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TRANS MOUNTAIN: Pulling plug on Trans Mountain costly to Canadians / 7 APRIL / MAY 2018

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Fort St. John contractors snagged in Trans Mountain impasse, as Trudeau vows pipeline will be built; Petronas committed to LNG long game in Canada; Canadians confused and cynical over carbon pricing; and ConocoPhillips quadruples its Montney resource base

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PIPELINE NEWS NORTH •

COMMENTARY

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CANADIAN PRESS

Horgan Plunges Canada into Crisis of Confidence

P

remier John Horgan’s “double-down” today on his flawed, obstructionist, unfair attack on the duly-approved Trans Mountain pipeline expansion project is shaking investor confidence and showing the BC NDP Government has no interest in doing what’s right for Canada. “B.C. has created a crisis of confidence and the implication is that Canada cannot get major projects approved and built,” said ICBA President Chris Gardner. “It is abundantly clear that the responsibility for this crisis we are facing today rests squarely at the feet of Premier John Horgan – he went to Ottawa and ‘doubled down’ on his obstructionist approach to the pipeline, rather than offer solutions to resolve the impasse.” ICBA commended the federal government for convening today’s meeting between Prime Minister Justin Trudeau, Alberta Premier Rachel Notley and Premier Horgan in Ottawa, and is pleased that the Federal Government will assert it authority over this project to increase the chances of the project being built. However, Premier Horgan’s comments

that his government has every right to undo a project approval granted under a previous administration sets a very dangerous precedent that will further erode the confidence of investors seeking stability and certainty when looking to invest in BC. “Prime Minister Trudeau’s statement today that Premier Horgan’s attempt to block the pipeline is the direct cause of this impasse is a stunning indictment on the actions of Premier Horgan,” said Gardner. “Premier Horgan is

effectively ripping up a contract which Kinder Morgan negotiated in good faith with the federal and provincial governments of the day – that’s not how we must do business in Canada. It’s not right, it’s not fair, and it’s not legal.” Kinder Morgan is prepared to invest $7.4 billion in our economy but Premier Horgan’s actions have forced the federal government to act in a way that means taxpayers could assume risk that a private sector investor was willing to undertake. “Canada is now basically saying that only governments can build major projects – and BC is saying we’re not interested in having private companies invest in our economy,” said Gardner. “This has profound implications beyond BC now – investor confidence Canada is also being seriously undermined.” Chris Gardner is President of the Independent Contractors and Businesses Association


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• PIPELINE NEWS NORTH APRIL 20, 2018

TRANS MOUNTAIN

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Contractors snagged in Trans Mountain impasse MATT PREPROST Days after Prime Minister Justin Trudeau called for an emergency meeting over the Trans Mountain pipeline expansion, Canada, Alberta, and British Columbia remain deadlocked over creating business certainty for the $7.4-billion project. B.C. plans to file legal action to determine its jurisdiction in the dispute by April 30, Alberta has introduced new laws that give it extraordinary power and control over its oil and gas exports, and Canada is racing to negotiate a deal with Kinder Morgan to backstop any financial risks to the company if it decides to carry on building the pipeline. Mired in the impasse are two Fort St. John pipeline contractors selected to build nearly one-third of the expansion through southern B.C., that are ready for the work but are starting to feeling the pressures from uncertainty and delay. “The pressure is real,” said Sean Surerus, president of Surerus Pipeline. “We’ve had to change our construction window a couple times already, but this is looking more tenuous because there are a number of significant investors very concerned about where this project can go. Without capital to do the work there’s a challenge, and without regulatory certainty and a path ahead there’s a lot of waiting and worrying for a lot of people, including us.” Surerus shares a 50 per cent stake with London-based J. Murphy & Sons in the Surerus Murphy Joint Venture, selected to build 180 kilometres of pipeline between Black Pines and Merritt. Fort St. John’s Macro Industries and France’s Spiecapag have a joint venture selected to build 85 kilometres of pipeline in the Coquihalla-Hope area. Combined, the two would employ up to 700 people in their respective spreads over two years, according to Surerus. “It’s a huge component of a huge project, and I don’t think people recognize that B.C. contractors are very, very involved,” Surerus said. “It says a lot for the Northeast part of our province for the skill sets and capacity we have.” Surerus Murphy is still negotiating its contract with Kinder Morgan, and officials with Macro could not be reached for comment. Surerus has 11 project managers employed so far to support ongoing permitting and planning as the National Energy Board finalizes portions of the pipeline’s route. The company had planned to be in Merritt and Kamloops by now, engaging the community and ramping up hiring there, as well as in B.C. and Alberta, Surerus said. “Realistically, we would be involved in the community, and employing people to

Sean Surerus

start construction this year,” he said. “That’s since been pushed to fall, and now that’s very doubtful.” Trans Mountain is an opportunity to be the “backbone” of the company’s growth, Surerus said, making up half its business during the construction season. Uncertainty around the project has forced to the company to delay some of its own investments, and re-evaluate other business opportunities. “This is the biggest project we’ll likely ever have,” Surerus said. “We’re going to endure, but we’re trying to build a business, we’re trying to grow, and we’re trying to add great people. These type of impediments really hurt us as well. It trickles right through.” On April 8, Kinder Morgan announced it was suspending all but essential work on the expansion, and has given the B.C. and federal governments until May 31 to provide “clarity” on whether the company can proceed. If not, the company said it will pull the plug on the project. Kinder Morgan has spent an estimated $1.1 billion so far, and would spend between $300 million and $400 million per month at peak construction. The company has estimated that 9,000 workers would be employed on the B.C. section of the pipeline and terminals over a four-year period. Trudeau has said his government will look at legislative options to assert its authority over the pipeline expansion, and vowed the expansion will be built in the national interest. He has tapped his finance minister Bill Morneau to negotiate a deal with Kinder Morgan, negotiations the federal government says will stay kept behind closed doors.


APRIL 20, 2018

PIPELINE NEWS NORTH •

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In an emergency debate in the House of Commons Monday, Prince George-Peace River-Northern Rockies MP Bob Zimmer criticized Trudeau’s rhetoric and inability to put his words into action. “We have heard a lot of rhetoric about this being done, but I lack the confidence, as do many other Canadians,” Zimmer said. “We have seen three leaders who were previously opposed to oil and natural resource development in our country meet and supposedly solve the problem. We do not have a lot of confidence in the three anti-resource development people who have met and had a conversation. I want to see proof.” The Conference Board of Canada estimates each Aframax tanker that would come to the Westridge Marine Terminal in Burnaby would result in $366,000 in spending in the Port of Vancouver. It estimates the annual spending for port activities to be $127 million from the increased tanker traffic alone. If Kinder Morgan cancels Trans Mountain,

B.C. stands to lose an estimated $5.7 billion in tax revenue over 20 years, according to the Conference Board of Canada. B.C. municipalities would lose close to $1 billion. The total loss to Canada in tax and royalty revenue is calculated at $46.7 billion over 20 years. “There are lots of livelihoods that have banked on this work,” Surerus said, noting construction would benefit the trucking industry, camp operators, and others support businesses throughout the province. “There’s an incredible amount of business impacted, not just a business like us.” Surerus said his company will be taking part in a natural resource rally in Fort St. John May 4, being organized by the Fort St. John Chamber of Commerce. “Realistically, we need people to start speaking up,” Surerus said. — PNN, with files from Business in Vancouver

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TRANS MOUNTAIN

Trans Mountain will be built, PM Trudeau vows NELSON BENNETT B.C. Premier John Horgan emerged from an emergency summit Sunday April 15 with with Prime Minister Justin Trudeau and Alberta Premier Rachel Notley unmoved on his position on the Trans Mountain pipeline expansion. But the pipeline expansion project will be completed, the prime minister vowed today. He confirmed Ottawa will provide Kinder Morgan Canada with financial assurances to reduce the company’s risks on the $7.5 billion project. “I have instructed the minister of finance to initiate formal financial discussions with Kinder Morgan, the result of which will be to remove the uncertainty overhanging the Trans Mountain pipeline expansion project,” Trudeau said. “We will not have these discussions in public, but construction will go ahead. “I have also informed premiers Notley and Horgan today that we are actively pursuing legislative options that will assert, plus reinforce, the Government of Canada’s jurisdiction in this matter, which we know we clearly have.” Horgan said he will continue to defend B.C.’s interests, which includes fighting the project in court, and Notley said her government plans to introduce legislation later this week that will give Alberta more tools to control exports, including oil and reined fuel products -- something it could use as a trade tool against B.C. However, she expressed confidence that the project will be completed, which would avert a trade war with B.C. “Today in the meeting, one of the things we discussed was the fact that the federal government, along with the Government of Alberta, has commenced discussions with Kinder Morgan to establish a financial relationship that will eliminate investor risk,” Notley said. “I am quite confident that the nature of the conversation we are having at this point will get the job done in terms of eliminating the uncertainty that’s caused the May 31 deadline.” Horgan said he still plans to move ahead with a court reference to determine if B.C. has the authority to restrict the flow of diluted bitumen from Alberta through B.C. via pipeline or rail. “At the end of the day, we agreed that there may well be an opportunity for us to have officials address some of the gaps that we perceive to be in the Oceans Protection Plan,” Horgan said in a press conference. “However we remain committed to ensuring our jurisdiction in this regard.” Horgan said Trudeau made no threats to “punish” B.C. It has been suggested Ottawa could use financial pressure, like withholding transfer payments, as a means to pressure B.C. to back off. “I felt no threats or intimidation,” Horgan said. “It was a collegial meeting among peers.” Trudeau reiterated that the Trans Mountain pipeline expansion is in the national interest,

JUSTIN TANG / THE CANADIAN PRESS

Prime Minister Justin Trudeau, B.C. Premier John Horgan, left, and Alberta Premier Rachel Notley, sit in Trudeau’s office on Parliament Hill for a meeting on the deadlock over Kinder Morgan’s Trans Mountain pipeline expansion, in Ottawa on Sunday, April 15, 2018.

saying it is needed to provide markets for Alberta oil, which is heavily discounted due to the fact Alberta has but one customer for its oil -- the U.S. Without that access to other markets, Trudeau said that that the billions being lost to fund things like health care “is not something we can accept as a permanent anchor on our national prospects. The Trans Mountain pipeline was approved by both the federal and B.C. governments. But when the NDP took power last year in B.C., Horgan’s government announced a series of measures aimed at halting the project, saying the risk to B.C.’s coast from increased movement of diluted bitumen were too great. Although the federal government has ultimate authority over pipelines, provincial governments do have some authority over environmental matters, and B.C.’s opposition has been enough to give Kinder Morgan second thoughts. On April 8, the company announced it planned to stop all but essential work on the project, and gave the Canadian government until May 31 to give it the “clarity” it needs, or it would cancel the project. Alberta’s response has been to threaten retaliation, possibly by throttling the flow of oil and refined fuel products to B.C., triggering concerns that both a trade war and constitutional crisis may erupt.

“I don’t think we would be in this current situation if the British Columbia government hadn’t continued to emphasize its opposition to the project,” Trudeau said. On April 13, the provincial government provide an update on the permits Trans Mounta in needs from the province.A total of 1,187 permits are needed from various government ministries and agencies. To date, the government says Trans Mountain has submitted 587 permit applications, of which 201 have been approved and issued. The remainder are still under review. Another 600 permits have yet to be requested by Trans Mountain. Reacting to Sunday’s announcement, Green Party Leader Andrew Weaver said providing financial assistance to Kinder Morgan was a troubling precedent. “It is deeply troubling that the Prime Minister is considering using public funds to absorb investor risk in this project,” he said in a press release. “The message this sends to investors is that if they issue ultimatums for projects based on fundamentally faulty economic rationale, the Prime Minister will put taxpayer dollars on the line to bail them out.” —Business in Vancouver


APRIL 20, 2018

PIPELINE NEWS NORTH •

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TRANS MOUNTAIN Pulling plug on Trans Mountain costly to Canadians NELSON BENNETT BC assumes most of the risks but gets few of the benefits. That’s been the main argument against the $7.4 billion Trans Mountain pipeline expansion project in B.C. from the beginning – an argument that was used even by the former BC Liberal government, before it granted its support, after Kinder Morgan Canada agreed to a $1 billion revenue-sharing agreement with the province. It’s not clear whether that offer is even still on the table now, although if it were, it’s just a fraction of the billions that won’t be coming B.C.’s way if Kinder Morgan decides to pull the plug on the pipeline expansion. On April 8, Kinder Morgan announced it was suspending all but essential work on the pipeline expansion project and has given the B.C. and federal governments until May 31 to provide “clarity” on whether the company can proceed. Otherwise, the company said it will pull the plug on the project – something that is becoming all too familiar in B.C., which saw the cancellation last year of the $36 billion Pacific NorthWest LNG project and the cancellation of the $7.9 billion Northern Gateway project the year before that. While it is true the Trans Mountain expansion would benefit Alberta more than B.C., should Kinder Morgan cancel the project, the loss for B.C. in potential jobs, direct spending, tax revenue and federal government funding for things like the $1.5 billion Oceans Protection Plan is significant. Because $1.1 billion has already been spent, there is still another $6

billion that won’t be spent in B.C. and Alberta if the project is cancelled. The main benefits to B.C. would be during the construction of the pipeline, although there would also be ongoing benefits. For example, the Conference Board of Canada estimates that each Aframax tanker that would come to the Westridge Marine Terminal in Burnaby would result in $366,000 in spending in the Port of Vancouver. It estimates the annual spending for port activities to be $127 million from the increased tanker traffic alone. At peak construction, Kinder Morgan would spend between $300 million and $400 million per month. Kinder Morgan estimated that 9,000 workers would be employed on the B.C. section of the pipeline and terminals over a four-year period. In addition to the pipeline itself, the Westridge Marine Terminal in Burnaby would be expanded, as would the tank storage facilities in Burnaby and Sumas. B.C. would lose an estimated $5.7 billion in tax revenue over 20 years, according to the Conference Board of Canada. B.C. municipalities would lose close to $1 billion. The total loss to Canada in tax and royalty revenue is calculated at $46.7 billion over 20 years. Indirect investments in B.C. that are tied directly to the Trans Mountain project include the federal government’s $1.5 billion Oceans Protection Plan, the lion’s share of which the federal government had earmarked for B.C. Earlier this year, Prime Minister Justin Trudeau made it clear that program is tied directly to the Trans Mountain pipeline and would not

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materialize without it. Also lost would be the $150 million Kinder Morgan committed to improving B.C.’s marine oil spill response through the Western Canada Marine Response Corp. (WCMRC) – another investment that is contingent on the project. Last week, the WCMRC put the construction of six new bases in Vancouver and on Vancouver Island on hold. If the bases are not built, the job loss would be 125. Roughly $7 million in community benefits agreements signed with 11 B.C. communities would also evaporate, because the agreements are contingent on the project being approved and built. The City of Chilliwack, for example, signed an agreement under which Kinder Morgan would contribute $1.2 million to the Vedder Greenway pedestrian trail bridge; Abbotsford would get $1.3 million for the revitalization of a city-owned golf course. When it comes to First Nations, there would be more losers in B.C. than in Alberta if the project were to be cancelled. Of the 51 benefits agreements that Kinder Morgan signed with First Nations along the pipeline route, only 10 are in Alberta – the rest are in B.C. Those agreements would provide $400 million in benefits. Here is a tally of the taxation and other investment losses for B.C. if the project is cancelled: • $1 billion revenue-sharing agreement with B.C.; • $1.5 billion Oceans Protection Plan; • $5.7 billion in provincial tax revenue (over 20 years); • $922 million in municipal

taxes (over 20 years); $127 million annually in oil tanker port spending; • $150 million investment in marine spill response; • $400 million in First Nations benefits agreements; and • $7 million in community benefits agreements in B.C. Less obvious, but just as important, is the billions that will be lost to the Canadian economy in general. Alberta has long made a disproportionate contribution to Canada’s economy because of its oil industry. Between 2007 and 2015, Albertans paid $188.6 billion more in federal taxes than they received in transfers and federal programs, according to the Fraser Institute, and between 2004 and 2014, Alberta created 32% of all private-sector jobs in Canada, despite representing just 12% of the nation’s population. It has been estimated that Canada is losing $15 billion a year due to the discount on Alberta oil, which is at least in part the result of a lack of pipeline capacity. That discount doesn’t just hurt Alberta – it depresses Saskatchewan’s oil revenue as well, which explains why Saskatchewan’s premier recently announced that his province would join Alberta in a trade war against B.C. if it continued to try to block the pipeline’s expansion. Saskatchewan also stands to lose steel making jobs if the project is cancelled. Kinder Morgan agreed to use Canadian steel for the pipeline, with much of the work being done at steel mills in the Evraz mill in Regina. •

—Business in Vancouver


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• PIPELINE NEWS NORTH APRIL 20, 2018

OILMEN

DILLON GIANCOLA/MATT PREPROST PHOTOS

The Cabre Oilfield team won the 2018 Oilmen’s Hockey Tournament on April 7, beating Complete Pumpjack Services 9-4. From left, back: Keith Rost, Wade Banks, Carl Lehr, Kelsey Vonk, Mitch Strang, Graham Kosinsky. Front: Reg Marquardt, Ted Pimm, Jason Hancharak, Todd Alexander, Scott Baker.

Cabre wins 15th Oilmen’s hockey tourney DILLON GIANCOLA The Cabre Oilfield team won the 15th Annual Oilmen’s Hockey Tournament championship, after beating Complete Pumpjack Services 9-4 in the Petroleum Club game on April 7. Todd Alexander, who played for Cabre, has played in the tournament for nine years, winning it all off and on, and said this year’s event was another great time. “Every year the camaraderie between all the teams participating is good. There’s never any problems, just good company and good people and it’s nice to see all those guys that do the same thing as you.” The tournament features a unique format in which all 10 teams are drafted the Wednesday before games start, and the team that comes together the fastest will have the most success. Cabre gelled very well, going 4-1 in its five games. “It’s a neat part of the process, you never know what type of team you’ll get. All 10 teams are close at the end of the tournament. It’s neat to be able to go out and meet new people and kindle new relationships,” Alexander said.

Tournament organizer Lee Hartman was pleased with how this year’s event went, pointing to two things that stood out. The first was the amount of goalies that were interested. “Normally we can’t get enough goalies, but this year we had at least 13 guys that normally play in net that were playing forward,” he said. It took longer than usual for tournament to fill up, Hartman said, but by the end there were eight people on the wait list. The other thing different this year was brining in actors Dylan Playfair and Andrew Herr to be the special guests, instead of an NHL alum. Playfair and Herr play hockey players on the Canadian sitcom Letterkenny. “It was a step outside my comfort zone, as the hockey alumni have been our signature as a tournament. I didn’t know how many people would be familiar with the Letterkenny story, but those guys hit a home run and were very popular,” Hartman said. Playfair was born in Fort St. James, and his mother is from Dawson Creek, so he was very familiar with Fort St. John and the Peace Region. “This is the crowd that makes Letterkenny possible. There’s the junior and senior team

all in the same rink, and it’s cool to see that the culture in Fort St. John is so similar to the culture of Letterkenny,” Playfair said. The two actors, who have played Junior B hockey, played in the first two days of the tournament, and fit right in. “It was cool to see that all these guys are hockey people just like where I’m from in Ontario. They just want to share stories, drink a beer and have fun,” said Herr. The mood at the tournament took a little damper Friday evening and Saturday as news of the Humboldt Broncos tragedy trickled in. Many of the players could relate to riding a bus to play a hockey game, and moments of silence were held before many of the games that followed. “Almost every guy at the tournament this year has rode a bus, and it’s just not thought of as something that would happen. We can rest on the fact that it’s not an every year occurrence, but it’s just so sad when it does happen,” Hartman said. The next Oilmen’s event is the golf tournament, June 7 to 9 at Lakepoint Golf Course.


APRIL 20, 2018

PIPELINE NEWS NORTH •

OILMEN

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APRIL 20, 2018

LNG

Petronas committed to LNG long game in Canada: CEO HAYLEY WOODIN

incentives that [were] provided. We’re still studying it; we see it in a positive light, but again, these are the kind of things that you always review, and find what opportunities can be maturing with the information that we have.

Last year, Petronas cancelled its $36 billion Pacific NorthWest LNG project tentatively slated for northern B.C., citing changing market conditions. Despite that outcome, Anuar Taib, executive vice-president and CEO of upstream at Petronas, says the multinational is committed to being in Canada for a “very, very long time.” Where Petronas once used to avoid the West, he says the company is squarely looking at the Americas for growth, with a 300-to-400-person team at Calgary-based subsidiary Progress Energy Canada Ltd. serving as the company’s global hub for unconventional resources. The following is a condensed conversation that covers the demand Petronas sees in Asia for natural gas and how the company would like to meet it with resources from its world-class North Montney asset. Q: Looking at the natural gas industry, where do you see the greatest challenges? A: As of today, we see natural gas as the energy source that is reliable. I think it is also one of the most affordable ones if you look at the options. For us in Petronas, we see no competition. First we need oil. Secondly, we see there will be future growth for renewables. We are part of it too, but we also see a significant demand in gas. Gas will grow, especially now driven by the climate agreements that people have made. The challenge with gas is that the demand centres for gas are not endowed with indigenous gas, so you will see a lot of trans-nation trade to allow for demand to be fulfilled by supply. In this part of the world, at least in our industry, we see it as an opportunity. That’s why we invested in Canada. We are not here to buy, make a little bit of money, sell. We’re here to really develop the resource in Canada. Q: What are your challenges ahead, specifically with your holdings, and in meeting the demand you see in the years ahead? A: I think in the short term, it’s: how do we bring gas, which is prolific in the North Montney Joint Venture area, down to the market? That’s why we’ve become the foundation shippers with 11 others for TransCanada [Corp.] under the Nova Gas Transmission Line to file a new extension so that we can bring 1.5 BCF [billion cubic feet] a day. Then afterward, we’ll see what we can do from there. The potential is huge. We are now, I think, the third-largest LNG [liquefied natural gas] supplier in the world based on the production that we have in Bintulu [Malaysia] and Australia. There is a lot of things that we could do with gas. And we’ve been in the gas business since 1983. Q: How do your experiences in Canada compare with your work in Australia or other countries? A: I think each country has its own challenges, and each country has its own opportunities. I think we had a good plan with Pacific NorthWest LNG [PNW LNG]. The market just changed completely so because of that we had to cancel the project. But

we’re not stopping. We continue to look for different opportunities. We have spent a significant amount: one is to purchase Progress; second, for us to proof the reserves. I think today we know that we have proof resources up to 22 trillion cubic feet, and we only produce 600 million standard cubic feet per day. And if I were to look at the whole gross volume that we have, we think we could have all the way up to around 52 trillion cubic feet. We see it as a long-term position for us. We want to make sure that we can monetize it, but monetize it not through shorter-term actions. We want to really look at: can we couple it with LNG production? can we couple it with supply to petrochemical projects – maybe ours, maybe others’ – can we couple it with other people’s demand? Q: What’s the strength and nature of your partnerships in Canada? A: The partnership that we have in North Montney Joint Venture, what I like about it is they challenge us in terms of making us more efficient. I’m hopeful that one of these days we’ll continue and be able to go and mature some of the LNG opportunities. They could actually bring to Canada a list of foreign trade partners. When we did our Pacific NorthWest, we were thinking Sinopec [China Petroleum & Chemical Corp.] will be bringing their volume back to China, IOC [Indian Oil Corp. Ltd.] will be bringing back to India, Japex [Japan Petroleum Exploration Co. Ltd.] would bring some of the volume to Japan. That’s an addition of trade between Canada and those countries. The past few years we have been learning a lot from Canada. We have had very good support from the previous B.C. government, the current B.C. government, the federal government. Q: What could the B.C. government’s new proposed LNG incentives around the LNG Canada project potentially bring to LNG production and facilitation in the province? A: It’s still very new. We are aware of the

Q: How do Canadian pipeline and resource politics factor into Petronas’ decisions, and how much attention is paid to what is happening on the ground? A: We always start with the resource. We see what kind of resource that we have, the kind of projects that we have. And we have to work with many governments. In the upstream alone, we have positions in 23 countries. Even in Malaysia, we work with the same government, but many leaders, and this is part and parcel of it. We put a lot of attention into it. We have our CEO and president of Progress Energy Mark Fitzgerald. He’s doing his work making sure that we’re connected with and continue to work with the government. One of these days hopefully we’ll have a breakthrough. But in the short term, we do look forward to the application for the North Montney line extension to be approved by the NEB [National Energy Board] so that we can grow the production from the North Montney Joint Venture area. Q: Is Chevron’s potential sale of its Kitimat LNG stake an opportunity that Petronas might review? A: We look at every opportunity that is available. Too early to say anything or to give any views on any of those. We will update our position as we have a more firm position. Q: From your perspective, what does it take to successfully bring resources to market in a way that meets the needs of all stakeholders? A: It has to be competitive, first of all. What we’ve learned about this market is that it has to be competitive enough that it is affordable to the customers in China, Japan and Korea, and India. No. 2, we’ve got to go and work with all the stakeholders – government, First Nations, contractors, suppliers, partners – to make sure that we have a competitive project that has a lot of certainty. Because sometimes, what we want, what we’re looking for, is certainty of schedule, certainty of cost, so that we can be able to go and assure ourselves that the project that we started could have a positive outcome. Q: What is your long-term vision for your work in Canada? A: From our perspective, Canada remains important. It is the second-largest resource holder in our books, other than Malaysia, so that’s how important it is. We see ourselves there for many, many years investing, and that’s why it’s important for us to put connectivity to the main grid through the North Montney extension line. We want to build the ability to bring gas from the North Montney into the main market. —Business in Vancouver


APRIL 20, 2018

PIPELINE NEWS NORTH •

POLICY Canadians confused and cynical over carbon pricing NELSON BENNETT Carbon pricing is emerging as a wedge issue in both Alberta and Ontario, where NDP and Liberal governments could be replaced in upcoming elections with conservative leaders who have vowed to scrap provincial climate change policies and go to war with Ottawa over its national carbon pricing scheme. Meanwhile, Saskatchewan continues to resist carbon pricing altogether. Which might explain why the Ecofiscal Commission was busy this month conducting a public awareness blitz aimed at explaining to Canadians why carbon pricing needs the support of industry and ordinary Canadians. “Carbon pricing does work” was the main message. But its own polling suggests that convincing Canadians of that is going to be tough. An Abacus Data poll that it commissioned found that the majority of Canadians believe in anthropegenic climate change and the need to address it, but that there is confusion, reticence and cynicism over carbon pricing in Canada. Part of the problem is the suspicion among some Canadians that carbon taxes are just a tax grab that, at the end of the day, won’t put much of a dent in greenhouse gases (GHG). The Ecofiscal Commission points to B.C.’s carbon tax and California’s capand-trade system to demonstrate that they do work, even though California’s GHG reductions under cap-and-trade have been modest and, following an initial dip, B.C.’s GHG emissions have been rising in recent years, thanks to the carbon tax being frozen at $30 per tonne between 2012 and 2017. But Ecofiscal Commission research director Dale Beugin said it’s important to note that, both in B.C. and California, GHGs would be much higher than they are now without carbon taxes and cap-and-trade. The commission estimates B.C.’s GHG emissions would be 5% to 15% higher today had it not implemented a carbon tax in 2008. As for impacts on the economy, the two jurisdictions in North America that were first out of the gate with aggressive climate change policies and carbon pricing – B.C. and California – have both have outpaced their respective nations in terms of economic growth. “Canadians want policy that

reduces GHG emissions without undermining the economy, and I think that there’s some narratives and some misunderstandings out there that you can’t have both those things – that one comes at the cost of the other,” Beugin said. “The evidence doesn’t really bear that out. The evidence is pretty clear that it reduces emissions but it doesn’t really undermine a strong economy.” Provincial governments have until the end of this year to submit their carbon pricing plans to the federal government. In 2019, the federal government will implement carbon pricing, starting at a modest $10 per tonne, rising to $50 per tonne by 2022. But even at those modest prices, Canadians are balking at the idea of any new tax. And there is polarization among many Canadians when it comes to carbon pricing and oil. The Abacus Data poll suggests that there is less support among Canadians when carbon pricing is seen as a weapon against the oil industry, and more support when it’s seen as a tool to build a sustainable economy that has both a fossil fuel industry and effective climate change policies. “While most people (60%) say we should continue to develop these resources while using carbon pricing and other measures to transition to a lower carbon future, 40% feel we must greatly slow or stop development,” the Abacus poll finds. “What this tells us is that when carbon pricing is employed as a rhetorical argument against Canadian oil it produces polarization. When characterized as an incentive to accelerate transition the opposite occurs.” In Ontario and Quebec, the Abacus poll found that 80% of Quebec and 70% of Ontario residents don’t even know that they already have carbon pricing. That’s no doubt because both provinces use a cap-and-trade system, which is hard to understand and less visible than carbon taxes. B.C. and Alberta have economywide carbon taxes, and Manitoba also plans to implement a carbon tax that will both start and stay at $25 per tonne. If B.C. is any measure, Manitoba may find that its carbon tax will result in an initial dip in GHGs, then level off and perhaps even start to rise, because for carbon pricing to work, it needs to gradually but continuously rise. — Business in Vancouver

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• PIPELINE NEWS NORTH

APRIL 20, 2018

POLICY

Montney oil credit appears to be on backburner In the U.S., Mexico or most other oil and gas producing countries, an area with a potential for the recovery of billions of bbls of oil wouldn’t be ignored for long, but in Canada, particularly British Columbia, that is exactly what is occurring in the Montney play, which straddles the Alberta/B.C. border. While the Montney in B.C. is more known for its natural gas resources, the surface has barely been scratched when it comes to its oil potential, according to Brad Hayes, president of Petrel Robertson Consulting Ltd. “If you look at the NEB [National Energy Board] reports, there are one billion barrels of light oil potential in the Montney, plus billions of barrels of liquids,” he said, also citing Alberta Geological Survey estimates. The former B.C. Liberal provincial government wanted to start unlocking that potential, at one point proposing a deep Montney oil drilling credit. Then last year it was replaced by an NDP minority government, which relies on support from three Green Party members. While Premier John Horgan’s NDP government has walked a fine line, backing plans by Royal Dutch Shell plc and others to develop LNG export projects in the province, it has drawn the line on oil development and exports in Canada. The idea of a deep Montney oil drilling credit is clearly not on the new government’s agenda at this point. Suntanu Dalal, a spokesperson for B.C.’s

ministry of energy, in an email reply, said his government reviews royalty rates regularly, “to assure they continue to offer the greatest benefits to the Crown, while maintaining our competitiveness. Royalty programs are designed to attract investment, increasing incremental royalties [and to] generate long-term economic benefits for all British Columbians.” He went on to say that royalty program updates are announced on the government website “if and when they are available.” Finally, he wrote that “there are no updates at this time.” That comes as no surprise to Gary Leach, president of the Explorers and Producers Association of Canada (EPAC). Last spring, when the election campaign was in full swing in B.C., he was encouraged by the decision of the then Liberal government to include a pledge to implement a Montney oil incentive if re-elected. “We were, of course, very encouraged when the Liberals endorsed a Montney oil incentive as part of their election policy goals,” he said then. “It was something EPAC and several of our members had been promoting for three years.” If implemented it would “promote development of some exciting new resource potential and draw investment to NE British Columbia.” Last summer, after the Liberals had been defeated, Leach and some EPAC members met with Michelle Mungall, newly appointed minister of energy. “They didn’t see that [the deep oil credit] as likely to advance with the new government,”

he told the DOB this week. “The message we got was the timing wasn’t right … and the new government was focusing on LNG.” As a result, he said EPAC has “put that on the backburner.” However, Leach said he was impressed with the professionalism of the senior bureaucrats with the department “who were receptive to the issue.” Geoff Morrison, the B.C.-based representative for the Canadian Association of Petroleum Producers (CAPP), said he also hasn’t heard of any plans for a deep oil credit. He said there’s little doubt royalty breaks played a substantial role in unlocking the natural gas and liquids potential of the Montney, especially given the remoteness of the play. Morrison added that no matter how significant the resource potential there might be, the Montney is competing for capital with plays like the Permian in the U.S., which has ready access to infrastructure and nearby markets. “If we look at royalty breaks in the past, they’ve done tremendous things for the province,” he said. “They were needed to attract investment in the resource potential.” He said it’s important to understand that royalty breaks cost the government no direct cash. “This is not the people of B.C. investing. It’s not a subsidy. It’s a royalty incentive.” —Daily Oil Bulletin

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APRIL 20, 2018

PIPELINE NEWS NORTH •

OPERATIONS Horizon North contracted for 1,400 North Montney beds Horizon North Logistics says it has been awarded a conditional contract to construct and operate two new workforce lodges with close to 1,200 combined beds in the North Montney region. The deal also includes use of one the company’s existing 240-bed open camps north of Fort St. John. It will be executed in partnership with the nearby Halfway River First Nation. The $63-million, 16-month contract is likely related to infrastructure development in the North Montney region, according to analysts with GMP FirstEnergy. “The contract duration of 16 months is reflective of the type of projects available for bidding (e.g. infrastructure versus greenfield oilsands),” analyst Ian Gillies wrote in a research note on Tuesday. Horizon North’s share price is up 49 percent year-to-date, while most oilfield service companies covered by GMP FirstEnergy are down in excess of 10 percent, Gillies noted.

This could be a result of cautious optimism that Shell and its partners may soon decide to proceed with the LNG Canada project. “We believe that investors are beginning to take positions in the stock due to Horizon’s significant land ownership position in Kitimat, which provides the stock with some call optionlike qualities in the event of a final investment decision for the LNG Canada project,” he wrote.

Black Diamond converting Montney lodge from single customer to open camp A workforce lodge in Northeast B.C. owned by Black Diamond Group is converting from rental to a sole customer to an open camp that the company believes is positioned to benefit from continued oil and gas development in the region. Located in the heart of the Montney play between Fort St. John and Dawson Creek, the 1,244-room Sunset Lodge was likely previously rented to Encana, according to analysts with GMP FirstEnergy. Going forward it will service Montney producers as well as pipeline builders, general

construction, forestry and renewable energy, Black Diamond said in a statement. It is likely that Encana will also continue to use the facility for drilling activity, GMP FirstEnergy analysts wrote in a research note on Tuesday. The camp market in the Montney region is more competitive than other areas, they added. “Data from [Black Diamond’s] LodgeLink website suggests that it will look to rent these rooms at $190/night. By comparison, BDI’s large open camp in the oilsands (Sunday Creek) currently has room rates starting at $145/night.” Sunset Lodge is of the company’s most contemporary facilities, Black Diamond CEO Trevor Haynes said in a statement. Black Diamond will receive a cash payment of $11.2 million in the transaction, and will assume responsibility for the eventual cost of dismantling the lodge, which GMP FirstEnergy anticipates will be 5 to 10 years away assuming activity levels remain robust. The property will now be operated through Black Diamond Cygnus, a partnership between the company and the West Moberly First Nations, like the new Montney workforce lodge that Black Diamond opened in December 2017. — JWN Energy

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• PIPELINE NEWS NORTH

APRIL 20, 2018

IN BRIEF

ConocoPhillips expands Montney land position ConocoPhillips says it has increased its land position in the Montney play by 32 percent. The company announced this week it recently spent $120 million to acquire approximately 35,000 acres of additional lands located adjacent to its existing acreage. This increases its overall Montney land position to 140,000 net acres. While ConocoPhillips reported a quadrupling of its Montney resource base to two billion boe between 2016-2017, it is still relatively early days for large-scale development. “There’s a lot of work going on there in ‘18 and ‘19 that I would characterize as appraisal work,” executive vice-president Al Hirshberg said on the company’s fourth quarter analyst call. ConocoPhillips is planning a 12-

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B.C. had a quiet land sale in April as, after a brisk start to the year, things have cooled off in the natural gas-prone province. The province took in $197,904 on 1,056 hectares at an average price of $187.41 this month. Just two parcels were purchased after one was withdrawn. Year-todate, the government has brought in $16.01 million on 49,252 hectares at an average price of $325.14. The Alberta government attracted $3.98 million in bonus bids — only 14 parcels were on offer at the April 18 auction. Industry acquired 7,733 hectares at an average price of $515.19. After a positive start to the year, things have started to tail off. The government attracted $89.29 million at five sales in the first quarter, and just $9.62 million after two sales in the second quarter. Q2 is a busy one,

with five more sales left in May and June. Year-to-date, the government has attracted $98.91 million on 314,679 at an average price of $314.32. The April offering of Crown petroleum and natural gas rights in Saskatchewan — the first of the 2018/2019 fiscal year — raised $2.86 million in revenue for the province on Tuesday, which is approximately double the amount raised in the April public offering in 2017. Industry picked up 11,785 hectares at an average price of $243.05. Full results are available here. Year-to-date, the government has collected $6.3 million on 20,148 hectares at an average price of $312.85. To the same point of 2017, the government had raised $3.1 million on 11,606 hectares at an average price of $267.35. — Daily Oil Bulletin

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well test pad to trial stacking and spacing in the Montney this year; the company says its main focus is on infrastructure access and margins. “The problem with these Montney wells is they’re so great that if you want to do a spacing and stacking test where you have a handful of wells, you’ve got to build quite a bit of infrastructure just to handle all the production that comes gushing out,” Hirshberg said. “To do a single pad spacing and stacking test, which is where we’re headed, we have to build a gas plant. We’ve got to build a crude condensate processing plant. We’ve got to build a water treatment plant….So that’s really what we’re focused on. We’ll start construction of those facilities this year and finish the construction next year. That’ll get us into the next round of really solid data on Montney that will guide our development work.” — JWN Energy

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• Distributed to the community in general through these fine publications, Alaska Highway News, Dawson Creek Daily and Fort Nelson News. • Distribution by mail and direct drop-off to Oil & Gas companies,and related businesses and organizations, in the following communities: BRITISH COLUMBIA – Arras, Baldonnel, Cecil Lake, Charlie Lake, CHETWYND, Clayhurst, DAWSON CREEK, Farmington, FORT NELSON, FORT ST. JOHN, Goodlow, Groundbirch, HUDSON HOPE, Moberley Lake, Pink Mountain, Pouce Coupe, Progress, Rolla, Rose Prairie, Sunset Prairie, Taylor, Tomslake, TUMBLER RIDGE, and Wonowon. ALBERTA – Baytree, Bear Canyon, BEAVERLODGE, Berwyn, Bezanson, Bonanza, CLAIRMONT, Eaglesham, FAIRVIEW, Falher, Girouxville, GRANDE PRAIRIE, Grimshaw, Grovedale, HIGH PRAIRIE, Hines Creek, Hythe, LaGlace, MANNING, McLennan, PEACE RIVER, Rycroft, SEXSMITH, Silver Valley, Spirit River, VALLEYVIEW, Wembley, and Worsley, Zama City.


APRIL 20, 2018

PIPELINE NEWS NORTH •

IN BRIEF

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New museum exhibit scales down oil rig for curious learners The Fort St. John North Peace Museum is landmarked by an oil derrick in its front yard. Now, visitors can get an up close look at what happens at a drilling site and how it all works with a new miniature model that’s been added to the museum’s exhibit gallery. The oil drilling rig exhibit is a permanent addition to the museum. Assembled by former Northern Lights College instructor Kenny Theriault, each part of the rig and well site is assigned a letter that explains its role and function in how oil is extracted. “It’s on a scale where we can show things,” museum manager Heather Sjoblom said. “Very few of us get to go out to oil and gas sites and get to actually see how things work and what the parts are. This is a great way for us to explain it.”

FORT ST. JOHN NORTH PEACE MUSEUM

Above: The first sign outlines how a drilling rig works. Top right: Each part on the sign corresponds to a letter cube around the exhibit. Bottom right: Here’s the view from the electrical shack looking towards the derrick with the mud tanks to the left.

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