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Canadian Press: Oilpatch faces long list of multibillion-dollar decisions in next four months

12:45:42 EDT Aug 26, 2006
Canadian Press: JAMES STEVENSON

CALGARY (CP) – A wild pace to the final four months of 2006 is guaranteed in the Canadian oilpatch as an unprecedented list of multi-billion dollar projects from the Alberta oilsands to the North Sea face key milestones.

With the price of oil showing no signs of departing from near-record highs, nearly every major Canadian energy company is going flat out to complete expensive long-term new operations, acquisitions and strategic partnerships.

After a relatively quiet summer, a raft of critical decisions are expected before year’s end.

“We just have a lot of things coming to a head at the same time,” said Tom Ebbern, an energy analyst with Tristone Capital.

“I don’t think the activity level is a lot different than where it’s been – this sector’s been working flat out for a couple years now. But at the end of this year, we just have a number of projects all coming to key decision points at similar times.”

One of the first up is a major strategy announcement by EnCana Corp. (TSX:ECA) as it prepares to pick at least one partner who can provide refining capabilities for its rapidly growing oilsands production.

With a decision expected before the end of September, a new partnership will be a significant shift for Calgary-based EnCana, used to going it alone since selling its stake in the Syncrude oilsands joint venture in 2003.

But with aspirations to expand oilsands production twelvefold to 500,000 barrels per day over the next decade, EnCana hopes to team up with others who already own North American refineries so it doesn’t have to build its own facilities or sell heavy oil at a discount.

Husky Energy (TSX:HSE) is also rapidly expanding oilsands production and reviewing its downstream options for refining and upgrading. A similar partnership arrangement could be announced here as well.

Oilsands developments will be top of mind for other companies too.

Suncor Energy (TSX:SU) expects a ruling from Alberta’s energy regulator by October on its $7-billion Voyageur mine and upgrader expansion.

Shell Canada (TSX:SHC), which already announced late last month that the first expansion of its Athabasca oilsands project could cost upwards of $12.8 billion, will apply for regulatory approval in September with an expected go-ahead decision before year’s end.

Petro-Canada (TSX:PCA) is expected to provide more details to investors in early October regarding specific development plans for its Fort Hills oilsands project, as well as updated cost estimates.

And Imperial Oil (TSX:IMO) will take its plans for a massive oilsands mine called Kearl, which could cost upwards of $8 billion, to the regulator in late October.

With more than $100-billion worth of oilsands developments awaiting construction, Ebbern said its possible that projects could be delayed and push back a few years.

But he said that with oil remaining above $70 US per barrel, “it’s unlikely” that the big projects will be shelved completely.

Imperial, which is Canada’s largest energy company, is also expected to provide a crucial “revised cost and schedule estimate” for the proposed Mackenzie Valley natural gas pipeline this fall.

In June, the company warned that soaring cost pressures would mean that the proposed pipeline could cost much more than most recent estimates of $7.5 billion.

Imperial promised to return later this year with a more accurate price tag and time frame.

The 1,200-kilometre line is being proposed by a consortium that includes energy and pipeline companies as well as First Nations. The line would connect currently stranded gas reserves in the Northwest Territories with existing infrastructure in Alberta and is expected to have a major economic impact on the region.

Several key developments are also expected by Canadian energy companies in the British North Sea.

By the end of the year, first oil is expected at the $3.2-billion Buzzard offshore facility, which is touted as the biggest new project in that basin in the last decade.

Calgary-based Nexen Inc. (TSX:NXY) has a 43 per cent operating stake in Buzzard, while crosstown rival Petro-Canada holds a 30 per cent interest.

Another Calgary company, Talisman Energy (TSX:TLM) is also a major player in the North Sea and expects to close a deal in September to buy two Central North Sea assets from global heavyweights Royal Dutch Shell PLC and Exxon Mobil Corp.

Finally, the conventional oil and gas business in Western Canada will also have its share of excitement, with one of the largest asset sales in recent years.

Houston-based Anadarko Petroleum (NYSE:APC) announced in June that it was exiting Canada and selling all of its production and lands, which include about 340 million cubic feet equivalent of daily natural gas production and reserves of 1.6 trillion cubic feet equivalent.

The divestiture, which is expected to fetch upwards of $5 billion, is expected to be completed before the end of the year.

A quick look at some of the key milestones facing the Canadian oilpatch this fall:

Anadarko Canada: On the block, sale likely before year-end and expected to fetch upwards of $5 billion.

EnCana Corp: Announcement before end of September on long-awaited partnership for long-term oilsands refining solution.

Nexen Inc.: $3.2-billion Buzzard North Sea oil facility expected to start production before year-end.

Suncor Energy: Regulatory ruling on $7-billion Voyageur mine and upgrader expansion expected by October.

Shell Canada: Regulatory hearing for first expansion to Athabasca oilsands project in September. Go-ahead decision on expansion, which could cost upwards of $12.8 billion, expected before year-end.

Imperial Oil: Revised cost and schedule estimate for $7.5-billion Mackenzie pipeline plan expected later this fall; Regulatory hearing for Kearl oilsands mine, costing upwards of $8 billion, starting late October.

© The Canadian Press, 2006

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