ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
Photo: Encana
2 Natural Gas Market WHAT’S NEW 15 Oil and gas statistics SUMMER Update 6 Upstream 20 Contacts 3 Conventional Crude 8 Midstream 2018 Update 9 Downstream Reporting period: 4 Oil Plays Tech March 26 - June 20, 2018 13 5 Natural Gas Plays 14 Environment ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
NATURAL GAS MARKET UPDATE
The work will commence in June 2018, with advice to government expected in early summer. “I was pretty excited [the panel mem- bers] all agreed to help us as they all bring a wealth of experience. Basically, we’ve mandated them to give us both verbal and written advice where we could look at what are some of the things we could do to solve some of the issues,” McCuaig- Boyd said. “I’m excited on where we go and hopefully we can come up with some good solutions for ways that we can develop our natural gas resources here in Alberta.” McCuaig-Boyd is hopeful the panel’s ALBERTA ENERGY the struggles facing the province’s natural expertise and guidance, along with input gas industry, perhaps no better illustrated from industry, will help chart a better MINISTER than when Alberta’s regional AECO pric- course forward for the province’s natural STRIKES EXPERT es dipped to negative levels, McCuaig- gas sector. Boyd said. “We’ve got some pretty smart people PANEL TO HELP “That’s when it first got my atten- on this panel to pull the right industry tion last summer. It was horrible for the people together. They know the business BELEAGUERED industry. Are there some things we can and hopefully they can provide us with NATURAL GAS do to avoid that type of situation again? some good advice that we can act on,” How can we make this a better situation the minister said. INDUSTRY for Alberta?” she asked. “I’ve asked the panel to examine some “It’s difficult out there for natural gas options for immediate action, and then Alberta Energy Minister Marg producers. I’m hearing a lot about the over the next 12 months and the next five McCuaig-Boyd has struck an expert panel problems. There are a lot of challenges years; give me some short-term, medi- with the mandate to ensure Alberta is facing the industry. One of them seems um-term and long-term things that the receiving maximum value for its natural to be a lack of pipeline capacity within government can look at.” gas resources from available or potential Alberta, and also leaving the province. I’m Gary Leach, president of the Explorers markets. curious to know what are some barriers and Producers Association of Canada, The Natural Gas Advisory Panel that are existing that maybe we can help supported formation of the panel. (NGAP) will outreach broadly with rel- grow access a bit,” McCuaig-Boyd added. “We had urged the Alberta govern- evant parties in the sector to determine “At the end of the day we want to get ment late last summer, in the wake of the advice and recommendations, including the best dollar we can for our resources collapse in AECO prices, to take a keen potential support or opposition. and with that AECO pricing, nobody is interest in natural gas prices and the Panel members are: Hal Kvisle, who making money at it when it’s that low. So issues that underlie the large disconnect has served as president and CEO of we’ve got to do better.” between the AECO hub and other hubs in both Talisman Energy and TransCanada; The panel has been instructed to North America,” he said. Brenda Kenny, past president and engage with relevant parties including “We felt Alberta’s interest as re- CEO of the Canadian Energy Pipeline producers, aggregators, storage compa- source owner should be well aligned with Association; and Terrance Kutryk, former nies, transmission companies, industry producers. We are pleased to see the president and CEO of Alliance Pipeline. associations, consumers, financial institu- government get behind this topic and look The panel’s input is essential due to tions, regulators, and other governments. forward to the recommendations.”
2 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
CONVENTIONAL CRUDE MARKET UPDATE
NEW CANADIAN production. In the longer term, declines are anticipated as the OIL FORECAST Montney and Duvernay fields RECOGNIZES mature. Without considering pen- GREATER tanes and condensate, conven- tional crude oil production from POTENTIAL Western Canada (dominated FROM MONTNEY, by Alberta) is expected to stay relatively stable at about 1.0 DUVERNAY million bbls/d through to 2030. “With WTI oil prices The Canadian Association of Petroleum averaging over US$60 so far in Producers (CAPP) has increased its fore- 2018, conventional oil drilling is cast for conventional crude oil production, expected to be similar in 2018 including pentanes and condensate. The compared to 2017. However, reason: increasing confidence in the liq- it is unlikely that increased uids-rich Montney and Duvernay plays. drilling will return to the highs CAPP now expects that convention- of 2014,” CAPP notes. al crude oil production will be about “After the higher quality 200,000 bbls/d higher than it did last year reserves are developed first, through 2030, driven by pentanes and producers will move towards condensate. developing less prolific plays, From 2014 to 2017, production which should dampen growth in produc- didn’t put on here, which is compared to increased more than 20 percent year- tion in the longer term.” where we were in 2013 and 2014. Just over-year, to 326,000 bbls/d in 2017. Production could be higher than fore- a few years ago our growth profile was This is now expected to grow to a peak of cast with improved economics, CAPP said. substantially higher.” 500,000 bbls/d in 2026, compared to last Total Canadian oil production is now In 2013, Canadian oil production was year’s forecast, which had production at expected to reach 5.4 million bbls/d in expected to grow to 6.7 million bbls/d in 365,000 in 2026. 2030, up from last year’s forecast of 5.1 2030 – a full 1.3 million bbls/d more than The vast majority of this produc- million bbls/d. The oil sands is expected to what’s expected today. tion (85 percent) comes from Alberta, grow to 3.82 million bbls/d in 2030, which CAPP stresses that an increasing and increasingly from the Montney and is up from last year’s forecast of 3.67 competitiveness gap continues to impede Duvernay. million bbls/d, and the 2017 actual rate of Canada when it comes to attracting ener- “I think that each year our members 2.65 million bbls/d. gy investment. are realizing the true potential of that play,” The annual forecast is based on a “Prices have been escalating for quite said CAPP president Tim McMillan. survey of CAPP members. It is a summary some time, they’re now in the high $60s “It’s world class, our members are of their individualized views of the future, and I think people are looking out longer technologically on the cutting edge and and makes no assumptions about market term, they see dramatic growth in crude oil they are able to implement it and replicate conditions or pipeline development. demand globally, and we’re seeing capital it. The liquids-rich is where the economics McMillan says the modest increase in globally going back in. It’s just not coming are really driving the economics today.” growth expectations “a bit of a positive to Canada,” McMillan said. Demand for pentanes and condensate trend.” “The driver there is not global, it’s from oilsands for blending with bitumen “There still is some capital spending very much Canadian and in some cases currently exceeds domestic production going in, and companies are working out provincial of uncertainty in regulation, and is expected to remain strong giv- ways to be more efficient and lower cost. duplication, inefficiency and the inability to en projected growth in heavy crude oil The bigger difference is a line which we get major pipelines built.”
3 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
OIL PLAYS
The Alberta Energy Regulator (AER) estimates that the province has 1.8 billion barrels of remaining established reserves of conventional crude oil, with ultimate potential (recoverable) of 19.7 billion barrels. The remaining Fort established reserves of conventional crude oil in Alberta McMurray represent more than one-third of Canada’s remaining Peace conventional reserves. River In 1994, based on the geological prospects at that time, the AER estimated the ultimate potential of conventional crude oil to be 19.7 billion barrels. Given recent reserve growth in low-permeability, or tight oil, plays, the AER believes that this estimate may be low. Edmonton
Lloydminster
Beaverhill Lake/ Montney/Doig Red Swan Hills/ Deer Slave Point Carbonate Pekisko
Duvernay Viking Calgary Cardium
Capital of Alberta
*For information on Alberta’s oilsands industry, please see the Oil Sands Industry Quarterly Update.
14 Existing crude pipeline Edmonton 14 Proposed crude pipeline 1 Hardisty
1 Trans Mountain Expansion 16 Burnaby 2 Rangeland 4 7 Anacortes 3 Milk River 5 Quebec 3 16 Montreal 2 4 Bow River 15 6 Superior 13 8 Ottawa 8 5 Express Platte 8 Portland 6 TCPL Keystone Sarnia Casper 7 Alberta Clipper
8 Salt Lake City Wood Flanagan Enbridge River 9 Spearhead Patoka 10 ExxonMobil USGC 9 11 Gulf Coast Project 10 Cushing 12 Seaway 13 Portland P/L 11 12 14 Enbride Gateway
Port Arthur 15 Keystone XL northern leg
Houston 16 Energy East
4 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
NATURAL GAS PLAYS
While the majority of the province’s natural gas is still produced from conventional sources, the potential to grow natural gas volumes from coal, shale and tight formations Fort will also be strong contributors going forward. McMurray Alberta has a large natural gas resource base, with Peace remaining established reserves of about 33 tcf and an esti- River mated potential of up to 500 tcf of natural gas from the coal- bed methane resource. In addition, a large-scale resource assessment of shale gas potential in Alberta is underway Grande Prairie and could significantly add to the natural gas prospects for the province.
Edmonton
Lloydminster
Red Deer
Deep Basin Cretaceous Natural Gas Fields Multi-Zone Gas Play Calgary Nikanassin Deep National Parks Basin Gas Play Montney Hybrid Capital of Alberta Medicine Hat Tight Gas/Shale Play Lethbridge
MAJOR EXPORT POINTS FOR ALBERTA GAS
1 Kingsgate, BC 4 Emerson, MB
SPECTRA 2 Monchy, SK 5 Niagara, ON ENERGY 3 Elmore, SK 6 Iroquois, ON
Edmonton ALLIANCE Calgary Vancouver TRANSCANADA MARITIMES & SABLE TRANS QUEBEC NORTHEAST OFFSHORE 1 & MARITIMES ENERGY 2 3 4 Montreal Superior 6 PORTLAND NATURAL Portland Ottawa GAS TRANSMISSION 5
Chicago
5 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: UPSTREAM
Photo: Shell
Drilling activity in the Montney infrastructure that “sets up future develop- spot natural gas prices for the summer of play in Alberta and B.C. surged to some of ment opportunities.” 2018, Peyto said it remains bullish on the its highest numbers on record in the first “The short cycle inventory we see in prospect for stronger pricing in the follow- quarter of 2018, according to analysts with our units and the halo of the play demand ing winter season, and is confident that Peters & Co. more investment,” CEO David French said “much improved returns” in its Cardium As a result, Montney natural gas pro- in a statement. play as a result of innovation in comple- duction increased about 24 percent year “Our recent results, material acreage tion design will support expanding capital over year to approximately 7 billion cubic position, and low base decline rate enable investment going forward, even at current feet per day. us to step up growth and provide torque to strip pricing. The bulk of the growth was driven by rising 2019 commodity prices.” Encana, which produces about 1.3 bcf/d All 13 wells are informed by offset pro- Shell’s well productivity in the from the Montney, or about 18 percent of ducing wells that have exceeded internal Montney play has improved by approxi- the play’s natural gas, analysts said. expectations, Obsidian said. The new cap- mately 200 percent since 2016, according Encana nearly doubled drilling activity ital will be spent throughout the third and to a research report from Peters & Co. in the Montney play in the first quarter of fourth quarter, with production beginning From 2012 to 2015, well rates consis- 2018 following the start up of three new to come on line late this year. tently had initial 30-day flow rates below processing plants in the region in late 2017. ~4.0 mmcf/d. This increased to ~5.0 Peters & Co. said the company was the Peyto Exploration and mmcf/d in 2016 as Shell began to drill most active Montney player in the quarter, Development’s drilling activity took a dive longer lateral lengths, and averaged ~9.0 spudding 60 wells. This was followed by in the first quarter of 2018 compared to mmcf/d in 2017 with 25 new wells coming Seven Generations Energy with 35 and the previous year period as the company on-stream. ARC Resources with 26 new well spuds. navigated continued low pricing for natural “Well results have demonstrated a Overall, 350 new Montney wells were gas in Alberta. step-change in productivity year-over-year spud in the first quarter of 2018, up from The company drilled only 8 wells in the since 2016,” Peters & Co. said. 346 in Q1/2017 and 155 in Q1/2016. quarter compared to 45 wells in Q1/2017, “In 2017, wells produced over 1 Bcf of deferring capital to later in the year when gas in the first five months (on average), Obsidian Energy will spend $50 AECO pricing is expected to improve. compared to 10 months for wells brought million on primary production wells and Capital that was invested during the on-stream in 2016. In 2018, the results infrastructure in Alberta’s Cardium light oil quarter targeted liquids rich opportunities have shown a marked improvement again; play, where it has historically focused on like Alberta’s Cardium play, where results there are six wells with average lateral water flood operations. confirmed a significant improvement in lengths of ~3,100 meters that Shell brought Thirteen wells will be drilled in type curve and investment return, Peyto on-stream in January (on the same pad).” 2018 at Willesden Green, near Rimbey, said. Alta., while $4 million will be spent on Despite the outlook for weak AECO
6 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
Crescent Point Energy Corp. has Based in Lethbridge, Alta., Fox owns Strath is a Waterous Energy Fund- revealed its land position in the emerging seven triple-sized rigs that feature pad backed private oil and gas exploration and East Shale Duvernay light oil resource play, walking capabilities. production company with a liquids-rich which totals over 355,000 net acres, or Paramount will focus 2018 drilling Montney land base that is immediately ad- approximately 555 net sections, at a low primarily in the Montney play, with 54 jacent to the assets. Following close of the entry cost of approximately $315 per acre. of 77 planned wells. The Duvernay play deal, Strath expects to have approximately Throughout 2017, Crescent Point says will also see investment, with 15 wells, 21,300 boe/d of production. it focused on organically increasing its followed by 2 wells in central Alberta and Paramount said it will continue to focus initial land position in the emerging East 6 wells listed under “other.” on developing its core Montney assets Shale Duvernay. Since its entry in 2015, Paramount has also contracted a ded- at Karr and Wapiti in the Grande Prairie the company has completed detailed icated frac unit for all of 2018 in order “to region, and Montney and Duvernay assets geological mapping in order to target achieve efficient and timely well in the Kaybob region. high-quality land in the emerging light oil completions.” Additional frac units will be resource play. contracted as required throughout Land purchases in the Duvernay were the year. Drilling in the a big reason for the rebound in Alberta bonus bids last year. The Petroleum Services Association “The Duvernay is very exciting for of Canada (PSAC) has lowered its 2018 Montney play in Crescent Point and is consistent with our drilling forecast by 500 wells as improving strategy of developing large oil-in-place oil pricing fails to attract more investment Alberta and B.C. resource pools with low recovery to date,” to Canada. Producers are also increasingly said Scott Saxberg, president and CEO. shifting to drilling for oil instead of natural surged to some of “Our strategic land base combined gas as prices remain low. with strong production results to date PSAC now estimates that 7,400 wells its highest num- by industry, highlight the potential for will be drilled across Canada this year, scalable growth that is not reflected in our down from 7,900 forecast in October bers on 2018 production guidance or our current 2017. That’s comprised of 3,800 wells in five-year plan.” Alberta (down from 4,000), 500 wells in record in the first To date, Crescent Point has participat- B.C. (down from 730), and 2,840 wells in ed in two gross (one net) non-operated Saskatchewan (down from 2,930 wells). horizontal wells with a lateral length of Manitoba on the other hand is forecasted quarter of 2018, one-and-a-half-miles, the first of which to see 255 wells or a jump of 25 in well has flowed at initial 30-day and 90-day count for 2018. according to ana- rates of approximately 570 boe/d and 515 PSAC based its updated forecast on an boe/d respectively, comprised of approx- average natural gas price of $1.75 CDN/ lysts with Peters & imately 92 per cent oil and liquids. The Mcf (AECO), crude oil price of US$61.45/ second well has been flowing for less than barrel (WTI), and a Canada US exchange Co. 30 days with initial rates similar to the first rate averaging $0.79. well. The company is currently planning to Strath Resources is spending $340 drill a total of four operated net wells in million to acquire Montney properties and As a result, the first half of 2018. This drilling program infrastructure from Paramount Resources is reflected in the company’s 2018 capital in the Kakwa region of northwest Alberta. expenditures budget, which is expected to Upon closing, Paramount will hold a 16 Montney natural generate a total payout ratio of 99 per cent per cent equity interest in Strath and Jim as previously disclosed on Riddell, Paramount’s president and chief gas production in- January 9, 2018. executive officer, will join Strath’s board of directors. creased about 24 In 2018, Paramount Resources The assets include 201 sections of land expects that its own company, Fox Drilling, with proved reserves of approximately 6.3 percent year over will handle the majority of its drilling million boe and proved plus probable re- operations. serves of approximately 8.1 million boe as year to Paramount has a 2018 capital program of Dec. 31, 2017. Sales volumes from these of $600 million that includes drilling of lands were approximately 5,300 boe/d approximately 7 77 wells or approximately 2,500 drilling (36 per cent liquids) in April 2018 on a days. The company estimates that the Fox restricted basis. Paramount had minimal fleet can accommodate about 1,900 or 76 capital spending planned for the assets for billion cubic feet percent of those days. the balance of the year. per day.
7 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: MIDSTREAM
Photo: Keyera Corp.
The National Energy Board has ap- and will initially operate the facilities. company says. proved a proposed $1.4-billion pipeline The natural gas processing and liquids A 150-mmcf/d expansion will increase connecting growing Montney production stabilization plant will include a total of total capacity to 450 mmcf/d from 300 to North American markets. 200 mmcf/d of sour gas processing and mmcf/d. The $85 million project is target- The North Montney Mainline was 24,000 bbls/d of condensate processing. ed for completion in late in 2019. originally tied to the Pacific NorthWest Operations of the $500 million to $600 LNG project, but TransCanada subsidiary million facility are anticipated to begin in Pembina Pipeline says it will build NOVA Gas Transmission said it would 2021. a new expansion of its Peace pipeline proceed anyway after proponents walked The $105 million Pipestone Liquids system to accommodate growth in the away from the LNG project last year. Hub is currently under construction and Montney and Deep Basin resource plays. The North Montney Mainline is will include a total of 14,000 bbls/d of Last July Pembina put its Phase III designed with capacity to ship 1.5 billion condensate processing capacity. Based expansion into service, which increased cubic feet of natural gas per day. It consists on the proposed construction schedule, capacity to transport crude oil, condensate of approximately 206 kilometres of 42- operations are expected to start up in the and natural gas liquids from northeast B.C. inch pipeline, compression and associated fourth quarter of 2018. into the Edmonton area market. metering facilities. Keyera is also proceeding with phase The company is also currently pro- TransCanada says it will boost the two of its Wapiti Gas Plant near Grande gressing construction of its Phase IV and economy by supporting thousands of Prairie. The project, which has an esti- Phase V expansions to further build out high-quality construction jobs and deliver mated cost of approximately $150 million, and debottleneck this capacity. These an estimated $100 million in construction will add 150 million cubic feet per day of projects are to be placed into service in contracts for Indigenous businesses and sour gas processing to the plant, which is late 2018. workers. currently under construction. The latest expansion, Phase VI, Subject to timely federal approval, Keyera is also expanding the two includes: upgrades at Gordondale, Alberta; construction is expected to start by the gathering systems that will deliver vol- a 16-inch pipeline from LaGlace to Wapiti, third quarter of 2018, with an anticipated umes to the plant, supported by commit- Alberta and associated pump station in-service date of mid-2019. ments from its two primary customers, upgrades; and a 20-inch pipeline from Paramount Resources and Pipestone Oil Kakwa to Lator, Alberta. The approxi- Keyera Corp. has entered into a Corp. mately $280 million Phase VI expansion is 20-year infrastructure development and “With the volume commitments we are anticipated to be in service in early 2020, midstream service agreement with Encana seeing, it is evident that producers contin- subject to environmental and regulatory Corporation to support condensate-fo- ue to have confidence in this region as one approval. cused Pipestone Montney development of the most economic developments in the Pembina say it is continuing to secure near Grande Prairie, Alta. Western Canada Sedimentary Basin,” CEO long-term contracts on its Peace and Keyera and Encana will develop a liq- David Smith said in a statement. Northern Pipeline systems and currently uids hub and a natural gas processing and In the same region, the company is expects peak firm volume commitments liquids stabilization plant. In consultation also adding processing capacity to its will reach approximately 830,000 bbls/d with Keyera, Encana will be responsible for Simonette gas plant, which continues to in 2019. the design and construction of the project achieve record processing volumes, the
8 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: DOWNSTREAM
OPTIMISM GROWS FOR ALBERTA PETROCHEMICALS AS ALBERTA PASSES $1 BILLION INVESTMENT BILL
There’s a real sense of optimism about the petrochemical industry in Alberta and not only in the Edmonton area, Alberta Premier Rachel Notley. Photo: Government of Alberta according to Mark Plamondon, executive director of Alberta’s Industrial Heartland Alberta Oil Sands Industry Quarterly Update. provide the building blocks for investment Association. including new natural gas processing Elsewhere in Alberta, there are oppor- PETROCHEMICALS AND facilities, smaller projects built closer to tunities for brownfield expansions at Joffre PETROCHEMICAL FEEDSTOCK wellheads or straddle plants, and facilities and Medicine Hat and field opportunities The first round of the that are built along major natural gas pipe- in Grande Prairie. Petrochemicals Diversification Program in lines that can extract certain components “We believe that right now there is an 2016 offered up to $500 million in royalty during transportation. opportunity for $30 billion in petchem credits for methane and propane upgrad- Industry can submit applica- investment and value-added energy ing projects. The province said it received tions Petrochemicals Diversification investment between now and 2030,” double the interest it expected in the pro- Program and Petrochemicals Feedstock Plamondon says. gram, with 16 applications filed from local Infrastructure Program until Oct. 1. The “There are a lot of projects that players and companies around the world, province says that a decision on successful companies are looking at and a lot of real representing more than $20 billion in po- applicants is scheduled for late 2018. opportunity and a lot of optimism, given tential new investment in petrochemicals. Chemistry Industry Association of the competitive advantages of Western Two propane-based facilities were Canada CEO Bob Masterson called the Canada.” awarded the funding: Inter Pipeline’s $3.5 province’s plan an “incredibly courageous In addition to low-cost, abundant billion Heartland Petrochemical Complex, move.” feedstock supply, industry in Alberta also which is under construction, and Pembina “These two programs complement has significant support from the province Pipeline’s PDH/PP facility, which is in the each other because the greater and more – support that got $1 billion bigger in June, front-end engineering stage. Its capital stable the supply of these raw compo- when the government passed the Energy cost is estimated at between $3.8 billion nents, the greater the potential of attract- Diversification Act. This legislation enables and $4.2 billion. ing and supporting more value-added the province to invest up to $2 billion in The second round of the developments in Alberta. energy diversification projects including Petrochemicals Diversification Program “We believe that governments at all petrochemicals, petrochemical feedstocks expands focus into ethane in addition levels in Canada need to work with indus- and bitumen partial upgrading. to methane and propane. The PDP and try to compete for new chemistry sector The bill includes $500 million for round Petrochemicals Feedstock Infrastructure investments,” he said. two of the Petrochemicals Diversification Program are complementary in that “To do nothing means that some other Program (PDP), $500 million for the new investments in new ethane processing will jurisdictions will use our energy resources Petrochemicals Feedstock Infrastructure likely require investments in new ethane as feedstock to create value. Taking a bal- Program, and $1 billion for the new Partial supply in Alberta, the province says. This anced approach to share risk and secure Upgrading Program. is because the province’s ethane supply new investments here in Alberta will cre- For more information on the Partial and demand is currently in balance. ate wealth and opportunity for Albertans. Upgrading Program, see the Summer 2018 The feedstock program is designed to It’s the right thing to do.”
9 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: DOWNSTREAM
project in early 2019. “All signs point to this project going ahead,” analysts with Peters & Co. said in a research note. Executives stressed that there is room for both PDH/PP facilities in the province, added analysts with GMP FirstEnergy. “Management remains confident that the current surplus of propane in western Canada can support both PDH/PP facil- ities announced recently, [and] the two LPG export terminals under development in B.C. and still have excessive propane to export via rail. The company views Alberta Rendering of Inter Pipeline’s Heartland Petrochemical Complex, currently under construction. Image: Inter Pipeline having major advantage in producing Construction of Inter Pipeline’s was invested on the project during the first polypropylene given the abundance of Heartland Petrochemical Complex near quarter, with a total 2018 capital plan of low-cost feedstock, attractive labour mar- Edmonton, Alta. ramped up in the first approximately $700 million. The facility is ket, existing connectivity and government quarter of 2018, with “significant activi- expected to be operational in late 2021. support.” ties” now underway. Build of the $3.5-billion facility, which A final investment decision has yet AltaGas Ltd. says propane has been will turn 525,000 tonnes of propane per to come on the second of two petrochem- secured for close to 75 per cent of Ridley year into polypropylene pellets for use ical projects with funding committed by Island Propane Export Terminal (RIPET) in plastics and other products, began in the Alberta government, but analysts are export capacity and that construction of December 2017. expecting positive news to come early the facility remains on time and on budget The company said the project is bene- next year. for start-up in the first quarter of 2019. fiting from a current lack of major project Pembina Pipeline received a commit- The B.C. project will help ease the glut of development in Alberta, which results in ment of up to $300 million in royalty cred- natural gas production in Western Canada. favorable engineering, procurement and its from the Government of Alberta in late “Producers are starting to see the construction environment, including avail- 2016 to build a propane dehydrogenation benefits of having access to new premium ability of skilled labour. and polypropylene (PDH/PP) facility. The markets for their propane,” said CEO David Civil construction and fabrication project would transform low-cost local Harris. activities are ongoing, and the installation propane into plastic pellets for products RIPET is expected to be the first of support structures and foundation work including home electronics and medical propane export facility off the west coast has begun. The fabrication of numerous devices. of Canada. The site is near Prince Rupert, vessels including the 800-tonne propane/ At the same time as the Pembina B.C., and has a location advantage given propylene splitter are also well underway announcement, Inter Pipeline Limited was very short shipping distances to markets in at off-site locations around Edmonton, committed up to $200 million in royalty Asia, notably a 10-day shipping time and large number of key components have credits for its own PDH/PP facility, the compared to 25 days from the U.S. Gulf been procured including major compres- $3.5 billion Heartland Petrochemical Coast. sion equipment, turbines, valving and a Complex, which is under construction. Propane from B.C. and Alberta will be polypropylene extruder and pelletizer Pembina is partnered in its PDH/PP fa- transported to the facility using 50-60 rail package, the company said. cility with Kuwait Petroleum Corporation. cars per day through the existing CN rail Major contractors include Honeywell, The company said in May that completion network. RIPET is expected to ship 1.2 Fluor, Kiewit Construction Services, Grace of front end engineering and design is million tonnes of propane per annum UNIPOL and Linde Engineering. expected in late 2018, followed by a final (which is equivalent to approximately Approximately $125 million of capital investment decision on the $4 billion 40,000 bbls/d of export capacity).
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CANADIAN GLOBAL EXPLORATION FORUM ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: TECH
Seven Generations drilling a multi-well pad in Alberta’s Montney play. Improved understanding of its Duvernay operators have incorpo- decrease in 2018 as they find their reservoirs and production responses has rated technological advances in drilling sweet spot. led Montney producer Seven Generations and completions developed in the Eagle Energy to challenge its well design Ford, resulting in reduced capital cost Petroleum Technology Alliance assumptions. per boe of estimated ultimate recovery. Canada (PTAC) says it is advancing the At present, a typical 7G completion Investors often see the Eagle Ford and technologies needed to allow the oil and involves about 40 stages with an average Duvernay as fairly analogous in terms of gas industry to meet stringent new meth- of 120-160 tonnes pumped per stage — geology and prospectivity. ane emissions reduction targets while “generally on the 160 tonnes per stage Plug and perf technology has become preparing the industry for the coming side,” Marty Proctor, 7G’s president and dominant in both plays, with sliding sleeve digital transformation. CEO, told the company’s Q1 conference and ball drop technologies also being used. Methane emission reductions contin- call. Slick water or hybrid slick water with gel ued to be the hot topic in 2017 mainly due Some completions have been bigger, fracs are common. There is also an effort to the mandated target to reduce emis- even up to 60 stages. underway to optimize the use of sand as sions by 45 per cent by 2025, according to With improved reservoir proppant to cut costs. PTAC president Soheil Asgarpour. understanding, however, Proctor said it’s The biggest change in completions in “PTAC’s consortia have developed clear one design doesn’t fit everywhere. both plays is in fracturing intensity. Longer numerous technologies that currently “We have pumped bigger and bigger laterals, more stages per lateral, more per- have the collective technology capacity to fracs, with more and more water. There forations per stage, and vastly increased reduce overall oil and gas sector meth- are indications this may have taken us past proppant loads are driving productivity ane emissions by over 30 per cent. As a the point of optimal completion design in improvements. matter of fact, four technologies already some areas.” With the ability to drill longer laterals, developed through PTAC are collectively The company is still seeing the benefits Duvernay operators have been able to reducing greenhouse gas emissions equal of more stages, he added, but will probably rapidly increase the number of fracturing to taking 160,000 cars off the road annu- use less sand per stage in the future. stages per lateral when compared with the ally while reducing industry costs by $60 By refining its completion execution to Eagle Ford. But again, there is substantial million,” he said. get better results, 7G’s goal is to maximize variation between wells. In 2017 PTAC launched 17 methane each well’s net present value. Average proppant loads per metre of related projects. PTAC believes the suc- “We’ve grown a lot, but we’ve still only lateral length have been rapidly increasing cessful peer testing of these technologies completed and put on production around in both plays, although fracturing intensity will enable industry to increase its 350 wells,” Proctor said. is more pronounced in the Eagle Ford. technology capacity to achieve 45 per “We have thousands ahead of us. It’s There is, however, a growing belief there cent reduction by 2020, he said. Longer only prudent to keep trying to evolve that are economic limits to the amount of prop- term, PTAC’s target is to ensure that the completion design to optimize pant that can be placed. industry has the technology capacity to our performance.” A number of Eagle Ford operators are reduce methane emissions by 85 per cent testing those limits and loads could slightly by 2030.
13 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
WHAT’S NEW: ENVIRONMENT
Image: Alberta Energy Regulator
The Alberta government says it will right. We look forward to continued work As part of its total 2018-2019 bud- provide more than $2.3 billion in assis- with industry on cutting methane pollution get of $105 million, the OWA also plans to tance to the energy sector, including a for the benefit of all Albertans.” reclaim 200 sites and expects to receive five-year holiday on carbon levy costs as it Cutting methane emissions is the 75 reclamation certificates along with con- introduces regulations to reduce methane most cost-effective way to accelerate ducting an initial assessment of more than gas emissions. greenhouse gas reductions, said the 1,000 sites for future reclamation. Companies can use the savings to government, which said it plans to do As of April 2, 2018, the association had focus on methane reductions, the province so by: a list of 2,278 wells for abandonment and announced in April along with the Alberta • Applying emissions design suspension (1,175 to be abandoned and Energy Regulator’s draft regulations standards to new Alberta facilities as 1,103 to be suspended) as well as 1,062 designed to reduce methane gas emissions applying standards at the planning stage orphan sites for reclamation. from upstream oil and gas operations by will be less expensive; In addition to a $45 million industry 45 per cent (relative to 2014 levels) by • Improving measurement and levy, the budget includes the first install- 2025. reporting of methane emissions, as well ment of a $235 million loan to the OWA The draft directives are designed as leak detection and repair require- from the Alberta government designed to to minimize the economic impact on ments; and, speed up the abandonment and reclama- industry, providing flexibility for companies • Developing a joint initiative on tion of orphan wells over three years. to innovate and use technologies best methane reduction and verification for In the future, minimum annual spend- suited to their operations through an out- existing facilities, and backstopping ing requirements for producers on the come-based approach, according to the this with regulated standards that take abandonment and reclamation of inactive government. Mandated check-in points effect in 2020, to ensure the 2025 wells could be part of the Alberta govern- will ensure intended outcomes are being target is met. This initiative will include ment’s efforts to reduce the number of achieved. Alberta industry, environmental groups inactive wells in the province, say industry The requirements address the primary and Indigenous communities. stakeholders. sources of methane emissions from Both the Explorers and Producers Alberta’s upstream oil and gas industry: Implementation of the new oil and gas Association of Canada and the Canadian fugitive emissions and venting, which in- methane standards will be led by the AER, Association of Petroleum Producers cludes emissions from compressors, pneu- in collaboration with Alberta Energy and (CAPP) favour the idea as part of a broad- matic devices, and glycol dehydrators. the Alberta Climate Change Office. er reform package. “We know what’s at stake here, includ- Alberta’s Orphan Well Association The OWA says that as it has been able ing good jobs in the energy sector and the (OWA) will be stepping up its activity in to increase spending on wells it is seeing health of the planet we leave behind for 2018 with plans to decommission (aban- economies of scale and savings of 25 per our kids,” said Shannon Phillips, environ- don) 600 oil and gas wells as it continues cent to 40 per cent as it is able to put ment and parks minister. to work through a backlog of orphans, in together portfolios of wells, pipelines and “That’s why we took the time to get this part a legacy of the recent downturn. facilities in one area.
14 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
OIL & GAS STATISTICS
INVESTMENT IN ALBERTA OIL AND GAS SECTOR Oil sands Conventional oil and gas
80 ACTUAL FORECAST
60
40 Price billions) ($
20
0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026
Historical values sourced from the Canadian Association of Petroleum Producers Source: Alberta Energy Regulator (figures post-2016 are estimated).
ALBERTA CROWN LAND SALES Petroleum and natural gas rights, excluding oil sands
1.5
1.25
1.0
.5 Price billions) ($
.25
0 2012 2013 2014 2015 2016 2017 2018 (to May 31)
Source: JWN
15 DRILLING RIG COUNT BY PROVINCE/TERRITORY OIL AND GAS WELL COMPLETIONS BY PROVINCE June. 14, 2018 June 2018
ACTIVE DOWN TOTAL ACTIVE OIL WELLS GAS WELLS
(Per cent May ‘17 May ‘18 May ‘17 May ‘18 Western Canada of total) Western Canada
Alberta 104 338 442 24 Alberta 122 138 62 67
British Columbia 17 33 50 34 British Columbia 2 7 35 38
Manitoba 2 3 5 40 Manitoba 1 3 - -
Saskatchewan 35 83 118 30 Saskatchewan 49 29 - -
WC total 158 457 615 26 WC total 174 177 971 105
Source: JWN Source: JWN
DRILLING ACTIVITY IN ALBERTA, 1969–2017
25,000
Crude oil Gas (includes CBM wells) Bitumen (includes producing Other (includes unsuccessful, service and evaluation wells) and suspended wells)
20,000
15,000
10,000 Number of wells drilled Natural gas plant gate price ($/GJ)
5,000
0 1981 2001 1969 1973 2017 1977 1985 1997 1993 1989 2013 2005 2009
Source: Alberta Energy Regulator ALBERTA MARKETABLE GAS AVERAGE DAILY PRODUCTION AND PRODUCING WELLS
PRODUCTION 600 CBM Shale Conventional WELL TYPES Shale Conventional horizontal Conventional vertical CBM 500 140,000 120,000 400 100,000
300 80,000 (million m³/d) (million 60,000 200
40,000 Number of wells
Production 100 20,000
0 0 2017 2010 2014 2016 2011 2015 2013 2012 2007 2008 2009 2017 values are estimated. Source: Alberta Energy Regulator
ALBERTA CRUDE OIL PRODUCTION AND PRODUCING WELLS
50,000 250
Horizontal oil wells Vertical oil wells Production
40,000 200 /d) 3 m 3 30,000 150 (10
20,000 100 Number of wells 10,000 50 Production
0 0 1976 2016 1992 1980 1988 2012 1984 1996 2008 2000 2004
Source: Alberta Energy Regulator
TOTAL PRIMARY ENERGY PRODUCTION IN ALBERTA ACTUAL FORECAST 18,000 8.1
16,000 Hydro, wind & other Unconventional natural gas* Upgraded bitumen 7.2 renewables Conventional natural gas Conventional crude oil 14,000 Natural gas liquids Nonupgraded bitumen Coal 6.3
12,000 5.4
(PJ) 10,000 4.5
8,000 3.6
Production 6,000 2.7 (million bbls/d of crude oil equivalent)
4,000 1.8
2,000 0.9 Production 0 0 2017 2019 2011 2021 2027 2015 2013 2025 2007 2023 2009
*Includes coalbed methane and shale gas. 2017 values are estimated. Source: Alberta Energy Regulator ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
NATURAL GAS LIQUIDS STATISTICS
BUTANES SUPPLY FROM NATURAL GAS AND DEMAND Alberta supply Total Alberta demand*
ACTUAL FORECAST
100
50 (thousand bbls/d) (thousand Supply and demand demand and Supply
0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027
*Excludes solvent flood volumes. 2017 values are estimated. Source: Alberta Energy Regulator
PROPANE SUPPLY FROM NATURAL GAS AND DEMAND Alberta supply Alberta demand*
30 ACTUAL FORECAST
20
10 (thousand bbls/d) (thousand Supply and demand and Supply
0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027 *Excludes solvent flood volumes. 2017 values are estimated. Source: Alberta Energy Regulator
ETHANE SUPPLY AND DEMAND
100 633 ACTUAL FORECAST /d) 3 Import from Vantage pipeline Supply from conventional gas 506 80 m 3 Supply from oil sands off-gas Alberta demand*
(10 60 380
40 253 (thousand bbls/d) (thousand Supply and demand and Supply 20 127 Supply and demand and Supply
0 0 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 2027
*Excludes solvent flood volumes. 2017 values are estimated. Source: Alberta Energy Regulator 18 ALBERTA OIL & GAS INDUSTRY QUARTERLY UPDATE
PENTANES PLUS SUPPLY FROM NATURAL GAS AND DEMAND FOR DILUENT Alberta supply Alberta demand*
200 1,259 ACTUAL FORECAST 180 1,133
160 1,007 /d) 3 140 881 m 3 120 755 (10 100 629
80 503 (thousand bbls/d) (thousand 60 378 demand and Supply
40 252 Supply and demand and Supply
20 126
0 0 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 *Excludes solvent flood volumes. 2016 values are estimated. Source: Alberta Energy Regulator
NORTH AMERICAN NGL PRICES
160
140
120
100
80
U.S. cents per gallon 60
40
20
0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul
2017
Propane (Edmonton) Butane (Edmonton) Condensate (Edmonton)
Propane (Mt. Belvieu) Butane Equivalent (Mt. Belvieu) Natural Gasoline (Mt. Belvieu)
Note: Mt. Belvieu’s field grade butane equivalent value is calculated by adding 70% of the value of the Source: Argus, 2017 Mt. Belvieu Enterprise normal butane price to 30% of the value of Mt. Belvieu Enterprise isobutane price, www.argusmedia.com to allow for comparison with Edmonton benchmark.
19 CONTACTS
ALBERTA GOVERNMENT Canadian Association of Oilwell Drilling Contractors Alberta Advanced Education www.caodc.ca www.iae.alberta.ca Canadian Association of Petroleum Producers Alberta Energy www.capp.ca www.energy.alberta.ca Canadian Energy Pipeline Association Alberta Energy Regulator www.cepa.com www.aer.ca Canadian Natural Gas Vehicle Alliance Alberta Environment and Parks www.cngva.org www.aep.alberta.ca Canadian Society for Unconventional Resources Alberta Geological Survey www.csur.com www.ags.aer.ca Canadian Society of Exploration Geophysicists Alberta Innovates ww.cseg.ca www.albertainnovates.ca Canadian Society of Petroleum Engineers Alberta Surface Rights Board www.speca.ca www.surfacerights.alberta.ca Explorers and Producers Association of Canada www.explorersandproducers.ca INDUSTRY ASSOCIATIONS Gas Processing Association of Canada Alberta Land Surveyors’ Association www.gpacanada.com www.alsa.ab.ca Petroleum Services Association of Canada Canada’s Natural Gas www.psac.ca www.canadasnaturalgas.ca Petroleum Technology Alliance Canada Canadian Association of Geophysical Contractors www.ptac.org www.cagc.ca
Photo: Encana
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Feedback, questions and comments on this issue of the Alberta Oil & Gas Industry Quarterly Update are welcomed. Please contact editor Deborah Jaremko at [email protected].