Alberta Oil & Gas Quarterly
Winter 2020 Table of Contents
Cover Feature Midstream: Inside the growing Alberta sector adding value to oil and gas Investors drawn to midstream market as pipeline challenges drive demand ..... 3 Spotlight Keyera Corp...... 4 Pembina Pipeline Corporation ...... 6 Gibson Energy Inc...... 7 Midstream data ...... 8 Alberta Oil & Gas Price Forecasts ...... 11 News Alberta Indigenous Opportunities Corporation advancing toward funding projects ...... 13 Applying ‘purposeful AI’ to your business ...... 14 Painted Pony tests potential wellsite emissions elimination technology ...... 16 Upstream ...... 17 Midstream ...... 19 Downstream ...... 21 Mapping Alberta Oil and Gas Connected to North America’s Critical Infrastructure Oil ...... 23 Natural Gas ...... 24 Alberta Crude Oil Plays ...... 25 Alberta Natural Gas Plays ...... 26 Alberta pipeline safety record continues to improve: AER ...... 27 Contacts ...... 28 Cover Feature
Investors drawn to midstream market as pipeline challenges drive demand
The midstream oil and gas assets in Alberta Midstream operations are attractive for that transport, process and add value to the investors because they are driven by long- province’s resources have become highly term agreements and not the drill bit, he says. sought after as producers grapple with lack “You could almost view it like a utility in that of export capacity out of the basin, creating a they’re kind of guaranteed returns on their dynamic market for midstream operators. investment capital, so it’s not so risky as “From a midstream operator’s viewpoint, this trying to go out and drill and be reliant on the situation has created significant demand for price of a commodity,” Rawlusyk notes. access to their assets,” says Liam O’Brien, O’Brien says these attributes have led to strategic advisor with Sproule. dynamic merger and acquisition activity, This is particularly true for facilities and including an influx of private equity groups pipelines that produce and transport natural and pension funds drawn to the reliable cash gas liquids (NGLs), as low natural gas prices flows generated by the midstream model. have dramatically reduced the value of dry Midstream M&A activity is a “focal point” for gas production. investors, Torys LLP’s Stephanie Stimpson Alberta AECO prices averaged US$1.52/ and Derek Flaman wrote in the firm’s Fall 2019 mmBtu in 2019, a full dollar lower than the Canadian Sector Report. U.S. Henry Hub benchmark at US$2.54/ They cite examples including KKR's mmBtu, according to Sproule data. partnership with SemGroup to create a new Production of NGLs like condensate, Canadian midstream company, AIMCo's propane, butane and ethane increases acquisition of an 85 percent equity stake in value for producers, albeit still discounted the Northern Courier Pipeline, and Northleaf compared to U.S. volumes. Capital Partners' acquisition of CSV “The midstream industry has been active over Midstream Solutions. the past several years as NGLs, especially In the public space, they note Pembina’s condensate for use in the heavy oil industry agreement to purchase Kinder Morgan as diluent, are seen as the source of value Canada, AltaGas exceeding its targeted asset in natural gas that continues to fund drilling sale program for 2019, and Husky programs,” says Bill Rawlusyk, IHS Markit’s Energy’s sale of the Prince George Refinery executive director of oil markets, midstream, in British Columbia to Tidewater Midstream downstream and chemicals. and Infrastructure.
Alberta Oil & Gas Quarterly 3 Cover Feature
Midstream Spotlight: Keyera
One of Canada’s largest midstream oil on the Key Access Pipeline System (KAPS), and gas operators is confident that the which will transport NGLs and condensate fundamentals for its business are improving, from the Montney and Duvernay plays to and that means additional opportunities for Keyera’s fractionation and terminalling profitable growth. infrastructure in Fort Saskatchewan. Keyera, which operates 17 Alberta natural gas processing plants, five natural gas liquids Montney gas plants (NGLs) fractionation facilities, about 15 million Keyera’s gathering and processing business barrels of storage cavern capacity, rail and is currently focused on adding capacity truck terminals, and over 4,000 kilometres to serve the liquids-rich Montney play in of pipelines as well as product marketing, is Northwest Alberta. already on a path of growth both in its asset portfolio and its financial returns. In May 2019, the company brought online the first phase of its $1-billion Wapiti Gas Driven in part by a doubling of its fee-for- Plant Complex, located about 60 kilometres service business over the last five years, the southwest of Grande Prairie. Phase 1 has company’s net income increased from $230 gas processing capacity of 150 mmcf/d and million in 2014 to $406 million in the first nine condensate handling capacity of 25,000 months of 2019. bbls/d. Phase 2, which will add an additional While Keyera has invested in U.S. assets 150 mmcf/d of capacity, is currently under such as the Wildhorse Crude Oil Terminal construction and expected to commence at Cushing, Okla., its focus going forward operations in mid-2020. will continue to be in Canada, says CEO Also under construction is the $600-million David Smith. first phase of Keyera’s Pipestone Gas Plant, “We think Canada’s oil and gas industry has located about 45 kilometres northwest of a bright future,” Smith told analysts during Grande Prairie, which will have 200 mmcf/d Keyera’s inaugural investor day in December. of sour gas processing capacity and 24,000 “We need to be cost competitive with other bbls/d of condensate handling capacity. global sources of supply and we need to Keyera acquired the Pipestone project along build out the infrastructure to access those with the 14,000-bbl/d Pipestone Liquids hub global markets, but we are getting these in April 2018 in a fee-for-service agreement things done – perhaps a little too slowly – but with Encana. with the Trans Mountain Expansion, with LNG Keyera also completed a $148-million Canada, with the Coastal GasLink Pipeline, expansion and enhancement project at its with TC Energy’s debottlenecking of their nearby Simonette Gas Plant in 2019. system in Western Canada, we are more “Once the Pipestone gas plant is completed confident about the industry’s future than in early 2021, Keyera will be one of the largest we have been for a few years. I’m calling the gas processing and condensate handling bottom for Canadian oil and gas.” companies in this region,” the company says. Keyera plans to invest $700 million to $800 Keyera has made a concerted effort to invest million of growth capital in 2020, primarily capital to build its Montney footprint, Smith on new natural gas processing capacity and
4 Alberta Oil & Gas Quarterly Cover Feature
Image: Keyera Corp.
told investors. In areas where produced gas program. With it, Keyera will expand in is sweet instead of sour and therefore easier Northwest Alberta what it did in West- to handle, he said producers will often build Central Alberta with the smaller Keylink and operate their own processing capacity. NGL Gathering System. Completed in “We chose specifically to focus on the area April 2018, Keylink connects eight gas of the Montney around Grande Prairie, where plants with Keyera’s Edmonton Terminal and Fort Saskatchewan fractionation and the gas has a significant amount of H2S as well as water and condensate,” Smith said. storage complex. “The complexities associated with building Based on the current scope, KAPS will the infrastructure that can handle gas like that consist of a 16-inch condensate pipeline and are considerable, and the footprint that we’ve a 12-inch NGL mix pipeline, Keyera says. created means that we do have competitive “[KAPS] is running really right through the advantages relative to other alternatives in heart of the Duvernay and the Montney,” said the area.” vice-president Brian Martin. In the first half of 2022, Keyera plans to “Condensate is the single biggest driver connect its Northwest Alberta gas plants as for our producers’ economics in this basin well as other third-party facilities to KAPS, and KAPS will provide the most direct shot a partnership with SemCAMS ULC that was from the field to where the end users are approved in May 2019. and where the demand is, and that demand is within our condensate system largely in Connecting with KAPS Edmonton [and] Fort Saskatchewan…. We The $1.3-billion KAPS NGLs and condensate love this project and we think it’s going to be project is a centerpiece of Keyera’s growth a tremendous success story for us.”
Alberta Oil & Gas Quarterly 5 Cover Feature
Midstream Spotlight: Pembina Pipeline
Western Canada midstream heavyweight condensate into the Edmonton area for Pembina Pipeline Corporation is working market delivery. Pembina plans to phase the to expand its value chain through projects new projects into service, starting in late 2019 including a propane dehydrogenation through the fourth quarter of 2021. and polypropylene facility near Fort A further $400 million will be spent this Saskatchewan, a liquefied petroleum gas year on facilities, which, in addition to export terminal at Prince Rupert, B.C., and the Prince Rupert LPG terminal, includes a proposed LNG project in Oregon, all while work on Duvernay III, a 100-mmcf/d sweet investing in its core – pipelines and natural gas processing plant with 5,000 bbls/d gas processing in Alberta. of propane-plus liquids capacity that is The company has achieved significant growth expected to be in service by late 2020. in recent years, increasing its net income Pembina is also constructing sour gas from $1.47 billion in 2014 to $2.28 billion in the treatment facilities at its Duvernay Complex, first nine months of 2019. including a 150-mmcf/d sour gas sweetening system, which is expected to be in service in Peace Pipeline expansions, new the first quarter of this year. gas treatment facilities At Empress, in Southeast Alberta, Pembina Pembina has a planned 2020 capital program is building new fractionation and terminalling of $2.3 billion, of which $1.3 billion will be facilities to add approximately 30,000 bbls/d directed to its Peace Pipeline System. The of propane-plus capacity to its Empress East company has four Peace Pipeline expansion system. The new capacity is scheduled to be projects under construction in Northwest in service in late 2020. Alberta, adding incremental capacity out of the Montney play including for delivery ‘Pursuing multiple developments’ of ethane-plus, propane-plus, crude and for Montney NGLs
Pembina says that with the increasing amount of oil and condensate resource being developed along its pipeline systems and the anticipated startup of the LNG Canada project, it continues to receive customer requests for incremental fractionation services for natural gas liquids (NGLs). “Increasingly, we are observing customer demand for incremental NGL barrels, particularly from the Montney play, to move westward for export,” the company says. Pembina is “pursuing multiple developments in parallel” to facilitate this movement, both within its Redwater fractionation complex near Edmonton and in Northeast B.C., it says. Image: Pembina Pipeline
6 Alberta Oil & Gas Quarterly Cover Feature
Midstream Spotlight: Gibson Energy
The oversupply of crude oil from Western province’s current market access constraints Canada as a result of pipeline delays has are not good for our industry, it’s not good created major hurdles and roadblocks for for us, but, due to the current and continuing the industry as a whole, but it has also egress uncertainty, people need insurance,” created opportunities for companies with he said. the right assets. The opportunity to grow Hardisty has One of these is Gibson Energy’s Hardisty coincided with a major shift in focus for Terminal, and its sole-supplier connection Gibson away from activity-based oilfield to the nearby USD Partners unit train service businesses, Wilson said. loading facility. This includes the $100-million sale of its Over more than 60 years, the Hardisty trucking business in July 2019, as well as its Terminal has become an increasingly wholesale propane business and U.S. energy important piece of infrastructure in Western services assets — including seismic and Canada’s oil supply chain. Storage capacity environmental services businesses — for at Hardisty has doubled in recent years, from approximately $225 million in 2018. approximately 5 million barrels in 2014 to Gibson is also adding a new line of business 12 million barrels today. Another 1.5 million to its Hardisty Terminal. In December 2019 barrels of tankage is under construction and the company announced plans to build a expected to be operational in 2020. 100,000-bbl/d diluent recovery unit (DRU) The company also owns about 1.7 million at Hardisty – 50,000 bbls/d of capacity barrels of storage at its Edmonton Terminal contracted to ConocoPhillips Canada and and has four other smaller terminals 50,000 bbls/d to be negotiated with within Alberta. additional customers. With Alberta’s export pipelines running at The DRU will separate out the diluent from capacity, customers are looking for increased diluted bitumen pipelined to the facility, storage optionality, said Gibson senior vice- creating a more viscous heavy crude president Sean Wilson. designed specifically for rail transportation. “From a market access perspective, people This will satisfy demand for Canadian crude lease our tanks in part for insurance. Our on the U.S. Gulf Coast, improving takeaway capacity out of Western Canada.
Alberta Oil & Gas Quarterly 7 Cover Feature
Midstream Data
Health of the Midstream Sector
$25,000,000
$20,000,000
$15,000,000
$10,000,000
$5,000,000
$0 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019 Q3/2019
Cash Flow From Operating Activities Revenue Net Income Capital Spending
Aggregates figures for Tidewater Midstream & Infrastructure Ltd., TC Energy Corporation, Pembina Pipeline Corporation, Keyera Corp., Inter Pipeline Ltd., Gibson Energy Inc., Enbridge Inc. and AltaGas Ltd.
Source: CanOils
Total Revenue Net Income $15,000,000 $2,000,000
$12,000,000 $1,500,000
$1,000,000 $9,000,000
$500,000
$6,000,000
$0
$3,000,000 Q1/2017Q2/2017Q3/2017Q4/2017Q1/2018Q2/2018Q3/2018Q4/2018Q1/2019Q2/2019Q3/2019 -$500,000
$0 -$1,000,000
Q1/2017Q2/2017Q3/2017Q4/2017Q1/2018Q2/2018Q3/2018Q4/2018Q1/2019Q2/2019Q3/2019 Tidewater Midstream & Inter Pipeline Ltd. Tidewater Midstream & Inter Pipeline Ltd. Infrastructure Ltd. Gibson Energy Inc. Infrastructure Ltd. Gibson Energy Inc. TC Energy Corporation Enbridge Inc. TC Energy Corporation Enbridge Inc. Pembina Pipeline Corporation AltaGas Ltd. Pembina Pipeline Corporation AltaGas Ltd. Keyera Corp. Keyera Corp. Source: CanOils Source: CanOils
8 Alberta Oil & Gas Quarterly Cover Feature
Total (Net) Capital Expenditure
$8,000,000
$7,000,000
$6,000,000
$5,000,000
$4,000,000
$3,000,000
$2,000,000
$1,000,000
$0
-$1,000,000 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019 Q3/2019 -$2,000,000
-$3,000,000
Tidewater Midstream & Pembina Pipeline Corporation Inter Pipeline Ltd. Enbridge Inc. Infrastructure Ltd. Keyera Corp. Gibson Energy Inc. AltaGas Ltd. TC Energy Corporation
Source: CanOils
Cash Flow from Operations
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019 Q3/2019 -$500,000
Tidewater Midstream & Pembina Pipeline Corporation Inter Pipeline Ltd. Enbridge Inc. Infrastructure Ltd. Keyera Corp. Gibson Energy Inc. AltaGas Ltd. TC Energy Corporation
Source: CanOils
Alberta Oil & Gas Quarterly 9 Net Debt to Cash Flow
50
40
30
20
10
0
-10 Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019 Q3/2019
-20
Tidewater Midstream & Pembina Pipeline Corporation Inter Pipeline Ltd. Enbridge Inc. Infrastructure Ltd. Keyera Corp. Gibson Energy Inc. AltaGas Ltd. TC Energy Corporation
Source: CanOils
Return on Capital Employed
8%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
-2% Q1/2017 Q2/2017 Q3/2017 Q4/2017 Q1/2018 Q2/2018 Q3/2018 Q4/2018 Q1/2019 Q2/2019 Q3/2019
-3%
-4%
-5%
-6%
Tidewater Midstream & Pembina Pipeline Corporation Inter Pipeline Ltd. Enbridge Inc. Infrastructure Ltd. Keyera Corp. Gibson Energy Inc. AltaGas Ltd. TC Energy Corporation
Source: CanOils
10 Alberta Oil & Gas Quarterly Alberta Oil & Gas Price Forecasts
Crude Oil Price Forecast $70
$65
$60
$55 $US/bbl
$50
$45
$40 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021
UK Brent Western Canada Select WTI (Cushing, Oklahoma) Source: Sproule and GTI North America Natural Gas Prices Forecast $3.5
$3.0
$2.5
$US/MMbtu $2.0
$1.5
$1.0 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021
AECO Henry Hub Source: Sproule and GTI Ethane Price Forecast - Alberta Plant Gate $9.0
$8.5
$8.0
$7.5
$7.0
$6.5
$US/bbl $6.0
$5.5
$5.0
$4.5
$4.0 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021
Source: Argus Media
Alberta Oil & Gas Quarterly 11 Propane Price Forecast $25.0
$22.5
$20.0
$17.5 $US/bbl
$15.0
$12.5
$10.0 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021
Propane – Edmonton Propane – Conway Propane – Mt. Belvieu Source: Argus Media Butane Price Forecast $30.0
$27.5
$25.0
$22.5 $US/bbl
$20.0
$17.5
$15.0 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021
Butane – Conway Butane – Edmonton Butane – Mt. Belvieu Source: Argus Media Condensate Price Forecast - Edmonton $65.0
$62.5
$60.0
$57.5 $US/bbl
$55.0
$52.5
$50.0 Q1/2020 Q2/2020 Q3/2020 Q4/2020 Q1/2021 Q2/2021 Q3/2021 Source: Argus Media
12 Alberta Oil & Gas Quarterly News Alberta Indigenous Opportunities Corporation advancing toward funding projects
The first funding award by the new Alberta communities and we want those revenues to Indigenous Opportunities Corporation (AIOC) be material, so that means we’re looking for could come as early as the first quarter of significant investment opportunities,” he says. 2020, says Matthew Machielse, its interim Approximately $4 million in capacity funding chief executive officer. is being made available to help Indigenous Machielse says that the $1 billion in loan communities evaluate business opportunities, guarantees being offered by the province to support Indigenous participation in natural resource projects is the government’s top two priority, “only behind takeaway capacity and "We've been using the market access.” Suncor initiative of the Alberta’s goal is to facilitate more deals like the 2017 agreement that saw the Fort East Tank Farm as a McKay and Mikisew Cree First Nations take a model that this initiative $545-million equity position in the East Tank Farm portion of the Fort Hills oilsands project. wants to replicate." “We’ve been using the Suncor initiative – Matthew Machielse, of the East Tank Farm as kind of the gold standard or a model that this initiative wants AIOC to replicate,” Machielse says. The AIOC is looking to fund projects in what Machielse calls “broad-based energy,” Machielse adds. including renewables and upstream through “This isn’t about subsidizing; this is about downstream oil and gas, as well as mining making deals on commercial terms and and forestry. Given the Alberta government’s making sure that Indigenous communities focus on midstream oil and gas development, can engage in that exact conversation.” he adds that midstream projects are likely to rise to the top of the list. There is tremendous interest in the AIOC, with a number of potential projects starting A minimum of $20 million of Indigenous to come forward, Machielse says. The next equity interest in a project will be required step is to establish the board of directors, for eligibility. which is expected to occur in the first quarter. “That sounds like a significant number, but After that, “we’re probably looking at late we have to keep in mind that the objective into the quarter or into mid-2020 by the time of this initiative is to have revenues from the everything is agreed to” for a funding award natural resources sector coming back to on a project of this complexity, he says.
Alberta Oil & Gas Quarterly 13 Applying ‘purposeful AI’ to your business
More and more oil and gas businesses to be a leader in advancing digital and AI are adopting digital technologies like technology across the value chain” with a machine learning as part of their strategy, new two-year agreement with the Alberta but companies should be careful where Machine Intelligence Institute. they focus their efforts and take the time Many people who do not work in the data to consider whether they really need to go science world can be afraid of AI, but it down that route at all, experts told a recent can serve to augment human intelligence breakfast event hosted by the Government of rather than replace it, said Heather Wilcott, Alberta’s Ministry of Economic Development, Imperial’s upstream digital strategy manager. Trade and Tourism. The panel of experts included representatives from Deloitte, “I see the use of AI allowing us to make Imperial Oil Limited and the Alberta Machine better and faster decisions. It’s not humanely Intelligence Institute (Amii). possible to process trillions of rules, so therefore computers can help us with that ‘Rapid maturation’ of digital and make us more efficient,” Wilcott said. technologies in oil and gas An example at Imperial is a steamflood optimization project at its Cold Lake oilsands There are many examples of the “rapid operation. There are hundreds of producing maturation” of how oil and gas companies wells at Cold Lake, Wilcott said, and to are approaching digital technologies, said optimize which wells get what steam to Roland Labuhn, national digital energy and get the most production is a very intensive industrials leader with Deloitte. He pointed to exercise using spreadsheets and reservoir the new “Suncor 4.0” approach launched by engineering subject matter experts. CEO Mark Little in spring 2019 as the biggest “They spend several weeks a month with development along this path he has seen. a low-cost centre in India doing some “When we started digital probably four or preparatory calculations, and then they get five years ago, we were looking at consumer together once a month with all of the experts trends and what was happening in the with many, many years of experience to say financial sector. When I look at it now, it has ‘this is the right place to send the steam in fundamentally changed. We’re seeing this amount to these wells,’” she said. [oil and gas] firms commit to where digital “There’s really no humanly possible way to is going, and seeing that intersection run through all the possible combinations between technology and industrial strategy,” of scenarios and fully optimize that, which Labuhn said. is where we use machine learning to build “In my 20-plus years in this industry, it’s the algorithms to model the reservoir and the well first time – when I think of that intersection performance. It predicts the performance of between an oil and gas strategy and a the wells given a certain amount of steam, digital strategy targeting billions a year and on top of that we layer on mathematical of opportunity costs and savings and optimization to run through all of the possible improvement of revenue – that we’re combinations that a human just couldn’t do, starting to see some of those global trends so now the steam schedulers and reservoir come here.” engineers use the model as a starting point. Imperial Oil is another key example, If they see something weird, they don’t have announcing in September it is “taking action to follow the model but it drastically shortens
14 Alberta Oil & Gas Quarterly the amount of low value work that they’re sort to solve the problem.” doing processing data and spreadsheets and Audrey Ancion, Deloitte’s analytics enables them to make much better decisions experience lead, said the firm encourages to optimize production.” organizations to think about what it calls Despite the benefits in that project example, “purposeful AI.” Wilcott said that oil and gas businesses don’t “It’s AI that has a clear-cut purpose; it’s necessarily need AI to solve their problems. there to solve a business problem,” she “There might be a simple solution in many said, adding that sometimes people take the cases. If you can do it with a physical model opposite route, starting with the machine or software engineering, then that should be learning technique and then trying to find an your first approach before you just apply AI application for it. and machine learning to the problem.” Ancion said there are two broad buckets where AI can be applied to help solve Machine learning should be the business problems: 1) reasoning, where ‘last resort’ AI can be used to predict and make recommendations for optimization; and 2) Machine learning should not be the first interacting capabilities, where AI interacts choice, said Shak Parran, Deloitte’s national with something such or text or pictures, AI insights leader. which can be particularly useful in predictive “Start with your business problem, and maintenance. machine learning should be your last resort “For example, if you have videos or pictures, because in 95 percent of the times there’s a thousands or millions of them, AI is going to better, simpler, easier technique to solve that help process that much faster than a human problem,” he said. being,” she said. “What it can really do super “If you come to a problem and say, ‘we well is identify patterns in your data…. We actually can’t solve the problem with anything would encourage you to start in places where else,’ then you should start talking about you have lots of data.” using machine learning or something of the
Alberta Oil & Gas Quarterly 15 Painted Pony tests potential wellsite emissions elimination technology
The first unit of a new system designed to But that presents a power problem. Existing significantly reduce methane emissions from substitute technologies can only cost- remote oil and gas wellsites is now operating effectively provide one or two kilowatts to run in the field, and so far has performed “exactly site equipment, O’Shea said. in line with expectations,” according to “We realized that in order to not vent operator Painted Pony Energy. methane, you actually need more power Painted Pony commissioned the sea- generated on site to be able to come up with can package on a Montney well pad in an alternate solution.” Northeast B.C. in November. The system, Westgen has adapted a line of mass market called EPOD (engineered power on demand) internal combustion engines capable of was developed by Calgary-based Westgen generating 6, 20 and 30 KW to run on Technologies founders Connor O’Shea and wellhead fuel gas, and require maintenance Ben Klepacki. once per year. “EPOD takes our proprietary power generation technology and pairs it with an “...We actually believe air compressor to provide high-pressure we’re going to save compressed air into the pneumatic devices on the wellsite,” O’Shea said. money overall and have “That way, instead of putting high-pressure more reliable sites as gas into the devices and that gas venting into the atmosphere, we put high-pressure a result.” air into the devices and the air vents into the atmosphere. By making that simple switch, – Tim Michaelis, we basically eliminate the methane venting Painted Pony from these devices altogether.” The innovation is enabled in part by Klepacki’s background working on cars. “There is still a By enabling producers to use air compressors lot of space where we can take technologies to power pneumatic systems that run wellsite that have been done in other industries, and valves and injection pumps instead of the that’s really what we did here,” Klepacki said. common pneumatic systems powered by Painted Pony decided to try out the new wellhead fuel gas, EPOD is designed to system because it aligns with the company’s essentially eliminate goal to reduce its overall emissions footprint, methane venting. but that’s not the only expected benefit, said Effective January 1, 2022, in Alberta, senior facilities engineer Tim Michaelis. operators must control or prevent vent gas “As we build new sites it makes sense from from at least 90 percent of pneumatic devices; our perspective to get ahead of the game and while in B.C., effective January 1, 2021, be proactive to comply with regulations, but greenfield oil and gas sites will no longer be honestly the real motivation is we actually allowed to use methane-emitting believe we’re going to save money overall and pneumatic devices. have more reliable sites as a result.”
16 Alberta Oil & Gas Quarterly Upstream News
Capital Spending planning a 2020 capital allowances for the utilization program of $5.4 billion to $6 of crude-by-rail. Canadian Natural ´ billion, up from $4.9 billion Resources Limited plans to ´ Cenovus Energy plans to $5.4 billion in 2019. While spend $4.05 billion for 2020, to invest $1.3 billion to $1.5 oil-related investment is up from a forecast of $3.8 billion in 2020, about 70 expected to be flat compared billion in 2019. percent of which is sustaining to 2019, Suncor is increasing capital primarily to maintain The 2020 capital budget spending on projects base production at its Foster is expected to deliver associated with its target to Creek and Christina Lake production of approximately increase annual free funds oilsands operations. 1.17 million boe/d, up from flow by $2 billion by 2023. approximately 1.12 million The increase in total planned This includes $300 million boe/d expected in 2019, capital spending, compared for the new cogeneration despite ongoing production to the company’s 2019 facility Suncor sanctioned in curtailment. Canadian Natural forecast of $1.1 billion to September 2019, $150 million has added approximately $1.2 billion, is largely due to for additional investment in $250 million to its 2020 the mandatory production digital technology initiatives, capital budget compared to curtailment in Alberta, the and $50 million in connection 2019 as a result of Alberta’s company said. with the completion of elimination of curtailment for bi-directional pipelines Cenovus plans to spend newly drilled conventional connecting its oilsands Base $705-$820 million on its heavy oil wells and its Plant to Syncrude. oilsands operations in 2020, reduction in income tax rates. of which $625 million to $675 Upstream production is The company said the million will be focused on expected to be between increased spend will add maintaining base production 800,000 and 840,000 boe/d, approximately 60 drilling at Foster Creek and Christina an approximately five per locations across Alberta, put Lake as well as completing cent production increase three additional drilling rigs to the ramp-up of the new compared to 2019 guidance. work and create an additional Christina Lake phase G, This factors in expectations approximate 1,000 full-time thanks to utilization of for Alberta’s oil curtailment equivalent jobs. Alberta’s special production to extend through 2020, allowances for utilizing Suncor Energy is ´ and special production crude-by-rail.
Image: Cenovus
Alberta Oil & Gas Quarterly 17 The balance of Cenovus’s industry has a wealth of The province said its approval planned oilsands investment expertise that could be used will enable the privately held in 2020 will be focused on by exploration and production company to advance the advancing the proposed companies to enter or project to the next stages phase H expansions at both diversify into international of development, including Foster Creek and Christina markets, according to a new making a final investment Lake towards sanction-ready report commissioned by the decision and applying for status by the second half of Canadian Global Exploration other environmental 2020, Cenovus said. Forum (CGEF). licences and local area Meanwhile, Cenovus plans With 60,000 engineers, development permits. to spend $80-$95 million 4,000 geologists and 1,300 in the Deep Basin in 2020, geophysicists, Calgary’s Acquisitions and a modest increase in total downtown core has one Divestitures capital spending compared of the highest populations Pengrowth Energy says its with the company’s 2019 of exploration and shareholders and secured forecast, which reflected no development professionals debt holders have approved drilling activity. in the world. Thousands of its acquisition by Cona This capital investment other professionals ensure Resources, a portfolio plans the execution of a the industry has world- company of Waterous Energy two-rig drilling program class health, safety and Fund, for five cents per share targeting high-return liquids- environmental standards. and the assumption of debt. rich opportunities in the Still more professionals work The aggregate value of the Clearwater and Edson areas, bringing benefits to local transaction is approximately beginning in the second half communities where field $740 million. development happens. of 2020. Pengrowth operates two core ´ Tourmaline Oil is The report identifies four asset areas: the 18,000-bbl/d forecasting a 2020 capital areas where Canadians have Lindbergh SAGD project spending program of $925 a competitive advantage near Cold Lake, Alberta, and million to develop its assets in to leverage this expertise: 19 sections in the Montney Alberta and Northeast B.C. conventional oil and gas, natural gas resource play in unconventional resources, Northeast B.C. Production is expected to heavy oil, and enhanced average 315,000 to 320,000 oil recovery. ´ Paramount Resources boe/d, compared to 295,000 has closed the sale of to 300,000 boe/d in 2019. New oilsands project certain natural gas weighted properties in West Central Tourmaline said its 2019 approved Alberta for cash consideration production exit target of The Alberta government, on of approximately $55 million. 315,000 to 320,000 boe/d the recommendation of the was achieved during the Paramount said the Alberta Energy Regulator, has second week of December, transaction significantly issued approval for Grizzly with total corporate reduces the complexity of Oil Sands ULC’s proposed production reaching a record its operations, disposing of May River SAGD project 317,000 boe/d. roughly 320,000 net acres south of Fort McMurray. The and associated wells and International E&P project would produce up facilities with average sales Opportunities to 12,000 bbls/d of bitumen volumes of 8,500 boe/d (60 from the Middle McMurray ´ Canada’s oil and gas per cent natural gas) in the channel reservoir. third quarter of 2019.
18 Alberta Oil & Gas Quarterly Midstream News
Diluent Recovery of capacity contracted to Gibson’s marketing Units ConocoPhillips Canada segment under an inter- and 50,000 bbls/d to be company agreement. Oilsands operators are ´ negotiated with additional In November 2019, Gibson planning two large-scale customers. Gibson said the placed four new tanks with diluent recovery units (DRUs) plant will create “DRUbit,” a two million barrels of in order to enable shipping more viscous heavy crude storage into service, ahead more oil out of Alberta. designed specifically for rail of schedule and within In December, Cenovus transportation. It could be target capital costs, the Energy filed a regulatory placed into service as early company said. application for a DRU at its as 2021, the company said. Gibson said it now has three Bruderheim Rail Terminal, tanks representing 1.5 million and Gibson Energy Oil Storage barrels of storage capacity announced plans for a DRU ´ Gibson Energy says it currently under construction at its Hardisty Terminal, which has given the go-ahead to at the Top of the Hill portion is the sole-supplier to the build two new 500,000-bbl oil of the Hardisty Terminal. nearby USD Partners unit tanks at its Hardisty Terminal, train loading facility. continuing ongoing expansion The company expects to have approximately 13.5 million The Cenovus DRU would of the storage facility. barrels of storage capacity in have capacity to separate The company said it has service in the fourth quarter up to 190,505 bbls/d of also secured a new refining of 2020, up from 5 million diluted bitumen, or dilbit, customer for the terminal, barrels in 2014. delivered by pipeline from the reflecting the importance company’s oilsands projects of Hardisty to downstream LNG into undiluted “neatbit” and players looking to secure diluent components. It is heavy crude feedstocks from ´ Pieridae Energy plans expected to start operating in Western Canada. to invest to advance its the fourth quarter of 2023. proposed Nova Scotia LNG One of the new tanks is project to a final investment Gibson announced its plans contracted to the new decision in 2020. The to build a 100,000-bbl/d refining customer, while the company announced a “pre- DRU with 50,000 bbls/d second tank will be leased to FID” capital budget of $32
Alberta Oil & Gas Quarterly 19 million, and a development its remarks that carrier) loading facilities.” expense of $16 million for the they view this project as Goldboro project. globally competitive.” Rail Terminals Under a 20-year supply deal A final investment decision Cando Rail Services has with German utility Uniper for on Kitimat LNG is not started construction on a new 5 mtpa, or half of the capacity expected until around 2022 terminal in Sturgeon County of the US$10-billion project, or 2023, with completion and that will use a loop-track Pieridae is facing a deadline commissioning timed system to enable staging of September 30, 2020, for 2029. and storage of up to 1,900 for FID. rail cars. The current timeline targets Pipelines The Cando Sturgeon Terminal commercial deliveries starting ´ Enbridge executives told is located nearby facilities November 30, 2024, and a recent investor day that the including the $4.5-billion May 31, 2025. company’s optimum goal is petrochemical plant under Pieridae expects to realize extending its integrated value construction by Canada net operating income of chain all the way to the United Kuwait Petrochemical $80 million to $110 million in States Gulf Coast. Corporation and Pembina 2020, which otherwise would “The focus of this Gulf Coast Pipeline’s Redwater have been approximately strategy is on securing the Fractionator. It will be unit- $10 million, were it not for last mile connectivity to train capable and serviced by the company’s acquisition of refiners, storage terminals the CN mainline. Shell Canada’s midstream and export opportunities “Access to cost-advantaged and upstream assets in the while fully developing our feedstock, world-class Southern Alberta Foothills for heavy and light crude value transportation and logistics $190 million in October 2019. chain,” said Guy Jarvis, infrastructure and readily License transfer approval for executive vice-president available labour are allowing certain of the acquired Shell and president of liquids the Heartland to capitalize assets is pending from the pipelines. A key link in the on the current petrochemical Alberta Energy Regulator. strategy is the potential to investment cycle,” said move additional heavy barrels Sturgeon County Mayor ´ Chevron says it is from its Flanagan South and Alanna Hnatiw. considering selling its 50 Seaway systems, he said, Early works and site percent share in the proposed which connect to Alberta. Kitimat LNG project, which mobilization have begun with received a new 40-year “We have been active for completion expected in 2020. LNG export licence from the many years now building out our heavy crude value Canadian Energy Regulator in Alberta Major December 2019. chain from the oilsands, to our Mainline, Flanagan Projects “I think it’s important to note South and the Seaway that ownership changes View investment system to create a path that’s announcements across are not unusual in projects unparalleled in industry,” like this – large capital different sectors at said Jarvis. “The next step www.majorprojects. energy projects,” said Bryan is developing a strategically Cox, CEO of the BC LNG alberta.ca. Click here located terminal position on for a list of pipeline, gas Alliance. “I think what’s really the Gulf and participating in important to note is that and storage projects in the development of offshore the midstream sector. Chevron very clearly stated in VLCC (very large crude
20 Alberta Oil & Gas Quarterly Downstream News
Refining upgraded product and does technical experts, planners not need all units operational, and other job functions, North The Sturgeon Refinery ´ North West has said. West said in late December. has completed a major The refinery was expected maintenance shutdown that The gasifier is designed to to produce diesel from SCO was scheduled to include process the heaviest portion again before the end of the a full test run of the gasifier of the bitumen barrel into year, followed by bitumen unit that has held up its hydrogen for the refinery, processing in 2020. conversion to full and produce pure CO2 to be commercial operations. captured for enhanced ´ China is breaking oil recovery. records for crude oil imports Refinery start-up is and isn’t likely to stop soon underway using synthetic Issues with initial as new refineries ramp up crude oil (SCO) to produce commissioning of the unit and hopes grow that the low-sulphur diesel, resulted in repairs and easing of trade tensions according to a statement replacement of equipment. with the U.S. will bolster the from operator North West An update from North West economy, according to Redwater Partnership. in November pushed out Bloomberg News. Additional work is expected gasifier startup Even as economic expansion progressing to prep the from the end of 2019 to early has slowed, Bloomberg gasifier unit for start up in 2020, with the company said the pace of growth still early 2020 to enable the saying that additional work requires ever more oil. China switch to bitumen feedstock, was required. imported an unprecedented the company said. A full test run of the gasifier 11.18 million barrels a day in The Sturgeon Refinery has was scheduled to coincide November, which surpassed been processing SCO into with the project’s fall routine the U.S. high-water mark diesel since November 2017. maintenance shutdown, of 10.77 million set in June The facility was originally which started in September. 2005. China’s purchases will expected to complete the The shutdown is now probably continue to rise into switch to bitumen by the complete, logging over next year as new refineries end of 2018. Ongoing diesel 390,000 total hours by skilled in Zhejiang and Zhanjiang production is made possible tradespeople, inspectors, increase runs, and as a because SCO is a partially
Image: North West Redwater Partnership
Alberta Oil & Gas Quarterly 21 widely anticipated tax $337.6 million in capital and construction bids have rebate boosts domestic spending on the project been received and are production of marine fuel, for the third quarter, for the currently being reviewed, Bloomberg reported. procurement of materials and Pembina said. Its spend to- ´ Husky Energy has closed construction services. date is tallied at $90 million. the sale of its 12,000-bbl/d “Milestones for the third The project is expected to be Prince George refinery to quarter include completing in service in mid-2023. Calgary-based Tidewater piling activities with Both new PDH/PP Midstream and Infrastructure approximately 6,500 pilings projects have committed Ltd. for $215 million in cash, installed, commencing economic support through plus a closing adjustment of structural steel erection Alberta’s Petrochemicals approximately $53.5 million. for the polypropylene Diversification Program in the The transaction includes plant, and installing the first form of future royalty credits. a contingent payment to major components of the ´ Nearly 80 percent of Husky of up to $60 million central utility block,” Inter Inter Pipeline’s planned over two years. The Pipeline said. 2020 capital program company has entered “The last major equipment will be directed toward into a five-year offtake lifts for the complex were construction of the Heartland agreement with Tidewater also completed in the quarter Petrochemical Complex, the for refined products from the with the installation of the company said in December. refinery, located in Prince propane dehydrogenation The facility, under George, B.C. flare stack and the 300-tonne construction near Fort polypropylene purge bin.” Saskatchewan, will be Petrochemicals Construction of the complex Canada’s first integrated Fieldwork on two began in early 2018 and is PDH/PP plant, converting new propane-based scheduled for completion in Alberta propane into pellets petrochemical facilities in late 2021. Activities continue for plastic products. Alberta is advancing, with to advance according to cost The company said it expects one project over the halfway and schedule targets, Inter to spend approximately spending mark and the Pipeline said. $935 million of its total other into early works Meanwhile, early works site $1.195-billion capital budget and contracting. preparation is underway in 2020 on the project, As of the end of September, for Pembina Pipeline with a focus on advancing Inter Pipeline Ltd. says it Corporation’s PDH/PP mechanical construction has invested approximately project in the Fort of the PP plant and $1.9 billion of the estimated Saskatchewan region, the completing the final stages $3.5-billion capital cost of company said earlier in its of construction of the PDH the Heartland Petrochemical third quarter results. facility. Complex, a propane Pembina and partner dehydrogenation (PDH) and Canada Kuwait Petroleum polypropylene (PP) facility Corporation gave the go- under construction near ahead to the $4.5-billion Fort Saskatchewan. project in February 2019. The company reported Engineering, procurement
22 Alberta Oil & Gas Quarterly Mapping Alberta Oil & Gas Connected to North America’s Critical Infrastructure: Oil
Grande Prairie Prince George
1 Edmonton Red Deer Kamloops Saskatoon Vancouver Calgary 14 4 7 Swift Current Regina 5 3 Brandon Winnepeg Quebec 2 Halifax Thunder Bay 15 8 Sudbury Montreal Duluth Ottawa 13 6 8 8 Minneapolis Toronto Rochester Buffalo Milwaukee Detroit
Chicago Cleveland Omaha Pittsburgh
Kansas City St. Louis 9
10 Memphis
11 Jackson 12
New Orleans
CP Rail 1 Trans Mountain 6 TCPL Keystone 11 Gulf Coast Project CN Rail 2 Rangeland 7 Alberta Clipper 12 Seaway
Oil Pipelines 3 Milk River 8 Enbridge 13 Portland P/L In Service 4 Bow River 9 Spearhead 14 Trans Mountain Expansion
Proposed 5 Express Platte 10 ExxonMobil USGC 15 Keystone XL Northern Leg
Alberta Oil & Gas Quarterly 23 Mapping Alberta Oil & Gas Connected to North America’s Critical Infrastructure: Natural Gas
3 Prince Rupert 1
Grande Prairie 4 Prince George 2 Kitimat
Edmonton
Red Deer 5 Kamloops Saskatoon Vancouver Calgary
Swift Current Regina 8 7 Brandon Winnepeg 6 Quebec Halifax Thunder Bay
Sudbury Montreal Duluth Ottawa
Minneapolis Toronto Rochester Buffalo Milwaukee Detroit
Chicago Cleveland Omaha Pittsburgh
Kansas City St. Louis
West Coast Exports East Coast Exports Under Construction/Operational Proposed Proposed
1 Ridley Island Export Terminal 4 Kitimat LNG 6 Goldboro LNG Natural Gas Pipelines 2 LNG Canada 5 Woodfibre LNG 7 Bear Head LNG
3 Prince Rupert Propane 8 Energie Saguenay Export Terminal
24 Alberta Oil & Gas Quarterly Mapping Alberta Oil & Gas Crude Oil Plays
Oilsands Upgraders Operating
1 Suncor Base & Millennium
2 Syncrude Mildred Lake
3 Athabasca Oil Sands Project Scotford
4 Canadian Natural Resources Horizon Surface Mineable Area 4 2 1 Proposed Peace River Fort McMurray Oilsands 5 Value Creation Heartland Peace River Athabasca Oilsands
Oil Refineries Operating Montney/Doig 6 Suncor Edmonton
7 Shell Scotford Beaverhill Lake/ Swan Hills/ 8 Imperial Strathcona Cold Lake Slave Point Carbonate North West Redwater 9 Cold Lake 9 7 5 Sturgeon Fort Saskatchewan 3 Oilsands Edmonton6 8 Lloydminster
Duvernay
Cardium
Red Deer Viking
Calgary Pekisko
Alberta Oil & Gas Quarterly 25 Mapping Alberta Oil & Gas Natural Gas Plays
Straddle Plants
1 AltaGas Ellerslie
2 Inter Pipeline Cochrane 3 Alta Gas Joffre
4 Spectra Empress
5 Plains Midstream Empress
6 Atco Empress
7 1195714 Alberta Empress
8 Atco Fort Saskatchewan
Fractionators Fort McMurray 7 High Prairie Frac Plant 18 Deep Basin 8 Kanata Simonette 13-11 Peace River Gas Plant Cretaceous Multi-Zone 9 Tervita Granada Frac Plant Gas Play 10 Buck Creek Frac Plant
11 DOW Fort Sask Grande Prairie 7 12 Fort Sask Gas Plant 27 13 Keyera Fort Sask Frac Plant 14 Interpipeline ROF Facility Nikanassin Deep 8 15 Pembina INFRA. & Basin Gas Play Logistics LP FRAC 8 19 20 1, 2 & 3 13 12 16 Harmattan Fractionation 14 11 17 Gibson Hardisty Edmonton 21 Lloydminster 9 1 15 Offgas Plants 10 25 26 18 Inter Pipeline Fort Mcmurray
19 Heartland Offgas 17 Delivery (4917) 22 3 Red Deer Petrochemical Facilities 23 24 20 Pembina PDH/PP (Under Construction) 16 Natural 21 Fort Sask: DOW Gas Fields 22 Joffre E1: NOVA 2 Calgary 4 23 Joffre E2: NOVA 5 24 Joffre E3: DOW/NOVA Montney Hybrid Tight Gas/ 6 25 Inter Pipeline Heartland 7 Petrochemical Complex Shale Play (Under Construction) Medicine Hat 26 Inter Pipeline Acrylic Acid & Derivatives Project (Proposed) Lethbridge 27 Nauticol Energy Methanol Facility (Proposed)
26 Alberta Oil & Gas Quarterly Alberta pipeline safety record continues to improve: AER
The latest data from the 2018, compared to 26 in AER’s director of industry Alberta Energy Regulator 2017 and 29 in 2016. Over performance and analytics. (AER) shows a continued the last 10 years, the largest He added that the regulator trend of improving pipeline number of high consequence is continuing with efforts to safety performance in incidents occurred in 2014, drive industry performance the province. at 52. and further decrease the The number of high- The total number of incidents number of high consequence consequence pipeline was essentially flat year-over- pipeline incidents. incidents, rated based on year, the AER reported, at 416 “The largest liquid release in their impact on the public, in 2018 compared to 415 in 2018 was 335 cubic metres; land, environment, wildlife 2017. Overall, the AER data just over two-thirds of the and livestock, decreased by shows that pipeline incidents total number of pipeline approximately eight percent are decreasing while the total releases were one cubic in 2018, the AER said in its length of pipeline operating in metre or less,” Helmer said. third annual report on pipeline Alberta increases. safety performance. “We would expect to see this “We’re pleased with this sort of a trend where you’d There were 24 high- trend, but we’re not letting see lots of very small ones consequence incidents in up,” said David Helmer, the and very few large ones.”
10-Year Trend: Total Accidents v. Total Pipeline Length Severity of Incidents 2018
800 500,000
700 437,500 High Consequence 6% Pipeline length (km) 600 375,000 Medium Consequence 8% 500 312,500 400 250,000 300 187,500 Severity of incidents is Number of incidents 200 125,000 based on their effect on the Low Consequence 100 62,500 public, land, environment, 86% 0 0 wildlife and livestock. 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Number of incidents Pipeline length (km)
10-Year Trend: High Consequence Incidents v. Total Causes of Pipeline Incidents 2018 Pipeline Length 160 70 466,666.67 140 60 400,000 120 Pipeline length (km) 50 333,333.33 100
40 266,666.67 80 60 30 200,000 40 20 133,333.33 20 10 66,666.67 0 0 0 Number of high consequence incidents Other 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Corrosion Corrosion Internal Damage by External Construction Others Number of high consequence incidents Pipeline length (km) Deficiency Valve orFailure Fitting
Source: AER 2018 Pipeline Performance Report
Alberta Oil & Gas Quarterly 27 Contacts
Alberta Government Canadian Energy Pipeline Association www.cepa.com Alberta Advanced Education Canadian Natural Gas Vehicle Alliance www.alberta.ca/advanced-education www.cngva.org Alberta Energy Canadian Society for Unconventional www.alberta.ca/energy Resources Alberta Energy Regulator www.csur.com www.aer.ca Canadian Society of Exploration Alberta Environment and Parks Geophysicists www.alberta.ca/environment-and-parks ww.cseg.ca Alberta Geological Survey Canadian Society of Petroleum Engineers www.ags.aer.ca www.speca.ca Alberta Innovates Explorers and Producers Association of albertainnovates.ca Canada Alberta Surface Rights Board www.explorersandproducers.ca www.surfacerights.alberta.ca Gas Processing Association of Canada www.gpacanada.com Industry Associations Petroleum Services Association of Canada Alberta Land Surveyors’ Association www.psac.ca www.alsa.ab.ca Petroleum Technology Alliance Canada Canada’s Natural Gas www.ptac.org www.canadasnaturalgas.ca Canadian Association of Geophysical Contractors For more information, please visit www.cagc.ca www.investalberta.ca Canadian Association of Oilwell Drilling Contractors www.caodc.ca Canadian Association of Petroleum Producers www.capp.ca