrels per day in 2007 to almost 4.5 million b/d in 2020. In the Pipeline Planning Case, production rises to 5.0 million barrels per day.
Oil sands continue to be the main source of Canada’s growing oil supply. This year’s forecast is similar to last year’s but with oil sands growth being extended over slightly longer time frames. This results in a slightly lower production profile in the 2008 forecast than in 2007. “The growth in oil sands remains significant; the potential for oil sands growth is unchanged but this will be accomplished over a longer period” says Greg Stringham, CAPP Vice President, Markets and Fiscal Policy. “Even with growing world demand and higher global prices for oil, oil sands projects take substantial time and effort to address issues such as rising construction costs, labour constraints, public concerns about environmental impacts and completing detailed regulatory processes”. Recent trends indicate the year-over-year decline rate for conventional crude oil production has slowed somewhat due to higher crude oil prices and, in fact, production has increased slightly in Manitoba and Saskatchewan. However, due to the maturity of the Western Canada Sedimentary Basin, conventional crude oil supply will continue to decline gradually over the forecast period.
In order to accommodate the expected growth in oil sands supply, approximately 1.1 million b/d of pipeline capacity is being added from western Canada through the end of 2010, which should be sufficient until 2013 given the growth in the Pipeline Planning Case. Subsequently, additional pipeline capacity will be required to meet expected oil sands growth. This new pipeline capacity will include expansions into existing markets and extensions into new markets in Eastern Canada, the US and potentially to offshore markets. The Canadian Association of Petroleum Producers (CAPP) represents 150 companies that explore for, develop and produce natural gas, natural gas liquids, crude oil, oil sands, and elemental sulphur throughout Canada. CAPP member companies produce more than 95 per cent of Canada’s natural gas and crude oil.
OGN
To Read More Visit Our Subcriptions Page and Get Your Copy Today!
