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Insights and Commentary from Dentons

On March 31, 2013, three pre-eminent law firms—Salans, Fraser Milner Casgrain, and SNR Denton—combined to form Dentons, a Top 10 global law firm with more than 2,500 lawyers and professionals worldwide.

This document was authored by representatives of one of the founding firms prior to our combination launch, and it continues to be o ered to provide our clientsG withro thewing information with they need to do business in an increasingly complex, interconnected and competitive marketplace.

The role of government has never been more critical

Oh Canada! Significant Developments in Canadian Energy

Oil Sands News JULY 2012 According to the Alberta Energy Resources Oil Sands News Conservation Board (ERCB), bitumen accounted for 78% of Alberta’s total oil output in 2011. East Coast News Production of light oil from tight rock is now up West Coast News by 175,000 bpd relative to what would have been expected without the new completion Canadian Arctic News technologies. Bitumen production in 2011 grew Alternative Energy News by 15% in the Athabasca region, 12% in the Cold Lake region and 2% in the Peace River region. The On the Horizon ERCB predicts bitumen output will more than Abbreviations double to reach 3.7 million bpd by 2021. The ERCB expects upgraded and non‐upgraded Contact Us bitumen will make up about 90% of Alberta’s total oil production by 2021. Birchwood, a Calgary based private company founded in 2010, has filed a project summary with provincial regulators for a 5,000 bpd Steam Assisted Gravity Drainage (SAGD) oil sands project. If approved according to schedule, the project, located west of Cold Lake, will start up in

© 2012 Fraser Milner Casgrain LLP the first quarter of 2015 at an estimated cost of Edmonton, and the Marcellus Shale located in $230 million. Simulations indicate that initial oil the north‐eastern United States. production rates will be around 400 or 500 bpd.

The company intends to develop 12 hectares of land to drill for primarily heavy oil. East Coast News Nexen, a Calgary based oil and gas company, GRI Simulations, a Canadian company focused has agreed to be bought out by the state owned on providing simulation technology for offshore China National Offshore Oil Company (CNOOC), oil construction and production, has secured China’s top offshore oil producer. The ambitious $250,000 funding from the Research and acquisition will cost $15.1 billion. The day after Development Corporation (RDC), a the deal was announced Nexen stock jumped Newfoundland Crown Corporation, to develop a 54% in value. The Nexen board has unanimously 3‐D software kit that will allow oil companies to approved of the deal, however, the project must simulate oil field design. The software provides still undergo shareholder and regulatory numerous advantages to oil companies to approval. Nexen’s second quarter production improve efficiency in the design, fabrication and averaged 213,000 bpd of oil. If the takeover deal installation of fields and components in a variety succeeds, CNOOC will base the headquarters for of harsh environments. The provincial its North American and Caribbean operations in government allocated $19 million to RDC as part Calgary, Alberta. of the 2012 provincial budget. PETRONAS, a Malaysian company, has agreed to buy all of Progress Energy’s outstanding West Coast News common shares at a cash price of $20.45 per The excellent results for the Liard Basin share. Progress Energy is a Canadian exploration located in Northern British Columbia released last and production company focused on natural gas month by Apache will require development of development in BC and Alberta. The transaction export facilities. According to the Federal Energy is valued at $5.5 billion, and received unanimous Regulatory Commission, a key to developing LNG approval from the Progress’ board of directors. export facilities will be to send the gas to places The Canadian operations for the company will where oil prices are higher, such as Korea and remain in Calgary and the company will have a Japan. The resources in the Liard Basin will need commercial office in Vancouver for LNG to be harnessed properly to meet its tremendous development. The acquisition is part of productive potential. Edward Kallio, director and PETRONAS’ strategy to become a global leader in a gas consultant with Ziff Energy Group notes LNG. The development is expected to generate that “it’s imperative that we continue to develop substantial economic benefits for the provinces these LNG liquefaction proposals”. To ensure that and local communities due to the increased the Liard Basin comes onstream, Kallio believes access to capital PETRONAS has. export capacity will need to be applied for and built. Smart Sand, a leading supplier of industrial sand for the oil and gas industry, has partnered Spectra Energy has officially opened the with Canadian Pacific Railway (CPR) to build a Dawson processing plant in Bessborough, British new frac sand transload facility to serve Bakken Columbia. The 200 mmcfpd processing plant is shale producers in the Williston Basin located in being installed in two phases. Spectra is poised to Southern Saskatchewan. The two companies will invest an additional $4‐$6 billion in British Columbia beyond 2015. Accessing the natural gas supply and ship precious frac sand to the in the Montney play enables critical processing unconventional oil and gas regions. CPR is the and pipeline services to customers and sets the only North American railroad to serve the Bakken formation, the Alberta industrial heartland near

fmc‐law.com MONTRÉAL OTTAWA TORONTO EDMONTON CALGARY VANCOUVER foundation for further investment in British Ontario and British Columbia. This is IPC’s first Columbia. solar powered project. The project is expected to begin operation early in 2013. Canadian Arctic News Northland Power, a green power generation company operating primarily in the provinces of MGM Energy, a Canadian oil and natural gas Ontario, Quebec and Saskatchewan, has secured exploration company, has entered into a farmout financing for the construction of six 10 MW agreement with Shell whereby Shell has agreed projects in eastern and central Ontario. Each of to fund the drilling and completion of two wells the six projects will be built on 85 acres of land. in the Northwest Territories. MGM’s stock rose Northland Power expects that the facilities will by 41% after the agreement was publically begin commercial operation in 2013. Northland announced. The wells will be built in the Central also has seven additional projects, totalling 70 Mackenzie Canol shale oil play. Shell will earn a MW, currently in the permitting process. The 37.5 percent share in the licenses for the wells. facilities operated by Northland Power generate The President of MGM Energy, Henry Sykes, over 1000 MW of electricity. stated “We are extremely excited about the Canol shale play, and this agreement provides us NorthGrid Solar, an engineering, procurement with the ability to assess its potential.” and construction company based in Ontario, is nearing completion of the first phase of its Kivalliq Energy, a uranium exploration and 1.7MW rooftop solar agreement with The development company, is the first in Canada to Valecon Group, a commercial property sign an agreement with the Inuit to explore for developer. The projects are located in Hamilton uranium on their lands. The $20 million and Burlington, Ontario. The first phase to be exploration program at the 252,830 acre Angilak completed in fall of 2012 consists of 564kW and Property in Nunavut. Three recently identified the second phase to be completed in the spring new zones include: the Western Extension Zone, of 2013 with 1.14 MW (DC). NorthGrid is a which was extended to 365 vertical metres for leading provider of turn‐key rooftop solar radioactive intercept; the Southwest Zone, which systems, with 60 years of photovoltaic was discovered at 300 metres and the Pulse zone experience in Ontario. The project uses a intersected radioactivity; and the Pulse zone, proprietary Elevated Truss System to address which intersected radioactivity in 14 of 27 holes. concerns with roof capacity, density, Ongoing aggressive exploration will investigate maintenance and thermal losses multiple uranium targets discovered in 2010 and 2011 prospecting programs. On the Horizon Alternative Energy The President of Penn West Petroleum believes that industry can increase light oil recovery from International Power Canada (IPC) has the Cardium formation in central Alberta by commenced construction on a $50 million between 1.1 and 2.6 bbbl. Alberta is developing a project, called the Brockville Solar project. It is gas strategy focusing on expanded domestic uses located in the Township of Elizabethtown‐Kitley, for the fuel, including the potential use of natural in Eastern Ontario. The project will have a gas vehicles. Sasol Limited has partnered with capacity of 10 MW, sufficient to serve 1,700 Talisman to research converting Western Ontario homes annually. IPC and its affiliate Canadian gases to fuels to enable more companies operate 362 MW of wind farms in the widespread use. It is expected that a 48,000 bpd Maritimes and Ontario, and have another 300 gas‐to‐liquids plans would create 7,000 MW of wind farm projects under construction in

fmc‐law.com MONTRÉAL OTTAWA TORONTO EDMONTON CALGARY VANCOUVER temporary construction jobs and nearly 500 kilowatt hours; cmpd ‐ cubic meters per day; GJ ‐ permanent positions. gigajoule. Laricina Energy has made progress in demonstrating that thermal extraction of KEY CONTACTS bitumen from the Grosmont carbonate formation CALGARY is commercially possible. The pilot has used SAGD Doug Black Q.C. well pairs with steam cycles in both the injector doug.black@fmc‐law.com and producer wellbores. This pilot program is being closely watched because no one has Anne Calverley Q.C. managed commercial bitumen production from anne.calverley@fmc‐law.com Alberta’s carbonate formations, which are Douglas Crowther estimated to hold more oil that the oilsands. The douglas.crowther@fmc‐law.com results support that there could be a 10,700 bpd expansion with cyclic steam stimulation. Laricina Bill Gilliland is evaluating incorporating this into its regulatory bill.gilliland@fmc‐law.com application. Alex MacWilliam Operators of Cyclic Steam Stimulation (CSS) wells alex.macwilliam@fmc‐law.com are required by ERCB to run periodic casing EDMONTON integrity tests. These tests costs about $50,000, Rich Miller mainly because the process requires that a day’s rich.miller@fmc‐law.com production time be lost. Dale Kunz, an engineer, believes he has come up with a solution to the MONTRÉAL integrity test that eliminates the use of an Claude Morency inflatable packer used in the test for an annular claude.morency@fmc‐law.com eutectic salt plug. Once the test is done, nitrogen OTTAWA would be inserted dissolving the plug and Cyrus Reporter allowing production to start back up again in 5‐6 cyrus.reporter@fmc‐law.com hours. The installation of such a system would cost approximately $80,000; however, once the VANCOUVER tests are complete, the cost is a low $4000, which Ron Stuber over time can lead to significant savings as a ron.stuber@fmc‐law.com result of the wells being brought back into TORONTO production sooner. Helen T. Newland helen.newland@fmc‐law.com Abbreviations In this newsletter, all dollar amounts are Canadian dollars unless otherwise stated. We have also used the following abbreviations: bpd ‐ barrels per day; boepd ‐ barrels of oil equivalent per day; mmcfpd ‐ million cubic feet per day; bcfpd ‐ billion cubic feet per day; tcf ‐ trillion cubic feet; bbl ‐ barrel; mbbl ‐ thousand barrels; mmbbl ‐ million barrels; bbbl ‐ billion barrels; boe ‐ barrels of oil equivalent; MW ‐ megawatts; kV ‐ kilovolt; km ‐ kilometer; KW ‐ kilowatts; KWh ‐

fmc‐law.com MONTRÉAL OTTAWA TORONTO EDMONTON CALGARY VANCOUVER