In 2013 and 2014 the price gap between WCS oil (Canadian Select) and WTI (Texas oil) increased in percentage terms after having narrowed in late 2012 to under $12; it held steady at $17-$25 in the first half of 2013. Over the entire 2011 year, the gap narrowed by 11%. Also to consider is European Crude (brent crude) which exceeds WTI by $20 to $30. A widening spread means that Canadian oil is harder to market, either because of transportation issues (train and pipeline capacity) or other effects: refinery utilization rates / Whiteing Indiana refinery shut downs. update - on January 14, 2015 the price gap stood at $13.90 (30% difference) which is relatively high when you consider that oil prices halved over the past year Jan 2014 $92.72 vs Jan 2015 $46.96. wti price of $46 in January is down from an average of $73.14 in 4Q of 2014.
Positive influences: 1. Enbridge reversing the direction of oil flow through its Seaway Pipeline (Oklahoma--> Gulf Coast 1.4 mbpd) which made it easier for buyers to access Canadian oil/reduced supply glut (as a result, WTI price revised upwards to $118 at JP Morgan). 2. Better heavy crude oil conversion in PADD II (Petroleum Administration for Defence Districts II in North-Central USA, the location of refineries which process over half of Canada's oil). 3. a wider gap provides powerful incentive for companies and governments to build the infrastructure needed to transport the oil to regions that earn a higher return. In Canada, spending by oil companies accounts for 3% of gdp. Negative influences: lack of refineries in western Canada, lack of pipelines from Western to Eastern Canada, New England.
Alberta oil production becoming more energy efficient: In 2013 Cenovus Energy's Christina Lake project required 1.8 barrels of steam to produce 1 barrel of oil, that's down from 1.9 barrels in 2012. One way Canadian companies are lowering energy requirements is by mixing the steam with butane, more oil output per barrel of steam: lower steam to oil ratio.
Canadian oil price differential expected to remain under $20 for the foreseeable future, well into 2016. A couple reasons for this
- Enbridge to triple capacity of one of its US pipelines running through Wisconsin by adding more piping stations: from 400,000 bpd to 1.2 million bpd. This will significantly impact North Dakota's oil industry since 60% of its oil output is currently being moved by rail. Enbridge has also proposed another pipeline: Sandpiper (225,000 bpd to Minnesota + 375,000 bpd to NW Wisconsin).
- Major refineries in the US upgraded to handle more heavy Canadian crude (including ones run by British Petroleum)
- Big glut of supply in Wisconsin may be relieved when portions of the Keystone pipeline come online.
- Southern leg of Keystone Pipeline that runs to Cushing, Oklahoma began operating January 22, 2014
- Trans Mountain pipeline from Edmonton to Burnaby, recently tripled its capacity from 300th to 890th.
Facts: 44% of crude oil processed at Canadian refineries comes from international sources, something that's bound to change given that much of the foreign oil is purchased at higher prices than oilsands oil and that oilsands producers are in need of Eastern Canada's oil refining capacity. 2013 - Imperial Oil closes its 70th boe/d Dartmouth refinery.
2014-2035: Canadian oil output to increase 75% to 5.8m bpd, according to NEB report. This Over the same timeframe Canadian demand up +28%, 20% lower due to efficiencies in per unit economic output. Jobs in Canada tied to oil sands to increase 75,000 -> 900,000 over 25 years - remember oil production also growing in Saskatchewan and East Coast.
Cenovus Energy, one of the largest in terms of total resource (140 billion boe) is jointly partnered with ConocoPhillips at a number of projects; those projects are expected to double production over the next 4 years (2013 to 2017) with some of the boost coming from Narrows Lake. liquids capacity 2014 -> 2023: 435th -> 525th bpd. January 2014 proved reserves up +5% to 2.3b boe (bitumen accounts for 80%). from 3q2012 -> 4q2013 Christina Lake alone increased output from 42th -> 61,471 boe/d (up 47%). Royalties lowest at Christina Lake ($2.72/bbl in 2013, $2.32 4q) vs $3.34 Pelican / $5.72 oil sands. Imperial Oil is also heavily invested in the oil sands ($11b Kearl project). CVE Quick Analysis: Integrated oil company so crack spread affects earnings. 3% dividend yield, average valuation but high quality assets. TransCanada $12b Energy East Pipeline
Teck Resources - holds 20% share in Alberta's next mega oil project Fort Hills. The $13.5 billion project won't begin producing oil until 2017. The project is a joint venture between Suncor 40.8% (2P 1.2b barrels), Total 39.2%, Teck 20%. Teck is in a nice position too - has $2b cash with only $300m in debt due over next 3 years (as of Jan 2014), $2b credit facility.
Oct 21: Canadian oil companies absent from Brazil's massive offshore Libra oil field - oil field containing 12 billion barrels will be developed by Petrobras and a consortium of foreign companies including Shell, Total, CNOOC, China National Petroleum Corporation. Nov 2013: Carl Icahn ups stake in Talisman Energy to 6.96%.
Nov 7: Crescent Point Energy revises production guidance up ! 2013 average rate now estimated @119,000 boe/d (up from 118,500); exit year rate 124,000 boe/d (up from 119,000). Used 85% of $1.5b annual capex.
Husky Energy has presence in China : 3q2014 gas sales from the Liwan gas project in South China Sea 200-220 mmcfpd vs 180-200 in 2q2014. also Liuhua 29-1 field first production in 2018.
January 21, 2014 - Canadian Association of Petroleum Producers says oil companies will cut $23 billion in spending ($69-> $46b) due to low market prices - will result in loss of 120,000 bpd output 2016. Investments in oil sands expected to be $25b (vs $33b in 2015).
According to Meg Energy the Blend vs WTI % differential was 31.2% 2012 vs 23.5% in 2011. 2q2013 the differential fell to 27.1% from 31.6%. 3q2013 refinery crack spread plummets : $35 -> $16.
3q2014 penn west petroleum heavy oil average selling price plumments 14% $84->$72; light oil down only 5%. positives: long term debt down -27%.
Canada oil reserves @175 billion barrels -2013 US Energy Admin. DYK? 12% of US oil exports now condensate fuel. exports of this ultra light type of fuel oil used to be banned.
Risks to Canadian production: Leadership changes in Venezuela (211b boe reserves) and Mexico (11 to 22b boe) could potentially make them stable, efficient suppliers. This is because so far, politics have kept foreign investment out, making it difficult for companies to upgrade to the technology needed to develop their oil which like Canada's, is unconventional. 2006-2012 US imports: Mexico (-30%), Venezuela (-41% to 1.0m boe/d). November 8: asphalt company NuStar Energy ends oil contract with Venezuela (PDVSA) - 30,000 bpd lost represents 4% of US-Venezuela oil imports - replaced with Alberta naphthenic crude imported to East Coast by rail.
recommended oil stocks: CanElson Drilling Inc - operates land-based contract drilling rigs throughout North America. CVE:CDI - highest utilization rates in the industry. Canadian Oil Sands Ltd (cos) owns 36.74% of the Syncrude oilsands project - share of proved reserves total 1.8b barrels out of 4.8b total. Trouble with machinery (boiler/coker) cut 2013 annual production estimate from 105-115 to 97-100 million barrels. pembina pipeline : sole transporter of crude for CNRL and Syncrude.
August 14, 2014 - Encana makes fourth mega deal in a year ($6.8b total), becoming once again an oil and gas focused petroleum producer. One of only a handful of Canadian companies with major assets south of the border - latest acquired asset is located within the Eagle Ford Shale area of South Texas (light oil). Latest deal is worth $1.2 billion and gives Encana a big stake in Eagle Ford's 1.5 million bpd oil boom ; that 's a 50% increase in output in just one year ! (May 2013 - August 2014).
3q 2013: Talisman and PennWest lower output. PennWest outlines plan to sell $1.5-$2.0b of non core assets in order to reset balance sheet and reach sustainability ratios of 110%. 3q production down 17% to 133,712 bpd. total debt down $1 billion to $3.0b, capital expenditure down (3q $405m -> $55m, 9m $1053m ->$556m). North Sea asset sale to Chinese company cost Talisman 67th bpd net of royalties in 9m2013.
Meg Energy - During the month of January 2014, Meg transported 20% of its entire production by rail (6 trains 60,000 barrels each). This enabled it to transport the oil to North American refining regions where heavy oil commands a higher price.. as opposed to areas where there's a glut of supply .. oil gets sold at a discounted price. Meg 2014 results- 2P reserves 2497B half probable up 9.6%; production on track to reach 260th bpd by 2020. 2013 avg output 35,317 +6,644, 42,251 bpd in 4Q13 +9,959 net operating costs per barrel $10.01 +$0.03; royalties $3.14 +0.68; results were worst in the 4Q (transportation costs double @0.51/bbl, royalties lower @2.71 but oil price realized -$11 vs full year ($38.22 vs $49.28). revenue was highest in Q3 ($401.8m +88%).
State-owned CNOOC of China credits Nexen acquisition with 8% boost in 1h2013 earnings ($5.8b). 12.5% of first half oil output came from Nexen (24.8/198.1 million barrels). In the long-run, Calgary benefits from the deal - cnooc makes Calgary head office of North, South American operations. cnooc to list on Toronto Stock Exchange. In September 2013 China imported more oil than the US for the first time ever: China: 6.3mbpd (production 10.9mbpd vs consumption 4.6mbpd). USA: 6.1mbpd (prod 18.6mbpd vs cons 12.5mbpd).
December 2013 - US oil inventories -5.59m barrels vs -0.5m est. May 2014 -3.431m vs -0.271m est, +1.657m in April.
Quebec- Wind power not economically feasible. each job created costs $200th per year in subsidies but pays only $40th. this loss is passed onto consumers (-> 4.3% inflation in power rates)
data in the following tables comes from 2013, 2012, 2011 annual reports, 40-f filings, 10-k presentations, management discussion and analysis documents