Canadian Insight

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Updated on Tuesday, March 26, 2019

Alberta government eases crude oil restrictions — March 19, 2019

Alberta government has announced that it will ease crude oil restrictions by 25,000 barrels per day in May and another 25,000 barrels per day in June.

The Alberta government introduced its output cuts in January to curb a growing glut of oil. The original cuts were intended to reduce Alberta’s output by 325,000 barrels per day but actually maxed out at 200,000 barrels per day.

With the two coming easements, the government will still restrict Alberta’s oil production by 150,000 barrels per day. There has been no word as to when the restrictions will cease.

The oil restrictions may have served some purpose in easing the oil glut in the province. Most oil companies are against the restrictions and have openly complained.

Premier Rachel Notely is expected to call a provincial election in the next two months. Polls show that her NDP party is trailing the United Conservative Party by a wide margin.

 

 

National Energy Board releases its recommendations on optimizing crude oil movement   — March 18, 2019

Federal government requested for the National Energy Board to do a study on examining short and long term solutions to optimize crude oil movement to markets. The NEB released its report last week.

The NEB report recommends in the short term: (1.) Creating predictable timelines and clear policies related to pipeline capacity to help market participants make more informed decisions. (2.) Developing better market data to help market participants and policy makers make investment decisions.

For the long term, NEB suggests: (1.) Upgrade bitumen to a higher quality product to reduce the volume of diluent needed and open up space on existing pipelines. (2.) Reverse pipelines currently importing diluent to export more crude oil. (3.) Ship undiluted bitumen in rail cars to increase the volume of bitumen exported by rail. 

Jean-Denis Charlebois, Chief Economist, National Energy Board commented, "The oil pipeline systems are currently running at capacity and market players are operating within the rules set up in tariffs and legislation. This report points to potential improvements that can be made and we have identified options for governments to pursue."

 

Expect weak oil and natural gas sales to stymie Canada’s growth — March 18, 2019

Canada’s largest banking institution, RBC, released its economic forecast for 2019. The prognosis does not look good.

RBC has downgraded its previous expected Canadian growth from 1.7% to 1.5%. It sees the energy sector slowdown affecting  the whole Canadian economy.

The severity of the energy sector weakness is expected to be short lived as compared to that of 2015 and 2016. Interest in energy investments should hold up well.

RBC expects present oil prices to continue for the year but gradually increase in 2020.

 

National Energy Board reconsiders and approves Trans Mountain pipeline project  — February 25, 2019

National Energy Board announced on February 22, 2019 that it has approved the construction of the Trans Mountain pipeline project.

The second round of consultation met in 85 communities before reaching a decision.  In conclusion, NEB report has set 156 conditions and 16 new recommendations that the Trans Mountain pipeline project must follow. 

The federal government has 90 days to make the final decisions before the pipeline project gets the final go ahead.

Minister of Natural Resources Amarjeet Sohi stated, "We know how important this process is to Canadians. Moving forward, the Governor in Council will make a decision on TMX once we are satisfied that the Crown has adequately fulfilled its duty to consult. We are hopeful the work we are doing will put us in a strong position to make a decision within the NEB's legislated timeframe."

 

Effects of Alberta’s mandated crude oil production restrictions  — January 29, 2019

Canadian Crude oil prices have risen and the price spread between WCS and WTI have narrowed since Alberta’s provincial government mandated crude oil output restrictions last December.

Husky Energy was one of the  oil companies that warned the provincial government of long term and dire consequences to the oil industry…. “This restricting legislation will not only cause higher unemployment but may also lead some oil and oil services companies into financial hardship or even bankruptcy.”

Canadian Natural Resources, who was initially in favor of the government action, is now agreeing with Husky Energy and is warning the Alberta government that in February the legislated higher production restrictions will have serious implications and consequences.

Alberta’s oil production will be forced to drop by an additional 33% in February. In total, Alberta oil producers must cut production by 100,000 barrels per day.

 

Federal government in no rush to speed up Trans Mountain review — January 25, 2019

Natural Resources Minister Amarjeet Sohi stated that the federal government is in no hurry to speed up the review process. Sohi went on to say that he is not willing to cut corners in the process and believes that it is running on time as per schedule.

The Federal Court of Appeal struck down the NEB and Ottawa’s approval of Trans Mountain project on August 16, 2018. The court decision stated that NEB review was flawed and many concerns were omitted. The most serious issues were related to land-title rights, protection of water and fish, oil-spill response and marine safety.

The review panel is scheduled to prepare a new report by February 22, 2019 and present it to the National Energy Board. There is no scheduled date as to when the rest of the process would give the project a go ahead or approval.

 

Alberta government to legislate crude oil production cuts — December 3, 2018

Premier Rachel Notley announced on Sunday that her NDP government will introduce legislation which will make mandatory crude oil production cuts in Alberta. The legislation will take effect on January 1, 2019.

Alberta’s premier stated that her government intends to legislate a production cut of 8.7%, or approximately 325,000 barrels per day.  Once the oil glut is down (possibly by spring), production cuts will drop to approximately 95,000 barrels per day.

Last week, Premier Notley announced that her government intends to purchase 80 locomotives and 7000 tanker cars to move crude oil to markets. In the announcement, the premier estimated that this investment should move 120,000 barrels of crude oil daily.

The federal government appears to be in favor of the two proposals but has not offered any financial help in Notley’s endeavor, or help oil industry through the crisis.

WCS crude oil prices have hit all time lows in recent weeks. The Alberta government is hoping to end the oil glut in her province which would also boast the oil prices in western Canada.

 

Imperial Oil Ltd. about to begin construction of its Aspen Oilsands project — Nov. 7, 2018

Imperial Oil announced today that it will go ahead with its Aspen Oilsands project northeast of Fort McMurray. Construction will begin immediately and be completed by 2022.

The oil sands project is estimated to cost $2.6 billion and is expected to employ 700 jobs during the peak of its construction.

Imperial Oil stated that it will be employing new technology in its operations. It will use 25% less water in its operations compared to traditional steam assisted means.

The project when completed will produce  75,000 barrels of crude oil daily. It will have the capability to expand to double its initial production volumes.

National Energy Board releases schedule of Trans Mountain Expansion hearings and summation  — Oct. 15, 2018

National Energy Board released a hearing schedule  for Trans Mountain; this is as required by Federal authorities for its reconsideration of aspects of the Trans Mountain Expansion Project pertaining to project related marine shipping.

The hearings will start this month and end in December. Oral summary arguments will be presented in January, 2019. Complete process and issue resulting report will come no later than February 22, 2019.

 

Our most recent ‘Shouts & Toots’  from the Oil Patch  — March 26, 2019

East West Petroleum Corp. (EW:TSXV) announced an update to its news release of March 12th, 2019 announcing the cancellation of a special shareholders meeting to approve the Juva transaction.

While the meeting was cancelled the company did receive final tally of votes by shareholders for the cancelled meeting and if the meeting had taken place the Juva transaction would not have received approval by shareholders.

At this time the company will not be rescheduling a meeting of shareholders to consider the Juva transaction. Company is in discussions with Juva management to determine appropriate course of action with the contractual arrangements that exist at this time.

East West Petroleum Corp. is a Vancouver based oil and gas company with interest in New Zealand and Romania. Company has a market cap of $9.0 million and approximately 90 million shares outstanding.

Hemisphere Energy Corporation (HME:TSXV) announced highlights from its independent reserves evaluation effective as at December 31, 2018 prepared by McDaniel & Associates Consultants Ltd. Company increased net present value of future net revenue, discounted at 10%, before tax ("NPV10 BT") by 71% to $197.9 million. It increased reserve volumes by 48% to 10.6 MMboe (98% oil). Company reported a reserve life index of 21.1 years based on annualized 2018 fourth quarter production, representing a low decline, long life asset base in early stages of development.

During 2018 Hemisphere incurred capital expenditures of approximately $15.5 million, which included capital to drill 11 producing wells, three injector wells, and expand both batteries in the Atlee Buffalo area. Reserve and production growth through 2018 is the result of new production from these wells, recognition of better overall well performance due to successful waterflood implementation over the past few years, and an increase in the total expected recovery factor for both waterflood pools.

In 2019, Hemisphere plans to deploy capital of approximately $15 million to drill up to 16 wells in order to further expand these waterfloods and optimize both Atlee Buffalo pools. Horizontal drilling, slotted liners, and waterflood have proven to be extremely successful in the growth of production from 60 boe/d at the time when the Atlee Buffalo assets were acquired by the Company to approximately 1400 boe/d to date.

Hemisphere Energy Corporation is a Vancouver based oil and gas company. Its core operations are in Jenner and Atlee Buffalo areas in southeast Alberta. Company has a market cap of $11 million and approximately 90 million shares outstanding.

Pengrowth Energy Corporation (PGF:TSX) announced that it has reached arrangements for the extension of the maturity date under its secured revolving credit facility through September 30, 2019, subject to certain terms.

Company’s $330 million Credit Facility is provided by a broad syndicate of domestic and international banks and had a scheduled maturity of March 31, 2019. The Company has executed an extension agreement to its Credit Facility, supported by 100% of the lenders in the syndicate, providing for the extension of the maturity date under the Credit Facility to September 30, 2019, by way of an initial extension to July 29, 2019 and two subsequent extensions to August 29, 2019 and to September 30, 2019, respectively.

The extension of the Credit Facility will provide support to Pengrowth while it undertakes its previously announced process to explore and develop strategic alternatives with a view to strengthening the Company’s balance sheet, addressing upcoming debt maturities, and maximizing enterprise value.

Pengrowth Energy Corporation is a Calgary based oil and gas producer. Company has properties in the Cardium coil play, CHills light oil play, and Montney natural gas projects in Canada. Pengrowth has a market cap of $339 million and approximately 556 million shares outstanding.

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BNK Petroleum Inc. (BKX:TSX) announced on March 25th its strategic review process. BNK's Board of Directors has determined that it is the opportune time to initiate a formal process to identify and evaluate strategic options to optimize the capitalization and growth prospects of the company to enhance shareholder value as we move into this next phase.

A Special Committee of the Board led by David Neuhauser as its Chairman will work with management and the company's external advisors to supervise the review of strategic options. The Special Committee has a mandate to identify, examine and evaluate all strategic options and recommend to the Board whether any transaction is in the best interests of BNK and its shareholders.

Board and management team believe that significant additional value can be unlocked from the Tishomingo Project given the established land position, high netback oil production, low decline rates, healthy leverage position with debt to operating income of under 2.0x, attractive development locations (verified by BNK's independent reserves auditor) and current market dynamics.

BNK Petroleum Inc. is an international oil and gas exploration and production company focused on its shale oil and gas properties in the United States. Company has a market cap of $73 million and approximately 233 million shares outstanding.

Return Energy Incorporated (RTN:TSX) announced that its Board of Directors has initiated a formal process to review potential strategic alternatives available to the company in an effort to enhance shareholder value.

Board believes that the current trading price of its common shares does not adequately reflect the underlying value of the Company and its assets, in particular its Upper Charlie Lake light oil development project at Rycroft, Alberta. The Board has appointed an independent committee to undertake a broad review of potential alternatives to enhance shareholder value.

Return has not set a definitive schedule for the process and it does not intend to provide updates or otherwise disclose developments with respect to the process until the Board has approved a definitive transaction or strategic alternative, or otherwise determines that disclosure is necessary or appropriate. Return will continue to execute its business plan.

Return Energy Inc. is a Calgary based oil and gas exploration and production company. It is engaged in the exploration for and development and production of petroleum and natural gas properties internationally in Alberta. Return has a market cap of $3.3 million and approximately 111 million shares outstanding.

Tidewater Midstream and Infrastructure Ltd. (TWM:TSX) announced on March 25th that it has entered into an asset purchase and sale agreement whereby the corporation has divested of its Pipestone Gas Plant's 32MW cogeneration units to Kineticor Resource Corp. Under the terms of the sale, the Tidewater received a cash payment of $85 million and Kineticor assumed ownership of the cogeneration units which are currently onsite.

Kineticor will supply power to Tidewater's Pipestone Gas Plant once construction is complete in exchange for fixed energy fee payments. Corporation also entered into an operating agreement, whereby Tidewater will manage the final construction of the cogeneration units and the day-to-day operations once in service.

Tidewater Midstream and Infrastructure Limited is a Calgary based company engaged in providing infrastructure and natural gas storage facilities in North America. Company has a market cap of $447 million and approximately 331 million shares outstanding.

TransAlta Corporation (TA:TSX) announced on March 25th an investment by Brookfield Renewable Partners and its institutional partners that crystalizes the value of its Hydro Assets, enhances its financial position to execute its strategy, and accelerates the opportunity to return capital to shareholders. This investment will ensure TransAlta will transition to 100% clean energy by 2025.

Under the terms of the agreement, Brookfield will invest $750 million in TransAlta through the purchase of exchangeable securities, which will be convertible into an equity ownership interest in TransAlta's Alberta Hydro Assets in the future at a value based on a multiple of the future Hydro Assets' EBITDA.

TransAlta also announced today that Robert Flexon, former CEO of Dynegy, has agreed to stand for election at the 2019 Meeting, bringing with him critical leadership skills and experience from the independent power-producing industry in the US.

TransAlta is an independent power producer based in Calgary, Alberta, Canada. The company owns more than 70 power plants in Canada, the Western United States, and Australia. Company has a market cap of $2.2 billion and approximately 285 million shares outstanding.

More news on Oilpatch Review

Quote of the day

Evan Esar, “Definition of a Statistician: A man who believes figures don't lie, but admits than under analysis some of them won't stand up either.”

Did you know?

Oil shale was also used during the mid-1800s to produce kerosene, paraffin, fuel oil, lubricating oil, grease, and ammonium sulphate. 

 

prices compiled and updated on a regular basis by Canadian Insight

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Victoria

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Edmonton

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Regina

Brandon

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1.379

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1.129

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1.059

1.129

 

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     WCS  / WTI

 Price Spread $19.15

  March 26, 2019

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