Derrick Digest for Aug. 18, 2017: First Nations focus on resource ownership for stronger future

First Nations NU Aug18.jpg

Economics and environmental concerns can be balanced

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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AUGUST 18, 2017

 

While First Nations and environmentalists have shared values when it comes to protecting the air, land and water, the First Nations also take the economic well-being of their communities into consideration when it comes to resource development.

A recent story in Oilweek framed the discussion taking place around Indigenous communities and companies and the push to increase equity ownership in resource development by Indigenous peoples in Canada.

“Of course, we’ll protect the environment,” said Joe Dion, chief executive officer of Frog Lake Energy Resources. “Stopping development isn’t hard to do, but how are you going to eat? We need to speak up for the poverty that is out there in our communities. We need to address how we’re going to get our people out of poverty when the majority of wealth is being held by so few.

Frog Lake Energy Resources is an oil and gas exploration and production company that’s wholly owned by the people of the Frog Lake First Nation. Its production is about 3,000 bbls/d, but it’s looking “continuously create business opportunities and deliver long-term value for the benefit of the Frog Lake First Nation and its partners.” Dion has said that “Environmentalists have hijacked the indigenous agenda.”

In an opinion piece in the National Post this week, Dion wrote: “My people are serious players in the resource sector and they want the economic benefits that go with that reality. My message to Canadians is this: don’t be swayed by the dead hand of history. We have to get beyond colonial-era put-downs, and together start putting this country to work in the resource sector.”

The business model of the Fort McKay First Nation is often held up as an example of what can be achieved. The Nation has financial holdings more than $2 billion and an unemployment rate of zero. Last year, Fort McKay bought a 34.3 per cent equity interest in Suncor’s East Tank Farm Development.

Earlier this week, Manitoba’s Gambler First Nation and Elcano Exploration Inc. announced a deal that could see upwards of $1 million a year per well flow to the community of 58 registered residents and 200 off-reserve residents annually. The Nation receives a 40 per cent working interest in the two wells, in addition to 17 per cent in royalties.

And Gambler First Nation has filed suit against Tundra Oil and Gas Partnership and the Province of Manitoba after that company licensed land next to the reserve. Chief David LeDoux said the Nation invited Tundra to do exploration on their land, with the goal of partnering on any resource finds. Instead, the company drilled two wells next to the Nation’s land.

"For that not to happen didn't even enter my mind, that we wouldn't enter into a partnership," LeDoux told the CBC.

Ownership of resources and the income tied to them is a critical step in the path to success for Aboriginals, according to Chris Insley, member of the New Zealand Deep South (Antarctic) National Science Challenge Maori Advisory Panel, 37 Degrees South Limited. Speaking at the Indigenous Conference on Energy and Mining at the Global Petroleum Show in June, Insley shared valuable lessons from New Zealand’s Maori economy.

Valued at $42 billion, it’s growing faster than the New Zealand economy. Compare that to the $12 billion directly attributable to indigenous peoples in Canada’s economy. (That figure is part of the $30 billion “directly linked” to the contribution of indigenous peoples in Canada.”)

“We own half of the New Zealand fishing industry, 30 to 40 per cent of New Zealand’s farming industry and in forestry we have 30 to 40 per cent ownership,” Insley said. “So we are practically involved in the ownership of power stations. (They are attempting to secure financing for a major solar project and are increasing their presence in geothermal and energy plays.) My point is we are not passive. We are active players, where we take a lead rather than just bidding on contracts.”

In another story that offers advice for oil and gas companies looking to build relationships with First Nations communities, Insley urged businesses to broaden the scope of discussion.

“When you talk to indigenous people, you’re probably going to sit there and shudder because they’ll be probably talking about all sorts of things at once while you will probably want a very narrow discussion about a pipeline,” Insley said.

"They’ll be talking about jobs, housing and education. And that’s the way it is. These things are all interconnected and interrelated. You can’t have a very narrow and shallow discussion. If you do, you will struggle…. You are going to have to take a much more holistic view.”

 

Big 3 keep it moving in the Montney

A 25 per cent increase in Encana’s 80-day initial production type curves and premium return well inventory in the Montney can be credited to “cube well development,” according to the company.

But the Calgary-based company isn’t the only company in the play to post strong second-quarter numbers. Seven Generations Energy and ARC Resources also saw positive returns in the same period.

Encana, which has 10 rigs in the area, has completed a 16-well pad in the play. According to JWNenergy.com, “Cube wells target multiple stacked pay zones from a single above-ground location. All of the inventoried wells for a given cross section of pay are drilled and then simultaneously fractured.”

The company forecasts that by the fourth quarter of 2017, its oil and consolidate production from the North Tower area will double the figures from the fourth quarter of 2016.

“We continue to see year-over-year growth in our primary metrics — production, funds from operations and operating income,” said Marty Proctor, chief executive officer of 7G. “Condensate yields remain strong, and are the key driver behind our financial performance.”

The Grande Prairie-based company’s average production in the second quarter was 165,200 boe/d, having drilled 32 wells, completed 33 wells and brought 23 wells online in that time frame. Its capital spending in the first half of the year was $874.8 million, an 80 per cent jump from the same period in 2016.

ARC Resources, meanwhile, spent ARC Resources, which spent $406.2 million in the first half of this year, drilling 66 wells. A full 90 per cent of its capital investment went to its assets in the Montney. Production, down one per cent from the first quarter, came in at 113,410 boe/d. The company is spending $830 million for its capital program, up from the previously planned $750 million.

 

Australia takes on Qatar for top LNG producer spot

The arrival of a floating production, storage, and offloading vessel for liquefied natural gas off the coast of Australia puts that country one step closer to toppling Qatar as the world’s top LNG producer.

The Ichthys Venturer will be moored 200 kilometres off Western Australia as part of Inpex Corp’s first LNG megaproject. It is near Royal Dutch Shell's $12.6 billion Prelude project, the world's largest floating LNG (FLNG) facility.

“The Venturer has a capacity of 1.12 million barrels of gas condensate and will process, stabilize, and store condensate it will receive from the other FPSO, and then load it on tankers,” a story on Oilprice.com states. The Ichthys is expected to tap reserves estimated at more than 12 trillion cubic feet of natural gas.

Both megaprojects, however, are behind schedule and over budget. The rush is on for first production, as the two fields are located on the same reservoir. Inpex is forecast to reach that milestone in March 2018, while Shell is predicted to pump gas between April and July 2018.

The projects are part of a $200-billion LNG investment boom in Australia. Bloomberg reports that Qatar will be targeting the emerging markets of Pakistan and India as it boosts its LNG production from the current 77 million tons to 100 million metric tons by 2024.

 

U.S. oil drillers keep pressure on OPEC with record output

Production from major shale plays in the United States is predicted to hit record highs in September, news that hit just as Saudi Arabia and Iraq strengthened their promise to cut production as part of the Organization of Petroleum Exporting Countries (OPEC).

The increase is being driven by output in the Permian basin of Texas and New Mexico, where production is predicted to rise by 64,000 barrels in September, hitting a record 2.6 million barrels a day. Overall U.S. oil output is predicted to reach a record 6.15 million barrels a day next month.

Shale drillers are reportedly taking advantage of an upswing in prices that saw oil hitting nearly $50 a barrel. Some are locking in prices through 2023, according to a report by Bloomberg. In related news, data from the International Energy Agency (IEA) show that world inventories could remain oversupplied even after the end of 2018. OPEC and its partners extended their production cuts through next spring to try to dry up the excess.

“They’re going to have to dig in for the long haul,” Neil Atkinson, head of the IEA’s oil markets and industry division, said in a Bloomberg television interview. “Re-balancing is a stubborn process.”

OPEC, Russia and other partners will meet in November to re-assess the situation. With Libya, Nigeria and U.S. shale operators pumping out product, OPEC’s current production levels are too high to achieve the goal of returning inventories to the five-year average.

There are some positive indicators, however. The second quarter saw a decline in global inventories. And a discount on immediate crude supplies has turned into a premium, which shows a tightening market.

“The inventory overhang is falling, the re-balancing process is underway,” said Giovanni Staunovo, an analyst at UBS Group AG in Zurich. “Stocks are obviously still high, but from a supply-demand perspective we were in deficit in the second quarter.”

And the market is watching for a potential game-changer: the U.S. imposing sanctions on Venezuela, which would deprive Gulf refineries of their biggest source of heavy oil.