Page 1

CAPP’s member magazine

Volume 2 . Issue 1 April 2014

the

Investment issue:

How new capital can unleash Canada’s upstream potential

What’s Up

at CAPP

LNG: Risk and

Opportunity

Q&A with Suncor’s

Michelle Liebau

Publication Number: 2014-9204


Energy

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Global Corporate and Investment Banking

I

Global Capital Markets

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Table of

president’s Message: Changes at CAPP

Contents

Page 6

Volume 2 Issue 1 the investment issue Features

Canadian LNG: A World of Risk and Opportunities Page 20

18

Wildfire Legacy Slave Lake community investment bears fruit with vibrant new legacy centre.

20

Canadian LNG: A World of Risk and Opportunities Canada’s natural gas industry is in a race to take advantage of the market for liquefied natural gas (LNG). What will it take to succeed? By Scott Simpson

Investing in Upstream Potential Page 24

24

Investing in Upstream Potential Backed by a prodigious resource base and world-class innovation, Canada has the capacity to grow into a global energy leader. By David Coglon

Departments

Michelle Liebau on Leadership

Photo: Greg Halinda

Page 32

capp.ca/context

5

In This Issue

6

President’s Message

9

Industry News

10

What’s Up at CAPP?

17

Community

31

Ask An Expert: Scotiabank’s Patrick Bryden

32

Leadership Profile: Suncor’s Michelle Liebau

34

O&G 101: Foreign Investment

36

Events

37

What’s Online at CAPP, Safety 101

38

In Closing: Greg Stringham

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3


Contributors David Coglon David Coglon is a Calgary freelance writer with nearly 30 years of experience. He has written for different industry associations and many of Canada’s leading oil and gas companies on a wide range of topics, including the environment and corporate social responsibility. His writing has been published on the web, in corporate publications and in newspapers including the National Post and The Globe and Mail. In this issue, Coglon wrote “Investing in Upstream Potential,” page 24.

David Finch David Finch is a public historian who has been researching and writing the history of the Canadian West for more than 30 years. He interviewed dozens of Turner Valley old-timers for the bestselling book, Hell’s Half Acre: Early Days in the Great Alberta Oil Patch, and wrote his M.A. thesis on the living and working conditions in the Turner Valley oilfield. In this issue, Finch wrote “Western Canada’s First Commercial Oilfield Turns 100,” page 9.

Greg Halinda

The official member magazine for the Canadian Association of Petroleum Producers (CAPP) Volume 2 Issue 1 context@capp.ca | www.capp.ca/context Publisher Janet Annesley, Vice President Communication CAPP Janet.Annesley@capp.ca Managing Editor Brenda Jones, Manager Member Communication and Special Events CAPP, Brenda.Jones@capp.ca Editor Andrew Mah, Member Communication Advisor CAPP Andrew.Mah@capp.ca Art Director Susie Wong, Blunt Strategic in cooperation with Radfactory House of Design Contributors Kathryn Boothby, David Coglon, Mark Cromwell, David Finch, Anne Georg, Greg Halinda, Joshua Naud, Scott Simpson Digital Communication Christina Pilarski, Manager Campaigns CAPP Christina.Pilarski@capp.ca

Greg Halinda is a Fort McMurray-based photographer who loves shooting on location in the oil sands, as well as meeting the talented people who have brought their expertise and enthusiasm from all parts of the world. Halinda’s work has been published by oil sands developers, business publications, the news media, universities, colleges, the Alberta government and the Regional Municipality of Wood Buffalo. In this issue, Halinda photographs Michelle Liebau for our “Leadership Profile,” page 32.

Courtenay Davidson Digital Communication Advisor CAPP Courtenay.Davidson@capp.ca

Scott Simpson

CAPP Executive Team

Scott Simpson spent 32 years as an award-winning reporter, editor and columnist at the Vancouver Sun before a 2013 career shift into communication consulting and freelance writing. His journalism career encompassed business writing on energy and mineral resources, government policy, Aboriginal affairs, transportation, utilities, economics and innovation. In this issue, Simpson wrote “Canadian LNG: A World of Risk and Opportunities,” page 20.

President and CEO Dave Collyer

Distribution and Member Updates Janine Vandenberghe, Administrative Assistant Janine.Vandenberghe@capp.ca Please contact for changes in contact names and delivery addresses. Context Concept, Strategy and Product Development Agnes Zalewski, Blunt Strategic

Janet Annesley

Janet.Annesley@capp.ca

Vice President Ottawa and Eastern / Atlantic Canada Bob Bleaney

Bob.Bleaney@capp.ca

Vice President Policy and Performance Alex Ferguson

Alex.Ferguson@capp.ca

Vice President Western Canada David Pryce

CONTEXT is printed on 100 Per cent Post‑Consumer Fiber, manufactured using Biogas Energy

Dave.Collyer@capp.ca

Vice President Communication

David.Pryce@capp.ca

Vice President Regulatory and General Counsel Nick Schultz

Nick.Schultz@capp.ca

Vice President Oil Sands Greg Stringham

Greg.Stringham@capp.ca

Offices

by using

1683 kg of recycled material we saved:

40.5 kwh of energy 74,584 litres of water 1.85

tonnes of greenhouse gases

538 kg of solid waste 37 trees

Calgary 2100, 350 – 7th Ave SW, Calgary, Alberta T2P 3N9, Tel: 403.267.1100 Ottawa 1000, 275 Slater Street, Ottawa, Ontario K1P 5H9, Tel: 613.288.2126 St. John’s 403, 235 Water Street, St. John’s, Newfoundland and Labrador, A1C 1B6, Tel: 709.724.4200 Victoria 310, 1321 Blanshard Street, Victoria, British Columbia, V8W 0B5, Tel: 778.410.5000 Printed in Canada by McAra Printing. Copyright © 2014 Canadian Association of Petroleum Producers. All rights reserved. Reproduction in whole or in part is strictly prohibited.

Publication Number: 2014-9204 4

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capp.ca/context


In this Issue

Canadianmarket pathway energy’s to Toronto and beyond

This year marks the return of the energy city (Calgary) to the financial city (Toronto) in the form of the 2014 CAPP Scotiabank Investment Symposium. Over 90 Canadian oil and gas executives will provide their companies’ outlook to 200-plus eastern-based institutional investors and analysts at the 2014 CAPP Scotiabank Investment Symposium. The forum also provides the energy industry with an excellent opportunity to convey the overall value that oil and gas brings to people in Eastern Canada, specifically in Ontario. For example, did you know that… • Oil and gas companies represent about 20 per cent of the value of the TSX. • For every direct job created in Alberta’s oil sands industry, approximately one indirect and one induced job will be created in the rest of Canada. • Natural gas is expected to provide over 300,000 jobs (indirect, direct, and induced) across Canada by 2035. • Upstream payments to government in the form of royalties, income taxes and lease sales average $18 billion per year. This is the 24th year that CAPP has held an investment symposium, and CAPP is proud to partner with Scotiabank on this year’s event. Occurring over two days, April 3 and 4, the CAPP Scotiabank Investment Symposium aims to be a premier oil and gas investment event in 2014.

Inside this issue, key features include: “Upstream Potential” where readers will learn more about why the oil and gas industry needs investment, along with key constraints and areas where capital injections are vital. “Canadian LNG: A World of Risks and Opportunities” surveys the potential of this new industry, along with key challenges, including the billions of dollars of investment that proponents have yet to commit. Of special interest is an economic perspective from a Scotiabank analyst who outlines the economic outlook and investor climate for 2014. Finally, industry does a significant amount of reinvestment in the communities where it operates; learn more about how industry gives back in our short feature “Wildfire Legacy.” In addition, CAPP President and CEO Dave Collyer discusses some important governance and structural changes here at CAPP, and what impact this will have on members. Last, be sure to check the “In Closing” piece from CAPP Vice President of Oil Sands, Greg Stringham, as he writes about the importance of market access on industry investment and competitiveness. Brenda Jones, Manager, Member Communications and Special Events,

Beyond the symposium, investment is a vital part of the growth and health of Canada’s upstream oil and gas industry. This issue of Context is dedicated to the importance of investment from a macro to micro level, and from the national to the local stage. From a number of perspectives, we explore what investment in the industry means to individual Canadians, communities and Canada as a whole. capp.ca/context

Canadian Association of Petroleum Producers

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President and CEO’s Message

Changes at CAPP: Renewed Governance and Organization Structure, Same Focus on Results Delivery

CAPP President and CEO Dave Collyer addresses these changes: Q: What are the changes to the CAPP Vision and Mission Statements? A: CAPP hasn’t had an overall Vision Statement, although we have had a Vision for the Responsible Canadian Energy (RCE) program. We decided to create a Vision Statement that was outward-looking and characterized what CAPP is striving to achieve in a broader Canadian context. This statement will now also be used for the RCE program. The CAPP Mission Statement was updated to better align with the Strategic Framework that CAPP has been using for the last several years. Q: Why are changes to CAPP’s governance and organization structure necessary? A: We want to sustain CAPP’s very successful track record. It’s better to be proactive than reactive in anticipating and adapting to change. Our industry is operating in a very dynamic, complex and ever‑changing environment. Even compared to a few years ago, the needs and expectations being placed on CAPP as the umbrella association for Canada’s upstream oil and gas industry, have greatly expanded — in terms of the scope of our activities, the juriusdictions we need to cover and the relationships we need to build across the value chain. To effectively address changes in the external environment, the growth of our industry, our expanded scope of activities, and changes in member expectations, CAPP needs to likewise change and evolve. The changes to governance, organization and staffing that are being made are intended to ensure the focus, relevance, credibility and results delivery that will sustain CAPP’s very successful track record. 6

context . volume 2 . issue 1 . april 2014

Q: What exactly are the governance changes? A: From a governance perspective, the following are the key changes: • Enhancing the CAPP Board’s focus on strategic direction, key cross-cutting policy and regulatory issues and overall governance. • Clarifying CAPP’s interface with the Oil Sands CEO Council and the emerging BC LNG Developers Alliance (BCLNGDA), enabling necessary flexibility in governance and funding, while maintaining “one industry tent.” • Establishing a Natural Gas sub-committee of the CAPP Board, with the objective of enhancing our strategic focus on natural gas and increasing the visibility of the natural gas dimension of CAPP’s activities. • Reinforcing the potential for there to be other sub‑committees of the CAPP Board to address key issues of a temporary / transitional nature. • Confirming the operational “business delivery” Executive Policy Groups (EPGs) as CAPP’s primary member interface, and their role in prioritizing, decision-making, outreach and advocacy on policy and regulatory issues (relying on functional expertise from CAPP staff and through functional EPGs / committees for advice and recommendations). • Establishing a Policy Advisory Group to bolster our integrated policy / regulatory capacity and to provide a bridge between functional experts, CAPP executive and business delivery EPGs. • Reviewing the optimal structure of functional EPGs / committees to simplify and ensure role clarity and effectiveness in providing depth subject matter expertise and advice. capp.ca/context


President and CEO’s Message

Providing more diversity in branding of CAPP and industry initiatives, dependent on activity and/or jurisdiction, but connected via a common strategy and overall theme.

We still have some fine-tuning to do in terms of finalizing the governance changes, but the above are the key changes. Our overall objectives were to clarify the role of the Board, to ensure clarity in decision-making, and to ensure we have a governance structure that provides timely integrated advice and recommendations to decision-makers.

Q: What about the organization changes? A: From an organization and staffing perspective, the following are the key changes: • Establish W. Canada, Oil Sands and Ottawa / Eastern / Atlantic Canada “Business Delivery” groups: o To provide organizational balance; o To provide integrated delivery capability — policy and regulatory advocacy, operational regulatory issues, markets and transportation, operational communications and outreach, and technical, so as to improve focus, responsiveness and visibility for credible and timely engagement across the value chain; o To support policy development; and, o To be responsive to the demand for increasing visibility / influence along the value chain. • Provide single point executive accountability for oil sands, both to the OS EPG and to the OS CEO Council; • Consolidate staff focused on policy development into one group: o To improve policy depth, integration, prioritization and efficiency (enabled by the formation of the Policy Advisory Group); capp.ca/context

o To provide the lead on policy and regulatory development, while supporting policy advocacy; and, o To be responsive to the need for greater policy and technical depth within CAPP. Shift reporting for Atlantic Canada and Northern Canada offshore to CAPP’s Ottawa-based VP, reflecting the significant federal influence on these files. Strengthen the functional excellence role for Communications, including strategy, in support of business delivery (operational communications staff will be assigned to the business delivery organizations). Establish a Performance function within the Policy organization, reflecting the increased focus required to advance RCE in line with business requirements (program design, processes and tools, metrics, performance analysis, reporting) and to strengthen our focus on emerging issues (identification and CAPP response).

Q: So what should CAPP member company employees take away from all of this? A: First, there will be some changes in the way members interact with CAPP as a result of the governance changes currently underway and the organization and staffing changes being implemented. These fall more into the category of clarification and refinement, rather than fundamental changes in the interface between CAPP and its members. However, they do involve change which will require adaptation by both CAPP staff and members. Second, it is important to keep in mind that the underlying objective of these changes to governance, organization and staffing is to ensure CAPP’s continued focus, relevance, credibility and results delivery. CAPP remains focused on delivering results and value for our members and for our industry as a whole, as per the priorities for competitiveness and social licence agreed upon by our Board. We firmly believe these are the right changes at the right time, and that we are now better-positioned to address the opportunities and challenges going forward.

CAPP has announced a new governance and organization structure, approved at the CAPP Board of Governors meeting in January (Figure 1). In addition, CAPP revised its Vision and Mission statements.

For those familiar with a business unit organization design model, the CAPP organization will reflect three organization units responsible for business delivery (1) Western Canada, 2) Oil Sands and 3) Atlantic / Ontario / Quebec) and three organization units responsible for functional excellence (1) Regulatory, 2) Communication and 3) Policy & Performance). We are now in the process of finalizing staffing to ensure we have the right people in the right positions to address our priorities for 2014 and beyond.

Third, CAPP’s success is largely dependent on its people. These changes will enable increased effectiveness and efficiency in the manner in which CAPP staff conduct their work and interact with members. We are committed to ensuring CAPP maintains a strong team of talented and experienced industry professionals. The changes will enable us to be focused and forward-looking, and will give CAPP the opportunity to develop — both externally and from within — additional strengths and expertise that are needed to meet the increasing scope of challenges we face as an industry. context . volume 2 . issue 1 . april 2014

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President and CEO’s Message Finally, I would note that it is fitting we are outlining these changes in Context’s Investment issue. We believe support of CAPP is as an investment, made by the member companies who comprise Canada’s upstream industry. As investors know, what counts in choosing an investment is making sure there’s a strong team in place that’s capable of adapting to an ever-changing external context while consistently collaborating to deliver strong results. I’m proud to say that this is what we do here at CAPP every day and that that won’t be changing anytime soon. Sincerely, Dave Collyer, President and CEO, Canadian Association of Petroleum Producers

CAPP’S VISION CAPP’s Vision is to enhance Canada’s prosperity by enabling responsible growth of Canada’s upstream oil and gas industry.

CAPP’s Mission Our Mission, on behalf of the Canadian upstream oil and gas industry, is to advocate for and enable: • Economic competitiveness; and, • Safe, environmentally and socially responsible performance. This means achieving the following outcomes for our industry: • Competitiveness, in North America and globally, so as to attract the capital necessary to grow production and expand markets and to deliver value to the Canadian public and to our investors; and, • Social Licence from governments, Aboriginal peoples, the public, stakeholders and the communities in which we operate, which will be determined by: o Our collective performance, as measured by continuous improvement and comparison to world-class benchmarks; and, o The effectiveness of our communications and outreach.

Approved Governance and Organization Framework (subject to potential minor revisions)

capp governance

mou

bc lngda

M&T epg

mou

capp board

board sub‑committee on ng

capp board sub-committees (as needed)

bc epg

ab epg

sk/mb epg

nc epg

ac epg

os epg

comms epg

osctg

oil sands ceo council

policy advisory group functional epgs and committees

CAPP ORGANIZATION & EXECUTIVE MANAGEMENT

ceo

CEO SUPPORTS CAPP BOARD & PROVIDES OVERALL INTEGRATION (BOARD, OS CEO COUNCIL, BCLNGDA, ETC.).

OIL SANDS SUPPORTS OIL SANDS EPG & OS CEO COUNCIL.

W. CANADA SUPPORTS BC, AB, NC, ONSHORE, SK/ MB EPGs & BCLNGDA.

OTTAWA / EASTERN / ATLANTIC CANADA SUPPORTS AC EPG + FEDERAL, ON, QC COVERAGE. & NC OFFSHORE.

communication

COMMUNICATION SUPPORTS COMMUNICATION EPG & OSCTG.

policy and performance

POLICY & PERFORMANCE SUPPORTS FUNCTIONAL EPGS & COMMITTEES.

REGULATORY SUPPORTS M&T EPG, WITH ENGAGEMENT FROM OIL SANDS & W. CANADA.

E‐TEAM SUPPORTS POLICY capp.ca/context ADVISORY group.

business delivery

finance and corporate services

admin and office services

ottawa / eastern / atlantic canada

western canada

oil sands

pipeline regulatory & general counsel

functional excellence 8

cosia

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Western Canada’s First Commercial Oilfield

Drillers discovered Western Canada’s first commercial oilfield 100 years ago in the foothills southwest of Calgary. The Turner Valley field — it produced wet gas (1914) and then crude oil (1936) — was Canada’s first 100 million barrel field. It also put Alberta oil on the map. By 1927, a single Turner Valley well (Royalite No. 4) was producing more petroleum liquids than the entire oil industry in Ontario. And by 1942 Turner Valley was producing more than 90 per cent of all the oil in Canada.

Proud of Oil and Gas

By the Numbers:

In a speech given at the Manning Networking Conference in Ottawa in February, Saskatchewan Premier Brad Wall said that Canada is an emerging food and energy superpower and that it needs to be proud and unapologetic about it. “We are an energy power,” Wall said, “We ought to never be ashamed that we have these things the world wants.” He added that no country invests more in sustainability than Canada.

between 2012-2035, anticipated investment of $386 billion in Canada’s natural gas sector would SUPPORT:

Brad Wall says we shouldn’t be ashamed to have such large energy resources.

131,000 jobs per year

$5.3 billion Source: Conference Board of Canada

Photo: Courtesy Glenbow Archives P1303

By David Finch

Photo: The Canadian Press Images/Peter Power/The Globe and Mail

Turns 100

Industry News

Save the Date Wednesday, May 14, 2014 Join in the festivities as Canadians celebrate the discovery of the first commercial oilfield in the Canadian West. Stay tuned for more details at: www.turnervalleygasplant.org. Drillers “Marty” Hovis and “Joe” Brown at Dingman No 1 well, 1914.

Many Canadian firsts happened at this historic site, illustrating the evolution of petroleum technology up until the 1950s:

1914: Discovery of Alberta’s first oilfield 1919: 1st absorption plant 1925: 1st sour gas scrubbing plant 1927: 1st petroleum pipeline in the West 1933: 1st high-pressure gasoline plant 1949: 1st propane plant These milestones are chapters in the story of petroleum, highlighting the discovery, production, upgrading and distribution of oil and gas, activities as important today as 100 years ago. The Turner Valley Gas Plant is a designated National Historic Site. capp.ca/context

in tax revenue per year

$364 billion in additional GDP

Cenovus Pride In October, Cenovus launched a campaign to remind Canadians about the importance of energy and the role oil plays as an energy source. They created a website called More2theStory.com where people can get information, ask questions and engage in discussions about energy and oil. As part of the campaign, Cenovus developed I oil toques and winter headbands as a visible way for staff to show their pride in the industry and as a conversation starter about why they love oil. “We felt it was time to speak up,” says Liz Hannah, Vice-President, Communications at Cenovus. “We’re proud of what we do and how we do it, and we want Canadians to know we take our commitment to developing oil responsibly very seriously. The toques and headbands have been a big hit. T-shirts are next.” Cenovus Vice President, Regulatory and Community Relations, Kendall Dilling, oil.

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What’s Up at CAPP?

CAPP’s Strategic Outcomes CAPP strives to deliver for our members

What’s Up at CAPP

Improved Competitiveness In:

Fiscal

Environmental and Operational Policy and Regulations

Market Access and Growth

Pipeline Tolls

Aboriginal Engagement and Consultation

Updates on some of the activities and

Workforce

milestones we’ve been working on for members,

through the first quarter of 2014.

Enhanced Social Licence to Develop and Operate Through:

Communications

The annual Responsible Canadian Awards dinner is being held on the evening of May 21st at the Westin Hotel in Calgary. The dinner celebrates leading practices in social, environmental and health and safety performance among Canada’s upstream oil and gas industry. Award recipients in three categories: environmental, social and health and safety will be announced, along with special Chair and President Awards for overall excellence. “This is an opportunity for industry to get out and celebrate its achievements,” says Brenda Jones, Manager Member Communication and Special Events at CAPP. “As a world leader in responsible energy production, we should take genuine pride in Canada’s energy.” “We’re also very pleased to have Gary Doer, Canada’s ambassador to the United States as our keynote speaker,” Jones added.

Communication and Outreach

CAPP Speaker Series: Dave Collyer The CAPP Speaker Series started 2014 with a special event — CAPP President Dave Collyer gave a talk about CAPP and the Canadian upstream industry’s strategic priorities for 2014. Close to 400 members attended the February 20th luncheon. Collyer gave his insights into the challenges and opportunities that industry faces in light of a complex and ever-changing external environment, and answered member questions in a Q&A.

For more information, contact Brenda.Jones@capp.ca. Canadian Ambassador to the United States Gary Doer is the keynote speaker at the 2014 RCE Awards dinner, May 21st in Calgary.

CAPP, the Newfoundland Oil and Gas Industries Association (Noia), government and the education sector worked together to hold the 12th annual Newfoundland and Labrador Oil and Gas Week February 24 – March 1. The week-long series of events is aimed at celebrating the industry with a particular focus on educating students about career opportunities in the industry. Oil and Gas Week included career exploration programs for junior high students in the province, a trade-show-style career exploration event for high school students and the general public, and a scholarship program for post-secondary students. In addition to educational events, the industry also held a major food drive and fundraiser throughout the week, in support of the NL Community Food Sharing Association.

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Photo: Courtesy the Government of Canada

Newfoundland and Labrador Oil and Gas Week 

Tickets may be ordered http://securegs.com/capp

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Environmental and Social Performance

Safety

RCE Awards Dinner Celebrates Responsible Energy

10

Canadian Energy Framework


What’s Up at CAPP?

New MemberNet In March, CAPP launched a major update to its MemberNet site. MemberNet is a members-only website that provides members information and materials related to participation in committees, working groups and executive policy groups. Members can also find CAPP-related publications, presentations and government submissions on MemberNet. “The new MemberNet is a complete overhaul,” says Jeremy Creaghan, Manager Information Systems and Services at CAPP. “Probably the first thing users will notice is a completely updated look and feel. With a contemporary design and navigation structure, users should find it much easier to navigate and find what they are looking for.” As well, the new MemberNet offers stronger tools for collaboration. For the first time, members will be able to upload content directly to their committee sites. Members can also edit and update documents and have their changes reflected in real-time on the website. “This enables, for example, different members of a committee to submit changes to an agenda, or to provide feedback on a draft report when it is convenient for them,”says Creaghan, “The system operates on a common industry platform, SharePoint, and so should be familiar to many of our members.” The site also features a number of other enhancements, including new social networking tools such as an integrated Twitter feed and a optionally shareable professional profile page. Users will also be able to access member-only content such as CAPP key messages documents, the CAPP staff contact list, board presentations, links to Context Weekly news items and other memberfocused publications.

Did You Know?

There are

5,164

user accounts on MemberNet.

“MemberNet continues to be a key resource for members to work with their CAPP-related committees and working groups,” says Christina Pilarski, Manager Campaigns at CAPP. “However with member-only content and social networking features, MemberNet is also a good place for members who are not on a CAPP committee to find industry information and participate within the larger Canadian oil and gas community.” All employees of CAPP member companies are eligible to register to join MemberNet. Existing members have been sent updated login credentials via email and can login at https://membernet.capp.ca. For those looking to register with MemberNet for the first time, visit: https://membersif.capp.ca/RequestAccess.aspx.

For more information, contact Jeremy.Creaghan@capp.ca or Christina.Pilarski@capp.ca.

capp.ca/context

Jeremy Creaghan, Manager Information Systems and Services at CAPP

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What’s Up at CAPP?

“The offshore environment has a unique set of challenges, requirements and opportunities, especially with regards to environmental, social and safety issues,” notes Paul Barnes, Atlantic Canada Manager at CAPP. “This report allows us to delve into these issues and provide members and stakeholders with a relevant and meaningful look at what the offshore industry is doing with regards to responsible energy development.” The Atlantic Canada Offshore Supplemental Report is available in the download section of the RCE website: www.capp.ca/rce/downloads/ Nova Scotia Fact Sheet CAPP has published a fact sheet titled, “What does oil and natural gas mean to Nova Scotia’s economy and the environment?” “The fact sheet provides key facts regarding Nova Scotia’s oil and gas industry, including the economic benefits being created, the potential for more growth, and how industry is protecting people and the environment. It’s a handy resource for those looking to increase their understanding about oil and gas activity in Nova Scotia, and to advocate on behalf of this region’s industry,” notes Barnes.

Download the fact sheet at: http://www.capp.ca/getdoc.aspx?DocId=241178&DT=NTV

For more information, contact Paul.Barnes@capp.ca.

Photo: Courtenay Davidson

Atlantic Canada Focus: RCE Atlantic Canada Supplemental Report  CAPP has published a supplement to its 2013 Responsible Canadian Energy progress report: the 2013 Atlantic Canada Offshore Supplemental Report. The supplemental report acts as a complement to the progress report, highlighting environmental, health and safety and social performance particular to the Atlantic offshore context. Kids learn about Canada’s energy mix during a February event at Chinook Centre in Calgary

Improving Energy Literacy Across Canada  CAPP’s partnership with the Royal Canadian Geographical Society continues to bear energy literacy fruit. The society recently enhanced its Energy IQ website (energyiq.canadiangeographic. ca) to enable the easy creation and sharing of slideshows with a focus on energy literacy. Content for the slideshows is taken from the numerous articles, news stories, activities, quizzes and facts on the Energy IQ website. “It’s a great tool drawing upon credible content about Canada’s energy resources,” says Christina Pilarski, Manager Campaigns at CAPP. “Though the slideshows are primarily aimed for use by teachers, anyone can register with the site and the material is clearly useful for anyone who wants to share information about Canada’s energy mix and the impact and importance of our vast energy resources.” As well, the Society’s gymnasium-sized Canada’s Energy Mix Giant Floor Map continues to make its way into schools across Canada. The 8 metre x 11 metre floor map shows the distribution and transmission of energy resources across Canada and is accompanied by teaching materials that can be customized for any school grade curriculum. As of March 1, 2014, the map has received 103 bookings, primarily by teachers wishing to teach their students about Canadian energy. Bookings in 2014 include schools in Alberta, B.C., Ontario, Manitoba, New Brunswick and Nova Scotia. “I would highly recommend this to other teachers,” says Nick Moskaluk, an elementary school teacher in Calgary. “It gives a fair representation of the natural resources that are in Canada, and leads to good discussions and questions about energy.” If you would like to see the Canada’s Energy Mix Giant Floor Map at your son or daughter’s school, have their teacher visit: https://energyiq.canadiangraphic.ca/main/floor_map.

Gymnasium-sized Canada’s Energy Mix Giant Floor Map continues to make its way into schools across Canada. 12

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What’s Up at CAPP? Updated Oil Sands Fact Book  CAPP’s oil sands fact book has received a facelift. In addition to a contemporary new look and feel, new sections have been introduced and facts and statistics in the book have been updated. “The Facts on Oil Sands is a handy reference tool that provides fast, easy access to oil sands information,” says Colleen Houston, Oil Sands Communication Advisor at CAPP. “Having the facts about industry’s impact and benefits means you can participate in the oil sands discussion with anyone, anywhere.”

For more information or to order hardcopies, email publications@capp.ca.

$2,106,000,000,000

THE AMOUNT NEW oil sands development is expected to contribute to the Canadian economy over the next 25 years. Source: CERI 2011, also in The Facts on Oil Sands.

Policy and Performance Recent Offshore Legislative Changes On January 30, Bill C-22, The Energy Safety and Security Act was introduced in the House of Commons. The Bill amends various laws related to the offshore oil and gas industry. Positive outcomes for industry include: • Making the Offshore Petroleum Boards in Newfoundland and Labrador and Nova Scotia lead regulatory authorities; • Establishing timelines for environmental assessments; and, • Enabling the use of spill treating agents, including dispersants, in Canadian waters.

The increase in financial capacity required to work offshore is in line with trends in other jurisdictions and largely reflects industry input during the consultation process. Other changes include increasing the absolute liability limit (no fault) from $30 million (Atlantic Canada) and $40 million (North) to $1 billion. A company is required to have $1 billion worth of financial capacity to conduct work offshore. As well, unfettered funds required as a deposit for offshore work are raised to $100 million (or $250 million in the case of a pooled fund). capp.ca/context

CAPP engaged with the federal government on legislation impacting laws governing Canada’s offshore oil and gas industry

“CAPP engaged extensively with the federal government on this proposed legislation and in many respects the changes reflect the input provided by industry,” says Paul Barnes, Manager Atlantic Canada at CAPP. “The increase in financial capacity required to work offshore is in line with trends in other jurisdictions and also reflects industry input during the consultation process.”

For more information, contact Paul.Barnes@capp.ca.

Project 3-5-10 Initiated: Scoping Future Trends and Issues To proactively anticipate and deal with competitiveness issues that could impact the Canadian upstream oil and gas industry in the near and medium-term future, CAPP is working with a number of other partners on Project 3-5-10. Through stakeholder discussions and research, the project will identify key overall trends and issues impacting the industry over the 3, 5 and 10 year time horizons. “Given the complexity of the external environment, it’s crucial that industry keeps a forward-looking eye on the different factors that could have an individual or cumulative impact on our competitiveness,” says Alex Ferguson, Vice President Policy and Performance at CAPP. The project is being led by a small steering group including senior Alberta government, industry and investment community members. The team will look at themes including: drilling and well-completion technology, labour pool supply and demand outlook, LNG and oil sands outlook, capital markets, industry structure, policy and political environments, and market access. This project will provide a broad context for other initiatives under way within CAPP to identify and act upon opportunities to improve the competitive environment in which our members operate.

Alex Ferguson, Vice President Policy and Performance

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What’s Up at CAPP?

Oil Sands Making Progress on Pipelines  Trans Mountain On December 16, 2013, Trans Mountain Pipeline ULC filed its application with the National Energy Board (NEB) to expand the existing Trans Mountain oil pipeline system in British Columbia. “If approved, the project will increase capacity on Trans Mountain by 590,000 barrels per day,” notes Beth Lau, Manager Oil Supply and Transportation at CAPP. CAPP has filed for intervener status to participate in the public engagement and hearing process on the application. “CAPP supports all of the proposed pipeline infrastructure projects that have Beth Lau, Manager been announced in response to Oil Supply and production growth expectations Transportation at CAPP and the desire for market diversity,” says Greg Stringham, Vice President Oil Sands at CAPP.

For more information, contact Beth.Lau@capp.ca. Keystone In January, the U.S. government released its final environmental impact statement (EIS) on the Keystone XL oil pipeline application. Consistent with earlier reviews, the statement says Keystone will cause no substantive change in global greenhouse emissions or other undue environmental impacts. The next step in the U.S. regulatory process is a determination of whether the project is in the national interest.

Enbridge Line 3 and 9B In March, Enbridge announced a $7 billion project to replace its Line 3 pipeline which carries Western Canadian crude from Hardisty, Alberta, to Superior, Wisconsin. The replacement pipeline will be capable of providing an annual average capacity of 760,000 barrels per day in mixed service (both light and heavy crude oil). The target in-service date is Q3-2017 subject to all regulatory approvals.

The NEB’s Line 9b decision is an important milestone that again opens the way for Eastern Canadian markets to use Canadian oil instead of imports from foreign sources. Industry, through the Enbridge Representative Shippers Group (RSG), has negotiated a fixed surcharge that will be applied to every barrel that moves on the system for a 15-year term. The project was endorsed by the majority of RSG members, which includes shippers, refiners and producers. The proposal was discussed extensively at the CAPP Markets and Transportation EPG and in the end, was broadly supported by CAPP’s membership, though with some expressing concerns regarding the increase in toll arising from replacement versus ongoing maintenance, and to the longer term need for the incremental capacity arising from the pipeline replacement.

Over 2,000 applications

“It was a decision of segment by segment repair or full replacement, and the industry overall chose to support full replacement for future reliability and integrity of the system that currently transports a significant proportion of Canadian crude oil south into the United States,” notes Nancy Bérard-Brown, Manager Oil Markets at CAPP. Enbridge would have had to spend $1.8 billion in pipeline integrity over the next 15 years to maintain the existing line. While expansive, this option provides higher reliability for producers in the long term.

to participate in the Trans Mountain NEB hearings have been submitted.

As part of the public commenting process, CAPP submitted a letter to U.S. Secretary of State John Kerry. “The letter highlights Canada’s environmental performance innovations that have helped lower GHG emissions of the most recent oil sands in situ and mining projects to just five per cent and two per cent higher than the GHG emissions produced by the average barrel refined in the U.S.” notes CAPP Vice President Oil Sands, Greg Stringham, “These Canadian oil sands GHG emissions are lower on a per barrel basis than heavy oil from California’s Bakersfield and Venezuela.” A copy of the submission is available to CAPP members via Membernet: http://bit.ly/1gcAbpV

Also in March, the NEB approved the reversal of Line 9B from Montréal, Québec, to Sarnia, Ontario. The NEB approval is subject to 30 conditions which reflect commitments made by Enbridge during the public hearing and address concerns related to pipeline safety. “The NEB’s Line 9B decision is an important milestone in the process to achieve market diversification. This provides more supply reliability and flexibility, and an attractive, competitive alternative to foreign sources,” says Bérard-Brown.

For more information, contact Nancy.Bérard-Brown@capp.ca. 14

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What’s Up at CAPP?

Western Canada AER Moves to Phase 3

Manitoba’s New Petroleum Fiscal Regime

On March 31, 2014, the Alberta Energy Regulator (AER) initiates Phase 3 implementation of the Responsible Energy Development Act (REDA). This is the final stage in creating a single regulator for upstream oil, oil sands, natural gas, and coal development in Alberta. At this point, regulatory responsibility in relation to energy projects for the Water Act and the Environment Protection and Enhancement Act (EPEA) will be transferred from Alberta Environment and Sustainable Resource Development (AESRD) to the AER.

The Government of Manitoba recently changed its Manitoba Drilling Incentive Program (MDIP). The new incentive program arrives after close to a year of consultation with industry. An industry-government working group with representatives from both CAPP and the Explorer and Producers Association of Canada (EPAC) was formed to provide feedback. The working group emphasized that Manitoba must ensure its fiscal regime remains competitive to secure strong and growing investment along with long-term sustainable development.

Some examples (but not limited to) of the regulatory pieces that will be transferred over to the AER during Phase 3 include the Reclamation Certification Program, Conservation and Reclamation Program, Contaminated Sites Program, Orphan Sites Program, Remediation Certificate Program, EPEA/Water Act Approval Applications, Mine Financial Security Program, Reporting, and Operational Authorizations.

“For the most part, the revised program features positive changes, aligning with industry’s expectations, arrived at through the consultation process,” notes Tricia Donnelly, Manager Manitoba Regulatory Affairs at CAPP. “They will result in incremental government revenue from both freehold and Crown production, without compromising competitiveness with neighbouring jurisdictions.”

Identifying Fiscal Issues with CAPP’s Property Tax Web Tool Municipal government funding models are increasingly turning to industry to augment revenue through taxation. In some instances this has resulted in unsustainable and inequitable property tax increases. To highlight trends in municipal taxation, CAPP has developed a comprehensive database and analysis tool that provides easy access to data on property taxes throughout Alberta.

The MGAR process is expected to conclude in spring 2015 with the introduction of a new legislative package. “The tool will be used by CAPP to identify and assess overall and regional trends. It will also enable the identification of outlier municipalities,” says Vicki Ballance, Manager Alberta Regulatory Affairs. “The data and analytics will allow us to demonstrate the magnitude of increases in taxation and in the allocation between residential and non-residential base rates.” CAPP is currently compiling an overall assessment of municipal taxation issues in Alberta, which will be provided to government by early Q2, 2014. CAPP will then shift focus to identifying proposed solutions to key issues. The Alberta government’s Municipal Government Act Review (MGAR) provides a window of opportunity for change in legislation in Spring 2015, if it is determined that a legislative update is necessary to address identified issues.

“We also advocated that a portion of the enhanced provincial revenues associated with the new fiscal regime be targeted to strategic infrastructure investment in support of the industry,” notes Donnelly, “The government hasn’t responded on this point so we’ll continue to make the case for this. Infrastructure upgrades are necessary to enable growth of the industry in Manitoba.”

For more information, contact Tricia.Donnelly@capp.ca.

Tricia Donnelly, Manager Manitoba Regulatory Affairs at CAPP

Did You Know? Manitoba is one of Canada’s fastest growing jurisdictions for the petroleum industry:

In 2013 Capital investment in Manitoba’s oil and gas industry EQUALLED an estimated

$1.2 billion

Production is estimated to be as high as

18.6 million barrels

For more information, contact Vicki.Ballance@capp.ca. capp.ca/context

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What’s Up at CAPP? Supporting the Licensee Liability Rating Program

LNG Market Overview: A Key Resource

The AER, through its predecessor, the ERCB, recently made changes to the Licensee Liability Rating (LLR) formula to better reflect actual abandonment and reclamation costs. There is a desire by some companies to revisit these changes.

CAPP has published a 40-page report titled “An Overview of the World LNG Market and Canada’s Potential for Exports of LNG.” The report is a detailed overview of the global liquid natural gas (LNG) trade as it currently exists and examines the potential for future growth in this market.

“CAPP has strongly supported these changes to ensure that companies are accountable for their respective liabilities, and that those liabilities don’t become a burden on the broader industry through the Orphan Well Fund or other means,” says Brad Herald, Director Alberta/Saskatchewan and Regulatory Affairs. CAPP’s Alberta Executive Policy Group recently approved setting the 2014 Orphan Levy at $15 million, which reflects an increase in inventory of wells, and is an increase of 25 per cent over the previous year's levy of $12 million. It is anticipated that the annual amount will require further adjustment as the LLR Program changes continue to be phased in. CAPP is monitoring the inventory of wells under enforcement to ensure early detection of risk to the Orphan Well Fund. “CAPP is committed to the changes to LLR and has indicated so to the Alberta government,” notes Herald, “Industry is open to considering proposals by government to mitigate the financial impact on operators, so long as those changes do not shift the burden to others in industry.” The principles that underpin the program and the scheduled incremental changes due in 2014 and 2015 are vital to the evolution of the program and its continued health.

“The report brings together all of the key foundational elements of the LNG business,” says Mark Pinney, Manager Natural Gas Markets and Transportation at CAPP. “It details LNG supply and demand, both as they currently stand as well as looking forward.” Pinney adds that the report outlines Canada’s LNG export opportunity, and provides useful information in relation to Canada’s advantages in terms of resource base, proximity to markets and investment reach. “There are some good facts, data and analyses in this report for those looking to educate on and advocate for Canada’s potential as an LNG exporter on the world stage,” says Pinney. Download the report at: http://bit.ly/1jg387i

For more information, contact Mark.Pinney@capp.ca.

China’s natural gas consumption will grow by

360 per cent, from 10.4 Bcf/d in 2010 to 47.9 Bcf/d in 2040.

Brad Herald, Director Alberta/Saskatchewan and Regulatory Affairs

Source: Energy Information Administration BCF/D = Billion cubic feet / day

For more information, contact Brad.Herald@capp.ca.

Improvements in Winter Drilling Approvals Towards the end of 2013, CAPP and industry raised concerns over approval delays, particularly related to the 2013/14 winter drilling season. “CAPP brought this issue to the Alberta government and Alberta Energy Regulator’s attention last fall, and has monitored the situation closely,” says Vicki Ballance, Manager Alberta Regulatory Affairs at CAPP. “Our understanding is that the delays were related to resourcing and transitioning of existing processes to the AER, rather than the implementation of new processes, and that the government would ramp up processing efforts to avoid costly program cancellations.”

Among its responses, the AER applied a risk-based application processing approach, with a view to expediting high-priority, time‑sensitive applications. There were three calls for proponents to identify high-priority applications. In addition, staff at the Aboriginal Consultation Office (ACO) was tripled, and the Aboriginal consultation stream was synchronized with AER priorities. “It’s our understanding that the majority of high-priority applications have been expedited, and that there’s been an overall improvement in the submission process,” notes Ballance. “We’ll continue reinforcing the importance of this issue with government and the AER, while suggesting further streamlining and lessons learned to ensure this doesn’t happen again next year.”

For more information, contact Vicki.Ballance@capp.ca.

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Community

Members Help Restore

Fort Mac’s Heritage Park When flood waters swept through so many Alberta communities in June 2013, Fort McMurray was among those affected, including a favourite historical site. Now, that site is on a path to recovery thanks to the donations by CAPP member companies. “Our beautiful Heritage Park is in ruins,” said Roseann Davidson, Executive Director of the Fort McMurray Historical Society, as she surveyed the damage to the Fort McMurray Heritage Park on June 11, 2013. The park is a mini village located on a 6.6- acre site containing historic buildings and artifacts that showcase the community’s unique history, preserving the region’s past for future generations.

Photo: Courtesy Fort McMurray Historical Society

After the floods, boardwalks were floating and the water had crept up to the floors of most buildings. Staff and volunteers managed to move most of the artifacts and archives to higher ground, but “buildings are more difficult to rescue,” Davidson notes. Of 17 historical buildings, 13 were damaged by the floods. In the days after the flood, volunteers helped rescue archives and artifacts. A number of oil and gas companies stepped forward with donations. Shell was one of the first to contribute, cutting a cheque for $10,000. Suncor, Chevron, Nexen and Enbridge also donated to the Heritage Park relief effort. Syncrude stepped up with $75,000. “We are part of community; our employees live here,” says Will Gibson, media relations advisor at Syncrude. “We know many Syncrude employees have capp.ca/context

opened their homes, hearts and wallets to assist organizations responding to the relief effort. We want to follow their lead and support the communities our employees call home.” He adds that a vital community is essential to Syncrude’s recruitment and retention success.

We are part of community; our employees live here. The initial assessment for repair and restoration of the park was estimated at $8 million. To date $350,000 has been raised and government flood relief assistance to museums is available to augment the community’s generosity. The society is continuing its fundraising efforts, but has also started work on restoration. The first restoration underway is to St. Aidan’s Church, a 1932 heritage building that is popular for weddings and other gatherings. Davidson anticipates the church will be fully open by 2015, but is planning a “soft” opening in August 2014. Davidson is grateful for the generosity of oil and gas producers and is hopeful they’ll continue to support the park as it restores itself, one building at a time. — AG

Floods in June 2013 damaged many of the historical buildings in Fort McMurray’s Heritage Park

Did You Know? According to a recent report by the independent research group IHS CERA (2014), oil sands total contribution to employment in Canada could reach

753,000 jobs in 2025. Get the report at:

www.ihs.com/oilsandsdialogue

What is

OSCA?

The Oil Sands Community Alliance (OSCA) was recently formed out of the Oil Sands Developer Group (OSDG). OSCA was created to renew industry’s focus on socio‑economic issues and proactively address changes in the communities where oil sands developers operate. It has four focus areas: • Aboriginal • Community well-being • Infrastructure • Workforce OSCA emphasizes a collaborative approach of engagement, building relationships and creating measurable socio-economic benefits.

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Feature Story

Wildfire

Legacy

Slave Lake community investment bears fruit with vibrant new legacy centre

In May 2011, wildfires roared through the town of Slave Lake and surrounding municipal district of Lesser Slave River #124. The devastation to homes and buildings was immense in dollar value and daunting in scale and severity. More than 400 residences were destroyed or damaged and some residents are still living in interim accommodation while rebuilding. In the aftermath of the fires, leaders from twelve oil and gas companies joined together and provided a combined $6.4 million donation. The monies were given to provide start-up capital for a proposed new community centre. “It was a special moment and somewhat unique,” notes Tricia Donnelly, the CAPP manager responsible for the Slave Lake file. “Companies typically act very independently when it comes to making community investments. It was heartening to see companies collaborating with each other on something of this scale.” CAPP, uniquely positioned by virtue of its role as an industry association connected to all the contributors, acted as secretariat — coordinating communication and administrative tasks associated with the donation. “The wildfires had a terrible impact on the Slave Lake region with great loss of homes, businesses and public infrastructure,” said Bill Clapperton, Vice President of Regulatory, Stakeholder and Environmental Affairs at Canadian Natural. “Our company is very committed to investing in the communities where we work, and the Town of Slave Lake and surrounding communities are key centres for our operations in North-Central Alberta.” “Slave Lake is an important operational region for Penn West but, more important, it is home to many of our employees, contractors and stakeholders. 18

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Our contribution was not just another community investment but a personal one,” said Keith Luft, Senior Vice President Corporate Services and General Counsel at Penn West. “Investing in the communities we live and work in is a cornerstone of our corporate values.”

Since that initial funding announcement, the project has evolved, thanks to ongoing community feedback and fundraising. Architectural firm Manasc Isaac was brought in. They consulted with residents via a series of workshops and information sessions. Recently,

The centre will be both a symbol of resiliency and a very practical space to be used over and over again by area residents. “Like everyone else, we were shocked by the devastating impact of the wildfires,” said Leanne Courchesne, Cenovus Group Lead, Community Investment, “Cenovus believes that making a meaningful commitment to the region to help it recover from this traumatic event was simply the right thing to do.” Receiving the donation on behalf of residents was the Tri-Council, a collaborative entity formed to deal with the aftermath of the fires. The council consists of a partnership among the Town of Slave Lake, the Municipal District of Lesser Slave River #124, and the Sawridge First Nation. In response to the generous donation made in November 2012, the Tri-Council came up with the vision for a community centre that would support the region’s ongoing recovery.

the architects and representatives of the Tri‑Council unveiled designs for an impressive new building to be built on the site of the old Elks Lodge. The building, to be named the Wildfire Legacy Centre, will be a multi-purpose, family-oriented space that includes a daycare and playground, a theatre/ arts space, and a FireSmart information centre. Bisecting the middle of the building, along an east-west axis, will be a spacious atrium acting as a main hall and community gathering area. At the north end, a multipurpose performing arts hall large enough for 500 guests will be constructed. The hall will have the ability to host a larger range of functions, inclusive of those traditionally held by the Elks Lodge, including the Mother’s Day lobster banquet, cultural nights and concerts. With its larger capacity and capp.ca/context


Feature Story

Contributing Companies Rendering: Courtesy Manasc Isaac

Canadian Natural Resources Limited Cenovus Energy ConocoPhillips Devon Enerplus EOG Resources Freehold Royalties Husky Energy Mancal Energy Murphy Oil Company Ltd. PENN WEST TransCanada Corporation Rendering of the Slave Lake Wildfire Legacy Centre to be completed by fall 2015

permanent stage, it will also host stage plays, dance recitals and rock concerts. At the south end of the centre, a daycare area will be built with spaces for 200 children. On the second floor, offices for centre staff, the Elks Lodge and the Red Cross will overlook a rooftop playground. A fire pit and permanent tipi will be built at ground level on the north end. An additional feature of the Wildfire Legacy Centre will be its ability to operate off the grid, with hook-ups that allow for trucked-in gas and water and an independent electrical supply. This will enable the centre to act as an emergency shelter or evacuation node in case of a disaster event. “It’s going to help the community in so many ways,” notes Tony Signorini, a member of the Regional Recovery Coordination Group (RRCG), which was created by the Alberta government to help coordinate government assistance with the Tri-Council. “With its many amenities and features, the Wildfire Legacy Centre will enhance the Slave Lake community and even help attract people to the town.” “We are very pleased with the progress that has been made. The new and expanded day care space and the new meeting and performing arts space will address unmet needs for the communities,” notes Clapperton.

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“We’re very excited to see the Wildfire Legacy Centre proceed as it will bring long-term benefits by ensuring a vibrant and collaborative approach that supports families, promotes an understanding of the environment, and enhances learning as well as arts and culture,” says Courchesne. “It’s a great design,” adds Donnelly, “I’m particularly pleased with how thoughtfully the Tri-Council has gathered community input to make sure the centre truly addresses the wishes of area residents.” “The legacy centre speaks volumes about the community’s willingness to come together in times of need — from residents to local government to the provincial government to industry. The Wildfire Legacy Centre is a symbol of the strength and adaptability of the community and a reflection of industry’s dedication to protecting and preserving communities across western Canada,” concludes Luft. The budget for the centre is $18.5 million. Some of the additional funding needed has been gathered through additional grants from government and groups like the Rotary Club and the Red Cross. As well, the Tri-Council has added partners: the Elks Club, Slave Lake Child Care Society and Regional Recovery Centre to form the Wildfire Legacy Corporation. Together, they’ve gathered 90 per cent of the funds needed and are about to kick off a fundraising campaign to seek out the rest.

“Of course, we would never have gotten here without leveraging the initial seed capital provided by the twelve companies,” said John Sparks, also a member of the RRCG. “It’s taken a little while, but their generosity and patience has resulted in a very special legacy centre that will be both a symbol of resiliency and a very practical space to be used over and over again by area residents.” The plan is to break ground with demolition and construction on May 12 (Mother’s Day) 2014, and for the centre to be operational by September 2015.

Did You Know?

The May 2011 fires destroyed about

1/3 of the town of Slave Lake

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Feature Story

Canadian LNG

A World of Risk and Opportunities

Canada’s natural gas industry is in a race to take advantage of the market for liquefied natural gas (LNG). What will it take to succeed? by Scott Simpson

Fast Facts on LNG

20

Liquefied natural gas, or LNG, is natural gas that has been cooled to -162 degrees Celsius at wh ich point it becomes a liquid;

LNG takes up 1/600 th the volume of its gaseous state, allowing for efficient transportation;

LNG is lighter than water, odourless, colourless, non‑corrosive and non‑toxic.

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Feature Story

LNG Supply Chain

There’s been a lot of discussion about LNG in Canada. It is seen by some as a panacea to a natural gas industry beleaguered by

1. Gas Field

perennially low gas prices across North America. As it stands today, the industry is still largely hypothetical — it exists as blueprints and business plans. That said, an impressive assemblage of domestic and foreign companies and First Nation partners have developed ambitious LNG project proposals. In total, there are twelve proposed LNG projects in various stages of realization. Were all to proceed, Canada would become an LNG exporting powerhouse. And the companies behind these projects have already invested billions securing upstream assets, stakeholder agreements and export licences. But the liquefaction facilities and gas pipelines still need to be built, the tankers contracted and the long-term gas contracts to consumers in Asia signed. At stake are billions upon billions of dollars of potential new investment and revenue for Canada. What will it take to get this nascent industry off the ground?

The Case for LNG

LNG Supply Chain Chart: LNG Canada

World trade in LNG has tripled over the last 15 years, growing from just over 10 Bcf/d (billions of cubic feet per day) in 1997 to nearly 32 Bcf/d in 2012. “Demand for energy, particularly for sources with cleaner-burning properties, is expected to continue to grow,” says Mark Pinney, Manager Natural Gas Markets and Transportation at CAPP. “Growth will be strongest among energy-constrained Asian nations along the Pacific Basin, many who are currently consuming or who are interested in adopting LNG as feedstock for electricity generation.” Meanwhile, Canada’s Western Canadian Sedimentary Basin contains an estimated remaining 632 trillion cubic feet of natural gas accessible by current technology — a capp.ca/context

volume equivalent to the space inside 11 million SkyDomes. This is an abundant supply capable of fueling robust exports along with the energy needs of many generations of Canadians. At the same time, Canada’s current sole gas export market, the United States, is shrinking. As it has in Canada, shale gas technology has unlocked significant natural gas production south of the border — meaning more competition for traditional markets in the U.S. Midwest, U.S. Northeast and Central Canada. American demand for Canadian gas has fallen from 10.4 Bcf/d in 2007 to 8.4 Bcf/d in 2013. With only eight sailing days to Japan and 11 sailing days to China, the West Coast ports of Kitimat and Prince Rupert are closer than any other North American port to these markets. Moreover, as evidenced by companies including PetroChina, Malaysia’s Petronas, and Japan’s Mitsubishi Corp., who have invested

2. Pipeline

3. Liquefaction Plant

4. LNG Storage Tank

5. LNG Tanker

6. LNG Storage Tank

7. Vaporizers

8. Pipeline System

Our reputation has encouraged foreign investors to want to do business here because of our reliability and performance as a producer of natural gas. billions of dollars acquiring Canadian shale gas assets, Asia is paying attention to what Canada has to offer. “We have proven over many decades to be a reliable gas supplier and exporter to the United States,” says Pinney. “I think our reputation has encouraged foreign investors to want to do business here because of our reliability and our performance as a producer of natural gas.”

Japan is the world’s largest LNG customer at present, with 30-plus import terminals and 35 per cent of global demand, but the “big driver” for future growth will be China, according to Geoff Morrison, CAPP Operations Manager in B.C. “Even though they have their own resource they don’t have the infrastructure or geologic knowledge to develop it. That’s where we have an advantage. We context . volume 2 . issue 1 . april 2014

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Feature Story

Photo: Courtesy Progress Energy

know the resource. Once you develop that reliable supply, then you’ve got a foot in the market and you can continue to grow that,” Morrison said. South Korea, which has no domestic resources, and India, a future “demographic superpower” are also potential large-scale customers.

Risk and Reward Creating a LNG industry will require billions of dollars of investment in infrastructure. That includes pipelines delivering natural gas from upstream producers in northeast British Columbia and Alberta, construction of gas liquefaction plants on the B.C. coast, and the development of deep-sea port facilities to support loading of LNG tanker vessels. “Building on B.C.’s North Coast takes considerable planning as proponents take into account geography, infrastructure and future workforce needs. Achieving all of all this in an economic and socially accountable way is an important and challenging part of attracting the necessary investment dollars needed to make any final investment decision,” notes Morrison.

Proposed Pacific Northwest LNG facility on Lelu Island, near Prince Rupert, B.C.

reason. While the price of gas in North America’s deregulated market is largely driven by spot prices set at the Henry Hub distribution hub in Louisiana, buyers in Asia pay prices on long-term contracts that have historically been indexed to the price of oil. Currently there is a large and potentially lucrative differential between these prices. In Japan, consumers are paying above $15 per million British thermal units (MMbtu) for LNG, compared with $4 per MMBtu of natural gas at Henry Hub. A key uncertainty

Building on B.C.’s North Coast takes considerable planning as proponents take into account geography, infrastructure and future workforce needs. There is also serious and growing competition for the Asian LNG market. Australia and Qatar are already exporting into the region, and Australia has a number of projects in the works that would markedly increase its liquefaction and export capacity. The U.S. is moving ahead with liquefaction facilities in Louisiana. Mozambique, Tanzania and Russia also have potential to become market players down the road. Despite these challenges, Canadian producers are drawn by the prospects of a robust Canadian LNG industry, and for good 22

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is whether these margins will be maintained as the LNG market becomes increasingly competitive. However, for Western Canadian producers, current pricing suggests the prospect of higher netbacks over domestic sales, even after accounting for the additional costs that will be incurred to serve Asian markets. These incremental costs include pipeline transportation to the B.C. coast, liquefaction costs and shipping costs associated with transporting the LNG by tanker to Asia. These incremental costs are expected to exceed $6 per MMBtu.

However, the high netback suggested by current pricing could shrink over time as more competitors enter the fray and global LNG supply increases. Managing this pricing uncertainty is one reason proponents have expressed concern regarding additional costs such as the B.C. government’s proposed two-tiered incremental corporate income tax for LNG facilities. Announced this February, the B.C. government has proposed a two-tier tax system for LNG facilities: 1.5 per cent when commissioned; scaling as high as seven per cent when capital costs of a liquefaction facility have been recovered. Susannah Pierce, Shell Canada’s lead for social performance and external engagement on the company’s LNG Canada team, described the B.C. tax structure as a key component in the company’s deliberations on its proposed joint project with PetroChina, Korea Gas and Mitsubishi. “Tax is a significant component, but some of the other cost factors we will deal with also have to be accounted for. We need to look at the overall competitiveness of the industry,” said Pierce. Other cost factors include: availability of sufficient skilled labour; First Nations support; and environmental and other regulatory approvals. Upstream, there are capp.ca/context


Feature Story costs associated with bids for drilling rights, royalty rates for producers, and investment in supporting infrastructure.

Down the Stretch LNG proponents are careful to assess risks versus rewards before committing the billions of dollars needed to get an LNG export facility up and running. However, there is also a sense of urgency.

export permit but is awaiting environmental approvals. As with any project a strong relationship with First Nations and other stakeholders is vitality important to success and PNW LNG’s pipeline partner TransCanada as is engaging with First Nations and stakeholders along a 750 kilometre route.

On its website, the B ritish Columbia government estimates that based on A f ore cast of five plants in operation by 2021,

A B.C. LNG industry would create

21,600 direct

“We are trying to move our project along at a very aggressive pace,”

There is a window of opportunity while global demand grows and before competitors are able to get their product to market. “There is a definitely a window of opportunity while global demand grows and before competitors are able to get their product to market,” notes Pinney. “If Canadian proponents aren’t able to get their projects off the ground in time, they could be shouldered aside as Asian buyers gravitate to other sources.” According to Pinney, it will be key for some facilities to be operational by the early part of the next decade. The B.C. government believes that a minimum of three LNG facilities will be operational within this time frame, and has a forecast of five plants in operation by 2021. Proposed projects include Kitimat LNG, a joint venture of gas producer Apache Canada and prospective facility operator Chevron Canada. It was granted an export licence by the National Energy Board in 2011. Pipeline partner Pacific Trail has in place a $200 million commercial agreement with 15 First Nations along a 463 kilometre route. Full construction will begin as soon as a final investment decision is reached, according to the company. Pacific Northwest LNG, involving Malaysia’s Petronas and Calgary-based Progress Energy along with partners Japex and PetroleumBrunei, has an NEB capp.ca/context

construction jobs,

41,900 construction

notes Progress President and CEO Michael Culbert, “so that possibly we can be the first ones that are constructing an LNG facility on the West Coast. That helps us potentially attract the appropriate trades but avoid competing directly with somebody down the road in Kitimat or Prince Rupert. There is no doubt about it — megaprojects are capital and people intensive.” Culbert said the partnership wants to announce a final investment decision before 2015. LNG Canada, a joint venture involving Shell Canada, Korea Gas Corporation (KOGAS), Mitsubishi and PetroChina, received its NEB export licence in February 2014, and is pursuing provincial and federal environmental approvals. Recently, it announced a major transaction with Rio Tinto Alcan for an option on property for facility development on the Kitimat waterfront. Pipeline partner TransCanada is working to receive environmental approvals for a 700 km pipeline by early 2015. Shell is on record saying that it expects to announce a final investment decision is towards the middle of the decade.

spinoff jobs, and

2,400 permanent jobs.

T hat’s in additi on to 61,700 full time upstream j o bs. Source: http://engage.gov.bc.ca/lnginbc/job-creation/

Get In Depth on LNG CAPP has published a detailed and informative study of the LNG potential for Canada titled: “An Overview of the World LNG Market and Canada’s Potential for Exports of LNG.”

Read it here: http://bit.ly/1jg387i

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Feature Story

Investing in

Upstream

24

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Feature Story

Potential

Backed by A PRODIGIOUS resource base and world-class innovation, Canada has the capacity to grow into A GLOBAL ENERGY LEADER — but it’ll take a similar trajectory of investment growth for the industry to realize its full potential. by David Coglon

It takes investment to earn a return in business. Perhaps nowhere is this truer than in the oil and gas industry. Upstream oil and gas development is incredibly capital intensive, with a significant lag between outlays for a project and its eventual revenues. From running and analyzing seismic surveys to find the resource, drilling test wells and installing the infrastructure needed to extract it and transport it to market, it can take years before the oil and gas, and thus the revenues, begin to flow. Meanwhile, Canada’s energy potential is vast. There are huge reserves of oil in Canada — notably in the oil sands (some 169 billion barrels). Canada’s natural gas resources are estimated at between 700 and 1300 trillion cubic feet — enough for a robust export business while meeting the needs of Canadians for generations to come. Additional oil and gas may be found in untapped deposits in offshore Atlantic Canada and in the far North. But to develop and take advantage of this resource wealth will take tremendous levels of investment. The Canadian Energy Research Institute (CERI) projects between $170 billion to $270 billion in initial capital spending to expand oil sands output over the next three decades. And on the capp.ca/context

natural gas front, the industry is planning liquefied natural gas (LNG) plants to export gas overseas to energy-hungry Asian markets. These are world-scale projects with a capital cost in the billions.

How much capital is being invested in the upstream oil and gas sector? Take a look at investment numbers in the upstream business over the last decade and you’ll notice steady growth. Except for a dip in 2009 due to post-recession malaise, oil and gas investment has followed an upward trajectory. Eight years ago, the industry spent $50 billion in capital dollars. In 2014, capital spending is estimated to reach $68 billion — the highest level in the industry’s history. “The investment trend remains positive, despite pricing volatility for oil and gas. It’s continuing to grow. We’ve seen a strong vote of confidence in the ongoing development of Canada’s oil and gas resources,” says Greg Stringham, CAPP Vice-President, Oil Sands. In CAPP’s outlook for 2014, Western Canada will see the bulk of capital dollars

— $25 billion in the oil sands and $43 billion in other oil and gas activity. But prospects on the East Coast are gaining attention, with investment in the offshore industry up to $3.5 billion, as major oil projects like Hebron take shape and companies conduct exploratory drilling, mostly off the coast of Newfoundland and Labrador. Another $700 million will be spent in resource-rich but remote regions such as the Yukon and Northwest Territories.

Where’s the money coming from? To fund growth plans, the industry will turn to two primary sources — cash flow and new capital. Cash flow is closely tied to revenues. After deducting taxes, royalties and costs, oil and gas companies typically reinvest the majority of their earnings back into the business. With oil prices around $100 a barrel, and natural gas prices bouncing back over the winter months, industry revenues could reach as high as $130 billion this year, leaving more cash flow for reinvestment. But companies will also continue to hedge revenues context . volume 2 . issue 1 . april 2014

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Feature Story against higher costs for labour, steel and materials. Companies must also seek out new pools of capital. Because of the substantial dollars needed to make growth plans happen, some investment dollars will need to come from outside Canada. As Siren Fisekci, Vice-President, Investor and Corporate Relations at Canadian Oil Sands Limited, explains: “It’s critical to access capital outside the country. Canada’s capital markets don’t have the depth to fund the type of growth that is projected. This is particularly true for the oil sands, which is a capital‑intensive business.” Over the last decade, the Canadian oil and gas industry has seen successive waves of foreign capital — first from the United States, then Europe and later Asia — as investors are drawn to our country’s huge oil and gas reserves, its stable institutions and a low-risk political environment. From 2007 to 2013, according to CERI, about $100 billion in foreign capital — or nearly $20 billion a year — entered the industry. Of this

enterprises (SOEs). In late 2012 the federal government announced new Investment Canada Act guidelines that prevent SOEs from bidding for majority ownership of Canadian oil sands companies, except on an “exceptional basis.” The new rules have generated controversy, thanks in part to a widely reported drop-off in SOE investment since they were introduced. Chinese investments in Canada’s oil patch, for instance, have fallen from a peak of $21.6 billion in 2012 to $679 million in 2013, and are about $23 million so far this year, according to the University of Alberta’s China Institute. This leaves some industry observers worrying that the rules will put a permanent damper on future SOE investment. But others are taking a wait‑and-see attitude to see how the situation will play out. Stringham, for one, believes a variety of factors are at play, including a need for SOEs to pause to absorb their mergers and acquisitions (M&A). “As in the past, we’ve seen a drop-off

In China and India, the combined appetite for imported oil is predicted to rise from 13.2 million barrels daily in 2012 to 23.7 million barrels a day by 2035. total, 28 per cent of this investment came from China, 19 per cent from the U.S., 15 per cent from the U.K. and Netherlands combined, with smaller shares from other countries in Europe, Asia and the Middle East. The oil sands alone attracted half of the foreign dollars.

What about new government investment rules for foreign ownership? When it comes to foreign investment in the industry, a hot topic is the new investment rules for state-owned 26

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after a year of significant M&A activity as companies digest their acquisitions. That’s natural. The real test will be as we go through this acquisition digestion cycle to see what happens to SOE investment patterns over the next five years.” While the new rules are impacting oil sands acquistions near the threshold, Stringham says ultimately they are not likely to deter overall SOE investment. He expects SOEs to look for more creative ways of investing in oil sands projects, such as through joint venture partnerships

or minority stakes. As well, watch for them to continue to look for acquisitions in other parts of the industry, including shale gas and liquids‑rich gas plays.

What about market access? For Stringham and others, a greater challenge on the investment horizon is market access. “It’s the biggest issue on the investment agenda: Will Canada be able to break out of its North American-only oil market and move on from there? It’s a yellow flag investors are watching closely,” he says. Today, virtually all Canadian oil exports go to the United States. Canadian production is experiencing significant pricing discounts relative to world oil markets due to a significant increase in the supply in North America of both oil sands and tight oil, and the limited pipeline capacity to get those new supplies to markets. A solution is to build new pipelines to improve access to refineries on the U.S. Gulf Coast or in Eastern Canada, or to look overseas to fast-growing Asian economies, like China and India — where the combined appetite for imported oil is predicted to rise from 13.2 million barrels daily in 2012 to 23.7 million barrels a day by 2035. Industry is working hard to secure needed pathways. On the West Coast, Kinder Morgan recently applied to twin its Trans Mountain pipeline, and Enbridge is waiting for Ottawa to decide on its Northern Gateway pipeline following completion of the regulatory review process. TransCanada is pressing for U.S. government approval for the Keystone XL pipeline to the Gulf Coast. And to the East, the NEB just approved the reversal of Line 9 to Montreal while TransCanada has filed their project description for Energy East. At the same time, companies are looking for new ways to get oil to market, including rail and converting existing natural gas pipelines to crude. Announcements for rail loading capacity in Western Canada could enable capp.ca/context


Feature Story a ramp up from 225,000 barrels a day to more than 900,000 by the end of the year (although the market will decide which of these proposed new facilities get built). While most of the attention has been on oil access, there are also market challenges for Canada’s natural gas. Shale gas development has revolutionized gas supply in the United States, and Canadian gas producers have found it increasingly difficult to compete in traditional markets in Eastern Canada and the United States. Without new markets, daily Canadian production could decline from 14 billion cubic feet (bcf) to under 12 bcf in six years. But the future looks bright if producers are able to realize plans to diversify markets, including through overseas LNG exports to Asia. Currently more than a dozen LNG plants have been proposed for the B.C. coast. If new markets can be accessed, natural gas output could ramp up to 16 bcf a day by 2030.

It’s critical to access capital outside the country. Canada’s capital markets don’t have the depth to fund the type of growth that is projected. - Siren Fisekci, Vice-President, Investor and Corporate Relations at Canadian Oil Sands Limited

Do we have enough investment? Is there enough investment to sustain industry growth, even in this complex environment? The answer is a qualified “yes.” “There’s enough investment for the oil and gas projects that are going ahead. Today the industry is not constrained by investment,” says Stringham. “The real test is going to be what happens to market growth and diversification over the next few years.” Scott Saxberg, President and CEO of Calgary-based producer Crescent Point Energy, agrees, saying: “It’s always been a challenge to attract capital from the U.S., Europe and around the world. And in the last few years, with the controversy surrounding Keystone, we’ve experienced a lower price for our product relative to our American peers. But the recent drop in the Canadian dollar is helping to mitigate this impact and make our industry more attractive to foreign investors. I think we’ll start to see more U.S. investment move into the Canadian industry again.”

Photo: Joshua Naud

Peter Tertzakian, Chief Energy Economist and Marketing Director at ARC Financial Corporation in Calgary, says a lower Canadian dollar, cost discipline by companies and steps underway to improve market access will help to draw more investment into the industry. “For a while, there was a perception that it was hard to make a buck in Canada’s oil and gas industry and that the industry was not going to get product to market because the pipelines are clogged. But there’s more optimism that things are starting to improve in terms of accessing higher value for our oil, with the onset and the rapid proliferation of rail. The industry is starting to look better for investors.”

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Feature Story

Future investment will favour progressive companies that have the “right stuff”— including the right assets, the right cost discipline, the right management and the right technical expertise. - Peter Tertzakian, Chief Energy Economist at ARC Financial Corporation

Tertzakian says future investment will favour progressive companies that have what he calls the “right stuff”— including the right assets, the right cost discipline, the right management and the right technical expertise. “Things are starting to loosen up in the market, and companies in Canada’s oil and gas sector that have the right stuff will be able to attract the investment dollars they need to grow,” he says. But that’s not all that will be required to attract investment dollars. More than ever, the industry will need to do a solid job in telling its story to investors.

What is CAPP doing to support investment? At CAPP, communicating the Canadian oil and gas industry advantage as a home for investor dollars has become an even greater priority. In April, the association will partner with Scotiabank to host its 24th annual Investor Symposium, and for the second year in Toronto, where it expects to draw hundreds of institutional investors (see sidebar, page 30). At other times of the year, CAPP executives and staff are busy meeting with the investment community, updating government officials, explaining the benefits of industry growth to Canadians or advocating in support of market access. Over the last year, they’ve engaged extensively with governments and other interests in Asia to encourage more foreign investment. “A lot of our efforts involve working with governments to lay the groundwork for access to new markets. The federal and provincial governments have focused a lot of effort on developing closer relationships with Asia. This is something we’ve encouraged because it’s critical to our industry’s future,” says Stringham.

“It used to be that our work at CAPP was almost solely Canadian focused. And it still is, but in addition we’re now reaching out to communicate to investors and government officials in the United States, Asia and Europe,” adds Stringham. “A key focus of everything we do is advocating the advantages of the Canadian oil and gas industry from investment and innovation to supply and world markets.” Most importantly, CAPP is strongly focused on advocating for the overall competitiveness of the upstream oil and gas industry in Canada. “The bottom line is that we must be competitive to attract capital and grow,” says CAPP President Dave Collyer. 28

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Photo: Courtesy Arc Financial Corp.

Increasingly CAPP’s outreach activities are taking on a global dimension.


Feature Story

24

15%

>20%

The number of years CAPP has held the oil and gas Investment Symposium. This year’s event is the second time it’s been held in Toronto.

Portion of the world’s oil and gas reserves that are openly accessible to private sector investment, according to the U.S. Energy Information Administration. Canada is considered a “full access” nation for foreign investors looking to invest in hydrocarbons.

Value of oil and gas company shares traded on the Toronto Stock Exchange. (Source: CAPP)

(Source: CERI)

$50B

Foreign capital invested in the oil sands since 2007.

25%

$4M

The share of private sector investment in Canada that goes to the upstream industry.

(Source: CERI)

Cost to drill a tight oil well in Alberta’s Cardium play.

(Source: CAPP)

(Source: CAPP)

Capital upside

Then and Now: Capital Investment in the Upstream Sector $ Billions

80 70 60

$15M

Oil sands

50

Conventional

40 30 (Source: CAPP)

20

capp.ca/context

(Source: CAPP)

2014E

2012

2013E

2010

2011

2009

2008

2006

2007

2005

2004

2003

2002

2000

2001

1999

1998

1996

1997

1995

1994

1993

1992

1990

1991

1989

1988

1986

1987

0

1985

10

Cost to drill a well in the shale gas play in northeastern B.C.

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Feature Story

Oil and gas execs, global investors connect at the

Hundreds of institutional investors from across North America, Europe and Asia gather in Toronto April 3 and 4 to attend the 2014 CAPP Scotiabank Investment Symposium. The annual event provides investors a chance to learn about investment prospects in Canada’s energy sector from CEOs and senior executives from over 90 oil and gas companies.

Investors are able to connect with oil and gas execs, learn their company story, and better understand the business aspects of what industry is trying to do. Brenda Jones, CAPP Manager Member Communication and Special Events, says the symposium is designed to give oil and gas companies direct access to the investment community. “The event provides a forum for personal interaction between energy executives and investors to share knowledge and outlook for the upstream oil and gas industry and for individual companies in our sector.” “The event also provides an opportunity for greater visibility of the industry in Eastern Canada, enhancing understanding of the economic benefits the energy sector delivers to all Canadians.”

Limited, says: “It’s a great way for companies to meet with a broad base of investors and advisors in Toronto — Canada’s investment centre.” Scott Saxberg, President and CEO of Crescent Point Energy, adds: “Investors are able to connect with oil and gas execs, learn their company story and better understand the business aspects of what industry is trying to do.” This year’s conference will showcase investor presentations from small-to mid-to large‑sized capitalized companies representing a cross‑section of the industry, including domestic and international exploration and production, energy services and pipelines and other infrastructure. For the first time, the flagship event is being held in partnership with Scotiabank. “By working together, our goal is to make this the definitive investment event for the Canadian upstream oil and gas industry in Canada,” says Jones. Derek Wheatley, Director, Institutional Equity Sales at Scotiabank, says the financial firm was attracted to the idea of partnering with CAPP because of the conference’s established track record (this is the 24th annual symposium) and CAPP’s reputation as the voice of the Canadian upstream petroleum industry. “We view an important part of our business as making business connections between energy companies and institutional investors. Partnering on this event provides a natural fit.”

Siren Fisekci, Vice President, Investor and Corporate Relations, at Canadian Oil Sands 30

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Ask An Expert

Oil and Gas

Investment Tips by Scotiabank’s Patrick Bryden

Q: What’s the economic outlook for 2014? Will it be a good year for oil and gas? A: Our economic outlook is positive and we believe it will be a decent year. Our strategists expect equities, to outperform bonds based on accelerating global GDP growth. From the vantage point of our oil and gas research group in Calgary, we believe it will be a year to favour energy equities but on a selective basis. The rise of shale gas and tight oil in North America has complicated the question of what stocks to own given the interplay between increased supply from resource plays, the prices at which the plays of marginal supply break even, transportation logistics, and demand pull for our various hydrocarbon product streams. In order to navigate these uncertainties, we regard companies with more defensive risk characteristics as more appropriate choices. Q: In light of this outlook, if you were an oil and gas executive, would you be a) growing the business; b) staying the course or c) retrenching by selling off assets? A: The answer really depends on the characteristics of my company. In all cases I would focus on projects that earn the highest rates of return possible for my shareholders on a full cycle basis. What does that mean? In our publication titled The Valuation Book, we studied the 55 companies in our Canadian-based oil and gas coverage and found that 1) growth in cash flow per share, 2) debtand dividend-adjusted production per share, 3) cash flow-to-revenue margin, and 4) preservation of a strong debtto-cash flow ratio, were the four factors that had the highest correlation to capp.ca/context

investment returns over the past one- and five-year timeframes. In our experience, performance in these measures tends to come from effective management concentration on profitable plays with visibility and repeatability that offer quick payouts, strong capital efficiencies, and low-cost operations with prudent financial leverage.

only for Canada but also within a global context. While foreign capital is welcome to help fund development of such assets, outright ownership and/or control of critical resources is politically sensitive and ultimately proved unpalatable. So, yes, the “open for business” sign is at our front door but it does not mean the whole store is for sale.

Q: How can companies best position themselves to attract investment capital? A: In terms of companies looking for assets to invest in, we favour management teams that can demonstrate profitable new resource play concepts that are developed organically, sourced early stage and via low entry costs. For the right assets and management teams, we believe funding is available. However, investor capital has proven to be much more selective than in prior cycles given that commodity prices do not appear to offer the secular tailwinds witnessed in the past decade and resources per se are not scarce. There is heightened focus on profitability in more static commodity price scenarios rather than old school investment in cycles. We also continue to see demand for income, so dividend companies with capital discipline also currently attract capital.

Q: Do you have some general tips or advice to individual companies on how to attract investors? A: Ten ideas come to mind: 1) find a differentiated niche; 2) focus on low-cost operations; 3) maintain a visible and repeatable inventory to grow shareholder value long term; 4) maintain capital discipline; 5) profitability, and rate of return should be sacred; 6) do what you say you are going to do; 7) attention to detail and specialization will determine performance; 8) maintain humility such that you don’t miss strategic shifts; 9) it is important to market your business but do not lose sight of your day job as, while talk is nice, the numbers always win; and 10) take great care with the usage of financial leverage.

Q: There’s been some confusion about the impact of the new federal rules on State-Owned Enterprise (SOE) investment in the oil sands. What’s your take — is Canada still open for business? A: In my view, and in very general terms, what we learned is that there are resources in Canada such as the oil sands that are strategically important assets not

Patrick Bryden is a research analyst with Scotiabank Global Banking and Markets, Research Division.

Get the whole interview Bryden’s interview has been abridged for print. For the full interview, visit www.capp.ca/context. context . volume 2 . issue 1 . april 2014

31


leadership Profile

Michelle Liebau Suncor’s youngest field supervisor thrives on opportunity.

Suncor field supervisor Michelle Liebau says Fort McMurray is more family oriented and cosmopolitan than most outsiders realize. Here, she enjoys Japanese tea and sushi at her favourite Fort Mac restaurant, Fuji. 32

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Liebau grew up in Kingston and Belleville, Ontario. An honours student, she attended Carlton University to study Public Affairs and Policy Management. Like so many others, she went to Fort McMurray for a summer job — and decided to stay, inspired by the opportunity to realize her potential as a leader in the oil and gas industry.

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Photo: Greg Halinda

Michelle Liebau is a 26-year-old supervisor at Suncor Energy. She is the youngest field supervisor hired to work in Suncor’s mining operations, and one of three female field supervisors in a traditionally male‑dominated area.


leadership Profile

Leadership and Industry Issues Q: How did you get involved in the oil and gas industry? A: I was studying Public Affairs and Policy Management at Carlton University. At the end of the school year in 2007, I moved to Fort McMurray in hopes of finding a summer job. I became interested in the health and safety field while working my first job as a contractor. It motivated me to begin a new career path by completing the National Construction Safety Officer certification. It was this unexpected career path that opened the door to so many opportunities in the oil and gas industry; cementing my decision to dig in, work hard, pursue every opportunity and make Fort McMurray my new home.

plans with a clear understanding of the common goal. If you have the knowledge, but have your team come up with how to put that into practice, you gain much more buy-in and respect from the people executing the work. I also try to be a “sponge” out here, absorbing all of the knowledge, advice, recommendations and experiences I possibly can.

Quick Hits Favourite restaurant in Fort Mac: Fuji Japanese Restaurant

Recent book you’ve read you’d recommend to others: I am Malala by Malala Yousafzai

I try to be a “sponge” out here, absorbing all of the knowledge, advice, recommendations and experiences I possibly can. Q: What industry accomplishment are you proudest of? A: Our land reclamation. What is beneficial about the sheer scale of our industry are the departments dedicated to technological advancements. They allow us to apply vast resources to the recovery of any land that is disturbed — not just as a single milestone, but as a continuing endeavour that grows and improves like the industry itself.

Q: Any advice for young professionals hoping to get into the oil and gas business? A: Determination, willingness to learn, perseverance and a touch of stubbornness are all valuable qualities to possess when starting out in the industry. If you’re willing to put in the time and effort, the rewards are infinite.

Q: There’s a perception the industry is male dominated, particularly out in the field. What would you say about this? A: It is no secret that more men than women work in our oil and gas industry. However, there are plenty of excellent opportunities for both men and women. Through active recruiting, advertising and strong female leadership at our director level, we are seeing more interest and ultimately growing numbers of women in the workforce with each year that passes.

Q: What’s it like living in Fort Mac? How has investment from the oil and gas industry affected the community? A: I moved to Fort McMurray almost seven years ago. At the time, I was uninformed about the city, perceiving it to be a “mining town” for the oil sands workforce and no place for family life. I think this is a misconception many people have about McMurray. How very wrong I was. Because so many Canadians move to Fort McMurray looking for a fresh start in life, most of the veterans of the city are open, welcoming and helpful.

Q: What personally inspires you? A: My mom is my personal inspiration. She is the strongest, most independent, motivated and inspirational mentor in my life.

Q: Being a leader at such a young age must present special challenges. How have you handled this? A: I am very fortunate to be able to tap into the vast knowledge and experience of the people I work with. The most valuable technique I use is to have the people I work with actively involved in developing

Everywhere you go in Fort McMurray, the benefits of our thriving oil and gas industry are felt. From the Suncor Community Leisure Centre, to the Syncrude Sport and Wellness Centre, companies in the region help fund, build and support endless community programs, sports teams and schools.

Q: What’s the best part of your job? A: My title is Supervisor, Oil Sands Roads and Hoppers. My duties include supervising the safety and production of all people and equipment across the oil sands geographic area of Suncor’s Millennium Mine. I enjoy being part of a high-functioning team in the fast-paced, ever-changing environment that Suncor provides me.

capp.ca/context

The Personal Side

Q: If you weren’t in oil and gas, what do you imagine you’d be doing right now? A: Both my parents work in the environmental protection sector of their businesses. If I weren’t here, I’d probably pursue something along those lines for the federal Ministry of the Environment.

Get the whole interview Michelle’s interview has been abridged for print. For the full Q&A, visit www.capp.ca/context.

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O&G 101

Oil and Gas 101:

Control of Canadian Upstream Sector*

Foreign Investment and Economic Growth

canada

56%

Canada’s oil and gas industry invests over $60-billion annually into the Canadian economy and produces much of the energy

united states

which enables our standard of living. With the third-largest oil reserves in the world, and a vast supply of natural gas resources, unlocking these resources and the associated economic and social benefits to Canadians will require this level of investment and more going forward.

Canada First

Foreign investment is an important source of capital for the industry, and foreign exports are an important part of the economy. Investment helps spur growth and meet the needs of a capital intensive industry where the up-front costs for a given project can be in the billions of dollars.

Reviewable investments to acquire and control certain Canadian businesses must gain the approval of the federal government and be deemed to have a “net benefit” to Canada based on established criteria. The net benefit test ensures the best interests of Canada and Canadians are at the forefront of foreign investment decisions.

In Canada, companies that invest here bid for the right to develop natural resources and must abide by Canadian laws, regulations, and labour and environmental standards. They must also pay royalties and taxes on production and, if applicable, obtain export permits.

Under the Investment Canada Act, which came into play on June 20, 1985, foreign investments are placed into two categories: those simply subject to notification, and those that are reviewable.

Whether a foreign investment triggers a review is determined by whether the value of the investment exceeds a certain threshold value. These thresholds were recently updated: See “Changing the Rules.” — KB

Some Recent Investments

The majority (56%) of Canada’s upstream sector is controlled by Canada-based companies and most employees are Canadians.

34

August 2013: Imperial Oil/ExxonMobil purchased ConocoPhillips Clyden oil sands project for

$751 million.

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26%

April 2013: Centrica and Qatar Petroleum purchased

$1 billion

of Suncor Energy’s conventional gas assets.

china

9%

europe

6%

3% Middle east and the rest of asia *Based on current production and location of head offices.

Criteria for Net Benefit to Canada

• • • • • •

Level of economic activity created in Canada Participation by Canadians in the business Productivity, industrial efficiency, technological development, and product innovation and variety in Canada Creation of competition in Canada Compatibility with national industrial, economic and cultural policies Contribution to Canada’s ability to compete in world markets

February 2013: CNOOC Limited acquired controlling interest in Nexen Inc. for

$15.1 billion US. capp.ca/context


Photo: The Canadian Press/Jeff McIntosh

O&G 101

CHANGING THE RULES In 2013, the federal government introduced revised guidelines for foreign investment. Key changes to note include:

1.

Nexen chief executive Kevin Reinhart. Nexen was purchased by Chinese state-owned firm CNOOC Ltd. for $15.1 billion.

SOE Definition: An expanded definition of state-owned enterprises (SOEs) beyond foreign governments and their agencies to include organizations that are “controlled or influenced, directly or indirectly, by a foreign government.”

Oil Sands Foreign Investment 2007-2013

2. Oil Sands and SOEs: Controlling interest in companies developing Canada’s oil sands by state-owned enterprises will no longer be allowed, unless in “exceptional circumstances.” In short, this change protects oil sands companies from takeover by foreign entities. However, minority ownership is acceptable, which may result in more innovative funding structures to develop Canadian oil and gas fields.

as of q1 2013 Approx= $50 Billion

united states 22%

3. Ministerial Authority: The Minister of Industry has been empowered to determine whether an otherwise Canadian-controlled entity is controlled “in fact” by one or more SOEs. The Minister has also been granted authority to extend review timelines if needed for a national security review.

4. Triggering a Review: For a foreign organization that is not classified as an SOE, the threshold enterprise value that will trigger a government review of a proposed takeover increases from $344-million to $1-billion over a four-year period. For SOEs, the threshold remains at the 2012 level of $330-milllion.

December 2012: PetroChina subsidiary Phoenix Duvernay Gas spent

$2.2 billion

for a 49.9% joint venture stake in EnCana’s Duvernay shale gas land holdings. capp.ca/context

china 38%

u.k. & netherlands 12% thailand 5% norway 4%

korea 9%

france 10%

Have the New Rules Chilled SOE Investment? Some believe that new rules have caused a drop off in SOE investments. Others believe it’s too early to tell. For a discussion on the subject, see our feature article “Investing in Upstream Potential” on Page 18.

December 2012: PETRONAS Canada acquired controlling interest in Progress Energy for

$6 billion.

February 2012: Mitsubishi Corp spent

$2.9 billion

for a 40% joint venture stake in EnCana’s Cutbank Ridge.

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Events Listing Marcus Evans Legal Series: Environmental Compliance for Oil & Gas Canada April 8 – 10, 2014 Calgary, Alberta This event is designed to allow those working in environmental compliance to benchmark strategies for building a riskbased compliance program, streamline documentation and reporting, navigate through significantly delayed permits to maintain expected ROI, and plan for the future. http://bit.ly/1gaPN8m

Wellbore Integrity and Shale Gas Development

April 24 – 25, 2014 Shaw Conference Centre, Edmonton, Alberta A two-day APEGA Professional Development Seminar for professional geoscientists and engineers addressing wellbore integrity. http://www.apegasummit.ca/index. php/pd-program/pd-program-overview

Canadian Frac Sand Logistics & Market Forecast Summit

April 29 – 30, 2014 Calgary, Alberta This event brings together the Canadian frac sand supply chain together to evaluate solutions for overcoming the logistical challenges of supplying frac sand to Canadian wellsites. http://bit.ly/1nOqCis

ENFORM PETROLEUM SAFETY CONFERENCE

Responsible Canadian Energy Awards Dinner

May 5 – 8, 2014 Banff Centre, Banff, Alberta With more exhibitors than ever, this year’s conference promises to provide valuable insight on industry safety practices as well as plenty of networking opportunities. http://www.psc.ca/

May 21, 2014 Westin Hotel, Calgary, Alberta The RCE Awards program recognizes the industry’s top performers while highlighting leading practices in social, environment and health and safety performance. The RCE Awards Dinner is an opportunity to find out who has been selected to receive awards and celebrate industry excellence. http://securegs.com/capp

Energy Summit 2014

May 14 – 15, 2014 Sheraton on the Falls, Niagara Falls, Ontario The theme of Energy Summit 2014 – Where Efficiency Meets Profitability underlines the focus on energy efficient processes and technical solutions, which drive greater productivity. http://bit.ly/1dS7DjW

Leading the North: Potential Meets Prosperity

Operational Excellence in Oil and Gas

June 2 – 4, 2014 Calgary, Alberta The conference brings together continuous improvement professionals from across the region to interact, innovate and explore what leading O&G companies are doing to build a culture of sustained improvement. CAPP members receive a 20% discount using the code 23154.001_CAPP_20 when registering. http://bit.ly/1cz7IdO

May 26 – 28, 2014 Fort McMurray, Alberta Conference focusing on the development of Northern Alberta’s energy resources and diverse economy. Guest speakers include ‘eco-preneur’ Kevin O’Leary, Chief Clarence Louie and Rex Murphy. http://leadingthenorth.ca/

LNG Technical Workshop

May 15 – 16, 2014 Delta Vancouver Airport, Vancouver, B.C. This technical event put on by the Industrial Application of Gas Turbines committee is intended to describe basic gas turbine and LNG energy process systems, and to clarify various design choices, unique operating risks and environmental opportunities. http://www.iagtcommittee.com/

Canadian Captives and Corporate Insurance Strategies Summit

May 28 – 29, 2014 Calgary, Alberta This annual forum is specifically designed for Canadian Risk & Insurance Managers and Captive owners. The unique forms of risk retention and insurance discussed are of particular relevance to organizations in the oil and gas industry. http://captivesinsurance.com/

CAPP’s RCE awards dinner will be held May 21st at the Westin in Calgary.

Event listings continued on page 39.

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Safety 101: What’s Wrong With This Picture?

The illustration depicts a collision with a natural gas well on a farm. Can you think of why this happened?

Safety Illustration: Mark Cromwell

[answer on page 39]

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37


In Closing

of the Above In Closing All Market Access

By Greg Stringham

With the continuing growth of Canada’s upstream oil and gas industry, CAPP has developed a multi-pronged market access strategy that looks to expand or create markets for our crude oil and natural gas in Eastern Canada, Asia and the U.S. Gulf Coast. As part of our outreach to Asia, I visited Taiwan in October 2013, on the way to Beijing for the Canada-China Energy and Environment Forum. The goal was to promote the Canadian oil & gas industry as a reliable global supplier and a destination for energy investment. It was the first time CAPP had been to this part of Asia.

In many parts of the world, Canada is seen with strong potential as a robust, stable and secure energy supplier. It is one of the reasons we attracted $67 billion in investment in 2012, capital spent in Canada to develop our world-scale oil and natural gas energy resources.

In many parts of the world, Canada is seen with strong potential as a robust, stable and secure energy supplier. There was strong interest among the Taiwanese in Canadian supplies for oil, LNG and petrochemicals. Their government is undertaking an energy supply diversification study—which fits very well with our own industry’s energy market diversification initiatives. They pointed out, for example, that they will be building two LNG receiving facilities at roughly the same time as the first of our LNG exporting terminals are expected to come on line. Canadian Oil Sands production is projected to grow from

1.9 million

barrels/day in 2013 to

5.2 million barrels/day by 2030. 38

context . volume 2 . issue 1 . april 2014

Long timelines in the development of North American transportation infrastructure have driven increased recognition of Canada’s need to diversify oil and gas markets. The United States has been our largest export market and they will continue to be. However, growth in both U.S. and Canadian supply means we can and must expand to new global markets, both in volume and diversity. This underpins CAPP‘s “all of the above” market access strategy. This includes moving oil to Eastern Canada, providing Canadian energy supplies to Canadians, while displacing the 700,000 barrels of oil a day imported into the region from foreign sources. Transporting oil east also creates the potential for exports off Canada’s East Coast to global markets like the U.S. Eastern seaboard, India and Europe. There is also strong reason to go west for natural gas, in the form of LNG, to supply growing energy consumption in Asia. Moving oil south, via the proposed Keystone XL pipeline and others, will allow us to meet the demands of existing refining centres

on the U.S. Gulf Coast. These refineries are looking for heavy oil that they are built for and need, particularly in light of declining sources from historical suppliers such as Venezuela and Mexico. Finally, it should be noted that in addition to pipelines, rail and marine are becoming critical links to markets. On any given pipeline project, I often hear it asked, why this one versus another? The answer is clear but not often recognized. We have vast resources in Canada—the third largest reserves of crude oil in the world, and a 100-plus year supply of natural gas. Global energy needs are expected to increase. Combining this with the cross-Canada economic benefits that can be unlocked if we seize the opportunity to become a responsible energy superpower, means that our longterm market access strategy needs to be “all of the above.” Greg Stringham Vice President, Oil Sands Canadian Association of Petroleum Producers capp.ca/context


The illustration on page 37 depicts a farmer driving a tractor who’s had a collision with a natural gas wellhead. Unfortunately, this is a type of accident that’s happening more often these days, according to Claudette Fedoruk, Health and Safety Analyst at CAPP.

Events Listing Continued...

SPE Heavy Oil Conference

LNG —The Commercial Imperatives: 4-day training course

June 10 – 12, 2014 Calgary, Alberta BMO Centre at Stampede Park, Calgary, Alberta. Over 1,200 North American and International E&P professionals who spearhead the industry will gather to discuss the technological innovation driving and shaping the future of heavy oil in Canada. http://www.spe.org/events/ hocc/2014/

June 23 – 26, 2014 Calgary, Alberta Practical and interactive training focusing on all stages of the LNG Value Chain. This course is designed to give you a thorough grasp of the LNG industry, from liquefaction and shipping to financing, contracts and trading. http://www.gasstrategies.com/ training

Canadian LNG Exports Multi-stakeholder Collaboration Initiative

Re-Fresh: The Confluence of Ideas and Opportunities on Water Re-use

June 18 – 19, 2014 Vancouver, B.C. Examining strategies for LNG terminal and pipeline developers to collaborate with regulators, First Nations and Asian buyers to establish a globally competitive Canadian LNG export industry. http://bit.ly/1ieBncf

June 25 – 26, 2014 Hotel Arts, Calgary, Alberta Share knowledge and explore opportunities for water re-use. http://www. awcreusesymposium.ca/Home/ tabid/169/Default.aspx

“The culprit in many cases is a new technology that many in the farming community have started to employ,” says Fedoruk, “It’s an ‘auto-steer’ technology that farmers use to drive their tractors and combines.” The technology goes by a number of branded names in the marketplace (John Deere, for example, sells a technology called AutoTrac), but in each case, it is a system that uses GPS to automatically steer the farm equipment. The technology is gaining popularity because GPS-steered equipment can cover land more efficiently and precisely, with less overlap and wastage when it comes to seeding, ploughing and harvesting. The downside, however, is that natural gas wellheads are typically not programmed into the GPS system. In these cases, if a farmer has his tractor on “cruise control” and is not paying attention, a potentially serious collision with a natural gas wellhead can occur. “There’s been a recent increase in these kind of incidents,” notes Fedoruk. “A key solution is to create greater awareness of the problem, particularly as we head into the spring season. We should all remind landowners of the locations of wellheads on their land so that they can either program this information into their GPS systems or simply stay alert and steer clear.” Adding a barrier rail around the wellhead is a good idea to maximize the visual of the wellhead and its location. Another relevant safety tip is to remember to keep the area around a wellhead clear of vegetation that might obscure it.

CAPP Health and Safety Analyst Claudette Fedoruk

Thanks to Scott McLean of Compton Resource Partnership and Mazeppa Processing Partnership for providing background information on this article.

Navigating the sector’s ups and downs begins with sound strategy. The way you handle today’s top oil and natural gas issues determines where you’ll land tomorrow. From market access to sourcing new capital and building social licence, let’s explore how we can help you. ey.com/ca/oilandgas © 2014 Ernst & Young LLP. All Rights Reserved.

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Calgary’s global energy is why we have the highest concentration of head offices in Canada Calgary is evolving to become the global centre for all things energy. Home to over a million residents and 135 head offices, Calgary boasts one of the top performing economies in North America - in large part because it is Canada’s energy centre.

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Context Magazine Volume 2/Issue 1  

CAPP's Member Magazine