Oil and Gas – Canada – June 2016

By: Paul Young, CPA, CGAJuly 3, 2016

Disclaimer• This presentation is on view of the oil and gas sector for Canada

Paul Young - Presenter

Bio• CPA/CGA• 25 years of experience in Academia, Industry and Financial solutions• Youtube Channel -

https://www.youtube.com/channel/UCAArky1bAXPSuV2NLtUnyLg

Agenda• Oil Rigs• Oil Pricing• Imports and Exports• Refineries• Proven Reserves• Exports• Imperial Oil• Capital Expenditures

Oil Rigs

• Source – Baker Hughes

Oil Pricing

Source: BMO

Oil (Exports and Imports)

Oil / Canada

Oil Refinery

Canada produced 19.5 million cubic metres (122.6 million barrels) of crude oil and equivalent products in March, up 0.2% compared with the same month in 2015.

http://www.statcan.gc.ca/daily-quotidien/160615/dq160615c-eng.pdf

Proven Reserves• The U.S. holds more oil reserves than anyone else in the world, including Saudi Arabia, Russia, and Venezuela.• That conclusion comes from a new independent estimate from Rystad Energy, a Norwegian consultancy. Rystad

estimates that the U.S. holds 264 billion barrels of oil, more than half of which is located in shale. That total exceeds the 256 billion barrels found in Russia, and the 212 billion barrels located in Saudi Arabia.

• The findings are surprising, and go against conventional wisdom that Saudi Arabia and Venezuela hold the world’s largest oil reserves. The U.S. Energy Information Administration, for example, pegs Venezuela’s oil reserves at 298 billion barrels, the largest in the world. Rystad Energy says that these are inflated estimates because much of those reserves are not discovered. Instead, Rystad estimates that Venezuela only has about 95 billion barrels, which includes its estimate for undiscovered oil fields.

• Moreover, Rystad argues that there are not uniform ways of measuring oil reserves from country to country. Some countries report proven reserves, using conservative estimates from existing oil fields. Other countries, like Venezuela, report undiscovered reserves. But Rystad applied similar metrics to all countries in its report to make comparisons easier. “An established standard approach for estimating reserves is applied to all fields in all countries, so reserves can be compared apple to apple across the world, both for OPEC and non-OPEC countries. Other public sources of global oil reserves, like the BP Statistical Review, are based on official reporting from national authorities, reporting reserves based on a diverse and opaque set of standards.” The latest assessment, Rystad argues, paints a more accurate portrait.

• The U.S., then, sits atop with its oil reserves. Rystad notes that Texas alone could have 60 billion barrels of oil.

Exports

Capital Expenditures • Canadian oil production will grow by 28 percent to hit 4.9 million barrels per day (bpd) by 2030, the Canadian Association of Petroleum Producers said in its annual report.

• The estimate is lower than CAPP's previous forecast of 5.3 million bpd by 2030, and comes amid a two-year rout in global oil prices that continue to hammer Canadian oil companies, which have slashed billions in capital expenditures.

• Production from Alberta's oil sands, the world's third-largest crude reserves and No. 1 source of U.S. oil imports, will hit 3.7 million bpd by 2030, the industry group said on Thursday.

• CAPP expects conventional oil production in Western Canada, including condensates, to fall to 1.1 million bpd by 2018 from 1.3 million bpd in 2015 and is expected to remain relatively stable to 2030.

Imperial Oil• Upstream, Imperial reported the early start-up of its Kearl oilsands mining expansion project, and the successful start-up of the Cold Lake Nabiye thermal project drove an 18

per cent production increase in 2015.

• Overall production averaged 400,000 gross boe/d in the final quarter of 2015, an increase of 27 per cent from 315,000 barrels in the same period of 2014, and it is now at its highest level in more than two decades.

• Despite the highest production in a generation, low prices resulted in a $700-million upstream loss for Imperial in 2015 compared to a net income of $2.05 billion the previous year.

• “Consistent with our long-standing approach, we continue to focus on what we can control,” says Kruger. “As a result, we reduced operating and capital costs by $1.5 billion relative to earlier plans. Most notably, since bringing on new production, upstream unit cash costs were 25 per cent lower in the second half of 2015 than our 2014 annual average. Disciplined operating and capital cost management continue to be a priority.”

• Much of Imperial’s success in cutting capital costs has come from focusing on its construction supply chain, Kruger said in a recent Q&A with Oilsands Review staff writer R.P. Stastny.

• “Our strategy is to capture cost savings and efficiencies that can be sustained for the long term. Working with our contractors, we initially focused on price: voluntary reductions, rebidding and procuring in different ways. Thereafter, we significantly shifted our efforts toward partnering with contractors to bring about productivity improvements,” he said. “We’ve taken some of our Alberta contractors to elsewhere in ExxonMobil’s world and shown them ideas for improvements. Doing this can result in productivity improvements that will benefit all of industry, making our contractors healthier and more competitive, both in the current environment and in the future. We believe many of our cost reductions and other improvements will be structural in nature. What we are trying to do is implement cost efficiencies in the most sustainable way for the long-term health and well-being of the business.”

• The company is now focused on operational excellence.

• “Over the past several years, we have gone through a period of significant growth, particularly in the upstream. Our priority now is ensuring we get the full value of those recent investments, focusing on base business operating fundamentals and delivering significant cost reductions in a challenging business environment,” said Kruger.

• While upstream was in the red, Imperial’s downstream net income in 2015 was $1.59 billion, around the same as in 2014. Earnings decreased due to the impact of lower refinery margins of about $590 million and higher operating costs of about $70 million mainly associated with the Edmonton rail terminal. The decline, however, was partially offset by the favourable impact of a weaker Canadian dollar of about $390 million, higher fuels marketing margins and volumes of about $170 million, lower energy costs of about $80 million and a 2015 gain of $17 million from the sale of assets.

• Chemical net income was a record $287 million in 2015, an increase of $58 million over the same period in 2014, primarily due to the impact of a weaker Canadian dollar, lower feedstock costs and higher sales of polyethylene.

• “Looking ahead, the company has a significant oil and gas resource base and a large inventory of potential projects that position us well for future growth,” said Kruger.

Policies / issues• Carbon Tax/Pricing (Alberta/Ontario)• Shift to clean technology (i.e. electrical cars, wind, solar, biomass)• CPP expansion• Fort McMurray Fire• Lack of capacity (pipelines)