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