Category Archives: oil

Pipeline-constrained shale play sees new life as Dakota Access comes on line

As Dakota Access comes online, America’s most pipeline-constrained shale play sees new life

The completion of the Dakota Access pipeline in June has upended the region’s dependence on rail — good news for Calgary’s Enerplus

Jess Snyder

August 17, 2017

Financial Post

0611-biz-xFPenerplus

Ian Dundas is the president and CEO of Enerplus in Calgary, Alberta.

Ian Dundas expects to see far fewer oil trains rumbling across the sprawling farmlands of North Dakota in coming years.

Dundas is the chief executive of Calgary-based Enerplus Corp., one of the first companies to enter the Bakken, an oilfield spanning southern Saskatchewan, North Dakota and Montana. In the absence of available pipeline capacity, companies operating in the region had for years moved oil on an existing rail network in Canada and the United States. As production boomed, producers began investing more in oil-by-rail terminals, paying a premium to get their product to market.

But the completion of the highly contentious Dakota Access pipeline in June, a major oil conduit carrying some 570,000 barrels per day of crude from North Dakota to Illinois, has upended the region’s dependence on rail.

The pipeline has dramatically reduced shipping costs for Bakken companies, bringing overall costs in line with other U.S. shale producers, like those in the highly prolific Permian Basin in Texas and New Mexico.

“It’s going to be a pretty powerful advantage that we haven’t had for the past six or seven years,” Dundas said in an interview Thursday.

Production in the Bakken began to rocket upward around 2009, growing from roughly 200,000 barrels per day to more than one million bpd in less than five years. The rapid growth did not come alongside an equally fast expansion of pipelines, however, and the pipeline system in the region quickly became congested. By 2014, Bakken producers were shipping around 500,000 barrels per day of crude by rail car, nearly half of the 1.2 million bpd total production.

Before Dakota Access, about 25 per cent of the oil shipped out of the state travelled by rail. Now that figure is closer to seven per cent, according to recent data.

The higher availability of pipeline capacity has translated into much lower shipping costs for producers, giving companies more value for every barrel of oil.

In early 2014, for example, Enerplus was receiving a US$13 per-barrel discount for its oil compared to West Texas Intermediate, a benchmark price for U.S. crude traded in Cushing, Okla. Most of this was tied to higher shipping costs (moving crude by rail costs around US$10-14 per barrel, compared with about US$5-6 on Dakota Access).

 

By last year, that total discount had shrunk to US$7, and it’s expected to fall to low as US$3.50 in the second half of 2017, Dundas said.

“These are pretty dramatic moves when you talk about the lower margins that everyone is struggling with in a $50 oil world,” Dundas said.

The Dakota Access pipeline, owned by a consortium of companies led by Dallas-based Energy Transfer Partners, was loudly opposed by environmental groups and First Nations groups living along the proposed route.

The Sioux First Nation in Standing Rock, a reservation that straddles the North and South Dakota borders, protested the pipeline in a standoff that lasted for months. People were eventually forcibly removed from a site they had used as a staging ground for the protest.

Although the pipeline has been in service for months, the same opposition groups are now trying to get the pipeline shut down due to allegations the consortium had removed too many trees and improperly handled some soil during construction.

In June, a federal judge seemed to question the validity of Dakota Access’s approval based on the alleged infractions, saying the consortium’s study didn’t fully address environmental risks caused by potential spills. U.S. Army Corps of Engineers, who carried out the initial environmental review, has been asked to compile a new report.

Observers don’t expect the project will be shut down due to the decision.

“I think that would be very, very unlikely,” said Patrick O’Rourke, an analyst with AltaCorp Capital in Calgary. “I can’t think of a situation has come online, started flowing, and then had to cease operations.”

On Thursday, the North Dakota Public Service Commission delayed hearings on whether the company violated state rules.

Bakken producers are nonetheless relieved to improve their margins amid persistently low oil prices. Analysts say Bakken producers tend to have slightly higher break-even prices than Permian producers, though Dakota Access will make many producers competitive in the low US$40-range.

“A lot of us are thinking you have to live in this kind of range-bound world, and that means you have to keep your costs low,” Dundas said.

“Oil-by-rail as a concept is unique. It’s really quite inefficient, but it has definitely served a role during more robust oil prices, where you are able to layer on that extra cost. And that is what propelled all of this extra growth in North Dakota.”

Financial Post

 

 

 

Venezuela’s U.S. Refineries Turn to Canada for Oil

Venezuela’s U.S. Refineries Turn to Canada for Oil

By  Lucia Kassai  and  Robert Tuttle

August 10, 2017, 5:33 PM CST August 11, 2017, 2:00 AM CST

https://www.bloomberg.com/news/articles/2017-08-10/citgo-is-said-to-seek-oil-from-canada-as-venezuela-woes-deepen

 

  • Refiner is said to seek Canadian oil for Gulf Coast plants
  • Country directs more oil to China, India to pay back debts

Venezuela’s oil-supply woes are so dire that its U.S. refineries are turning to Canada for help.

Citgo Petroleum Corp., the largest U.S. importer of Venezuelan oil and a unit of state-owned Petroleos de Venezuela SA, has started to make quiet inquiries to buy Canadian crude for its refineries in Texas and Louisiana, according to people familiar with the situation. The imports would be used to replace dwindling shipments from Venezuela, where output dropped to a 14-year low in July.

Venezuela, the country with the world’s largest crude reserves, is shipping less to Citgo as it redirects more of its shrinking supply to China and India to repay loans. Canadian crude, equally heavy and high in sulfur as Venezuelan oil, is a natural replacement, said Dinara Millington, vice president of research at the Canadian Energy Research Institute in Calgary.

“Canada would be in the best position because that volume would be more or less guaranteed,” Millington said.

Venezuala oil into USA

This would be the first time Citgo imports Canadian oil for its Lake Charles, Louisiana, and Corpus Christi, Texas, refineries in more than two years. Although Canada is the largest supplier of oil to the U.S., more than half of that is absorbed by plants in the Midwest. Limited pipeline connections and expensive rail make it hard for Canadian oil to reach buyers along the U.S. Gulf Coast, home to the world’s largest cluster of refineries.

Last week, U.S. imports from Venezuela fell to 507,000 barrels a day, the lowest level in five months, according to data from the U.S. Energy Information Administration. The latest monthly data show that Citgo’s Gulf refineries took 176,000 barrels a day from Venezuela in May, the least since December.

Spokesmen at PDVSA and Citgo didn’t return emails seeking comment.

Other Refiners

Citgo’s not the only company looking north. U.S. refiners have also been on the hunt for alternative supplies amid concern that U.S. sanctions, currently aimed at Venezuelan nationals, may expand and target oil imports from the South American country. One Gulf refiner has started to test fuel oil from Russia and the Middle East and diluted bitumen from Canada as potential replacements, according to a person familiar with the matter.

Citgo is starting to feel the effects of falling oil output in Venezuela, exacerbated by 20 years of cash-for-oil deals signed with China, Japan, India and, most recently, Russia. Rosneft PJSC, which signed two long-term oil and oil product supply agreements, said it has made total prepayments for future oil supplies of about $6 billion. That leaves less oil to be processed by the refineries controlled by PDVSA.

The Venezuelan crisis isn’t only affecting the Citgo refineries. Venezuelan refineries are operating at less than half of their capacity. In Curacao, PDVSA’s Isla refinery has been importing light U.S. oil since last year to make up for lower domestic production of light grades.

Canadian Producers

While Venezuela hurts, Canadian producers seem to be finally out to catch a break. A reduction in Venezuelan imports may bolster the case for the Keystone XL pipeline, which would carry western Canadian crude directly to the Gulf of Mexico, Millington said.

Heavy crudes from Canada, Mexico and elsewhere have increased in value after OPEC and other producers capped output, reducing primarily supplies of less-expensive heavy crude. Western Canadian Select was $10.05 a barrel below benchmark U.S. West Texas Intermediate on Thursday, from a $16.15 discount at the end of 2016, according to data compiled by Bloomberg.

Higher prices for Canadian heavy crude would come at a welcome time for the industry, said Trevor McLeod, director of the Natural Resources Centre at the Canada West Foundation.

“The energy sector in Alberta is struggling a bit right now,” McLeod said in an interview. “They’d absolutely welcome a price increase.”

— With assistance by Sheela Tobben, Kevin Orland, Stephen Bierman, and Dina Khrennikova

 

 

 

Energy sector loses an ally with Brad Wall’s departure

Yedlin: Energy sector loses an ally with Brad Wall’s departure

DEBORAH YEDLIN, CALGARY HERALD

Published on: August 11, 2017 | Last Updated: August 11, 2017 6:05 AM MDT

wall
FILE PHOTO: Premier Brad Wall speaks with members of the media following the 2017 budget speech at the Legislative Building in Regina Wednesday, March 22, 2017. THE CANADIAN PRESS 

The energy sector is one year away from losing a passionate and articulate advocate.

Saskatchewan Premier Brad Wall took the political world by surprise on Thursday, announcing he will be retiring from politics.

The reaction from Canada’s energy sector could only be described as one of collective disappointment, though many expressed views that he will continue to be active and effective in a different role, once he determines what that should be.

Wall was the outspoken advocate — the guy who wasn’t afraid to link economic growth driven by natural resource development, talk of its importance not just to the province of Saskatchewan but to the entire country.

He got competitiveness. He understood the challenges faced by the oilpatch and the need for gaining access to new markets. He didn’t care for a carbon tax — and was very outspoken on what the implications were for trade-exposed industries.

His pronouncements on the subject of a carbon tax were received as positive by some, but not all; there was a sense that Wall was out of step with what was taking place on carbon pricing — not just in Canada but around the world.

That said, there is no denying he was — and is — passionate about his province and his country.

“He understood the economic pillars of Alberta, Saskatchewan and British Columbia in an unusually experienced way … if it made sense, he’d stand up for the economic interests of Western Canada,” said Ken Hughes, former Alberta natural resources minister.

That’s why, when he was honoured by the Fraser Institute last November at a dinner in Calgary, he was welcomed and thanked with two standing ovations.

The master of ceremonies, Andrew Judson, went as far as proposing a trade of sorts that evening: Wall in exchange for a number of Calgary-based but Saskatchewan-born business leaders, including Murray Edwards, Brett Wilson and Grant Fagerheim.

“He was the only credible politician in my mind, in Canada, defending logic and reason on issues around climate change, on issues around the economy, around energy, around pipelines around competing with that other nation to the south,” said Wilson on Thursday. “He was the sole voice of reason in office.”

The news hit the same day as the B.C. government said it was seeking intervener status on the Trans Mountain Expansion project and it dramatically underscored the differences between the governments of B.C. and Saskatchewan.

Where one province thinks about the impact on the country, the other does not.

There is more than a wee bit of irony in the fact that the steel being used in the construction of the TME project will be coming from a mill in Regina.

In other words, energy development is not province-specific, neither when it comes to benefit nor when it comes to risk.

“I don’t think we have had a better advocate, across jurisdictions, that’s been able to build bridges for the betterment of the country since Peter Lougheed,” said Don Chynoweth, president of SNC Lavalin O&M Logistics.

On a provincial level, Wall has taken the approach — not unlike Lougheed — of the province coming first and the party second; if the government looked after the electorate during its mandate, it would be re-elected.

The current president and chief executive of the Canadian Association of Petroleum Producers, Tim McMillan, served as the minister for energy and resources under Wall.

“I had the pleasure to work with him for seven years,” said McMillan. “He was a very disciplined politician. He was clear it was your job to serve the citizens of Saskatchewan from whom you would be asking for support in the next election. He was unabashed in his belief that growth was important — not for growth’s sake but that growth allowed governments, his government, to invest in health care, social programs and in the people who needed it most.”

He was very good at tying the growth to the ability to provide services to the citizens of Saskatchewan.

“As premier, he represented everyone,” said McMillan.

And that included the energy sector when it needed a strong voice on the national stage.

McMillan said Wall was proud of Saskatchewan’s contribution to Canada’s energy sector and that he wanted to see it grow.

The fact Wall was unambiguous in wanting to see Saskatchewan as a place for energy companies to invest, meant there was certainty at a time when other provinces, such as Alberta, were changing policies.

For Scott Saxberg, president and CEO of Crescent Point Energy, the certainty provided by the investment climate in Saskatchewan — because the rules didn’t change — has been very important to his company through the years.

Equally important, said Saxberg, is the fact the province is willing to deal with industry — and companies — directly, as issues have surfaced; it’s an approach, he said, that’s not necessarily followed in other jurisdictions.

But it was during his first term as premier that Wall faced a big test: that would have been the hostile takeover bid for Potash Corp. by Australia’s BHP.

After much consultation — that included significant time with former Alberta premier Peter Lougheed — Wall came out against the bid, making a strong case for leaving Potash as a Canadian-owned company.

“That was a turning point for Saskatchewan because the province did not lose an important industry to a foreign player,” said Chynoweth, who has known Wall since 1989 when he worked for Chynoweth as a summer student in Saskatchewan.

Wall’s work on behalf of Canadian companies — mostly natural resources and agriculture —  has extended south of the border, where he has played an important role in maintaining and expanding trading relationships through the complexity of changing administrations.

But there is one area, however, where the nationalism goes out the window and it becomes all about Saskatchewan: football.

Nothing comes between Wall and a Saskatchewan Roughriders game. So in that context, it’s a good thing he has a year before he steps down. By then, the Riders might have figured out how to play a decent game.

 

Economic Impacts of Canadian Oil and Gas Supply in Canada and US (2017-2027)

Economic Impacts of Canadian Oil and Gas Supply in Canada and US (2017-2027)

DOWNLOAD EXECUTIVE SUMMARY HERE OR THE FULL REPORT HERE 

CERI’s new report investigates the economic impacts of oil and gas supply on the Canadian and US economies.

The longest undefended border on the planet runs 8,891 kilometers and is shared between Canada and the United States, the second and fourth-largest countries, respectively. These two countries not only share the longest international boundary, but the largest bilateral trading relationship in the world with trade totaling CAD$752 billion at the end of 2016. Canadian exports to the US at end-2016 were CAD$392 billion and imports from the US were CAD$360 billion – and these totals don’t even include foreign direct investment between Canada and the US.

This study examines the economic impacts of the Canadian oil and natural gas industry on both Canadian and the US economies. This study is particularly timely, given the US administration’s mid-May 2017 notification to Congress and trading partners that it plans to renegotiate the NAFTA, effectively starting the 90-day countdown to renegotiations.

Total economic impacts from investment and operations of Canadian oil and gas projects contribute to economic growth and employment in both countries. Capital investment of CAD$380 billion and operational revenues of CAD$1.8 trillion from Canadian oil and gas projects over an 11-year period will generate CAD$2.7 trillion in Canadian GDP and 6,572 thousand person-years in Canada and US$45.6 billion in the US GSP and nearly 406 thousand jobs in the US.

CERIimpact report Aug 2017 1CERIimpact report Aug 2017 2

Fast Facts

  1. Canada and the US share the world’s largest bilateral trading relationship, with trade totaling CAD$752 billion at the end of 2016.
  2. A significant component of Canada’s exports to the US is the export of crude oil, crude bitumen and natural gas.
  3. Any out-of-Canada spending by the Canadian oil and gas sector implies a spill-over effect, that can be attributed to the development of Canadian oil and gas resources.
  4. Total economic impacts from investment and operations of Canadian oil and gas projects contribute to economic growth and employment in both countries.
  5. Capital investment and operational revenues from Canadian oil and gas projects over an 11-year period will generate CAD$2.7 trillion in Canadian GDP and 6,572 thousand person-years in Canada.
  6. Total US impacts: US$45.6 billion GSP and 405,833 jobs. US top ten states are revealed in the study.

 

 

 

Canada’s oil drillers boosting capital spending as industry activity improves

Canada’s drillers boosting capital spending as industry activity improves

August 9, 2017

http://www.jwnenergy.com/article/2017/8/drillers-boosting-capital-spending-industry-activity-improves/

 Ensign drilling

Image: Ensign

Ensign Energy Services has joined other Canadian oilfield services companies announcing higher capital spending programs as North American activity levels improve.

Ensign cited “cautious optimism” about commodity prices and stronger demand for oilfield services this week, boosting its 2017 capital budget to the $90-to-$95 million range from $61 million.

The increase will fund construction of one new 1500-series, ADR (automated drilling rig) for the United States, one new series-1,000 ADR for Canada, the purchase of a “new heavy-Permian type” service rig and enhancements to the company’s super-spec fleet.

Both the new ADR 1500 rig and the new ADR 1000 are expected to go to work in the third quarter.

The drilling contractor said that the process of converting its drilling fleet to high-specification, high-quality ADR drilling rigs is delivering greater market share in all areas of its business.

Ensign’s revenue was 32 per cent higher in the second quarter than last year’s figure and 11 per cent higher in the year to date. It also narrowed its net loss in the quarter to $33.81 million.

Similarly strong second quarter results prompted both Precision Drilling and pressure-pumping company Calfrac to boost their capital spending programs.

Precision Drilling has increased capital spending to $138 million for this year, up from $119 million planned previously, based on stronger North American activity levels and higher day rates in its international drilling division.

Precision’s total revenue in the second quarter jumped 68 per cent to $276 million from $164 million a year ago.

“Demand for our Pad Walking Super Triple rigs remains strong in all of our North American markets,” said Kevin Neveu, Precision’s chief executive, in a statement.

Precision also reported a 120 per cent jump in its Q2 drilling rig utilization days in Canada. In the United States, the increase was 143 per cent.

Calfrac also responded to the ramp up in industry activity recently by boosting its capital budget to $65 million from $45 million.

In the second quarter, Calfrac’s revenue more than doubled to $325.34 million from $150.61 million in last year’s period.

Calfrac also narrowed its net loss in the quarter to $20.35 million as it rode the wave of stronger activity in Canada and the United States, management said.

 

 

 

Mining industry can now predict opposition to projects before it’s too late

Mining industry can now predict opposition to projects before it’s too late

Cecilia Jamasmie

August 7, 2017

Mining.com

It’s sounds too good to be true, but a new company is proving miners they can foresee opposition or any other form of social conflict related to their projects, before they even attempt going through a licencing process.

Chalkstone, a UK-based company founded by Donald Bray, a political anthropologist and academic at the University of Cambridge, bases its success in a very unique method, applying what’s known as “granular social intelligence.”

“We take a systemic approach and mix methodologies, combining big data and quantitative analysis with ethnography, qualitative interviews and focus groups, all of which help us dig deep into particular issues and accurately define the social stance of a target group,” Bray explains on the phone from his home in Paris.

“We are not interested if the community is, in any way, being taken advantage of” — Donald Bray.

Before going further, he’s quick to note that the goal of his company is not just to help mining companies get what they want, but to assist them in building mutual trust with the groups living in the areas in which they operate.

“We are not interested if the community is, in any way, being taken advantage of,” he says. “Our due diligence runs in a number of different directions.”

The expert, with more than 15 years of experience working across the globe, particularly in conflict zones, is not saying mining companies are the “bad guys” in the story.

“It’s not that firms don’t care about CSR [corporate social responsibility] or don’t want to invest in it. The problem is that most tools currently available don’t really help them grasp the human aspect of their projects,” he says.

Donald Bray
Donald Bray, Chalkstone founder.

 

Half of all risks faced by extractives companies are non-technical ones, which in turn account for nearly 75% of all projects delays. “For a mid to large sized mining company, the costs of these delays (socio-political and community risks) can add up to some $20 million a week,” says Bray. “This is huge and it deserves far more attention than mere box-ticking or forms of corporate philanthropy.”

Chalkstone already has a known success story under its belt. After an intensive study on a ruby mine and a copper deposit in Afghanistan, applying counter-insurgency tactics used by deployed troops, Bray was hired in 2015 by Gemfields (LON:GEM), the world’s largest emerald and ruby miner. At the time, the precious gems firm had committed to building an emerald mine in Colombia.

Part of Chalkstone’s work to help Gemfields enter the market was the creation of a communications platform based in text messaging, which allowed the mining company and local communities to talk freely to one another.

Named by the community as “Suna Verde” (meaning “Green Pathway” in the Muisca aboriginal language), the system kept locals updated on everything from job-training initiatives to when the “health brigade” (a team of doctors and nurses that travel around the countryside) would be in each village. Soon, says Bray, Suna Verde was rivalling the radio as the region’s main source of news and other information.

“The experience showed us that communities want jobs, roads, hospitals and clinics, schools, and any other benefit offered by mining companies, but they want to be actively involved in their decisions. They don’t want to be just beneficiaries of someone else’s goodwill,” says Bray. “This is one of the most important lessons I’ve learned and which is transferrable to almost any community in the world.”

During the first months of work for Gemfields in Colombia, Chalkstone warned the company there was opposition brewing for another international mining firm in the region. Only four months later, that miner was hit by protests and even armed attacks.

“When you invite thousands of voices into a conversation, you need to be prepared for dissenting opinions (…) By listening to all of them, you’re able to get in front of the risks. That’s what happened in Colombia… we were able to see things that you wouldn’t normally see and we told Gemfields about it.”

While Gemfields decided in May to leave Colombia and Sri Lanka to focus on its African projects, the fact the company didn’t face hostility from community members is a testament to Chalkstone’s work, says Bray.

The company, currently involved in mining and oil and gas projects in East Africa, as well as a new venture in Colombia, believes its novel approach could also be useful to investors.

“Given that nearly 66% of shareholder value in a junior miner is linked directly to socio-political and community risks, according to some calculations, investing in understanding the social environment in which a miner will operate shouldn’t be an afterthought or something people turn their minds to only when times get tough,” Bray warns. “Trust is valuable,” he concludes.

These are a few examples of conflicts an approach such as Chalkstone’s could have prevented:

    • The Tsilhqot’in National Government and Taseko Mines (TSX:TKO) are scheduled to face off in a Canadian court Monday, marking the latest stage in a long-running battle over a proposed open-pit mine the company wants to build near Fish Lake, also known as Teztan Biny.
    • Latin America-focused Tahoe Resources (TSX:THO)(NYSE:TAHO ) saw its shares collapse in July after Guatemala revoked the mining licence for its flagship Escobal mine, due to a long-running dispute with local groups.
    • Also in July, Canada’s Gabriel Resources (TSX:GBU) decided to sue Romania for $4.4 billion in alleged losses over its long-stalled Rosia Montana gold and silver project, which the government of that country refused to approve following relentless protests.
    • A few days before, Canada’s Gran Colombia Gold (TSX:GCM) decided to take the Colombian government to court for forcing the company to halt operations at its Marmato project until further consultation with locals has been conducted.

 

Carbon tax created higher fuel prices in Alberta

Aug 4, 2017

If you go to https://www.gasbuddy.com/Charts you can create charts on average fuel prices by city, province, etc., over any duration you want.

Alberta introduced a carbon tax on January 1st, 2017.

If you look at the average Alberta vs. Saskatchewan fuel price for the past year, the Alberta price went above Saskatchewan for the first time in decades with the introduction of the tax.

Here is the past year’s chart:

Avg gas AB vs SK past year

Here is the past 8-years’ chart:

Avg gas AB vs SK past 8 years

Further study reveals that Alberta went from being on average about 6-10 cents per litre cheaper than Saskatchewan, to 6-10 cents per litre more than Saskatchewan.  So, about a 12-20 cent per litre change in fuel price.

Global Costs Per Barrel of Oil Comparison

Barrel Breakdown

The cost of producing a barrel of oil and gas varies widely across the world, setting up winners and losers as the price of crude fluctuates at historically low levels.

By WSJ News Graphics

Last updated April 15, 2016 at 2:30 p.m. ET

http://graphics.wsj.com/oil-barrel-breakdown/

price per barrel 1

The world has changed for oil producers. When crude-oil prices were more than $100 a barrel just two years ago, the ensuing profits were huge, filling government coffers and swelling company earnings. Now prices barely cover the average cost to get the oil out of the ground in places like the U.K. Additional expenses, like taxes on profits, mean that the actual breakeven price for many projects is higher, and newer and more complex projects generally fall well above the average cash cost of production. Oil-producing nations from Saudi Arabia to Norway are reining in spending while big energy firms like Royal Dutch Shell PLC and Chevron Corp. have made deep spending cuts and laid off thousands of workers. Here’s a look at the average cost of producing one barrel of oil—42 gallons—in a dozen nations.

price per barrel 2

Norway

Capital spending: 64.6% of barrel cost

Much of Norway’s remaining resources lie in remote waters and are more difficult to extract or are further from existing infrastructure and markets, resulting in higher development and transportation costs. However, the region hasn’t been in production for as long as oil and gas fields in neighboring U.K. waters, so there are still substantial resources left to extract.

Gross taxes $0.19 0.9%
Capital spending $13.76 64.6%
Production costs $4.24 19.9%
Admin/transport $3.12 14.6%
Total $21.31

Nigeria

Capital spending: 45.2% of barrel cost

Nigeria is Africa’s largest oil producer, but frequent incidents of sabotage and oil theft have hindered the sector onshore. Many newer projects are focused offshore, where production is more secure but the capital investment required is higher. Earlier this year Royal Dutch Shell PLC said it would delay a decision to progress a deep water project.

Gross taxes $4.11 14.2%
Capital spending $13.10 45.2%
Production costs $8.81 30.4%
Admin/transport $2.97 10.2%
Total $28.99

U.K.

Capital spending: 51.1% of barrel cost

The U.K. has some of the highest production costs in the world as the oil and gas is offshore in deep stormy waters. The region has been in production since the 1970s and remaining resources require more costly technology to extract, while aging infrastructure such as pipelines, production hubs and terminals require constant maintenance and upgrades.

Gross taxes $0 0%
Capital spending $22.67 51.1%
Production costs $17.36 39.2%
Admin/transport $4.30 9.7%
Total $44.33

 price per barrel 3

Canada

Production costs: 43.4% of barrel cost

Most production growth in Canada comes from oil sands deposits in the remote boreal forests of northern Alberta, which have some of the industry’s highest capital costs and longest development timelines. Canada’s oil sands represent the third largest reserves in the world after Saudi Arabia and Venezuela, but its crude trades at a substantial discount to other North American grades due to its low quality and limited pipeline access to market. Canada also produces declining amounts of crude oil from conventional, shale and deepwater Atlantic wells.

Gross taxes $2.48 9.3%
Capital spending $9.69 36.4%
Production costs $11.56 43.4%
Admin/transport $2.92 11.0%
Total $26.64

Indonesia

Production costs: 34.9% of barrel cost

Twenty-five years ago Indonesia produced close to 2 million barrels of oil a day, but production has fallen and many of its aging fields require investment to enhance recovery. New opportunities are generally more technically challenging and costlier. Tough government policies have also discouraged investment, though more recently the government has sought to introduce more generous terms.

Gross taxes $1.55 7.9%
Capital spending $7.65 38.8%
Production costs $6.87 34.9%
Admin/transport $3.63 18.4%
Total $19.71

U.S. non-shale

Production costs: 24.5% of barrel cost

Drilling in the U.S. Gulf of Mexico has migrated from shallower depths to deep water, sending production costs surging as companies plumb reservoirs thousands of feet below the water’s surface. Oil production in the region peaked in 2009 at 1.56 million barrels a day, before declining for several years. However, output surged last year to 1.54 million barrels a day as several long-awaited projects came online.

Gross taxes $5.03 24.0%
Capital spending $7.70 36.7%
Production costs $5.15 24.5%
Admin/transport $3.11 14.8%
Total $20.99
 price per barrel 4

Saudi Arabia

Administrative/transportation costs: 27.7% of barrel cost

Saudi Arabian crude is some of the cheapest in the world to extract because of its location near the surface of the desert and the size of the fields. That makes transporting those barrels an outsized piece of its costs, on a percentage basis, compared with countries where production costs are 10 to 20 times as high.

Gross taxes $0 0%
Capital spending $3.50 38.9%
Production costs $3.00 33.4%
Admin/transport $2.49 27.7%
Total $8.98

Iran

Administrative/transportation costs: 29.4% of barrel cost

Iran is trying to revive its oil industry after more than three years of sanctions crippled its ability to export, and the country has a big advantage over many of its peers: Its oil is very cheap to produce. The Islamic Republic’s output jumped 310,000 barrels a day in February compared with two months earlier after restarting exports to the European Union, according to the International Energy Agency.

Gross taxes $0 0%
Capital spending $4.48 49.3%
Production costs $1.94 21.4%
Admin/transport $2.67 29.4%
Total $9.08

Iraq

Administrative/transportation costs: 23.4% of barrel cost

Extraction of oil in Iraq, the second largest producer in the Organization of the Petroleum Exporting Countries, is in theory also very cheap but there are political and security challenges that add to its transportation and administrative costs. The country is fighting a war with Islamic State on its western flank, and has lost some oil fields to the militant group. Iraq has still managed to ramp up production to record levels last year.

Gross taxes $0.91 8.6%
Capital spending $5.03 47.5%
Production costs $2.16 20.4%
Admin/transport $2.47 23.4%
Total $10.57

Norway

Cost of producing a barrel of oil

Gross taxes $0.19
Capital spending $13.76
Production costs $4.24
Administrative/transportation costs $3.12
Total $21.31

Source: Rystad Energy UCube

 price per barrel 5

Venezuela

Gross taxes: 37.9% of barrel cost

Despite holding the world’s largest oil reserves with 298 billion barrels, Venezuela’s output has been declining in the past two years because of lower investment in its costly heavy crude reservoirs. The Latin American nation produced 2.37 million barrels a day in February, a drop of 90,000 barrels a day compared to its 2014 average, according to the International Energy Agency. Taxes in Venezuela remain among the highest in the world at 50% of profits for foreign companies, though they have fallen from 95% when oil prices were above $100 a barrel.

Gross taxes $10.48 37.9%
Capital spending $6.66 24.1%
Production costs $7.94 28.7%
Admin/transport $2.54 9.2%
Total $27.62

Russia

Gross taxes: 43.9% of barrel cost

Russian oil is among the cheapest in the world to pump thanks to plentiful onshore resources, cheap labor and a well-developed network of pipelines, processing plants and other infrastructure. But the government tax take is levied at the wellhead and on exports, pushing up the costs of producing a barrel.

Gross taxes $8.44 43.9%
Capital spending $5.10 26.5%
Production costs $2.98 15.5%
Admin/transport $2.69 14.0%
Total $19.21

Brazil

Gross taxes: 19.0% of barrel cost

Brazil’s oil production fell in January by 180,000 barrels after investments in its costly deep offshore basin were hit by low oil prices and a corruption scandal. In January, the country’s state oil giant Petrobras cut its five-year investment plans through 2020 by $32 billion to $98.3 billion. The South American powerhouse has opted for a fiscal middle ground with a corporate income tax at 34% for producers, lower than Venezuela but higher than Colombia’s 25%.

Gross taxes $6.66 19.0%
Capital spending $16.09 46.0%
Production costs $9.45 27.0%
Admin/transport $2.80 8.0%
Total $34.99

U.S. shale

Gross taxes: 27.5% of barrel cost

After years of declining output, the U.S. oil and gas industry was revived by the shale boom, which kicked off amid the Great Recession and gained steam after 2008. Advances in technology—notably, the combination of horizontal drilling and a technique known as hydraulic fracturing—allowed companies to tap vast amounts of oil and gas trapped in dense rock formations. Oil and gas taxes vary by state in the U.S., with many imposing a production or extraction tax, or otherwise using the market price of oil or gas to tax output on a specific well. Some levy impact fees or charge companies as they drill new wells.

Gross taxes $6.42 27.5%
Capital spending $7.56 32.4%
Production costs $5.85 25.1%
Admin/transport $3.52 15.1%
Total $23.35

Note: An earlier version of this graphic displayed incorrect labels for the cost to produce a barrel of oil when hovering over the bars on each chart. This version has been corrected. (April 15, 2016)
Source: Rystad Energy UCube

 

 

 

Drilling forecast up 44% as southeast Sask. rebounds

Drilling forecast up 44% as southeast Sask. rebounds

Regina / 980 CJME

oil pump jack

August 03, 2017 11:25 am

There’s good news for the province’s oil industry, particularly in the southeast.

More than $6 million in Crown petroleum and natural gas rights were sold in southeast Saskatchewan this month, out of a total of $8 million in total rights sales for August.

The province said this is the third sale of the current fiscal year for a total of $32 million for 2017-18.

The province also pointed to an update in the Petroleum Service Association of Canada’s (PSAC) 2017 Canadian Drilling Activity Forecast calling for 2,794 wells to be drilled in Saskatchewan, up from its original forecast of 1,940 wells.

“These figures, along with positive expectations by industry, suggest our oil and gas sector is regaining momentum after a prolonged period of transition,” Energy and Resources Minister Dustin Duncan said in a media release. “There’s no doubt that this kind of renewed activity in Saskatchewan’s oil patch bodes well not only for our communities that rely on this industry for jobs and growth, but also for our economy at large.”

The province said six exploration licences southwest of Radville received bonus bids this week, totaling $1,605,454.05 for 17,612.02 hectares.

The next public offering of petroleum and natural gas rights is on Oct. 3, 2017.

 

 

 

Enbridge pipeline replacement has begun construction in Sask. = 1,000s of jobs

Enbridge pipeline replacement has begun construction in Sask.

ALEX MACPHERSON, SASKATOON STARPHOENIX
ASHLEY MARTIN, REGINA LEADER-POST
Published on: August 3, 2017 | Last Updated: August 3, 2017 5:48 PM CST

 

Enbridge pipeline assembly

Workers assemble an Enbridge pipeline near Hardisy, Alberta. JASON FRANSON / THE CANADIAN PRESS

 

An Enbridge Inc. pipeline project spanning roughly 600 kilometres across Saskatchewan has begun construction and is expected to create thousands of jobs before it’s completed in 2019.

Canada’s biggest pipeline operator says it plans to spend $5.3 billion on the largest project in its history, which involves replacing its Line 3 pipeline running from Hardisty, Alta., to Gretna, Man.

The new, 36-inch-diameter pipeline will be adjacent to the original, which was constructed in the 1960s of steel pipe wrapped in epoxy tape. The original will be decommissioned in late 2019 — purged of crude, cleaned and filled with nitrogen so the pipe doesn’t buckle.

“The safety of our system and the safety of this pipeline is the primary reason for undertaking this work,” said Guy Jarvis, Enbridge’s vice-president of liquids pipelines.

“It also means that we don’t have to continually be working on our right-of-way, disturbing land owners and communities to do all of the maintenance work that’s required on the existing line.”

“There’s been significant advancements in terms of the pipeline coatings.”

Work on the project’s initial phase began Thursday and includes 405 kilometres of new pipeline in Alberta and Saskatchewan, ending in Loreburn, 47 kilometres east of Davidson.

The second piece will run from Rosetown to west of Regina.

The project as a whole is expected to create more than 7,800 direct and indirect jobs in Saskatchewan, plus financial spinoffs and tax revenue.

Jarvis said “virtually all” of the steel used in the project is coming from Evraz North America Ltd.’s facility in Regina, and about half of the 1,600 people working on the project this summer will be based in Saskatchewan.

Jarvis said Enbridge extensively engaged with landowners and indigenous communities on the project.  The company estimates the Line 3 replacement will benefit indigenous communities to the tune of $50 million in 2017.

“We want these indigenous communities included, to have opportunities to participate in the business opportunities and the jobs that come from this project,” Jarvis said.

The cost of the Line 3 project has risen by nine per cent since it was announced in 2014. Jarvis said it will be funded through a surcharge on the toll oil producers pay to transport crude through the “common carrier” line once it’s completed.

Asked whether the project represents an attempt by the Calgary-based company to preserve its market share in the face of projects like TransCanada Corp.’s proposed Energy East pipeline, Jarvis replied, “not directly.”

“I think this is about the replacement of this pipeline. We know that being safe is our top priority (and) it’s important to us that this line get replaced,” he said.

This is the second billion-dollar oilfield project announced in the province recently. Late last year, Husky Energy Inc. said it plans to spend $1 billion on three new steam-assisted heavy oil extraction plants in west-central Saskatchewan.

The Line 3 pipeline continues south of the U.S. border, through North Dakota, Minnesota, and ending in Superior, Wisc.

 

 

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