Northeastern B.C. continues to be the province’s hottest area for oil and gas exploration.
Companies drilled 980 wells in the region during the first eight months of this year, a 33-per-cent increase compared with the same period last year, according to figures from B.C. Energy and Mines.
Between April 1 and Aug. 31 – when drilling activity traditionally slows down – 135 wells were drilled.
Spring and summer drilling in 2004 declined by 10 per cent compared with 2003. However, this year’s activity was still 105-per-cent higher than 2002 levels.
The provincial government is trying to spur more spring and summer drilling by offering a $100,000 royalty reduction for every well drilled between April and November.
Swelling oil and gas revenues are a big reason for the province’s $865-million surplus recently announced by Finance Minister Gary Collins.
Provincial New Democrat leader Carole James was quoted in the news last week as saying that Premier Gordon Campbell and his Liberal government’s business-friendly policies “have ripped apart the fabric of what makes British Columbia so wonderful.”
The NDP is running close to the Liberals in the polls.
But if James and her party want to make any inroads in the next provincial election, bashing business won’t do it.
James needs to find a way to both keep B.C.’s oil and gas industry healthy and protect the province’s natural fabric.
A U.S. energy firm is being nothing but a bully in its latest move to build a new power plant just across the border from Abbotsford.
Sumas Energy 2 Inc. (SE2) is appealing a decision by Canada’s National Energy Board (NEB) that blocked the project by ruling against an international power line needed for the new 660-megawatt natural gas-fired power plant to be built in Sumas, Wash.
In documents filed with the Federal Court of Appeal, SE2 says it wants its appeal costs paid by all 382 intervenors who testified against the proposed project at the NEB hearings.
Court documents have been sent to all the intervenors notifying them that legal proceedings have started against them, according to a report.
Not only is SE2’s tactic bullying, it goes against well-established practice for energy companies participating in regulatory hearings in Canada.
In Alberta, for example, companies that are taken to Energy and Utilities Board hearings by intervenors pay the costs of these hearings.
After all, if a project proponent hasn’t been able to settle all the issues with the public – which triggers a hearing – it’s in the proponent’s interest to line up all its experts and make its case at the hearing.
SE2 accuses the NEB of “selectively using facts and making arbitrary, capricious and unreasonable findings.” If the company can convince the Federal Court of Appeal of its arguments, then it is the NEB that SE2 should be going after to pay the costs of its appeal.
The U.S. firm shouldn’t be beating up on the 382 people – hundreds of them residents of Abbotsford who’ll have to live with the air pollution from SE2’s power plant – who had the courage to stand up and speak at the NEB hearings.
If SE2 persists in this action, then the B.C. and Canadian governments must step in quickly and guarantee to cover each and every one of the intervenors’ costs.
Shell Ups The Ante
Shell Canada Ltd. is betting on two things in pushing ahead with a $4-billion expansion at its Athabasca Oil Sands Project.
The project, which came onstream in June 2003, includes the Muskeg River Mine north of Fort McMurray and the Scotford Upgrader northeast of Fort Saskatchewan.
The company intends to submit a regulatory application next year for the expansion, to double bitumen production from an average 141,900 barrels a day (b/d) in the second quarter this year to between 270,000 b/d and 290,000 b/d by 2010.
Shell owns 60 per cent of the Athabasca project, while Chevron Canada Ltd. and Western Oil Sands LP each hold 20 per cent and have the option of taking part in expansions. Western Oil Sands says it will participate, while Chevron is still taking a look.
In going ahead, Shell is betting that world oil prices will continue to stay high for at least the next few years.
Shell Canada’s parent firm, Royal Dutch/Shell Group, said last week that oil prices have shifted “structurally higher.” Based on that view, Royal Dutch/Shell is planning a total of about $45 billion US in capital expenditures over the next three years.
This includes about $11.5 billion US a year on exploration and production activities, up from $10.7 billion last year.
Even if oil prices take a nasty tumble in the near future – which is highly unlikely – Shell Canada will still go ahead with its oilsands expansion.
The company knows the bitumen is there and can be mined for a predictable price. On the other hand, hunting for big oil pools elsewhere is an expensive and risky proposition, especially in geo-political conflict zones.
The only conflict zone like that in Canada is whenever Alberta Premier Ralph Klein and Prime Minister Paul Martin find themselves in the same room.
The other thing Shell Canada is betting on is that it can control the huge cost overruns that have plagued oilsands mega-projects, including a 50-per-cent hike in the Athabasca Oil Sands Project’s original $3.8-billion budget.
Shell says it learned a lot from building the original project – mostly not to take too big a bite of construction all at once. The company also now has roads, pipelines and offices for the project, so it won’t need to build these from scratch.
Also look for Shell to hedge its bet by requiring contractors to set a firm price for the work they bid to do and pay for any cost overruns themselves.
All in all, it looks like a pretty safe hand to play.
But with so many oilsands mega-projects on the go at the same time, the one thing that could upset Shell’s construction timetable is finding the 6,500 skilled workers required to actually do the job.
Hot Oil Prices Can’t Cool Costs
It looks like most of the oilpatch is betting on oil prices to stay high.
Worldwide spending by companies on “upstream” activities – exploration, development and production – increased by nine per cent to $161 billion last year, says a study by John S. Herold Inc. and Harrison Lovegrove & Co. Ltd.
The jump in upstream spending in 2003 was a marked contrast to the 4.4-per-cent drop the previous year, according to an Oil and Gas Journal report from Houston.
Driven by oil and gas prices, the worldwide industry’s cash flow reached a five-year high in all six global regions reviewed in the study, which was based on the public records of 194 oil and gas companies.
In Canada, all that cash hasn’t offset costs that have exceeded cash flow by nearly 40 per cent over the last five years, the study said. Most of the spending in Alberta has been on new and expanding oilsands projects. And it will take a few years to start seeing a return on this investment from increased production.
A worrisome note in the study is that upstream spending in North America has fallen by 22 per cent since 2001, while spending in South and Central America, Africa and the Middle East has risen by more than 60 per cent.
These figures corroborate a trend by major oil and gas firms that are selling their assets in the already well explored and developed reservoirs of the Western Canadian Sedimentary Basin, in favour of hunting a big oil or gas strike in other countries.
(Mark Lowey can be reached at email@example.com)