Canada: FMC’s Overview of Significant Developments in the Canadian Energy Industry (July 2005)

Article by Doug Black, Q.C., Bill Gilliland, Nick Kangles, Alex MacWilliam, Miles Pittman, Francis Saville, Q.C. and Karim Mahmud

Imperial Oil and Exxon Mobil are planning to invest as much as $6.5 billion into an expansion of their oil sands operations near Kearl Lake, north of Fort McMurray. The planned expansion will result in 300,000 bpd of bitumen once fully operational by 2018, with 100,000 bpd flowing as early as late 2010. Once complete, the project’s capacity will be almost one-third of the region’s total current daily output of about 1 million bpd. Plans for the expansion include an upgrader and transportation of the product to either the Imperial Refinery in Edmonton or to the United States for refining and sale to consumers. (See number 1 on map)

Terasen has applied to expand its Trans Mountain pipeline from 225,000 bpd to 260,000 bpd of oil. The $210 million project is the prelude to what could be a much larger expansion of the system, transporting Alberta oilsands crude to the west coast of British Columbia. Total capacity of the pipeline could exceed 800,000 bpd of oil. The initial expansion, for which plans have been filed with the National Energy Board, is scheduled for completion in early 2007. (See number 2 on map)

Houston-based, Kinder Morgan, positioned itself to capitalize on production growth in Alberta’s oilsands region by agreeing to buy Terasen for $6.9 billion. (See number 1 on map)

Husky announced it will determine its oilsands restructuring plans once it receives approval for its Sunrise oilsands project. Such approval is expected in late 2005 or early 2006. At that time, Husky will announce its decision to either maintain control of its oilsands projects or have them dealt with by an independent company in which Husky would keep a stake. Such projects include the $500 million Tucker Lake project which is slated to start producing 30,000 bpd of bitumen in late 2006 and the Sunrise project which is projected to produce 50,000 bpd of bitumen in 2009, rising to 200,000 bpd by 2014. (See number 1 on map)

BA Energy has received regulatory approval to build its Heartland Upgrader, a $1.8 billion facility to process raw bitumen from the Alberta oilsands. The company is pushing ahead to raise funds through a private placement scheduled to close in August 2005 and is readying itself for an initial public offering in early 2006. (see number 1 on map)

The company hopes to see the upgrader process 50,000 bpd of bitumen by late 2007 and 226,000 bpd by 2011.

Enbridge announced the proposed route for its $3.6-billion Gateway pipeline. The route takes a northerly pathway south of Grande Prairie, Alberta, through northeastern British Columbia to the northwest coast. The 1,200 kilometre pipeline is intended to carry oil from Alberta oilsands to either Prince Rupert or Kitimat, British Columbia, for export to Asian or American markets. The pipeline’s projected capacity is 400,000 bpd, which would be approximately 20% of the oilsands output in 2010. The pipeline would also carry condensate, used to dilute heavy oil to make it easier to transport by pipeline, back along the same route. The company is currently negotiating with Alberta oilsands producers and hopes to have commercial arrangements complete this year. If achieved, Enbridge would be on schedule to have the pipeline in place by 2009 to early 2010. Enbridge is also conducting environmental, engineering and land field studies in preparation for a possible regulatory application for the pipeline. (see number 3 on map)

The Joint Review Panel conducting an environmental review of the proposed $7 billion Mackenzie Valley natural gas pipeline has determined it has sufficient information to proceed to the public hearing phase. The major issues to be considered have been identified and can be addressed in the hearings which should reveal and address any new information that may affect its recommendations. The Panel expects to be in a position to set a detailed schedule of public hearings by late September 2005. At this point the panel has decided not to convene technical conferences prior to the beginning of the hearings. The proposed timing is expected to bring the environmental review process into alignment with the National Energy Board process. As well, an agreement between the Canadian government and First Nations groups has removed one of the road blocks to the pipeline. The settlement agreement, totalling $500 million over 10 years, co-operatively resolved issues related to the successful initiation of the project. The pipeline proponents (Imperial, Shell Canada, and ConocoPhillips) are now actively negotiating access and benefit agreements with the six First Nations groups holding land along the pipeline route. (See number 4 on map)

Maritimes & Northeast Pipeline has signed agreements with Anadarko Petroleum, to transport 793 mmcfpd of natural gas from the Bearhead LNG Terminal near Point Tupper, Nova Scotia, and with Repsol YPF, to transport 731.7 mmcfpd of natural gas from the proposed Canaport LNG Terminal near St. John, New Brunswick. These two contracts would more than double the volume carried on the pipeline. M&NP will now start work on a detailed engineering design and stakeholder consultation for a system expansion, and expects to apply to the National Energy Board and the Federal Energy Regulatory Commission by early 2006. M&NP is owned by affiliates of Duke Energy (77.5% interest) Emera (12.9%) and Exxon Mobil (9.55%). (see number 5 on map)

Marauder Resources East Coast has executed a farm-in agreement with Encana to participate in the drilling of an exploration natural gas well located offshore Nova Scotia. Encana is the operator of the license on which the proposed well will be located. The well will evaluate a prospect along trend with the Deep Panuke natural gas discovery, where existing wells have production tested at rates in excess of 50 mmcfpd. (See number 6 on map)

Vulcan Minerals has purchased a drilling rig. Following rig-up and final drilling permit approvals, drilling will commence on a multi-well program to test a variety of geologic targets within the Bay St. George Basin, onshore western Newfoundland. (See number 7 on map)

Corridor Resources has commenced drilling operations at the Chaloupe well on Anticosti Island. The well is being drilled to evaluate and test the potential for light crude oil in the Trenton-Black River formation, which has the potential to contain in excess of 100 mbbl of recoverable light oil. (See number 8 on map)

• Husky expects first oil production from the White Rose offshore oil project before year-end.

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