Wonder if Energy Minister Murray Smith is reading between the lines of the oilpatch’s third-quarter gush of profits?
If he is, he’ll spot two worrisome signs for the future of Alberta’s conventional natural gas reserves and the oilsands.
The first is that major Canadian producers are migrating like geese sensing winter from Western Canada’s mature sedimentary basin, which holds an ever-dwindling supply of natural gas.
EnCana Corp.’s third-quarter earnings surpassed analysts’ expectations by rising 96 per cent to $400 million, or 82 cents a share. Yet EnCana says it will shift much of its oil and gas exploration from Western Canada to frontier areas and internationally, where there’s more opportunity for the big find.
Petro-Canada CEO Ron Brenneman noted last month that production from wells in Western Canada is declining, despite the company’s annual investment of about $450 million a year in the region. Like many producers, Petrocan is flocking to other prospects worldwide.
The bloom is also off the oilsands’ rose. Last week, Brenneman said that soaring costs have undermined the attractiveness of investing in the oilsands, and companies will be fortunate to earn a profit on the cost of their capital investment.
Oilsands giant Suncor Energy Inc. is the exception, at least in this third quarter. The company’s profit jumped 60 per cent to $295 million, or 64 cents a share, largely because management is obsessed with keeping operating costs as low as possible.
Petrocan’s oilsands operations, on the other hand, only managed third-quarter earnings of $20 million compared with $51 million in the same quarter last year – mainly due to increased operating costs at the company’s new McKay River plant.
At both Shell Canada Ltd. and Imperial Oil Ltd., third-quarter profits would have been higher if not for declines in gas production in Western Canada and a weaker-than-expected performance from their oilsands operations.
So what can the Alberta government do about disappearing conventional gas reserves and escalating oilsands costs?
Smith and his cabinet colleagues have bet the province’s energy future almost exclusively on the oilsands. A more diversified strategy – once that put as much policy focus on unconventional gas (such as coalbed methane) and, especially, on renewable energy sources such as wind, solar and small hydro power – would be a smarter bet.
JUNIORS HOT
The big integrated (with upstream and downstream operations) oil and gas companies may be bailing out of Western Canada, but a lot of junior firms are jumping in.
Calgary-based Resolute Energy Inc., for example, says it’s increasing its 2003 capital budget from $50.5 million to $65 million to support an exploration and development program in its northern, central and southern core areas of the province.
Resolute, which will release its full third-quarter results later this month, is reporting a 22-per-cent annual growth in production, to 5,749 barrels of oil equivalent per day, over the same quarter last year.
Since June 2002, the company has more than doubled its undeveloped land, with additions this year expected to reach 100,000 net acres. As of September 30 this year, it had drilled more than 100 wells – 90 of them for natural gas.
WASTE LINES
There’s plenty of competitive business in waste – not to mention investor interest.
Producers Oilfield Services Inc. is expanding its oilfield waste-disposal business. The publicly traded Calgary company is negotiating to buy all the shares of an undisclosed private Alberta firm that has an interest in a new oilfield waste facility in the Grande Prairie area that’s expected to be operational this month.
Meanwhile, CCS Inc. has started operations at its new, full-service oilfield waste treatment, recovery and disposal facility near Edson, about 200 kilometres west of Edmonton. CCS operates 27 such facilities in Canada.
Newalta Income Fund, which is also in the “waste not, want not” biz, attracted over $43 million in investment in an equity financing round that ended last month. Newalta operates an integrated network of 35 facilities delivering waste-management services to a broad range of industries.
SULPHUR SWITCH
Oil refiners “got the lead out” by removing the toxic heavy metal from gasoline. Now they’re reducing sulphur, an air pollutant blamed for causing respiratory and other health problems.
Imperial Oil Ltd. has officially opened its low-sulphur gasoline production unit at its Strathcona refinery near Edmonton. The unit reduces the sulphur in gasoline content by more than 90 per cent.
Imperial spent $140 million on the 18-month project. The company will spend a total of $600 million to produce fuel averaging less than 30 parts per million at all its Canadian operations – and do it by the end of this month.
Suncor Energy and Shell Canada are teaming up to turn high-sulphur diesel fuel into ultra-low-sulphur diesel.
Under a 20-year agreement, Suncor next year will build a $300-million desulphurization unit at Shell’s Sarnia, Ont. refinery that will cut the pollutant in both companies’ diesel fuel.
NO COMPARISON
Residents of Lynnview Ridge in southeast Calgary should be cautious about reading too much into last week’s Supreme Court of Canada ruling on a dispute between Imperial Oil Ltd. and the Quebec government.
The court rejected Imperial’s argument that the Ministry of the Environment was in a conflict of interest by ordering the company to clean up oil and grease contamination that had leaked into the soil from decades-old storage tanks.
The Supreme Court decision does uphold the “polluter pays” principle – but that’s not at issue in the Lynnview Ridge situation. Imperial has never argued that it shouldn’t pay to clean up lead- and hydrocarbon-contaminated soil at its former refinery storage tank site. What’s at issue is the extent of the cleanup (and, by implication, how much it will cost).
Imperial and the Alberta government, which are in mediation over the dispute, should each put aside their tots-in-a-sandbox attitudes and come to an agreement.
