PNN JAN 19 2018 by Pipeline News North

OUTLOOK: 7 oil and gas plays to watch in 2018 / page 4 JANUARY / FEBRUARY 2018

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B.C., Alberta power $800-million land sale resurgence; LNG could prove to be biggest story of 2018 as LNG Canada eyes possible FID later this year; costs pile up for Kinder Morgan as delays drag on; and Encana to continue Montney focus while AltaGas turns focus to propane export terminal

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ENTRY FORM FOR THE 15TH ANNUAL OILMEN’S HOCKEY TOURNAMENT IS OUT. Entries Limited to the ﬁrst 110 oilﬁeld personnel registered for draft. Locals must be paid members of The Oilmen’s Association. All teams are drafted from individual paid entries. Teams will be drafted on registration night. All Games to be played at the North Peace Rec. Center. Entries must be postmarked Feb 1st, 2nd, and 3rd, 2018. Entries will NOT be accepted prior to these dates and all entries after these dates will be viewed as late.

Entry fee $225.00 / player. All fees payable to Fort St John Oilmen’s Hockey Tournament Tournament includes 5 games, door prizes, 3 breakfasts, and 1 stag ticket. VISIT http://fsjpetroleumassociation.com FOR MORE DETAILS

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COMMENTARY

Carbon competitiveness and reducing emissions

lberta’s climate plan, with its new regulations, does not support working Albertans. The model makes assumptions that it will generate new investment in clean technology but doesn’t take into consideration it is putting investment at risk. Over the past decade Canada’s energy sector has evolved to become one of the most collaborative industries globally when it comes to environmental performance. Companies are working together to develop and share technology to make our world a better place. This has not been easy but it has been successful, and it has made Canada a leader. Unfortunately, the model the province has created doesn’t further break down barriers but encourages division from within. Its $440-million announcement for oil sands innovation pales in comparison to the $1.33 billion industry has already invested through Canada’s Oil Sands Innovation Alliance (COSIA). Over the past five years COSIA has developed 936 distinct technologies to reduce greenhouse gas emissions, minimize land impacts, and reduce water use. Instead of creating a divide, let’s work together to advance the 185 projects already underway.

In addition to COSIA, companies are today collaborating with groups such as the Petroleum Technology Association Canada and Clean Resource Innovation Network to develop environmental technology to change the face of our energy future. The province’s climate plan undermines the spirit of industry collaboration – the same spirit that has enhanced Canada’s reputation as one of

the world’s most responsible energy producers. This plan doesn’t only pit companies against each other but communities, as well. The model failed to make a distinction between the Athabasca, Peace River, and Cold Lake oil sands regions. Each is different – each with its own geology, therefore requiring its own technology and consideration. Cumulative costs undermine our international competitiveness at a time when our energy industry is already cost-constrained, and faces intense competition for investment globally. This model makes doing business in Alberta more difficult. There is a path forward. In the coming days, we can work with the Alberta government to make changes to its climate plan and find new ways to protect jobs, spur innovation, and attract the investment needed to make Alberta strong. We can achieve environmental protection and economic benefits for Alberta with the right government policies that protect our province, our resources, and our jobs. Tim McMillan is President and CEO of the Canadian Association of Petroleum Producers

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OUTLOOK

PNN MISSION STATEMENT Our mission at Pipeline News North is to provide the most current, interesting, and relevant news and information about the oil and gas industry in Northeast B.C. and Northwest Alberta. Have an interesting story to share or a news lead? Email us at editor@ahnfsj.ca.

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7 oil and gas plays to watch in 2018 Oil and gas resources in the United States are proving to be tough competition for Canadian assets looking for investment dollars, but some plays north of the border have economics that stack up just fine, according to analysts with Peters & Co. A number of Canadian plays even have lower well costs, lower royalties and/or access to the oilsands, a premium market for the condensate produced in many liquids-rich wells, the investment firm noted in a research note this week. “However, the scale of a number of these Canadian plays can be small relative to the U.S. counterparts, and the top quartile and highgraded inventory which tends to attract much of the investment in these U.S. plays continue to rank very well…We observe very strong economics for some of the top quartile results in plays like the Permian and Eagle Ford, however, average results still drive corporate profitability and corporate free cash flow yield which is where the average Canadian plays rank as competitive with U.S. averages.” Here are seven key Canadian plays to watch in 2018, according to Peters & Co.: 1. CLEARWATER HEAVY OIL

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There has been a substantial amount of Crown land sales in the lower southwest edge of the Athabasca oilsands region since mid-2016, analysts noted. The Marten Hills region, located about 200 kilometres north of Edmonton, is a target for conventional heavy oil with “enough consolidation/rock integrity to be well suited for multi-lateral, open hole and un-stimulated completion” (no fracking). There is currently about 2,000 bbls/d coming from multi-lateral wells in the Clearwater Formation, owned by companies including Spur, Deltastream and Cenovus Energy. Peters & Co. also noted that Canadian Natural Resources has applied for its own multi-well pad on the south end of the trend. 2. ALBERTA DEEP BASIN

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“The Alberta Deep Basin continues to host some of the most prolific gas wells in Western Canada,” analysts wrote, with the average initial production rate of the top 30 wells at 15 million cubic feet per day. Tourmaline Oil, Bellatrix Petroleum and Peyto Exploration operate some of the top performers. “In addition to the prolific gas production in the Deep Basin, there are also several liquids plays being exploited throughout the fairway” including horizontal oil wells, Peters & Co. said. 3. DUVERNAY EAST SHALE BASIN Another hot spot for recent Crown land sales, production has grown from the Duvernay East Shale Basin surrounding Red Deer, Alta. from virtually nil to about 4,800 bbls/d in under two years, analysts said.

Key producers include Vesta Energy, Artis Exploration and Raging River Exploration. “With the majority of the Crown lands sold as two-year term petroleum and natural gas licenses, we expect activity to continue its upward momentum into 2018 as producers delineate their lands to continue mineral rights and eventually move into multi-well pad drilling as Vesta and Artis have done.” 4. MONTNEY: NORTHEAST B.C. LIQUIDS-RICH The B.C. side of the Montney play currently accounts for more than 60 percent of its total production, according to Peters & Co. “Condensate production in B.C. has doubled over the last two years solely due to Montney development, where the province currently produces about 48,000 bbls/d of condensate (plant and wellhead combined) which is ~95 percent from the Montney.” The list of producers targeting the B.C. Montney is long, including ARC Resources, Chinook, Crew, Encana, Tourmaline, ConocoPhillips and Shell. 5. MONTNEY: ALBERTA LIQUIDS-RICH Both light oil and condensate production are driving growth on the Alberta side of the Montney play, analysts wrote, with a 20 percent increase in condensate and a 50 percent increase in light oil in October 2017 compared to October 2016. It’s another long list of producers including Seven Generations Energy, Paramount Resources, ARC Resources, Cenovus Energy and Athabasca Oil Corporation. 6. MULTI-ZONE OIL AT PROGRESS Light oil production is on an upswing from the Charlie Lake Formation and Lower Montney Turbidite near Progress in west central Alberta, Peters & Co. noted. “Total oil production from horizontal Charlie Lake wells in the area averaged ~5,500 bbls/d from January 2015 through May 2017 and has doubled to ~10,500 bbls/d in September 2017, mainly due to recent drilling by Tourmaline, the largest Charlie Lake operator in the area.” Anegada, Canadian Natural, Longshore Resources and Rising Star Resources have also drilled other Charlie Lake wells, analysts added. 7. VIKING LIGHT OIL The Viking light oil play in Alberta and Saskatchewan continues to grow, driven by top operators Raging River Exploration and Teine Energy, with play production averaging about 81,000 bbls/d in October 2017 – an increase of about 51 percent compared to October 2016. “The Viking play continues to rank amongst the strongest economics in North America, particularly as well costs have continued to decrease over the past few years,” Peters & Co. said. —JWN Energy

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B.C., Alberta lead 2017 land sale resurgence Interest in the Montney and Duvernay plays in B.C. and Alberta powered a near $800-million resurgence in oil and gas land sales in 2017. Spending in Western Canada hit $793.93 million last year, the Daily Oil Bulletin reports, up fourfold with producers locking up 1.77 million hectares of land for exploration and development. That’s up from a paltry $217.51 million in spending in 2016, and $375.78 million in 2015, according to the Bulletin. Spending was largely concentrated in Alberta, which ended the year with $556.39 million in bids, much of that spent on land in the East Shale Basin Duvernay, according to the Bulletin. In B.C., spending was up to $173.25 million in 2017 after plunging to a record low of just $15.1 million in 2016. Two sales were largely responsible for the

large jump in the province, which started the year with a bang when its first land sale of 2017 produced $39.62 million in bonus bids. That sale was driven by a $35.13-million licence in Northeast B.C. prospective for the Montney east of Dawson Creek. Meanwhile, a large $77-million parcel highlighted the province’s July sale. That high-priced drilling licence at Inga east of the Montney production at Altares, was picked up by Scott Land & Lease Ltd., which paid an average price of $13,893.90 per hectare for the 5,542-hectare parcel. Meanwhile, spending in Saskatchewan totalled $62.83 million in 2017. That’s up from $53.4 million in 2016. In Manitoba, spending hit $1.4 million last year, up from $262,000 in 2016. Scott Land & Lease Ltd. was the top buyer in 2017, according to the Bulletin, acquiring 600,797 hectares for $357.39 million.

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LNG LNG Canada FID later this year in Kitimat would be from the long defunct Eurocan Pulp & Paper wharf and former Methanex Jetty, turning unused industrial land back into productive facilities. The roads, rails and power amenities needed for the LNG facilities are already largely in place. The ships would utilize the deep sea Douglas Channel route past Kitimaat Village where the Haisla First Nation is headquartered. The Haisla are strong proponents and partners in the venture. Pierce was looking forward to catching the public up on the plans for the full project, east to west, and also touching base with old friends and potential partners of the future. “Every year (I attend the BC Natural Resource Forum),” she said. “And this year, wow, it has to be the highest profile one yet, with all the royalty coming from the premier to (federal) minister James Carr, to the National Chief of the Assembly of First Nations (Perry Bellegarde), and it keeps going. It shows people’s interest in British Columbia and in natural resources.” Although she is a veteran of the petroleum industry, and multigenerationally through her family ties to oil and gas, she is also interested on a personal level in how the other natural resource industries of the province are faring. The forum is one of the best conversations for that broad knowledge. “I think the thing that’s sort of been the undercurrent of this province, and continues to be, is natural resources,” she said. “What’s

Susannah Pierce of LNG Canada, gives a keynote speech at the Spark Women’s Leadership Conference in Fort St. John in May 2016.

important to the economy is ensuring that these commodities have access to market, and so whether that’s natural gas which is our business, or whether that’s softwood lumber which is another key component of the economy in British Columbia, that is key. There is a view to how we do that in such a way that all British Columbians can be happy and proud or our natural resources and know they’ve got markets to go where we get value for them.” —Prince George Citizen

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The B.C. Natural Resources Forum is a festival of economic speculation, with so many of the primary players in government and private industry all together in one room. Finding out the New Year’s resolutions of LNG Canada was something a lot of the ears in the room who tuned into the 2018 edition in Prince George from Jan. 16 to 18. That company’s external affairs director Susannah Pierce was one of the attendees and most anticipated guest speakers. Ahead of the forum, Pierce said that she would not be dropping any bombshell announcements while in Prince George. However, the consortium of companies that comprise the LNG Canada enterprise — Shell, PetroChina, Mitsubishi and Korea Gas Corp. — were aware that their proposal has advanced to the point they might well be the first LNG project in B.C. to finally break ground. Their final investment decision is still pending, said Pierce, but sometime in the second half of this year LNG Canada should tentatively be able to announce their absolute intentions. Should they give the green light, the natural gas would be sourced from Northeast B.C., sent by pipeline a distance of just over 600 kilometres, and the processing and shipping facility would be in Kitimat. Helping them speed their proposal were some efficient preconditions. Instead of proposing a facility from scratch, their shipping location

JANUARY 19, 2018

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LNG

LNG could be nothing or biggest story of 2018 The biggest story in 2018 for the resource and energy sectors in B.C. will likely be the $7.4 billion Trans Mountain pipeline twinning project, which could be eclipsed only by LNG – the latter being either a total nonstory or the biggest resources story of the year, depending on whether LNG Canada pulls the trigger on a final investment decision. It’s anyone’s guess whether LNG Canada will announce a final investment decision on its $40 billion project in Kitimat in 2018 or if construction will start on the smaller Woodfibre LNG plant in Squamish. Construction on the latter was supposed to have started by now, but the construction schedule has been delayed. The Trans Mountain expansion project might have been underway by now, but its schedule has been pushed back nine months due to delays in permitting, with the City of Burnaby being the biggest obstacle. In mid-December, the National Energy Board (NEB) ruled that LNG Canada CEO Andy Calitz. Kinder Morgan Canada (TSX:KML) can bypass Burnaby’s bylaws and proceed with the expansion of its scale not seen in B.C. since the 1990s Westridge Marine Terminal. War in the Woods over clear-cutting Up to 4,500 workers are expected in Clayoquot Sound. to be employed on the project (in B.C. “I think we’re going to find out in and Alberta) at peak construction. 2018 whether Canada’s a land with According to the STEM Spotlight the rule of law or whether Canada is Awards, which promote careers in on a track to being a Venezuela – a science, technology, engineering country with no law, lots of resources and mathematics, the Trans and inability to produce the things Mountain twinning project will that it uses every day by everybody,” generate 450 skilled trades jobs said Stewart Muir, executive director each year during the construction for Resource Works. period for each of five “spreads” of The one uncertainty for resourcethe project. Those jobs include 105 sector companies is BC NDP heavy equipment operators, 170 government policy. From fish farms labourers and welder helpers, 44 to fracking, all are up for some form welders and 50 contract managers of review by the new government. (foremen) for each spread. Oil and gas companies have been But First Nations and investing billions in the liquids-rich environmental activists have Montney formation in northeastern threatened civil disobedience B.C., despite uncertainty over against the pipeline project on a an LNG industry ever taking off.

Whether that level of investment will continue in 2018 under the new BC NDP government is open to debate. At the end of November, the Fraser Institute published an industry survey that found falling investor confidence in both B.C and Alberta. “British Columbia’s score dropped significantly this year,” the survey stated, “and investors now view this province as Canada’s least attractive jurisdiction for investment.” There is a perception that the NDP government is hostile toward oil and gas – a perception B.C. Energy, Mines and Petroleum Resources Minister Michelle Mungall has strived, both in the legislature and in public, to change. In question period, Mungall has asserted her government’s support for the natural gas and LNG

industries. She also appeared in November at a Greater Vancouver Board of Trade discussion with LNG Canada’s CEO, where she confirmed her government is giving serious consideration to the concerns LNG Canada has expressed over issues like tax competitiveness. But the industry in B.C. is facing rising carbon taxes, and the NDP government plans to initiate a scientific review of hydraulic fracturing in B.C. But Muir doesn’t think that will be a major obstacle. “I don’t think there’s any reason to think the gas industry in B.C. has got a target on its back,” he said. “It’s got the right culture of continuous improvement to survive what it’s required to do.” —Business in Vancouver

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INVESTMENTS Encana to focus 2018 spending in Montney, Permian After coming out of 2017 ahead of its production growth targets, Encana said this week it would focus its 2018 capital spending on its core areas – specifically the Permian Basin in Texas and the Montney play that straddles Alberta and B.C. Encana said it plans to spend “similar” to its 2017 $1.8-billion capital program this year, with “modest allocation adjustments to optimize delivery.” Approximately 70 percent of spending will be directed to its Permian and Montney assets. Encana said that it increased production

in the fourth quarter of 2017 by 31 percent compared to the fourth quarter of 2016, ahead of its original target of greater than 20 percent and above the top end of its revised 25 to 30 percent guidance range. The numbers have not yet been released for 2017, but Encana reported production of 352,700 boe/d in 2016. The company expects to increase production by a further 25 to 35 percent from its core assets by the end of this year compared to 2017, with “significant” oil and condensate growth in the second half of the year. Encana said it more than doubled liquids

production in the Montney between 2016 and 2017, “driven by a focus on condensate rich wells and the early start-up of the Tower, Saturn and Sunrise processing plants.” In 2018, the company said it expects to grow its liquids production as it fills capacity at the new plants and completes two additional liquids hubs in the second half of the year, further reducing its exposure to low regional natural gas pricing. Encana’s full 2018 plans will be released in mid-February. —JWN Energy

SemCAMS to build new gas plant at Smoke Lake Natural gas processor SemCAMS says it will build a new gas plant near Fox Creek, Alberta to support new contracts signed with a joint venture between Murphy Oil and Athabasca Oil Corporation. The Smoke Lake Gas Plant will have capacity to process 60 mmcf per day of sweet and sour Montney and Duvernay gas and is expected to be operational in the fourth quarter of 2019, SemCAMS said in a statement. Following the completion of the Smoke Lake

Gas Plant and the Wapiti Plant currently under construction, SemCAMS said it would have a combined 1.7 bcf per day of sour gas processing capacity licensed in Canada. Murphy and Athabasca entered into a joint venture to develop Montney and Duvernay assets in spring 2016, when Athabasca sold a 70 percent interest in its Greater Kaybob area assets and a 30 percent interest in its Greater Placid area assets for gross proceeds of $486 million.

In the Duvernay at Kaybob, the joint venture plans to spend $357 million in 2018 including rig releasing 24 wells, completion operations on 27 wells and placing approximately 24 wells on production. Athabasca plans to spend $40 million at its operated Placid region in 2018 including completing a six well development pad and drilling six infill wells in the first quarter. —JWN Energy

AltaGas to focus on propane export terminal in 2018 The 10,000-bbl/d North Pine NGL separation facility near Fort St. John, BC is now up and running, months before its original schedule thanks to construction progressing faster than expected. AltaGas says the project, which has Painted Pony Energy as its anchor customer, was completed approximately $15 million under its budget, coming in at $120 million. With the North Pine facility complete, the company will now turn its capital spending to focus on its Ridley Island Propane Export Terminal in its focus to provide “a broad suite of midstream services and new market diversification,” CEO David Harris said.

AltaGas said the terminal is also currently ahead of schedule and under budget. The company plans a capital program of $400 million to $500 million in 2018, not including spend related to the company’s $8.4 billion acquisition of Washington, DC-based utility WGL Holdings, which is moving through the regulatory process. Investment next year will focus on the Ridley Island terminal, AltaGas said on Wednesday. Overall, spend will be directed up to 65 percent to its gas business and up to 35 percent to its utilities business, with remaining dollars going to its power business. Capital investment in 2018 will increase substantially following a

successful close of the WGL deal. “The consolidated 2018 capital program for AltaGas and WGL on a combined basis, assuming a Q2/2018, closing is expected to be in the range of approximately $1.2 - $1.5 billion. Close to half of this total will be allocated to Gas, with the majority of the remaining expected capital for Utilities, followed by Power,” the company said. AltaGas expects that the largest portion of WGL’s total 2018 capital program will be allocated to investments in the Central Penn and Mountain Valley gas pipeline developments in the Marcellus region. —JWN Energy

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REGULATORY Hearings set for North Montney Mainline The National Energy Board has set out the schedule for a public hearing on NOVA Gas Transmission Ltd.’s application for a variance to the earlier-approved North Montney Mainline. Part A of the oral portion of the hearing will begin at 8:30 a.m. Jan. 22 in Calgary and continue until 6:30 p.m. Jan. 26. For all subsequent hearing days, the board plans to sit from 8:30 a.m. to 6:30 p.m. in order to accommodate the estimated duration of cross-examination submitted by parties. While the NEB panel plans to sit over the course of five days, it cautioned that more or less time is needed and sitting times may be modified. The board will convene Part B of the oral portion of the hearing at 9 a.m. in Dawson Creek to hear oral traditional evidence from First Nations. Each First Nation will have three hours to present to the panel which will sit into the evening. For all subsequent hearing days the board plans to sit from 9 a.m. to 5:30 p.m. Final argument will begin following the conclusion of oral cross-examination. It will begin at 9 a.m. Feb. 1 in Dawson Creek and finish Feb. 6 in Calgary. Written final argument, from parties who wish to provide it, will be due at noon Feb. 7. NGTL is granted written reply

argument, which is due by noon, Feb. 14. If approved by the board, the application would enable TransCanada Corporation to begin construction of the already-approved pipeline, removing the requirement it provide formal notice to the board that Progress Energy Canada Ltd. was proceeding with the Pacific NorthWest LNG project, which has since been cancelled. The hearing has attracted considerable interest from Northeast B.C. producers that would gain access to the TransCanada system for gas exports throughout North America, operators concerned about the impact of the additional gas on downstream capacity, First Nations concerned about the environmental impact of the project and competitor Enbridge Inc. who objects to the proposed rolled-in tolls for a four-year transition period on the grounds of cross-subsidization. The NEB is to issue its decision within 12 weeks of the close of the hearing. However, in its application submitted in March 2017, NGTL said it must begin construction by February 2018 in order to meet the requested in-service timing for its facilities starting April 1, 2019. —Daily Oil Bulletin

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OPERATIONS

TMX GROUP

Source Energy Services CEO Brad Thomson (centre), joined TMX and Source leaders to open the market in April 2017.

Drillers get new frac sand terminals as demand grows “Northern White” frac sand from Wisconsin has a new connection to Alberta. The first unit train delivery at Wayfinder Corp.’s new Gold Creek terminal is expected on Friday. Located at Obed, Alta., about 50 kilometres south of Grande Prairie, it will primarily serve oil and gas operators in the Montney play. The facility, which will deliver frac sand from mines operated by Badger Mining Corporation, is supported by local company Bailly’s Transloading. Privately held Wayfinder purchased the Obed facility last year from Westmoreland Coal and subsequently developed it into a resin coating and transloading facility. The new unit train terminal, connected to CN Rail, complements these operations, the company said in a statement. Prior to adding unit train capability, Wayfinder delivered sand from Badger Mining via train-to-truck operations. Meanwhile, Source Energy Services has opened its first unit-train capable delivery

terminal for frac sand into the Western Canada Sedimentary Basin as companies deploy bigger fracs for higher results. Unit trains, which carry a single commodity opposed to multiple cars carrying multiple commodities, will allow Source to connect dedicated deliveries of frac sand from its mines in Wisconsin to Alberta. Frac sand demand in the WCSB is expected to increase by 28 percent this year and a further 31 percent to a total of 10.3 million tonnes in 2019, according to GMP FirstEnergy. “This is driven largely by higher average propane intensity in the Montney and Duvernay,” analysts wrote in a research note this week. The Fox Creek terminal location intersects both the Montney and Duvernay plays – confirming area activity levels, SemCAMS also recently announced it will build a new 60 mmcf/d gas plant at Fox Creek based on processing contracts with a joint venture of Athabasca Oil Corporation and Murphy Oil.

The new facility expands Source’s operations at Fox Creek, Alberta, where it opened its first terminal in 2015. The company now has eight frac sand delivery terminals in Alberta, BC and Saskatchewan of varying sizes. A unit train capable terminal is also being built at Edson, Alberta. Source said it plans to spend between $10 million and $20 million of its 2018 budget of $50 million to $65 million on terminal expansion projects. The company will also spend $10 million to $15 million on development of additional sand delivery systems, $15 million to $20 million on production facilities, and $9 million to $12 million in mine development activities. Source reported a 255 percent increase in sand sales in the third quarter of 2017 compared to the third quarter of 2016, leading to net income of $3.0 million compared to a a net loss of $12.3 million in the previous year period. —JWN Energy

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ETCETERA Vancouver junior producing oil in Kurdistan A Vancouver junior oil exploration company backed by the Lundin Group of Companies says it continues to produce oil in a “safe and secure manner” in Kurdistan (Northern Iraq). In a January 9 press release that seems aimed at calming any jitters investors might have over the dispute between the Iraqi government and Kurdistan, ShaMaran Petroleum Corp. confirmed that it and its partners continue to produce 27,000 barrels of oil per day from the Atrush play north of Erbil. ShaMaran owns 20.1% of the Atrush block, which is said to be the most underexplored region of Northern Iraq’s highly productive oil and gas fields. The main operator is Abu Dhabi-based TAQA Atrush BV. ShaMaran is one of the companies drilling for oil in the Atrush play. Marathon Oil Corp. also has a 15% stake in the Atrush block. ShaMaran and its partners began producing oil and shipping it via the Kurdistan Export Pipeline in July 2017 and started receiving its first payments from the Kurdistan Regional Government in October and November. On December, ShaMaran issued a press release stating that TAQA Atrush BV had

received US$10.7 million from the Kurdistan Regional Government (KRG), which was US$600,000 short of what had been invoiced. “The Atrush co-venturers have been advised by the KRG that the shortfall is related to an accounting error and that payment of the (US$600,000) will be issued in the new year,” ShaMaran stated in a news release on

December 19, 2017. ShaMaran is one of a handful of junior oil exploration and development companies owned by the Lundin Group, which is headquartered in Vancouver. ShaMaran is focused exclusively on Kurdistan. The company appears to have continued its exploration in the Atrush fields throughout the period between 2014 and 2017 when the Islamic State (ISIS) controlled large swaths of Iraq and Syria. Kurdistan was one of the few regions where ISIS never gained a significant foothold. Despite their alliance against ISIS, the Iraqi and Kurdish governments have an ongoing dispute over the ownership of the rich oil fields of Northern Iraq and there have been recent skirmishes between the two. Kurdistan has functioned as an autonomous state of Iraq since the 1990s. But following a referendum on independence in September, the Iraqi government has been asserting itself. It recently expelled Kurdish forces from in Kirkurk and Iraqi forces have also secured the border between Kurdistan and Turkey. —Business in Vancouver

Ace High Storage Ltd wishes to thank Shell Canada for supporting local business and again being good Corporate Citizens by taking serious the concerns of local residents. In response to noise concerns from nearby drilling/ fracking activities Dan Arcand from Shell Canada put in place a sound barrier consisting of stacking C-Cans creating a 20 ft wall between the drilling site and local residents. Barry Ross owner of Ace High Storage and Abe Enns owner of Profast Towing are grateful to Shell Canada for dealing local and keeping money in the community.

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JANUARY 19, 2018

PIPELINE NEWS NORTH •

PIPELINES Delays costing Kinder Morgan $75 million a month Close to $1 billion has been spent to date on the $7.4 billion Trans Mountain pipeline expansion, and another $1.8 billion is expected to be spent in 2018, providing Kinder Morgan Canada (TSX:KML) can resolve “uncertainties” with permitting and court challenges. In a January 17 fourth-quarter earnings call, Kinder Morgan executives said $930 million has spent to date on the expansion project. Kinder Morgan (KMI) is the American parent company of Kinder Morgan Canada (KML), which became a publicly listed company last year, and owns the Trans Mountain pipeline and Westridge Marine Terminal. In a 2018 spending forecast on December 4, 2017, Kinder Morgan Canada said it expected to spend $1.9 billion in 2018 – all but $100,000 of which would be on the pipeline expansion – provided it can get the certainty it needs from federal regulators and courts that it can proceed. “KML must have a clear line of sight on the timely conclusion of the permitting and approvals processes before we will commit to full construction spending,” KML presidentIan Anderson said in a December 4 press release. Although the $7.4 billion pipeline twinning project has federal approval, it hasencountered delays in starting construction, which could push back the anticipated in-service date by a full year. The biggest obstacle has come from the City of Burnaby, which has refused to issue routine permits for things like site clearing and tree cutting. The project also still faces a number of legal challenges, the most significant of which is a Federal Court of Appeal challenge, with the B.C. government being one of the interveners arguing the National Energy Board’s approval of the project should be overturned. In November, KML asked the NEB for a ruling allowing the construction in Burnaby to proceed without municipal permits. The application was granted, but only for the permits already in play, not for any future permits it might need. It is now seeking further ruling from the NEB to provide a timely process for resolving future permitting issues.

In its application to the NEB, Kinder Morgan warned that, “faced with unreasonable regulatory risks due to a lack of clear processes to secure necessary permits . . . it may become untenable forTrans Mountain’s shareholders . . . to proceed.” The company already pushed back its anticipated in-service date by nine months to September 2020, and noted that every month of delay amounts to a $75 million loss in anticipated earnings. In its January 17 earnings call, KMI has now set the potential in-service date even further back, to December 2020. The project’s opponents, notably the TsleilWaututh First Nation, have read those delays as a sign that the project may too risky for investors. But in December, a syndicate of banks gave the project a vote of confidence when it ponied up $250 million in a preferred share offering. It was the second preferred share offering, which has netted a total of $550 million. How much of that money will be spent this year in B.C. depends on the outcome of a federal appeal by First Nations, environmental groups and the cities of Burnaby and Vancouver, and getting more certainty over permitting. Kinder Morgan CEO Steve Kean pointed to the December press release, in which the company

noted that it had made progress, provincially and municipally, on permitting. “But we also acknowledged the need to see more progress before it would be prudent to ramp up to full construction spending,” Kean said. Asked by an analyst to describe what would make full execution of the project “untenable,” Kean said: “We don’t expect to find ourselves in an untenable position, but we made that point in the filing seeking the relief that we’ve asked for from the regulator.” He added: “We have made some progress working with the provincial authorities in British Columbia on clarifying requirements and time frames of permits and authorizations. We’re still working on this, but we’ve made some progress. “It is essential for us to know we can move forward, even when local governments are opposed or are declining to act on permits.” Kean said KML ended 2017 with no outstanding debt and capacity to ramp up to full construction spending “when that is prudent.” Kean said the company hopes to have a decision by the federal appeal court in the first part of 2018. —Business in Vancouver

Transportation bottlenecks causing lower prices Canadian oil and gas producers and the governments they pay royalties to are not benefiting as much as they could be from improving commodity prices. A new report from Deloitte says that concerns over transportation bottlenecks to the U.S. market have increased the historic price differential between Canadian WCS and U.S. WTI oil, while infrastructure issues in Canada have also created extreme volatility in natural gas prices between AECO and Henry Hub. Deloitte forecasts that in 2018, WTI will average US$55/bbl while WCS will average US$36.19/bbl.

Meanwhile, Henry Hub natural gas pricing is expected to average US$2.80/Mcf compared to US$1.56/Mcf for AECO. This compares to 2017 numbers of US$50.84 for WTI, US$39.21 for WCS, US$2.99 for Henry Hub and US$1.67 for AECO. “Canadian oil prices lagged behind those in the United States during 2017 largely due to increased U.S. production and possible transportation difficulties getting Canadian oil into that market,” Deloitte’s Andrew Botterill said in a statement. Canadian natural gas prices, which fluctuated considerably in 2017, recovered somewhat in

the final quarter of the year as transportation systems resumed operating at full capacity after several maintenance projects during the year, Botterill said, adding that more price fluctuations could occur in the summer of 2018 when new maintenance projects are expected to take place. “While increased natural gas production has allowed the U.S. to grow its gas export market by 31 per cent in 2017, Canada’s limited ability to access new markets has resulted in low AECO pricing,” he said. — JWN Energy

• PIPELINE NEWS NORTH

JANUARY 19, 2018

IN BRIEF Montney liquids the biggest prize in 2018 Natural gas production from the Montney play straddling Alberta and B.C. hit a record high in 2017, but the best economics in the fairway come from higher value condensate, and that’s what’s going to drive “more focused activity levels” this year. Analysts with Peters & Co. estimate that Montney natural gas production averaged approximately 6.3 billion cubic feet per day in October, dominated by volumes from the B.C. side of the play. According to National Energy Board data, Canadian production was 15.59 bcf/d in October, making the Montney play responsible for

40 percent of the total. The Montney may be big for natural gas, but producers are increasingly interested in its liquids, Peters and Co. said in a research report released on January 2. “Condensate production in B.C. has doubled over the last two years solely due to Montney development. The province currently produces about 40,000 bbls/d of condensate (plant and wellhead combined),” analysts wrote, adding that in a challenged natural gas environment, liquidsrich and particularly condensate production offers some of the most

attractive economics. “We believe the benefit of condensate will drive more focused activity levels across the basin over the upcoming year, as regional natural gas prices provide less incentive for producers to support natural gas values in the near-term beyond volumes which an be hedged or sold in markets which attract stronger netbacks.” Encana, which Peters & Co. says has some of the most attractive assets in the fairway, expects to more than double its Montney liquids in the fourth quarter of 2017 compared to the same period of 2016, boosting its operating margin by more than 50 percent.

“This expansion equates to an incremental ~$200 million in annualized operating cash flow,” the company said in November. Condensate prices have recently averaged $76/bbl and are expected to average $75/bbl in 2018, according to Peters & Co. “A number of the liquids-rich producers are generating strong operating cash flow strictly from condensate volumes,” analysts wrote. “Based on industry average realizations and costs, we would estimate that operating netbacks on condensate volumes would be about $53/bbl on our 2018 price assumptions.”

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• Distributed to the community in general through these ﬁne publications, Alaska Highway News, Dawson Creek Daily and Fort Nelson News. • Distribution by mail and direct drop-off to Oil & Gas companies,and related businesses and organizations, in the following communities: BRITISH COLUMBIA – Arras, Baldonnel, Cecil Lake, Charlie Lake, CHETWYND, Clayhurst, DAWSON CREEK, Farmington, FORT NELSON, FORT ST. JOHN, Goodlow, Groundbirch, HUDSON HOPE, Moberley Lake, Pink Mountain, Pouce Coupe, Progress, Rolla, Rose Prairie, Sunset Prairie, Taylor, Tomslake, TUMBLER RIDGE, and Wonowon. ALBERTA – Baytree, Bear Canyon, BEAVERLODGE, Berwyn, Bezanson, Bonanza, CLAIRMONT, Eaglesham, FAIRVIEW, Falher, Girouxville, GRANDE PRAIRIE, Grimshaw, Grovedale, HIGH PRAIRIE, Hines Creek, Hythe, LaGlace, MANNING, McLennan, PEACE RIVER, Rycroft, SEXSMITH, Silver Valley, Spirit River, VALLEYVIEW, Wembley, and Worsley, Zama City.

JANUARY 19, 2018

PIPELINE NEWS NORTH •

IN BRIEF Northeast B.C. unemployment drops to 4.6% in 2017 Unemployment in Northeast B.C. plummetted by nearly six percentage points in 2017. The region finished the year with 4.6 per cent unemployment in December, down from 10.5 per cent at the end of 2016 and the start of the year, according to Statistic Canada’s Labour Force Survey released Jan. 5. Unemployment dropped steadily throughout 2017 with an uptick in the oil and gas sector that brought major projects including Pembina Pipeline’s Northeast B.C. expansion project, AltaGas’s Townsend expansion and North Pine liquids facility, and the Tower and Sunrise natural gas plants, among others. Spending on petroleum and natural gas drilling and exploration rights also hit $173.25 million in 2017 after a dismal record low of $15.1 million in 2016. Employment with the Site C dam peaked at 2,633 workers in June, with 771 Peace Region

workers reported on the project that month. In a labour force of 39,300, the region saw 37,500 people employed in December. Another 1,800 were unemployed. The region’s unemployment—which is not broken down by municipality—is good for the second-lowest in B.C. for the month, behind the southwest Lower Mainland, which recorded an unemployment rate of 3.8 per cent. It’s also on par with B.C.’s unemployment rate of 4.6 per cent, the lowest in Canada. The province added 83,000 jobs last year. “The gains in 2017 were almost all in full-time work, and were mainly in health care and social assistance; construction; and finance, insurance, real estate, rental and leasing,” Stats Canada noted in its survey. BC Stats has yet to release a detailed, sector by sector analysis of provincial job numbers for

December. Overall, Canada added 79,000 jobs in December and 423,000 jobs for the year, ending 2017 with unemployment at 5.5 per cent. Stats Canada noted employment grew in natural resources (+15,000), construction (+51,000), and manufacturing (+86,000). Job gains in the natural resource sector, up 4.6 per cent, followed “heavy losses” in 2015 and 2016, Stats Canada said. “Another ridiculously strong employment report that is marked by over 150,000 new jobs in two months gives the (Bank of Canada) full reason to look through a transitory soft patch in the economy,” Derek Holt, vice-president of Scotiabank Economics, wrote in a note to investors. —with files from Business in Vancouver

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