Special Report: B.C. Montney a bright spot despite downturn / Page 3 AUGUST / SEPTEMBER 2016
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B.C.’s Gas Minister still believes in LNG boom, but Northeast leaders begin looking for Plan B Woodfibre looks to fourth quarter FID as project appears new frontrunner in LNG race Tim Maryon: Resilient northerners find ways to thrive in adversity Decisions: PRRD approves Encana liquids hub, province approves $235M Plateau pipeline
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B.C. Montney a bright spot, despite downturn JAMES MAHONY Daily Oil Bulletin
Despite the industry downturn and low commodity prices, producers’ capital spending in northeast British Columbia’s Montney natural gas play will likely surpass $1 billion this year, based on an informal survey of the region’s active producers and announced capital programs. For more than two years now, the story of oil and gas activity in B.C. has been the story of the province’s northeast, especially the liquidsrich Montney that has drawn a long line of Alberta-based producers. At a time when the downturn is beginning to wear on some producers, the play is proving a bright spot in the Canadian oil and gas landscape. Driven by resource quality and strong economics, the movement into the B.C. Montney has been helped by lower drilling and service costs in recent months. Producers also mentioned B.C.’s current royalty framework, in particular its deep-well royalty credit, for improving well economics in those parts of the Montney where the credit applies. One producer calls B.C.’s oil and gas royalty regime the “best … in North America.” For Painted Pony Petroleum Ltd., the deep-well royalty credit is worth $2.2 million on a $7.4 million well. For others, the credit may be less meaningful, but still represents a marked improvement on Montney well economics. Who qualifies for the deep-well credit depends on where they stand relative to the government ‘royalty line’ that runs through the Montney, along a northwest-to-southeast axis. Producers west of the line get the credit, while those east of it do not, although other incentives may apply. For those drilling east of the deep-well royalty line, a horizontal well royalty credit might also be available. “It’s not as big as [the] deep-drilling royalty credit,” said Brian Lavergne, president and chief executive of Storm Resources Ltd. “[But] it’s a big help for us. If our wells [cost] $4.5 million to drill and complete, the [horizontal well] credit reduces the royalty we pay by roughly $600,000. All these little bits and pieces help.” Drilling activity to mid-year Overall, the pace of drilling in this year’s first half was down from last year. The top driller in northeast B.C. in the half was Petronas subsidiary Progress Energy, which drilled 38 wells, down from 84 in the 2015 period. This article includes only operated wells rig-released between Jan. 1 and June 30, 2016, and those for the comparable 2015 period. Not far behind Progress was Shell Canada, which drilled 25 wells by mid-year, up from 24 in last year’s period, followed by ARC Resources Ltd., which drilled 18, down from 26 a year ago. Not far behind ARC was Painted Pony, which rig-released 17 wells in the half, versus eight in the 2015 period. In fifth place were Tourmaline Oil Corp. and Encana Corporation, each of which drilled 11 wells in northeast B.C. in the first six months, versus 23 and 22, respectively, in last year’s period. Others active in the northeast in the first half included Black Swan Energy Ltd. (four wells, down from nine in 2015), Canbriam Energy Inc. (five wells, down from 12 a year ago), and Crew Energy Inc., which rigreleased four wells, down from 12 in last year’s first half. Others were also busy in the northeast, although drilling fewer wells by mid-year. This group included Apache Canada (four wells in the first half of 2015 versus one in the 2016 period), Endurance B.C. Gas Ltd. (seven wells versus three), ConocoPhillips Canada Resources Corp. (four wells versus two); Chevron Canada Resources Ltd. (three wells versus one in 2016) and Paramount Resources Ltd. (unchanged at one well in each respective period). Liard Basin Woodside Petroleum recently praised drilling results of Chevronoperated wells (Woodside 50 per cent) in the Liard Basin as “exceptional.” Chevron is targeting the Devonian Besa River formation. Paramount Resources is also drilling in the Liard basin, but did not respond to an interview request. CONTINUED ON PAGE 16
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AUGUST 19, 2016
OUTLOOK
#oilsands
Resilient northerners find ways to thrive in adversity; they ‘work in the rain’
F
or large parts of the summer, the weather has been unusually wet. Roads and rail lines have been washed out. Construction, drilling and completions projects have all experienced delays due to the extreme weather conditions. At the same time, crude oil pricing has tumbled from the low 50s to the low 40s—putting renewed financial pressure on operators. Folks in Northern B.C. are used to dealing with adversity. We take our challenges in stride, and somehow find a way to get things done. Roads and rail lines get repaired. Project delays get caught up. This persevering attitude has also helped some oil companies to thrive despite the adverse price environment. Here is how they do it. Futures markets can be used by savvy operators to lock in selling prices for future production. Light Sweet Crude Oil (aka West Texas Intermediate or WTI) futures traded on the New York Mercantile Exchange have actively traded contracts for future month deliveries stretching out 18 months and more. A futures contract is a commitment to buy or sell a quantity of a commodity at a specific delivery location at a specific time in the future. WTI contracts are for 1,000 barrels each, delivered to storage facilities
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Light Sweet Crude Oil (aka West Texas Intermediate or WTI) futures traded on the New York Mercantile Exchange have actively traded contracts for future month deliveries stretching out 18 months and more.
in Cushing, Oklahoma. Contracts are defined by month of delivery. Currently (and for the last few months), WTI futures pricing for next month’s delivery is lower than pricing for future month’s delivery. For example, WTI promised for delivery in February 2017 commands a
premium of more than $3/barrel over September 2016 WTI. Even though Northeast B.C. production will never get to Cushing, Oklahoma, buyers and sellers routinely use WTI as a price reference for transactions in other locations. If an operator wants to assure himself of the selling
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Tim Maryon OIL MATTERS
prices that he will get for his future production, he can use futures markets to lock in those selling prices. By doing so, he forgoes any further possible upside in the selling price of his production—in return for protecting against possible reductions in his selling price. The price of WTI recovered from the low 30s to the mid 50s between April and June of 2016, giving operators the opportunity to confirm their operating plans and lock in their selling prices for the fall of 2016 and winter of 2017. The term structure of the futures markets (i.e. the fact that future months are trading at a premium to the current month) has also helped operators to lock in acceptable selling prices on their future crude sales from their winter drilling and production programs. Using futures markets effectively allows operators to keep their businesses running, employing staff and producing products needed by consumers despite the adverse pricing conditions. Hats off to those operators who have the figured out how to work in the “financial” rain. Tim Maryon is vice-president of sales and business development at Peace Country Petroleum in Fort St. John.
Birchcliff, Painted Pony boost capital spending, drilling plans Birchcliff Energy and Painted Pony Petroleum have beefed up their capital spending forecasts for 2016, allowing for more than a dozen new wells to be drilled in the region this year. According to the Daily Oil Bulletin, Birchcliff has approved a revised capital budget of $163.7 million this year, up from $122.5 million previously planned. It’s a result of the company’s recent acquisition of Encana’s Gordondale assets near Pouce Coupe. The revised plan contemplates drilling a total of 23 wells, an increase from 13 wells under the original capital program. It also includes the funding of key infrastructure required for future growth, including the company’s PCS gas plant. Of the 10 new wells, four are in the Pouce Coupe area with another six in the Gordondale area in Alberta. Birchcliff expects the wells to be completed and brought into production in 2017. Birchcliff drilled four wells in the second
quarter of 2016, all in the Pouce Coupe area. Meanwhile, Painted Pony expects capital spending this year to total $199 million, up from $179 million. The $20 million increase will allow the company to drill six new wells and complete two others this year. The company expects to drill 14 wells and complete another 13 this year as it ramps up production at the Townsend facility near Wonowon, which began operations in July more than a month ahead of schedule. Painted Pony spent $35.3 million in the second quarter of this year to drill five wells and complete 10 others, while also financing facility infrastructure. The company’s year-to-date capital program of $102.4 million included 17 wells drilled and 19 wells completed. —Staff, with files from Daily Oil Bulletin
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While B.C. continues to explore value-added industries such as petrochemicals, natural gas liquids, manufacturing and methanol, LNG remains the focus, Natural Gas Minister Rich Coleman says.
Gas minister still believes in LNG boom
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Don’t count out a liquefied natural gas boom just yet, Natural Gas Minister Rich Coleman says. On a visit to Dawson Creek last week for a B.C. Liberal party fundraiser, Coleman said he remains bullish on B.C.’s LNG prospects despite a string of setbacks and delays. “I don’t think anybody should step back and say LNG might never happen,” he said in an interview. “It’s going to happen.” Creating an LNG industry to sell B.C. gas overseas was a key promise of the B.C. Liberals during the 2013 provincial election. The industry has the potential to eliminate B.C.’s debt, create a multi-billion dollar “prosperity” fund to pay for government programs, and reduce climate change by helping Asian countries transition from coal, Premier Christy Clark said on the campaign trail. Since then, however, there has been little good news for the industry. Prices took a nosedive in late 2014 thanks to a global supply glut. Since mid-2015, the unemployment rate in Northeast B.C. has climbed as companies lay off workers. In February, the province recorded its first-ever $0 oil and gas land sale. Many LNG projects are increasingly marginal with the low prices. At least two of the roughly 20 LNG projects proposed for B.C.’s coast have been shelved. Meanwhile, Pacific NorthWest LNG, the presumed frontrunner, has been delayed by the federal environment ministry. A FortisBC deal to sell LNG from an existing plant to Hawaii fell through, and in April, the first LNG ship sailed from the U.S. gulf coast, adding to the global oversupply.
In Northeast B.C., many are pessimistic about LNG’s prospects. Last month, leaders in B.C.’s Peace Region asked government to begin looking at a Plan B for the region’s gas, in case B.C. misses the LNG window (see page 7 for story). While natural gas prices are low, Coleman said proponents base their investments on three to five year timeframes. “That’s about the same amount of time it takes to build an LNG plant,” Coleman said. LNG is “going to happen simply because we have a world class resource and you can drive your costs over time. You have the ability to predict for 50 to 100 years for supply. I don’t know if everybody understands what a world class resource we’re sitting on up here. It is one of the best deposits of natural gas with liquids on the planet.” While B.C. continues to explore “value-added” industries such as petrochemicals, natural gas liquids, manufacturing and methanol, LNG remains the focus, Coleman said. Despite the perception that B.C. is a difficult place to get projects built, Coleman said the province has an advantage over U.S. projects: it owns its natural gas. “If you take the United States for instance, say you want to build an LNG plant,” he said. “You need gas. If you’re drilling for it, you’re dealing with multiple landowners and you’re dealing with a whole bunch of other processes that go with that. Whereas here, because the resource is owned by the province, you have the certainty of your lease and you have the certainty of your supply. And so it’s a way better place to do business from that perspective.” As for Pacific NorthWest LNG’s environmental review, Coleman expects a decision from the federal cabinet in mid-September.
AUGUST 19, 2016
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OUTLOOK With LNG stalled, northeast leaders look for Plan B JONNY WAKEFIELD reporter@dcdn.ca
Northeast B.C. mayors and the province’s natural gas ministry are looking for alternative markets for B.C. petroleum products after a string of bad news for B.C.’s stalled LNG export industry. Natural gas minister Rich Coleman and members of the Northeast B.C. Resource Municipalities Coalition have been in discussions about attracting investment in “value-added” industries that could use B.C. gas, according to a July 19 news release from the coalition. Those industries could include petrochemicals, plastics, methanol, gas to liquids, and natural gas for transportation uses, the coalition said. “The coalition will be having further meetings with Minister Coleman and his senior staff to examine opportunities to develop a sophisticated natural gas processing industry in the northeast, well beyond extracting natural gas liquids,” Fort St. John Mayor Lori Ackerman said in the release, noting those industries “could spur a steady source of jobs and taxation for the northeast.” The coalition’s statements come after major setbacks for B.C.’s LNG export plans. Earlier this month, Shell-led LNG Canada, a
Developing a sophisticated natural gas processing industry in the northeast well beyond extracting natural gas liquids “could spur a steady source of jobs and taxation for the northeast,” Fort St. John Mayor Lori Ackerman says.
proposed export plant in Kitimat, announced it would not be making an investment decision this year as planned. A deal to export B.C. gas to Hawaii through an existing plant on Tilbury Island fell through. Pacific NorthWest LNG, the project many analysts say has the best chance of being built, won’t have an answer on its federal environmental assessment until mid-September.
LNG was initially touted as a means of eliminating B.C.’s debt and creating a multibillion dollar government prosperity fund. However, oil and gas prices have since collapsed due to oversupply, tempering expectations for the industry. The United States, B.C.’s biggest natural gas customer, meanwhile, is set to become a net exporter of gas by 2017. Premier Christy Clark has since said the new markets afforded by LNG are the best chance of keeping the province’s natural gas industry from going into terminal decline. Kathleen Connolly, executive director of the Dawson Creek Chamber of Commerce, a member of the coalition, said Peace Region communities need a Plan B in case an LNG industry does not materialize. “Even if LNG happens, we’re still a few years out,” she said. “What are we going to do in the meantime, and how are we going to find ways to use the resources we have?” She described talks with the ministry in Victoria last week as “very preliminary.” “The conversation was really what are we going to do, what’s Plan B?” she said. “I think there’s a recognition we have stranded assets here. Our markets are diminishing, so what do we have to do to capitalize on that resource?”
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August land sales generate $27.8M Land sales across Western Canada brought in $27.8 million to government treasuries in August. British Columbia raked in $950,120 in sales from its latest crown petroleum and natural gas land rights auction. The Aug. 10 sale offered up 19 drilling licences and five land leases. All but two of licences sold and every lease was snatched up. A total of 11,451 hectares were exchanged. The average selling price per hectare, a gauge of the demand on the land’s geological potential, sat at $79.14 for drilling licences and $71.13 for leases. This month’s land sale marked an improvement over August 2015 numbers which were $366,543. But it’s a far cry from August 2014, when the province netted more than $3 million. B.C. has collected roughly $5.7 million this year, with just four more sales left in the year. Sales this year have ranged from a peak of $1.9 million in March to $0 in February. August’s auction is the province’s third best sale of the year. The province recorded $1.3 million in May. Since 1978, the lowest sales recorded in a single year for B.C. was $16.72 million in 1982, and the second lowest was in 2015 at $18.36 million. Meanwhile, Alberta saw $11.04 million at its Aug. 3 land sale, with industry picking up 42,913 hectares. Industry has shelled out $87.01 million so far this year, well short of the $183.68 million the province brought in by the end of August 2015. Saskatchewan’s Aug. 9 land sale brought in $9.98 million from land leases, and another $5.8 million from exploration licences. Manitoba’s Aug. 10 auction netted just $68,824 for 192 hectares. —Mike Carter, Matt Preprost, with files from Daily Oil Bulletin
AUGUST 19, 2016
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INFRASTRUCTURE Regional district clears way for Encana gas plant MATT PREPROST editor@ahnfsj.ca
Peace River Regional District directors have approved zoning and official community plan amendments that will allow Encana to build its South Central Liquids Hub. Directors voted 8-3 July 28 in support of the amendments, allowing Encana to proceed with the 19-hectare development in Tomslake, south of Dawson Creek. The board’s decision allows the agricultural parcel to be used for heavy industrial. Rural directors Karen Goodings, MATT PREPROST PHOTO Larry Houley, and Hudson’s Hope Mayor Gwen Johansson were the only Taylor Mayor Rob Fraser worried that opposing zoning and OCP amendments to allow ones to oppose the amendments, Encana to build its South Central Liquids Hub would send a wrong message to industry. while Director Leonard Hiebert, who we anticipate there will be employ- plan that’s been publicly vetted and represents Area D where the plant will ment opportunities arising from the adopted by this board. It’s the only be located, excused himself from the liquids hub,” he said. document that enforces the interests vote citing a conflict of interest. The board’s approval was the last of agriculture,” said Houley, an alter“This facility is a reflection of En- step for the project, which has al- nate director for Area E. cana’s commitment to the world-class ready gained support from the B.C. Houley said Encana brought forth energy assets in the Dawson Creek Oil and Gas and Agricultural Land a “very good business proposal,” but area,” Encana spokesperson Doug Commissions. likened the matter to discussions that McIntyre said following the decision. As anticipated, much of the PRRD took place in the early 2000s on where “It will support a number of our directors’ debate over the plan cen- to site the Peace Valley OSB plant in near-term and future investment tred on the area’s Official Commun- Fort St. John. plans in the Montney, one of our core ity Plan (OCP)—the document that “There was a process where there four assets.” governs medium-term development was a long list of sites, then a short The costs for the project were not in rural areas, including the size of in- list of sites, and good reasons given provided, but McIntyre said the facil- dustrial facilities. on why it should be there,” Houley ity is expected to be operational in the “The situation is we have a propon- said. “In this case … all the reasons I first or second quarter of 2017. “En- ent here that wants to carry on an ac- see given by Encana are valid to their cana always strives to hire locally and tivity that’s contrary to a community interests. I haven’t heard if any other
sites could be considered and what the impact of other sites would be.” The hub will draw natural gas from existing pipelines and separate the liquids, including propane and butane, to be sold on the open market. Encana has said it chose the Blockline Road area just off Highway 2 for the plant because it is close existing pipelines, allowing the company to forgo building extra pipeline routes and facilities. Nearby Crown land, which many opponents would like to see the plant built on, isn’t suitable, according to the company. Encana adds that without the South Central Liquids Hub, further development of natural gas in the area would be difficult. The PRRD received 176 letters and two petitions in support of the development, against 22 letters and a single petition in opposition. Many residents who live near the plant say they generally support the oil and gas industry, but oppose the project’s location due to health concerns, property values, and an “invasion” of their rural way of life. Taylor Mayor Rob Fraser worried about the message that board opposition might send to the oil and gas industry, which he said “co-exists fine” with the region’s agricultural industry. —with files from Mike Carter and Jonny Wakefield
Natural gas liquids ‘the one thing we have to hold hope to’: DC mayor JONNY WAKEFIELD reporter@dcdn.ca
Natural gas liquids including propane and butane are a lone bright spot in an otherwise bleak local economy, Dawson Creek Mayor Dale Bumstead says. The mayor was commenting during a July 13 regional district vote on Encana Corp.’s South Central Liquids Hub in the Tomslake area. The proposal has met with protest from residents in the area, who say the facility will intrude on their rural lifestyle. But Bumstead said the area couldn’t afford to pass up investment during a brutal time for B.C.’s oil patch. “For me, this isn’t about Encana or ARC (Resources) or Murphy (Oil) or Progress (Energy) or Tourmaline (Oil), it’s about the economies of our communities and our region, and we are a resource region,” he said. “What we’re talking about today are the economic opportunities that are brought by the liquids that are contained within (the Montney shale formation),” he said. “Those economic opportunities, I think, are the one thing that we have to hold hope to.” Bumstead’s comments came one week after
JONNY WAKEFIELD PHOTO
Dale Bumstead says the region needs to take advantage of investment, including in natural gas liquids, during an uncertain time for the oil and gas industry.
a major liquefied natural gas (LNG) player indefinitely delayed its proposal to export gas from the B.C. coast. LNG Canada announced July 11 that it would not make a final investment decision on its Kitimat facility by the end of the year as planned. The plant
would have sourced natural gas from the South Peace, allowing producers to sell their product on the world market. However, natural gas prices have collapsed along with the price of oil, leaving the 20 proposed B.C. facilities in jeopardy. “That has huge impacts on the natural gas industry,” Bumstead said, noting that the unemployment rate in the region has surged in the past 18 months. But natural gas liquids, including light oil, condensate, butane and propane, remain relatively steady. In recent months, investors have put hundreds of millions of dollars into gas processing plants in Northeast B.C., including Veresen Midstream in the South Peace. AltaGas, meanwhile, hopes to build a propane export facility near Prince Rupert. While rural residents say they bear the brunt of that development, Bumstead noted Dawson Creek residents have to deal with oil and gas infrastructure, too. “We have a 50,000 square foot frack sand facility that’s going to be built by CN in the centre of our town,” he said. “There’s 2,100 residences within a kilometre of that. So for me, we do face the consequences of that.”
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LNG
Woodfibre LNG doubles down on fourth quarter FID Project the frontrunner for B.C.’s first LNG terminal MIKE CARTER dcreporter@dcdn.ca
Amid the uncertainty surrounding liquefied natural gas export facilities on the B.C. coast, one tiny project planned for the Howe Sound is poised to be the first to make a positive final investment decision. In an interview Aug. 11 in Dawson Creek, Woodfibre LNG’s Vice President of Corporate Affairs Byng Giraud doubled down on the company’s commitment to make a decision on the project by the end of this year. “The market’s tough,” he said. “Guys are dropping off. We’re still very much in the hunt. There’s lots of bad news stories out there about LNG (but) this game is not over.” While Giraud hinted that the project would be a “good news story” for B.C.’s nascent liquefied natural gas industry, there are a number of hurdles the project has yet to clear. A tentative agreement is in place for 50 per cent of the facility’s planned output of 2.1 million tonnes of LNG per year, but discussions continue as the company attempts to find buyers for the rest of the gas. The only LNG project slated to be fully powered by the electricity grid, Woodfibre still needs to reach a power purchase agreement with BC Hydro. And because of a significant dip in the price of natural gas over the last two years, Woodfibre has to re-engineer a large portion of the project. As a result, the province’s energy regulator, the B.C. Oil and Gas Commission, has yet to grant permits for the construction of the facility. Finally, although FortisBC’s Eagle Mountain pipeline was granted provincial environmental approval this week, the details of how the gas will be transmitted through the pipeline to the project still need to be finalized.
MIKE CARTER PHOTO
Byng Giraud, Woodfibre LNG’s vice president of corporate affairs, and communications manager Marian Ngo talk about the project in Dawson Creek August 11.
“I have been working on industrial projects most of my life,” Giraud said. “Our willingness to adapt to the needs and desires of local First Nations and the local community shows our sincerity here. B.C. is a tough place to build so, if you are going to build here, you are going to have to go that extra mile. People are giving us a lot more credit than maybe they did three years ago.” Giraud added that he “does not fear” the remaining hurdles. The project is about one-ninth of the size of some of the larger proposed LNG export terminals, like the Petronas-led Pacific NorthWest project. Still, Giraud says having one export facility built on the B.C. coast could have impacts on other planned export terminals. “I think it puts B.C. on the map as an LNG exporter and it creates pressure for other projects,” he said. “There is a perception out there of, ‘can B.C. build stuff?’ The Japanese and the Chinese, in their parts of the world, look at us and we hear that question.”
So what makes it the frontrunner?
What’s next?
Because of changes in the price of natural gas, significant re-engineering work on the project has been done with the help of Houston-based KBR. This reduced the project’s capital cost (originally $1.8 billion) significantly, according to Giraud, although he could not confirm an exact number. Environmental approvals have been granted from both the provincial and federal governments and the company has taken “unprecedented” steps to work with local First Nations, including allowing the Squamish First Nation, to decide how portions of the project will be designed.
Woodfibre has yet to apply for a 15-year extension to its 25-year export licence granted through the National Energy Board. The timeframe extension was granted just before the last federal election and has already been approved for other projects such as the WCC LNG project and Shell-led LNG Canada proposal. Pacific NorthWest has applied, but has not yet received approval for the extension of its export licence. “That’ll help with the economics of the project,” Giraud said. Woodfibre will need to secure a source for the gas as well.
Because its expertise is in downstream operations (it partly owns an LNG receiving terminal in Shanghai with PetroChina and has several gas to power plants elsewhere in China), the company does not own any upstream assets itself. It intends to source the natural gas from existing producers in the Peace Region. This model, Giraud said, is somewhat concerning for potential customers across the Pacific including Woodfibre LNG’s parent company, Pacific Oil and Gas, based in Singapore. “The reason for concern is they don’t realize the abundance of gas that’s here,” he said. “So, when I say we’re just going to buy our gas on the market from long-term contracts with producers that are (in the Peace Region), the fact that we don’t have (gas) that’s on our own asset is a concern to some buyers. As part of their due diligence, they need to see that it’s real. That buying from an existing producer is not a risk.” Woodfibre intends to bring some of its potential customers to the Peace Region this fall to offer them a tour so that they can get a sense of the extent of the resource available in the Northeast. As a parting note, Giraud gave a whiff of caution, saying that while they’re still very much in the game, the margins are tight. “But we still think we can do,” he said. “We’re still quite bullish. There are a number of items outstanding but they’re not insurmountable, they’re not things we fear. They’re negotiations and they take time. Those kinds of things could impact the timing of a final investment decision but we don’t see them as being things that could stop us.” Given that there are only a few LNG export terminal proposals remaining, Woodfibre LNG could receive a lot of attention in the coming months.
AUGUST 19, 2016
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Province approves $235M Plateau pipeline Key pipeline for Woodfibre LNG also approved MIKE CARTER & MATT PREPROST dcreporter@dcdn.ca, editor@ahnfsj.ca
A $235-million pipeline from Wonowon to Taylor and another pipeline that will carry gas to the proposed Woodfibre LNG plant have been granted environmental approval by the B.C. government. Pembina-owned Plateau Pipeline Ltd.’s Northeast B.C. expansion is set to add 75,000 barrels a day of condensate natural gas liquids to the company’s system, while the Eagle Mountain-Woodfibre Gas pipeline is another step towards constructing B.C.’s first liquefied natural gas export terminal. Both projects will require various federal, provincial and local government permits before construction can begin. The 160-kilometre Plateau Pipeline will run from the Highway 97/ Blair Creek area north of Wonowon to an existing terminal in Taylor. The company has noted that the project would reduce traffic on area roads by up to 100 trucks per day. “The liquids-rich Montney formation in northeastern BC is experiencing unprecedented growth, with condensate and
PEMBINA PIPELINE PHOTO
Pembina’s recently completed expansion between Simonette and Fox Creek. The pipeline was placed into service in early August 2014.
natural gas volumes projected to rise substantially in the near term,” spokesman Jason Fydirchuk said. “A current lack of liquids transportation in this area has created strong demand for a pipeline solution. The pipeline will deliver the product into Pembina’s storage terminal in Taylor, BC, where it could be shipped elsewhere along Pembina’s transportation network, such as the Edmonton-area marketplace.” The pipeline still needs approval from the Oil and Gas Commission, but Pembina hopes to begin construction this September with commissioning in the second half of 2017, Fydirchuk said. The project is valued at $235 million, $83 million
of which will be spent in the region, Fydirchuk said. “During construction, 455 person years of direct employment, 774 person years of indirect employment and 531 person years of induced employment is anticipated,” he said. Surerus Pipeline has been selected as the main contractor for the work. Twenty-six legally binding conditions have been applied to the Plateau Pipeline, while Eagle Mountain will need to meet or exceed 30 conditions placed on it by the Ministry of Natural Gas Development. The conditions on Plateau include protection of moose during construction by restricting activities near calving habitats, a requirement
WCC LNG gets 15-year export licence extension MIKE CARTER dcreporter@dcdn.ca
British Columbia’s attempts to bust onto the global liquefied natural gas market got a shot in the arm July 28. WCC, a liquefied natural gas export facility that’s being jointly pursued by Imperial Oil and ExxonMobil, has received a 15-year extension to its LNG export licence from the National Energy Board. The project is planned for the Tuck Inlet, a deep water port near Prince Rupert. It would have an initial capacity to ship up to 15 million tonnes of LNG a year to buyers in Asia. The gas would be sourced from Northeast B.C. and transported to the coast via either Spectra Energy’s $7.5-billion Westcoast Connector Gas Transmission project or TransCanada’s $5-billion Prince Rupert Gas Transmission line. The 15-year extension to the company’s export licence is the result of new legislation introduced and passed by the former Conservative party gov-
ernment in June 2015. The change allowed for natural gas export licences to be extended to a term of 40 years, up from the previous 25. WCC LNG originally received a 25-year export licence in December 2013. It’s the second project to receive an extension under the new legislation. The Shell-led LNG Canada project was the first, gaining approval for its 15year extension to its 25-year licence in January. Petronas’ proposed Pacific NorthWest LNG export terminal has applied, but has not yet received approval to extend its 25-year permit to 40 years. WCC LNG’s export licence extension will help the company compete for Asian customers. Key to the NEB’s decision to extend the licence was to determine whether the quantity of natural gas WCC seeks to export was surplus to Canadian demand. To do this, a long-term natural gas supply and demand forecast that looks forward as far as 2065 was conducted by Solomon Associates. It determined that the amount of gas WCC seeks to export does not exceed the expected Canadian demand.
to undertake wetland surveys before beginning construction, protections for old growth forests, measures to help protect endangered plants, and the development of a plan to protect Aboriginal heritage sites. As for Eagle Mountain, the pipeline’s approval will allow gas drilled near Dawson Creek to reach the $1.8 billion LNG export facility to be located near Howe Sound. Conditions for that pipeline include contributing $250,000 towards developing a grizzly bear mitigation and monitoring plan, and using underground trenchless construction methods to reduce impacts on the Skwelwil’em Squamish Estuary Wildlife Management Area.
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INFRASTRUCTURE Gas flaring to power proposed electricity station Plant would ‘significantly’ reduce flaring, emissions JONNY WAKEFIELD reporter@dcdn.ca
A Calgary company says a proposed power plant in the Alberta Peace will harness energy from oil and gas flaring to generate low-emission electricity. Kineticor Resource Corp. and oil and gas producers near Peace River have entered into an agreement to build and operate a 100-megawatt power project fuelled by gas which would otherwise go up a flare stack. The $100-million project promises to cut emissions from the oil and gas sector while “significantly” reducing flaring in the area, Kineticor Business Development Manager Kate Nesbitt said. “Not only are we reducing emissions because the turbines on this power project have a higher combustion efficiency, we’re also creating a useful product,” she said in an interview. Baytex Energy, one of the largest heavy oil producers in the area, has signed onto the project, Nesbitt said. She said it was too soon to name other producers involved. Flaring allows upstream oil and gas producers to burn off excess gas produced during the extraction process. In the case of the Peace River plant, that gas is a byproduct of heavy oil production. Typically, gas is flared to reduce pressure on equipment when a producer is unable to process or transport the excess product. The practice tends to be controversial in oil producing regions. The Blueberry River First Nation, for example, refers to parts of its traditional territory as “Little Kuwait” due to flaring associated with natural gas production in the area. In mandate letters
SUPPLIED PHOTO
A rendering of Kineticor’s proposed Peace River Power Project, which would convert energy expended during oil and gas flaring into electricity.
issued by B.C. Premier Christy Clark, Natural Gas Minister Rich Coleman was instructed to work with industry to eliminate “routine” natural gas flaring—a significant emitter of methane. And a citizens group in the B.C. Peace has begun an air quality monitoring program due to concerns about flaring’s health effects. Trapping and using that gas to generate electricity could mitigate some of those issues. Nesbitt said there’s little natural gas transmission capacity in the Peace River area, giving producers few choices but to flare. The Alberta Energy Regulator is also placing new restrictions on the practice, which made the need for alternatives more urgent. “We needed to come up with a solution to conserve the gas,” she said. “We’re really trying to approach power generation differently in Alberta,” she added, noting
power from similar projects could go toward replacing coal-fired generation on Alberta’s electricity grid. “We don’t think the current or previous model of large, centralized power generation is always the best idea.” Similar projects exist in Saskatchewan, she said. “We think we need to look at the value chain and actually connect the gas producers to electricity generators. What we’re trying to do is bring those sectors together and generate electricity where the gas is produced.” The Peace River Power Project would produce enough power for 90,000 homes and reduce emissions by around 3.1 million tonnes of CO2 equivalent over the life of the facility. The project is expected to create around 120 jobs during construction. Kineticor hopes to begin construction during the second half of 2017.
Sign of the times: Ritchie Bros. to sell 1,200-person work camp MIKE CARTER dcreporter@dcdn.ca
The economic downturn burning northern Alberta and B.C., has been a boon for one company. Burnaby-based Ritchie Bros. auctioneers has set company records for sales since the downturn took hold, as oilfield companies offload their now unneeded equipment. But the company’s latest item for sale is its largest ever: a lightly used 1,200-person work camp. The camp, called the Blue Sky Lodge, was built by ATCO in 2013 for the Shell-led Carmon Creek project which was shelved in October 2015 as uncertainty loomed over the lack of infrastructure to move Canadian crude to global markets.
RITCHIE BROS./EQUIPMENT ONE PHOTO
The Blue Sky Lodge is divided into several complexes with three wings of living areas and 1,232 fully-furnished executive-style rooms. It’s located about 50 kilometres north east of Peace River,
Alberta. “In (our) 55+ years of business we’ve sold a lot of seriously big heavy equipment items,” a July 27 blog post on the company’s website states. “But nothing really
comes close in sheer physical size to this unique asset.” It’s about the size of a small town and includes a medical clinic, bar/ lounge, gym, living areas, waste water treatment plant, backup generators, three external luggage storage containers, a security trailer and an electrified fence to go around the perimeter of the camp. There is also a fully-equipped professional-grade kitchen and dining facility that can feed 1,200plus residents in 1.5 hours. Ritchie Bros. is offering site inspections and inquiries about removal of the camp from its current location by request. The camp was still available for sale as of press time, according to a company representative. To view the camp, visit equipmentone. com/blueskycamp.
AUGUST 19, 2016
PIPELINE NEWS NORTH •
OPERATIONS
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Veresen shifts focus to midstream natural gas MIKE CARTER dcreporter@dcdn.ca
Veresen Inc. plans to sell the entirety of its power generation business—roughly 14 per cent of its $4.5 billion asset base—in order to focus on midstream natural gas, according to a report in the Financial Post. The decision will have an impact the South Peace, where Veresen is a major midstream natural gas player. The company’s subsidiary Veresen Midstream, owns the Saturn natural gas plant near Groundbirch. It announced plans for a $930 million expansion of the plant at the end of 2015. Additionally, Veresen Midstream announced it would build Western Canada’s largest gas plant in decades near Dawson Creek last October
at an estimated cost of $860 million. It followed that up by announcing plans for another $715 million processing plant for a site south of Fort St. John. That’s a total investment of $2.5 billion in the Peace Region. “That’s more than 25 per cent of the largest public infrastructure project in the province’s history — the Site C dam — just a half an hour outside Dawson Creek and you hear nothing about it,” Dawson Creek Mayor Dale Bumstead said. “When you see the kind of investment that companies like Veresen are making into the midstream (natural gas) processing, it’s an indicator of how big the Montney (shale basin) is in terms of potential. It’s a big-time impact on our community.” All of the company’s gas processing plants will make use of existing
TransCanada NOVA Gas Transmission pipelines while also utilizing agreements with the Encana-led Cutbank Ridge Partnership. “When Veresen signed that deal with Encana, that was a big signal to me that they were serious about getting into the midstream processing business,” Bumstead said. Veresen Inc. CEO Don Althoff told shareholders and analysts on a conference call announcing second quarter results that the company decided to sell its power generation facilities because it does not believe it will offer returns that can compete with its midstream natural gas assets. The company owns 12 power generation assets across Canada, producing about 625 megawatts of energy. Veresen has plans to build a US $6
billion liquefied natural gas (LNG) export facility on the Oregon coast. The Jordan Cove LNG project was denied approvals by the U.S. Federal Energy Regulatory Commission (FERC) in March, citing lack of committed shippers. But in the weeks following that decision, Veresen signed a 20-year sales agreement for 25 per cent of Jordan Cove’s proposed 6 million tonnes per year output with the world’s largest LNG buyer: JERA Co. Inc.; a joint venture of the Tokyo Electric Power Company and Chubu Electric Power Co. Inc. Veresen has since moved for a rehearing on the project from FERC and is still waiting for the regulator’s final decision. The export facility would be an outlet for natural gas produced in the B.C. Montney shale gas basin.
June flooding continues to impact Pine River Gas Plant MIKE CARTER dcreporter@dcdn.ca
Canadian Natural Resources Ltd. (CNRL) reported a 5 per cent dip in processed natural gas volumes in the second quarter of 2016 due to mid-June flooding in Northeast B.C. Spectra Energy, who processes gas fracked at CNRL-owned wells in the Grizzly Valley for shipment to southern B.C. customers, said flooding exposed three pipelines leading to its Pine River Gas Plant Plant west of Chetwynd. Flow through these lines has been suspended until integrity and safety related inspections can be completed. As a result of the disruption, CNRL’s second quarter natural gas volumes fell to 1.69 billion cubic feet per day from the 1.79 billion cf/d in the first quarter. The loss of processing capacity also forced CNRL to cap wells that were producing about 176 million cubic feet per day. The Pine River plant was closed in the wake of the flooding. It has yet to reopen. At the time of
the shut down, it was processing about 245 million cf/d of natural gas. “We are working diligently on our return-toservice plan for the impacted pipelines and the Pine River Gas Plant, but have no firm timelines at the moment,” Spectra Energy spokesperson Jesse Semko wrote said. “Nothing will be returned to service until it is safe to do so.” Initially, Spectra said the impact of the flood on overall operations would be minimal as much
of the gas had been rerouted. CNRL’s chief operating officer Tim McKay told shareholders on an August 4 conference call that the company is working with Spectra to reroute 50 million cf/d of the gas to avoid the suspended processing plant. Additionally, another 40 million cf/d is set to come back online in September. McKay said CNRL’s production capacity remained strong, despite the dip in volumes processed. R001697755
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OILMEN’S
Oilmen celebrate 7 years of family time at annual campout MATT PREPROST editor@ahnfsj.ca
The way Brad Brain sees it, the annual Oilmen’s Family Campout Weekend at Peace Island Park every summer is better than Christmas. Soaking up the sun with his two kids and girlfriend, and waiting for the slip and slide at the Big Bam ski hill to fill with water, they were one of around 96 families to take in the weekend, now in its seventh year. “I enjoy this weekend more than Christmas,” said Brain on Aug. 13. “Being able to spend time with the family, to leave all the hustle and bustle of your daily routine behind for the weekend and have some good quality family time is so special.” Brain has hit the campout the last three years with his son William, 7, and daughter Emily, 9. It was the first time his girlfriend, Emily Siemens, took in the event. “I moved here from Vancouver recently, there’s nothing like this
MATT PREPROST PHOTO
Fort St. John Petroleum Association President Sean Thomas with Barry Holloway, who cochairs the association’s family campout committee.
back home,” she said. “The sponsorship is pretty awesome. There’s so many cool events for the kids.” Indeed, the weekend is all about the kids, organizers say. From the slip n’ slide to Sunday morning helicopter rides to horse rides and
more, there was no shortage of things to do. “We look at our community and the time that we’re in. What better time to get these kind of activities,” said Curtis Whitford, who co-chairs the Fort St. John Petroleum Association committee
that organizes the event. Seventeen members sit on that committee, which began planning for the weekend in January, he said. “Without the committee members we couldn’t get the sponsors,” Whitford said. “We have 17 guys that spend time away from their family to put this on for everybody else’s families.” At one of the campsites, 11-yearold Sean Monahan was found chopping firewood. It was his first time at the event, and came with family and friends. “It’s really fun,” he said. “The food is really good, the movie in the park was good.” Petroleum Association President Sean Thomas said the event has been growing every year, thanks in part to sponsors pulling together, even in tough times. “This stuff doesn’t happen without the sponsors. And even in this economic turmoil, the sponsors have stepped up and said ‘it’s still going, we’re going to put in,’” he said.
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Jonathan Toews, 8, readies for a big splash at the slip n’ slide set up on Big Bam ski hill last weekend.
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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.
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OPERATIONS Producers talk capital spending plans in Northeast BC CONTINUED FROM PAGE 3 As noted, northeast B.C.’s most active driller so far has been Progress, which focuses on the North Montney, north of Fort St. John. A Progress spokesperson would not discuss plans for the year’s second half, saying only that drilling would be reduced. Other producers, however, were willing to discuss their plans. Amongst the most active drillers in northeast B.C. this year was ARC Resources, which recently boosted its 2016 capital budget to $450 million. Roughly 75 per cent or $338 million of spending will go to Northeast B.C., with about two-thirds slated for drilling. Some 30 horizontal wells are planned, and two areas, Dawson and Parkland Tower, will account for more than two-thirds of ARC’s drilling in the northeast this year.
for the Cutbank Ridge Partnership, which is also Montney-based. Drilling will focus on the Tower, Dawson North, Dawson South and Tumbler Ridge areas, keeping two rigs busy, drilling roughly 17 to 19 net wells by year-end. The company has Montney lands in Alberta and B.C. Canbriam Energy Nearly all of Canbriam Energy’s B.C. Montney lands lie west of the royalty line. With a 2016 budget of $100-$110 million (66 per cent for drilling), the company plans eight net wells this year in the Altares region of northeast B.C. That’s down from about 20 wells — company-wide — last year, due to lower oil and gas prices.
Tourmaline Oil Also this year, Tourmaline Oil plans roughly 30 horizontal Montney wells, with another 35 planned in 2017. Tourmaline will fund a company-wide $775 million 2016 capital program, also recently bumped up, with roughly 20 per cent or about $155 million of spending slated for Northeast B.C.
Chevron Canada With 395,000 acres in the Liard Basin, Chevron Canada is drilling deep, planning some of the “largest unconventional wells in North America,” spokesperson Ray Lord said. In the first half, Chevron drilled a resource appraisal well to a measured depth of 6,974 metres. By year-end, the company expects to have drilled three wells, all in the Liard Basin. No activity is planned for Chevron’s Horn River Basin lands.
Encana Corp. For its part, Encana will spend $100-to-$120 million on the Montney this year, excluding capital
Murphy Oil Canada For its part, Murphy Oil Canada has set a budget for northeast B.C. of about US$40 million
(U.S.) this year, according to a spokesperson in the company’s U.S. head office (drilling plans were not disclosed). In recent years, Murphy has focused Montney drilling on its lands in the Tupper area of Northeast B.C. Storm Resources Storm Resources plans 10 Montney wells in B.C.’s Umbach area this year, eight of which were drilled in the first quarter. While the junior’s current capital budget is $37 to $42 million, Lavergne said his team would consider boosting this year’s well count if gas prices improve sufficiently. Crew Energy, Kelt, and Whitecap Resources Also in the B.C. Montney is Crew Energy, with a $70 million capital budget this year. Focusing on the greater Town, Greater Septimus and Greater Swan areas of northeast B.C., Crew did not disclose how many wells are planned this year. Kelt Exploration Ltd. is planning five net wells in northeast B.C. this year, up from 4.4 net wells drilled last year. This year’s program will focus on the Inga, Fireweed and Stoddart areas, targeting the Montney, Doig and Baldonnel formations, according to the company’s investor presentation. Active in the Boundary Lake area of northeast B.C., Whitecap Resources Inc. will drill four wells this year, down from three drilled in 2015, Whitecap’s investor materials said.
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