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Providing coverage of Alaska and northern Canada's oil and gas industry
February 2009

Vol. 14, No. 7 Week of February 15, 2009

Treasure in the trough

TransCanada hikes dividend; major shippers want Keystone line to Gulf Coast

Gary Park

For Petroleum News

TransCanada has hiked its annual dividend for the ninth year in a row — a matter of considerable pride to the Canadian pipeline giant in these grim times — but that’s not all it has to smile about.

It’s also managing to turn a negative into a positive, as one oil sands upgrader proposal after another ends up on the shelf, forcing producers to look beyond Alberta for processing outlets.

Chief Executive Officer Hal Kvisle said that when he mentioned the prospect last October of a possible 18-month delay in the Keystone pipeline from Alberta to the Texas Gulf Coast he was inundated with calls from its major shippers.

“They called us and said: ‘What are you guys talking about? … We don’t want you to slow down.’

“There was a very clear message that these people wanted this large diameter line built to the Gulf Coast and we said fine, we’re happy to carry on and that is our plan today,” Kvisle said.

Meanwhile, TransCanada rival Enbridge has stalled progress on two options for delivering unprocessed crude from the oil sands — by pipeline or tanker — to the Gulf Coast refining center.

New shippers interested

TransCanada pipelines President Russ Girling told analysts that in addition to contracted volumes on Keystone — currently 83 percent of the planned expanded system of 1.1 million barrels per day — approaches have been made by “a number of new shippers” who had previously thought they would be able to upgrade their crudes in Alberta, then move them to other markets.

“They are now looking at the Gulf Coast as their most logical outlet,” he said.

He said the oil sands slowdown has reduced forecast output of 300,000 to 500,000 barrels per day by 2012-14, but because of delays in upgrader-related projects bitumen production looking for processing facilities is actually 300,000 bpd higher than forecast for the 2011-13 period.

“The only place to put that 300,000 bpd of extra bitumen is in the Gulf Coast,” Girling said.

TransCanada has applied for a presidential permit in the United States to build a 500,000 bpd expansion of its Keystone system to open a route to the Gulf Coast and has refiners either ready to take crude from Keystone now or by mid-2011.

FirstEnergy Capital analyst Steven Paget rates the company’s plans as “one of the few positive signs we’ve seen in the oil patch for a while.”

Company has raised money

In fact, TransCanada has set a capital budget of C$6 billion for 2009 and, despite what it views as “volatile” financial markets it has experienced no difficulty raising money through a share offering of C$1.16 billion in November to fund projects and an additional C$2 billion last month of debt securities, while leaving C$4 billion of bank lines untouched.

It could also pocket considerable proceeds if some shippers who have contracted volumes on Keystone exercise an option to acquire up to 15 percent ownership in the pipeline. If that happens, TransCanada would be left with 64.99 percent and ConocoPhillips with 20.01 percent.

Kvisle also reported that long-term shipping commitments are being negotiated for production from the Montney-Groundbirch tight gas and Horn River shale gas plays in northeastern British Columbia.

He said Montney is expected to deliver 400 million cubic feet per day in the final quarter of 2010 and build to 1.1 billion cubic feet per day by 2014.

Horn River open season in ‘09

A binding open season for Horn River is scheduled for this year, targeting an onstream date of early 2011, initially carrying 450 million cubic feet per day.

Girling said the initial Horn River volumes would be “quite modest,” but should grow over time to 1 billion cubic feet per day.

The British Columbia production should tie in with TransCanada’s unused capacity of 300 million-500 million cubic feet per day on its Alberta system and its new North-Central Corridor pipeline, designed to handle up to 1.5 billion cubic feet per day.

Interest in Horn River got another lift from EOG Resources Chief Executive Officer Mark Papa, who told analysts Feb. 6 that, despite a drastic cutback in its Western Canadian shallow gas program this year, his company intends to “continue a steady program and drill seven horizontal wells (in B.C.) compared to six last year.”

He said EOG is encouraged that the B.C. government is considering royalty incentives to help producers who have to overcome Horn River’s isolated and difficult terrain.

Devon Energy Chairman Larry Nichols said his company, which has “dramatically” cut activity across most of its near-term development projects in North America, plans to spend C$1.1 billion in Canada this year, including an evaluation and de-risking of some emerging shale plays, including Horn River.






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