Derrick Digest for June 2, 2017: Bloom is back on the Rose for Husky Energy's latest project

The Derrick Digest is a weekly collection of curated content, based on events from across the oil and gas industry, that caught our eye at Pennine Petroleum Corporation.

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JUNE 2, 2017

 

Husky’s $2.2-billion offshore oil project a go in Newfoundland

The bloom is back on the rose as Husky Energy Inc. announced it’s moving ahead with its $2.2-billion West White Rose Project off the coast of Newfoundland. 

“It’s a happy day,” Malcolm Maclean, senior Atlantic vice president for Husky, told the Toronto Star this week. There will be hundreds of jobs plus royalties, equity and tax benefits expected to top $3 billion for a province that has reeled since the decline in oil prices. “We’d like to start work almost immediately.”

The project was put on hold in 2014 following the decline in oil prices. In the three years since, Husky says it has improved its capital efficiency by 30 per cent, nearly doubled its initial reserve of 230 million barrels and boosted peak production by 40,000 to 75,000 barrels a day. First oil is expected in 2022 and gross peak production of 75,000 barrels a day is predicted for 2025.

“There were some minor issues that could have increased the risk of execution and we just found common ground,” Husky president and CEO told the Financial Post. “So they still got the jobs, and we still got a project that would meet our return hurdles” — a 10-per-cent return at US$45 a barrel oil.

The project involves a fixed wellhead platform tied to the SeaRose floating production, storage and offloading vessel. It’s located about 350 kilometres east of St. John’s, N.L. A 50-acre parcel on the site of a former U.S. naval station in the Port of Argentia will house a unique new concrete gravity structure which will serve as the base for the West White Rose extension oil project. About 800 people are expected to work at the site at peak construction, welcome news to area residents and business owners. 

"It's the biggest injection into the economy of the community since the Yanks came," entrepreneur Bill Hogan told the CBC.

 

Canada makes Top 5 for global investment destination

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Canada has regained a spot as one of the world’s best investment destinations in a survey of business executives.

Canada’s fifth-place ranking is due to rising commodity prices that indicate a brighter future for oil and gas investment and “a perceived rise in geopolitical risk in developing countries.”

“The world continues to need oil and gas, and continues to need companies to produce it,” said Doug Jenkinson, a partner at Ernst & Young, which commissioned the survey of 2,300 global business executives from 14 industries.

Canada placed fifth, following the United States, China, the United Kingdom and Germany, in places one through four, respectively. The respondents were positive on the global economy, with 64 per cent saying they thought the economy was improving and 57 per cent saying corporate earnings were also on the upswing. The survey also found that almost 50 percent of Canadian businesses were looking to pursue mergers and acquisitions in the next year. 

“In the oil and gas sector, Canada ranks in second place—globally—to do a deal,” Jenkinson says in an EY news release. “Geopolitical uncertainty and macroeconomic issues, including Brexit, are adding complexity to cross-border investments. In fact, the UK has dropped from the Top 5 list for the first time in the Barometer’s seven-year history.”

Jenkinson adds: “When we zoom in even closer, Canada is an even more attractive target. US respondents say that Canada is their top foreign destination. Some of that is our proximity, and some of it is due to the fact that the dollar is so favourable that it feels as though you’re getting a good deal.”

 

Chinese tap into ‘fire ice’ in apparent energy breakthrough

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They are viewed by some as the Holy Grail of energy supply.

And it sounds as though China might have discovered the chalice.

In recent weeks, the Chinese Geographical Survey said that it had successfully extracted natural gas hydrates—christened by some as “fire ice” or “flammable ice”—in the South China Sea.

Samples were extracted at a depth of 1,266 metres, or 200 metres below the sea bed. The Chinese Geographical Society says about 16,000 cubic metres (or 565,000 cubic feet) of gas—nearly all of it methane—were produced each day during this “historic breakthrough.”

Gas hydrates are formed when methane is frozen in the molecular structure of ice. But with no chemical bonding between the two substances, they can be separated with relative eased—and when warmed or depressurized, these hydrates change back to water and natural gas.

The U.S. Department of Energy estimates that the earth has more hydrate reserves than all the combined known reserves of crude oil, natural gas and coal.

Because of hydrates’ volatility, and the fact that nearly all of the world’s known reserves are in the Arctic, the only methane production to date has been via small-scale field experiments.

The likes of Canada, the U.S. and Japan, however, have recently accelerated pilot projects because of the ice-like burnable compound’s potential as an alternative energy source.

 

Analysis: Why an oil supply shortage is on its way

There’s too much emphasis on the supply portion of the old adage of supply and demand when it comes to the oil market, according to Jackie Forrest, director of research at the ARC Energy Research Institute. 

She’s predicting that the supply-demand balance will flip into a sizable one million bpd deficit in the second half of 2017. In a piece in the Financial Post, Forrest cites “the IEA’s growing outlook for global oil demand, the now confirmed OPEC and Russian production cuts, and a robust outlook for U.S. production growth” as factors behind the reversal. 

In addition, she points out that for “the past three years, second half oil demand has averaged 1.7 million bpd above the first half.” 

In its April market report, the International Energy Agency said, “It can be argued confidently that the market is already very close to balance, and as more data becomes available this will become clearer.”