Manitoba Oil & Gas Review 2020

SERVING MANITOBA’S OIL & GAS INDUSTRY

MANITOBA 2020 Oil & Gas Review

PUBLICATION MAIL AGREEMENT #40934510

Reports of the energy industry’s death are an exaggeration

Competitiveness of Canada’s regulatory framework for the oil & gas industry Energy Safety Canada supports the oil & gas industry online Manitoba’s oil activity

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In this issue...

6

Manitoba 2019 Oil Activity

11

Message from Premier Brian Pallister

12 A Message from Blaine Pedersen, Minister of Agriculture and Resource Development

13 A message from Larry Maguire, Member of Parliament for Brandon-Souris

Published by: DEL Communications Inc. Suite 300, 6 Roslyn Road Winnipeg, MB R3L 0G5 www.delcommunications.com President & CEO: David Langstaff Editor: Lyndon McLean lyndon@delcommunications.com

Advertising Sales Manager: Dayna Oulion dayna@delcommunications.com Advertising Sales: COLIN JAMES Mic Paterson KARI PHILIPPOT DAN ROBERTS Gary seamans

14

PSAC Forecast Update: Lowest activity levels in decades

Production services provided by: S.G. Bennett Marketing Services www.sgbennett.com

16

A Mark Twain moment for Canada’s energy industry

Creative Director / Design: Kathy Cable

18 Competitiveness of Canada’s regulatory framework for the oil & gas sector

22

Carbon Engineering: Pioneering direct air capture of CO2

25 Energy Safety Canada: Available online for the nation’s oil & gas industry

26 Index to advertisers

Advertising Art: dave bamburak ©Copyright 2020.

Manitoba Oil & Gas Review. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher.

While every effort has been made to ensure the accuracy of the information contained herein and the reliability of the source, the publisher­in no way guarantees nor warrants the information and is not responsible for errors, omissions or statements made by advertisers. Opinions and recommendations made by contributors or advertisers are not necessarily those of the publisher­, its directors­, officers or employees.

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4

Manitoba Oil & Gas Review 2020

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overview

Manitoba’s oil activity Courtesy of Manitoba Geological Survey, Manitoba Agriculture and Resource Development 2019 oil production: 16 million barrels

Geophysical Licenses Issued: 3

2018 production: 15.3 million barrels

Geophysical Expenditures ($): 253,455

Wells on production: 259 with seven rigs working

Drilling Licenses Issued: 225

New Wells on Production: 227

New Wells Abandoned: 1

2019 Wells Drilled: 222

Abandoned Producers: 139

2018 Wells Drilled: 276

Other Wells Abandoned: 21

Horizontal Wells Drilled: 208

Certificates of Abandonment Issued: 88

Total producing wells: 3,931

Average Oil Price per m3 ($): $438.56

Wells Capable of Production (December): 5,407

Reservation Sale Bonuses ($): 0

Total SWD wells: 117

Lease Sale Bonuses ($): 606,339.69

Total WIW: 744

Reservation & Lease Rentals & Fees ($): 38,339.69

WSW: 19

Crown Reservation Area (ha): 0 Crown Lease Area (ha): 60,200.58 Total Crown Area Under Disposition (ha): 60,200.58

This graph shows the correlation of oil prices to wells drilled. Industry is price sensitive.

6

Manitoba Oil & Gas Review 2020

7

overview From 2005 to 2017, annual crude oil production has grown from 811,924 cubic metres (m3) to approximately 2.1M m3 (1 m3 = 6.29 U.S. barrels). Production peaked in 2012/13 at over 3 million m3 or about 9 million barrels annually, when prices were at historical highs, averaging around CDN $580/m3 or CDN $92/barrel (Figure 4).

Estimated value of production for 2019 is $1.1B.

Primary drilling targets: • Mississippian (177 wells drilled, 49.3 per cent of 2019 production) • Bakken-Torquay (47 wells drilled, 26.5 per cent of 2019 production) • Lower Amaranth (30 wells drilled, 21 per cent of 2019 production) • Jurassic (five wells drilled, three per cent of 2019 production)

222 wells drilled by eight different companies.

For the seventh year in a row, Winnipeg-based Tundra Oil & Gas is the top driller (69 per cent of wells drilled).

69 wells drilled by seven other companies.

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Manitoba Oil & Gas Review 2020

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MANITOBA DRILLING ACTIVITY

Petroleum Industry Activity Report (January 1/20 — April 20/20) Drilling Activity

To April 20/20

To April 22/19

2019 Total

Drilling Licences Issued

34

53

225

Licences Cancelled

1

13

17

Vertical Wells Drilled

5

4

13

Horizontal Wells Drilled

60

69

208

Stratigraphic Test Holes Drilled

0

0

0

Wells Drilled - Total

65

73

221

133,012

159,074

482,956

Wells Re-entered

0

0

1

Wells Being Drilled

0

0

0

No. of Active Rigs

0

0

7

Wells Licenced but Not Spudded

27

42

58

Wells Completed as Potential Oil Wells

64

71

217

Wells Abandoned Dry

1

0

1

Wells Drilled but Not Completed

0

0

0

Other Completions

0

2

4

New Wells on Production

77

0

227

Geophysical Programs Licenced

0

2

4

Licences Cancelled

0

0

1

Kilometres Licenced

0

174

580

Kilometres Run

79

0

20

No. of Metres Drilled

Geophysical Activity

Oil Prices (Average)

2020 $/m3 ($/bbl)

2019 $/m3 ($/bbl)

Month of February

43 362.74 (57.64)

441.54 (70.16)

Month of March

43 194.27 (30.87)

460.54 (73.18)

2019

2018

213,413.9

206,810

Oil Production (m3) Month of January

Manitoba Oil & Gas Review 2020

9

overview

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Manitoba Oil & Gas Review 2020

A Message from the

honourable brian pallister

Premier of Manitoba

On behalf of the Government of Manitoba, it is my pleasure to welcome you to the 2020 edition of the Manitoba Oil & Gas Review­. Our government was recently re-elected on a promise to promote economic development, create jobs, and cut red tape across all sectors and industries. Manitoba recognizes the important role that oil & gas continues to play in our provincial economy.

Oil was discovered in Manitoba in 1951 and has been produced since that time primarily in southwest Manitoba along the northeastern flank of the Williston Basin, a sedimentary basin that also occupies portions of our neighbours in Saskatchewan, North Dakota, South Dakota, and Montana. Another emerging area for oil & gas production in Manitoba is situated in the Hudson Bay Lowlands.

Some key highlights from 2018-2019 production year include: • The value of oil and natural gas production represented between one and two per cent of nominal Gross Domestic Product; • Crude oil production in Manitoba is equivalent to approximately 43 per cent of the province’s refined petroleum products requirement; • In 2019, over 2.557 million cubic metres or 16.08 million barrels of oil with a total value of $1 billion were produced in Manitoba’s oil & gas sector; • About $442 million was spent by the petroleum industry on exploration and development of oil & gas resources, resulting in drilling 263 horizontal wells and 276 wells in total.

There are currently 6,096 producing and support wells;

• The majority of the approximately 10,573 wells drilled to date in Manitoba have only been drilled to Triassic, Mississippian, or to the Bakken, representing approximately one half of the potential hydrocarbon-bearing formations; • Royalties, production taxes and revenue from the administration of Crown-owned oil & gas rights, fees, and sundry accounted for $22.6 million.

• Manitoba’s oil continues to be of good quality.

Manitoba is committed to help the oil & gas industry keep pace with changes in the sector, evidenced by the advancement of innovative pipeline-leak detection technology. Leadingedge processes allow for the detection of even the smallest leak instantly to shut down the pipeline and mitigate the impact of a spill. This innovation is good for the environment and industry credibility.

Removing unnessary administrative burdens while improving regulatory processes is a key commitment to ensure Manitoba is always open for business. Our government continues to work with industry on improvement to the petroleum fiscal regime and information delivery systems. Through partnership with Western provinces, we are streamlining administrative processes in the next fiscal year to make reporting easier and reduce the risk overpayments by oil & gas producers in Manitoba.

For almost seven decades, in both good times and bad, the oil & gas industry continues to adapt and innovate. We continue to work with the oil & gas industry to make Manitoba become Canada’s most improved province. Together we will keep Manitoba’s resource sector resilient and strong. v

Manitoba Oil & Gas Review 2020

11

A Message from the

Honourable Blaine Pedersen Minister of Agriculture and Resource Development On behalf of the Ministry of Agriculture and Resource Development, I am honoured to join Premier Brian Pallister in highlighting the successes of Manitoba’s oil & gas industry. It is a particular honour to be a part of Manitoba’s 69-year legacy of oil production.

Today, Manitoba’s oil & gas sector is an important contributor to the economy of our province and is an economic driver for the Westman region in particular. In 2019, there were 3,391 total producing wells and 222 new wells drilled. We are pleased to note that this exceeded the five-year running average of 210 wells drilled per year.

Last year’s total industry expenditures accounted for a $350 million industry investment in our province in the areas of exploration, production, and servicing.

Manitoba oil production has increased year over year since 2013 and in 2019.

While the industry faces challenges due to the Russia-Saudi Arabia price war and the impacts of Covid-19, we want to ensure Manitoba is in a positive position for when these international pressures end and we can return to a business-as-usual environment.

Manitoba is responding to industry on issues related to low commodity prices for oil & gas by extending Crown mineral leases for one additional year upon application, as well as extending well licenses to be valid from one year to two years. Manitoba continues to improve on our delivery of technical well and geophysical log files − files industry relies on to drive exploration. We continue to work with industry on improvements to the petroleum fiscal regime.

We are also collaborating with our federal counterparts to ensure that our Mani-

toba stakeholders can take advantage of the recent federal funding announcement for the $1.7 billion program to clean up orphaned/abandoned wells and inactive wells. The announcement includes a $750 million Emission Reduction Fund for projects that reduce greenhouse gas emissions.

We are proud to join our Western Provinces in the adoption of the Petrinex Oil & Gas reporting system, the standard platform used across all oil & gas-producing provinces to report production volumes from oil & gas wells to the regulators. Our government has budgeted over $2.1 million for the implementation of this system, which is set to “go live” in May 2020.

Thank you to Alberta’s Petrinex support team and our industry partners for all the hard work done in cooperation with Manitoba’s implementation team.

This year we plan to move this to the next level by introducing an online tax and royalty calculator. This will make reporting easier, reduce red tape, and eliminate any over- or underpayments of royalties and taxes to the crown.

We are continuing with our offering of Crown oil & gas rights on May 13, 2020 and have taken steps to ensure that our stakeholders and staff can safely proceed with this offering. This represents the continuation of the province’s 22-year history of having four offerings per year.

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12

Manitoba Oil & Gas Review 2020

A Message from

larry maguire

Member of Parliament for Brandon-Souris On behalf of the Conservative Party of Canada and our Manitoba Caucus, I would like to thank the Manitoba Oil & Gas Review for the opportunity to share how my Conservative colleagues and I are working to support the oil & gas sector in Manitoba and across Canada. Conservatives are focused on helping Canadian families and businesses through the COVID-19 global pandemic.

Conservatives understand the important role of the oil & gas sector and are committed to continuing to support the industry through these unprecedented times. On April 17th, the Liberal government announced support for the oil & gas sector, including new funding to clean up orphaned and/or inactive oil & gas well sites in Alberta, British Columbia, and Saskatchewan; establishing an Emissions Reductions Fund managed by Natural Resources Canada; and expanding eligibility for the Business Credit Availability Program to support at-risk medium-sized energy companies to help maintain operations and retain employees.

These measures are a first step, but much more is necessary to protect Canadian energy jobs and ensure the recovery of the Canadian economy. These announcements lack significant detail and timelines for when energy sector employers and employees will begin receiving the necessary support. The oil & gas sector is not just vital for Western Canada and Newfoundland and Labrador — it is an economic engine that benefits the entire country. Oil & gas are Canada’s leading exports, are the largest source of private investment in Canada, and represent 11 per cent of Canada’s GDP. Conservatives understand the importance of the oil & gas sector and will continue to work collaboratively to achieve the best possible outcomes for the industry — and help Canada’s economic recovery. My colleagues and I support increased liquidity for businesses and orphan well remediation, but so far, the government’s response has been short on detail.

Since the beginning of April, Conservatives have called on the government

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to provide the financial assistance to increase liquidity and recapitalize small and medium oil & gas employers, cancel the carbon tax, work with regulators to speed-up assessments for oil & gas projects, provide regulatory overhaul to Bill C-69 to adopt the amendments proposed by provinces and the private sector, and expanded access to export markets by expediting the construction of the Keystone XL and Line 3 replacement pipelines and repeal oil shipping regulations.

The oil & gas industry is a key economic driver in Westman. I know the recovery of the oil & gas sector is vital to ensure the future health of Manitoba and Canada’s economy. The Conservative Caucus will continue to support the hard-working, highly skilled men and women in the oil & gas sector and is urging the government to change course. My Conservative colleagues and I will not relent in our efforts to ensure the long-term recovery of the oil & gas sector, which will be of benefit to Canadians from coast to coast. v

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13

psac forecast update:

lowest activity levels in decades

PSAC Interim President & CEO Elizabeth Aquin.

In its second update to the 2020 Canadian Oilfield Services Activity Forecast, released April 30, the Petroleum Services Association of Canada (PSAC) has revised the number of wells drilled (rig released) across Canada for 2020 to 3,100 wells. This represents a decrease of 1,400 wells, or 31 per cent, from PSAC’s original 2020 Forecast released in October 2019.

PSAC is basing its updated 2020 Forecast on average natural gas prices of $1.95 CDN/ mcf (AECO), crude oil prices of $24 USD/ barrel (WTI) and the Canada-US exchange rate averaging $0.71.

“Punishing blows continue to batter the health of this vital industry,” PSAC Interim President & CEO Elizabeth Aquin says.

“While 2020 began on a positive note, eroding investor confidence from protests and blockades of the Coastal GasLink Pipeline,

cancellation of Teck’s Frontier Oil Sands project, and withdrawal of investment in the Énergie Saguenay LNG facility, began to cast a shadow on the promising start.

What followed with the demand destruction from measures to combat COVID-19, compounded by a collapse in prices from a poorly timed Russia-Saudi price war, quickly dashed any optimism for the rest of the year. The result is over $7 billion of capital investment cancelled from budgets to date, foretelling activity levels not seen in decades.”

“The majority of the impact will be felt on the oil side as supply overwhelms demand and storage levels surge to capacity,” Aquin notes. “This has left producers little incentive to drill for more with the price of a barrel of oil now fetching less than a cup of coffee. We expect to see a 38 per cent drop in activity for oil wells versus 2019 in the face of these unprecedented conditions. We expect gas well drilling to fare better; however, given its smaller role in recent years, this will not make up for the decline in the quest for oil.”

Mark O’Byrne, PSAC Chair and President, Palliser Production Management Ltd. (a Schlumberger Canada Limited company), added, “Additional measures to support the sector through this crisis are crucial. The funding announced by the Government of

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Manitoba Oil & Gas Review 2020

Canada for orphan and inactive wells, for which PSAC advocated, was very welcome and has provided some relief to help retain jobs and expertise. But much more is needed given the severity of headwinds to keep this vital industry alive and ready to support Canada’s economic recovery.”

On a provincial basis for 2020, PSAC now estimates 1,570 wells to be drilled in Alberta, down 27 per cent from 2,155 wells in the original forecast. The revised forecast for Saskatchewan now sits at 1,140 wells, down 655 wells from the original forecast. British Columbia’s revised forecast is for 260 wells to be rig released, 85 wells lower than the original forecast, while Manitoba’s activity was also lowered, from 190 to 115 wells.

Compared to 2019, 2020 is expected to have 37 per cent less activity.

“Oilfield services companies are key to the future, providing innovation and new technology that lowers emissions, reduces environmental footprint, and increases efficiencies,” Aquin continued. “Our reputation is world renowned, and so we must find a way to weather this storm. The world will continue to need oil & gas for decades to come. Canada, with its responsibly developed resources, should be the supplier of choice while providing jobs across the country-wide supply chain and economic benefits to all Canadians.”

The Petroleum Services Association of Canada (PSAC) is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC is Working Energy and as the voice of this sector, advocates for its members to enable the continued innovation, technological advancement and in-the-field experience they supply to energy explorers and producers in Canada and internationally, helping to increase efficiency, ensure safety and protect the environment. v

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A Mark Twain moment for

Canada’s energy industry Reports of its death are an exaggeration

By Mark Milke and Lennie Kaplan, Canadian Energy Centre

American author and humourist Mark Twain. Photograph courtesy the Canadian Press.

In 1897, while in London in the midst of a worldwide speaking tour, American author Mark Twain became the subject of rumours back home that he was dead. To get at the truth, a reporter from the New York Journal wrote to Twain to ask if he was indeed dead or gravely ill.

In response, Twain, with his usual wry wit, wrote back chronicling how he’d also heard the rumours of his illness: “I have even heard on good authority that I was dead.” Twain explained that the gossip resulted from his cousin’s illness and mistakenly spread from there. “The report of my illness grew out of his illness. The report of my death was an exaggeration,” wrote Twain.

Something like that mistaken assertion about Twain now faces the oil and natural gas industry worldwide and in Canada: that oil & gas demand will never resume from the steep decline now occurring as a result of coronavirus and the near-worldwide

16

Manitoba Oil & Gas Review 2020

lockdown’s effect on the economy.

Some anti-oil and gas advocates are sure of this and are demanding that Canada somehow “transition” away from oil & gas.

But that’s not possible, according to the informed opinion of University of Manitoba Professor of the Environment (Emeritus) Vaclav Smil.

The barriers to a transition ordered via government policy were summarily addressed by Smil in his 2017 book Energy Transition: Global and National Perspectives. In it, Prof. Smil pointed out that, “As in the past, the unfolding global energy transitions will last for decades, not years, and modern civilization’s dependence on fossil fuels will not be shed by a sequence of government-dictated goals.”

It’s important to note that Smil wants to see renewables succeed. He is also concerned about carbon emissions and their effect upon global temperatures. But the

energy professor prefers to deal in hard facts and actual data that result from understanding the physical properties of various forms of energy, the energy density “punch,” as one journalist characterized the issue.

Back to oil & gas demand. The coronavirus pandemic has severely impacted consumption of both in the short-term.

However, in previous recessions, oil consumption declined (though natural gas did not always follow the same pattern) before demand resumed and increased.

For example, since the 1970s, temporary declines in oil consumption were followed by a return to ever-higher consumption.

In the last recession, daily oil consumption fell from 87.1 million barrels in 2007 to 85.8 million in 2009, a 1.5 per cent decline. After that, consumption then rose by 10 times that decline, or 15 per cent, to reach 98.8 million barrels of oil consumed daily in 2017 (the latest year for which comparable annual data is available from the U.S. Energy Information Administration).

On natural gas, until this recession world consumption declined only once since 2000: during the 2008/09 recession, by just over three per cent. After that and by 2017, consumption rose by 25 per cent.

Past trends are not guaranteed to repeat in the future. However, the U.S. Energy Information Administration forecasts that petroleum consumption worldwide will decline by 5.2 million barrels in 2020 from 2019, a 5.2 per cent reduction, before rising again in 2021 by 6.4 million barrels, a 6.7 per cent increase.

That forecast is an annual average, so it looks beyond just the massive doubledigit drop in demand that has occurred in recent weeks. It assumes an end to the

current economic shutdown and a partial

(among other factors) meant that while

government, anywhere — the death of

economic recovery later this year and next.

some Canadians were debating if Canadian

oil & gas is greatly exaggerated. The only

The U.S. agency does not provide a nat-

oil & gas extraction should be “allowed” to

question is if Canada will play any part in

ural gas forecast but before the crisis, the

survive, American oil & gas producers cre-

the world’s oil & gas future when demand

International Energy Agency (IEA) forecast

ated 95,000 new oil & gas extraction jobs

resumes.

a 40 per cent rise in world natural gas con-

between 2009 and 2018. In Canada, just

sumption by 2050.

1,610 oil & gas jobs were created in the

This article was originally published April

same period.

29, 2020 at www.canadianenergycentre.ca.

Back to the “Twain” assertion — that oil & gas is dying. Canadians have heard this for

In crises, is it hard to think beyond the

a decade, with the same voices predicting

severe economic destruction immediately

promote Canada as the supplier of choice for

and demanding the sector’s demise.

The Canadian Energy Centre’s mandate is to

underway? But unless the Coronavirus and

the world’s growing demand for responsibly

They were incorrect. But the result of

associated lockdowns continue for de-

produced energy. Please visit their website for

the activism and blocked developments

cades — not a position advocated by any

more information.v Manitoba Oil & Gas Review 2020

17

Competitiveness of Canada’s regulatory framework for the oil & gas sector Much debate has occurred in Canada about the effectiveness of the various regulatory reviews of energy projects, large and small.

The debate illustrates a tension between those stakeholders wanting a concerted stewardship of our natural environment with those that seek to create private and public benefits from energy project investments. Recently, Canadian Energy Research Institute (CERI) published a report, the purpose of which was to provide facts and evidence so that stakeholders can consider these observations as they move forward with individual oil & gas project reviews and conversations regarding improvements in the process. To that extent, the study assesses the competitiveness of Canada’s regulatory frameworks at the federal and provincial levels compared to the United States. It was also intended to show how regulatory matters compare with other investment factors such as market conditions and project economics.

This article provides a summary of the study findings, readers are encouraged to download the full study .

Background In Canada, responsibility for the regulation of energy and natural resources is shared by the federal and the provincial/ territorial governments. The ownership of oil and natural gas resources is split between the provincial/federal Crown (governments), holders of the majority of Canada’s mineral rights, private freehold ownership, and Indigenous peoples (ICLG 2019; Lawson Lundell LLP 2019).

Federal and provincial jurisdictions can overlap, so some energy projects are subject to both regulatory regimes. In those cases, projects may be jointly reviewed by a federal-provincial panel or may be a subject for a substitution process (the federal review is substituted for the provincial review process). In some cases, oil & gas projects may be regulated by a number of different government agencies in different jurisdictions. (NRCan 2016; Stikeman Elliott LLP 2019).

While there is no single federal regulatory agency or department overseeing oil and natural gas resources in Canada, there are

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two principal federal regulators, namely the Canada Energy Regulator (CER former the National Energy Board (NEB) and the Impact Assessment Agency of Canada (IAAC former the Canadian Environmental Assessment Agency (CEAA). Other important regulatory authorities and departments include but are not limited to Environment and Climate Change Canada (ECCC), Natural Resources Canada (NRCan), Fisheries and Oceans Canada, Transport Canada, Crown-Indigenous Relations and Northern Affairs Canada, etc. (Blake, Cassels & Graydon LLP 2019; ICLG 2019; NRCan 2016).

Each province has multiple acts, regulations, and policies in place for energy and natural resources management, environmental management, Indigenous consultation, and climate change (NRCan 2016; Lawson Lundell LLP 2019). While many regulations related to oil & gas activities are similar between jurisdictions, some of them are specific and unique for each province, such as LNG exports in British Columbia, oil sands operations in Alberta and Saskatchewan, or offshore oil production in Newfoundland and Labrador.

Economic regulations relevant to the oil & gas industry in Canada include taxes and other fees imposed on industrial activity.

Taxes and fees will increase the cost and risk of an investment. Income is taxed by both federal and provincial governments under various legislations. For the oil & gas industry, other regulations, such as royalties, production taxes, and administrative levies, have an economic impact. In addition, related to environmental taxes/fees, social fund contributions, and industry sectorspecific taxes also have an impact.

Study Scope The scope of the study includes a review of relevant key legislation and policies for nine jurisdictions in Canada and the United States at the federal (Canada and

the US, including Gulf of Mexico offshore), provincial (British Columbia, Alberta, Saskatchewan and Newfoundland), and state (Texas, North Dakota, Pennsylvania) levels.

The report examines six case studies: onshore oil wells, onshore gas wells, offshore gravity-based structures, LNG plants, interprovincial/interstate crude oil pipelines, and interprovincial/interstate natural gas pipelines. For each jurisdiction, and where possible, for each case, the study evaluates the following characteristics of the regulatory framework: predictability, transparency, stringency, compliance, timelines, cost, and regulatory improvement.

Cost impacts of regulatory frameworks (including supply cost analysis, cost of delay estimation and investment risk analysis) are modelled for each applicable case. The cost of delay estimation consisted of two main parts: 1) The estimation of capital expenditures (CapEx) increases during the delay period; and, 2) Supply cost analysis using discounted cash flow (DCF) models after incorporating the delay period and incorporating new CapEx values.

A survey involving key stakeholders from various groups (government/regulatory agencies, oil & gas industry, Indigenous organizations) was conducted as part of this study.

Study Results Figure 1 presents the results of CERI’s survey with key stakeholders and illustrates the major factors affecting oil & gas investments in Canada. These influencing factors are a ranking of risk related to project investment and decision making.

Regulatory uncertainty (i.e. timeliness for different types of projects: LNG, pipelines, and oil & gas wells) and access to major demand markets are of biggest concern to investors. These two factors are mainly connected to market access infrastructure.

CERI found that for typical day-to-day approvals of routine small-scale onshore oil & gas wells, Canada and the US have similar requirements and similar processes. For those projects, there is no significant difference in the competitiveness of Canadian and US project approvals demonstrated in

our assessments.

CERI found that Canada has a competitive disadvantage of oil & gas investments compared to the US when it comes to liquified natural gas (LNG) projects and interprovincial oil and natural gas pipelines.

Canada’s increased approvals period with increased uncertainty of the decision-making process adds to the cost of projects in Canada . Risk-based assessments of cost, if higher, add to the profitability hurdle rate for investors. In such a situation, when increased costs are combined with risk, competitiveness is challenged. CERI’s analysis found that:

For LNG projects, • a one-year project approval delay results in: – increased supply cost by two per cent, – a decrease in profit by 6.4 per cent, equivalent to CAD$644 million, – decreased government tax receipts by 8.3 per cent, equivalent to CAD$295 million • it takes approximately 19 months more for approval in Canada than the US, providing a competitive advantage to US investments.

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Manitoba Oil & Gas Review 2020

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Major oil and natural gas pipeline projects take approximately 13 additional months for approval in Canada than those in the US, providing a competitive advantage to US investments.

Major oil and natural gas pipeline projects take approximately 13 additional months for approval in Canada than those

• i ncreased supply costs by 10 per cent •d ecreased profits by 8.9 per cent, equivalent to CAD$442 million

in the US, providing a competitive advan-

• a decrease in government tax receipts by

tage to US investments. Pipeline projects

8.9 per cent, equivalent to CAD$150 mil-

that are legally challenged take consider-

lion For natural gas pipeline projects, a one-

ably more time in Canada.

For oil pipeline projects, a one-year project approval delay results in:

year project approval delay results in: • i ncreased the supply cost of eight percent

Return to Work for better business and better recovery

• a decrease in profit by 10.1 percent, equivalent to CAD$259 million • a decrease government tax receipts by 8.1 percent, equivalent to CAD$93 million CERI’s review of the regulatory process focused on the investor perspective. In the myriad factors, regulatory efficiency or timeliness is a consideration alongside market conditions and project economics.

When CERI considered the competitiveness of the Canadian oil & gas sector to that of the US, large and unique projects pose a great challenge for completion in Canada.

References Blake, Cassels & Graydon LLP. 2019. “Environmental Law in Canada.” October 2019. https://www.blakesbusinessclass.com/ wp-content/uploads/2019/10/Environmental_Roadshow_Booklet-1.pdf.

ICLG. 2019. “Canada: Oil & Gas Regulation 2019.” In International Comparative Legal Guide to Oil & Gas Laws and Regulations.

London, UK: Global Legal Group. https:// iclg.com/practice-areas/oil-and-gas-lawsand-regulations/canada.

Lawson Lundell LLP. 2019. “Oil and Gas Regulation in Canada: Overview.” 2019. https:// content.next.westlaw.com/Document/ Id592f8f2755f11e698dc8b09b4f043e0/ View/FullText.html?transitionType=Defaul t&contextData=(sc.Default).

Miller Thomson LLP. 2019. “Environmental Law and Practice in Canada: Overview.”

Thomson Reuters Practical Law. https:// ca.practicallaw.thomsonreuters.com/ Document/I020626f21cb611e38578f7ccc38dcbee/View/FullText.html.

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Manitoba Oil & Gas Review 2020

NRCan. 2016. “Regulation of Shale and Tight Resources.” Government of Canada | Natural Resources Canada. August 23, 2016. http://www.nrcan.gc.ca/energy/sources/ shale-tight-resources/17680.

Stikeman Elliott LLP. 2019. “Oil and Gas Activity in Canada.” A Legal Overview. Stikeman Elliott LLP. https://www.stikeman.com/-/ media/files/kh-guides/oil-gas/oil-andgas-activity-in-canada.ashx. v

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Rendering of CE’s air contactor design. This unit would be one of several that would collectively capture 1M tons of CO2 per year.

Carbon Engineering: Pioneering Direct Air Capture of CO2

The transportation sector of 2050 will run on an energy mix unlike that of today. Operators are demanding increasing quantities of low-carbon energy sources and renewable fuels, and the sector is searching for next-generation technologies that will enable compliance with emissions reduction targets. Carbon Engineering Ltd. (CE) is a Canadian-based clean energy company that has developed a technology that can help address these growing needs. CE’s Direct Air Capture (DAC) technology enables CO₂ to be pulled out of the atmosphere at large scale and then permanently stored underground or used to manufacture fuels and other products. This technology provides a marketbased solution that can meet the demands of existing industries, while simultaneously decarbonizing the economy.

CE was founded in 2009 by Professor David Keith, who raised seed capital from a small group of investors, including Bill Gates. Since inception, CE’s mission has been to develop and engineer a system that could be brought to market affordably and at industrial scale, so it could play a mainstream role in cutting emissions and producing clean energy. In 2015, CE built a proof of concept pilot plant in Squamish, British Columbia, that can capture one ton of CO₂ per day. Today, CE is progressing the engineering for commercial-scale DAC facilities that can be built to capture 1 million tons of CO₂ per year at levelized costs

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Manitoba Oil & Gas Review 2020

CE’s pilot plant pellet reactor and associated equipment. of approximately US$100 per ton of CO₂. At that scale, one facility is capturing a quantity of CO₂ equivalent to the emissions from 250,000 cars.

DAC offers a range of opportunities to create environmental benefits and to manufacture products. To date, CE has developed technology for two main uses: permanently storing the captured atmospheric CO₂ underground and utilizing the CO₂ to produce synthetic transportation fuels.

In the former case, DAC is used to permanently store atmospheric CO₂ in geologic reservoirs, creating what is known as negative emissions, or permanent carbon dioxide removal. As companies and nations tackle commitments to reduce emissions, the ability to remove CO₂ directly from the atmosphere is a powerful new tool to include in sustainability toolkits. Additionally, DAC plants can be built adjacent to existing pipelines and oilfields to deliver CO₂ at point of demand for enhanced oil recovery (EOR).

When atmospheric CO₂ is used and stored permanently underground during the process, it can partially or completely counteract the emissions from the oil produced.

Atmospheric CO₂ can also be used in the production of clean transportation fuels using CE’s AIR TO FUELSTM technology. This process combines renewable hydrogen with atmospheric CO₂ to produce ultra-low carbon intensity synthetic crude. This “syncrude” can then be processed into gasoline, diesel, and jet fuel

that is drop-in compatible with existing refineries and engines.

Due to an unlimited feedstock — atmospheric CO₂ — CE’s AIR TO FUELS™ technology can provide global-scale quantities of clean fuels to meet growing market demand.

In partnership with Oxy Low Carbon Ventures, LLC, a subsidiary of Occidental Petroleum, CE is currently engineering the world’s largest DAC project — a facility that will capture 1 million tons of CO₂ directly from the atmosphere each year to be stored underground permanently in the Permian Basin, U.S. This project is running parallel to the work CE is conducting in other markets, and the company continues to develop project opportunities in locations where CO₂ can be permanently and safely stored underground, and where markets are demanding increasing quantities of low-carbon fuels.

About Carbon Engineering (CE) Founded in 2009, CE is a Canadian-based clean energy company leading the commercialization of groundbreaking technology that captures CO₂ directly from the atmosphere so it can be stored permanently underground, or synthesized into clean, affordable transportation fuels. From a pilot plant in Squamish, B.C., CE has been removing CO₂ from the atmosphere since 2015 and converting it into fuels since 2017. Learn more at www.carbonengineering.com. v Manitoba Oil & Gas Review 2020

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CE’s direct air capture pilot plant in Squamish, B.C. Shown are the air contactor (foreground) and calciner (upper left).

Always looking for new opportunities in Manitoba and S.E. Saskatchewan’s oil patch.

Manitoba owned and operated for

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Border Energy Ltd. Unit B, 245 King Street, Box 172 Virden, MB R0M 2C0 Office: 204-748-4180 Fax: 204-748-4182 Cell: 204-851-1169 Email: borderel@mts.net 24

Manitoba Oil & Gas Review 2020

Energy Safety Canada: Available online for the nation’s oil & gas industry Vital to the economy, Canada’s oil & gas industry continues to produce essential energy during the COVID-19 pandemic.

As critical operations and production continue, worker safety remains a top priority.

“We have seen an extraordinary response both from employers and workers. There’s a focus on protecting workers and ensuring they have a safe and healthy workplace,” says Murray Elliott, President and CEO of Energy Safety Canada.

Resources to support industry Many companies on shared work sites are coordinating their pandemic plans to ensure consistent safety processes and manage potential impacts. Energy Safety Canada is available to support employers — particularly smaller ones who may not have the internal resources — with the development of health and safety procedures related to pandemic planning.

“Most of our large producers and employers have established plans and protocols, so much of the support we’re providing right now is to smaller service providers and operators,” explains Lisa Stephenson, Senior Manager, Industry Development and Support. “Our team is available to help oil & gas companies ensure the right health and safety systems are in place.”

Companies are encouraged to visit EnergySafetyCanada.com to review available resources.

Online safety training Frontline oil & gas workers continue to work during the COVID-19 crisis to

produce the essential fuels that Canadians use every day. To support this effort, Energy Safety Canada has stepped up its online presence and offerings, moving more of its courses online. Oilfield Driver Awareness (ODA), Incident and Accident Investigation, Hazard Management, Safety Program Development, and Health and Safety Auditor Renewal can now be taken online in a virtual classroom.

“We had to act fast to ensure workers could access the training they need,” says Elliott. “Our initial focus was to identify courses that could easily transition to a virtual classroom environment. We will continue to explore additional online options as the situation evolves.”

Extension to Energy Safety Canada certificates Energy Safety Canada has also modified some certificate renewal dates. Recognizing that the restrictions with the pandemic will prevent some workers from renewing their certificates, the expiry date for current/valid certificates in the following courses has been extended to September 1, 2020: • H2S Alive® • First Line Supervisor Blowout Prevention • Second Line Supervisors Well Control • Well Service Blowout Prevention • Coiled Tubing Well Service Blowout Prevention • Oilfield Driver Awareness • Detection and Control • OSSA Fall Protection • OSSA Confined Space • OSSA Elevated Work Platform

No action is required to qualify for the extension. Worker profiles will be updated and can be verified using Energy Safety Canada’s online Certificate Validation tool.

Energy Safety Canada remains committed to being the voice for oil & gas safety.

By responding to industry’s evolving needs and advocating for worker health and safety, the organization will help ensure this industry plays a key role in Canada’s economic recovery. v

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