In Houston, all eyes are on Canada

Enthusiasm about oilsands - and insecurity elsewhere - put Canada at the forefront of global petroleum play

Claudia Cattaneo
Canwest News Service
Thursday, June 05, 2008

Rich natural gas deposits in northeastern B.C.
are among the petroleum resources in Canada
that are drawing more interest from the U.S.
CREDIT: Stuart Davis, Vancouver Sun files

HOUSTON -- Americans may show little appreciation or awareness at times of Canada as their top energy supplier, but in this global oil industry centre, Canada is hot.

It's a big change in sentiment from a few years ago, when U.S. companies would rather cozy up to Russia or the Middle East than tough it out in the frozen North. Now, the size of the oilsands, the strong Canadian currency, even the emerging Horn River natural-gas play in northeast British Columbia, a lookalike of the fabulously successful Barnett Shale near Fort Worth, Tex., are big topics of conversation in this city's grand oil towers.

Ed Stelmach and Danny Williams, premiers of oil-and gas-rich Alberta and Newfoundland, respectively, are well-known, and securing close relations with them has become a priority. Royalty policies are debated and compared. Curiosity about oilsands or East Coast offshore extraction technologies runs high. Energy Magazine, a Houston-based publication that covers the global energy scene, last month named Canada Country of the Year.

Indeed, industry heavyweights such as Chevron Corp. would like a lot more Canada right now. "If you want me to put one word on it, it's 'enthusiastic,' " said Gary Luquette, Chevron vice-president and one of the highest-ranking executives for the company based in the city. "Chevron has targeted Canada as one of the areas where we really would like to grow."

Part of the reason is that there is a greater understanding of the oilsands, what it takes to produce them, and the U.S market for Canadian oil, said Luquette, president of Chevron North America Exploration and Production Co. The San Ramon, Calif.-based oil supermajor was an early believer in the Northern Alberta deposits, as a partner in the Athabasca Oilsands Project run by Royal Dutch Shell PLC.

"Access around the globe has changed, and so as you find more and more areas that are off-limits or problematic in terms of entering, you come back to Canada and say, 'My goodness, you have a huge resource base, why not Canada?' "

The oil nationalization policies sweeping other oil-producing jurisdictions, such as Venezuela, have placed Canada in such a favourable light that the Houston-based staff of Enbridge Inc. have an inside joke: "Hugo Chavez is the Enbridge employee of the year because he's done a lot to help us," said Stephen Letwin, the top executive in the United States for the Canadian oil-pipeline company. Enbridge is expanding aggressively in the country and working to bring oilsands oil all the way to the U. S. Gulf Coast.

Some refineries it deals with are going out of their way to buy Canadian.

John Lowe, executive vice-president for exploration and production for Houston-based ConocoPhillips, said Canada is so important to his company that one out of seven dollars it will invest this year is going north, much of that to Alberta. The oilsands "still have lower returns than some other projects, but they are one of the largest resources we have in the company, so they are extremely important because of the size and scale that can be achieved."

"The resource is just enormous, it's a very unique resource around the world," he said in an interview from Edmonton, where he told the Chamber of Commerce recently that "this province, its resources and its people are vital to us and to the world's energy future."

Even Rex Tillerson, the chairman and CEO of Exxon Mobil, which only recently recommitted to the oilsands with the Kearl project, called the deposits "a tremendous resource opportunity to meet our energy needs.

"It's very difficult in terms of the technology, but a lot of the technology has been developed and is continuing to be developed that is going to make more of that resource affordable and deliverable in a way that is less intrusive to the environment," Tillerson said after addressing shareholders last week in Dallas.

All the talk about Canada is fuelling buzz that U. S. companies will increase their oilsands exposure by making sizeable acquisitions.

From the standpoint of U.S.-based firms, "When you look around the world, and where you are going to get the secure access to resource, there are two areas that pop to mind -- first is oilsands, and the other is the U.S.," said Brian Reinsborough, president of Nexen Petroleum U.S.A., the Dallas-based U.S. affiliate of Nexen Inc.

"I think you will see more U. S. companies taking a position in Canada."

ConocoPhillips, which has been talked about as a potential bidder for EnCana's oilsands spinoff once EnCana splits itself into two entities next year, doesn't have any acquisition plans, Lowe said. However, he said ConocoPhillips knows EnCana's oilsands assets better than anybody else through a joint venture involving EnCana's two major thermal projects in Alberta and ConocoPhillips' two U.S. refineries.

Chevron, which has been trying to expand in the oilsands, has been finding it difficult to make a move. "It's challenging economically, all of the acreage is pretty much tied up now."

The Alberta government didn't help by increasing royalties that have made the oilsands even more of a challenge, a message that Chevron has conveyed to Stelmach, Luquette said.

For Chevron, the momentum is moving to another Canadian basin -- the East Coast offshore, where it is looking at expanding an already sizeable position that includes a stake in the Hibernia field, the proposed Hebron heavy-oil field, and exploration in the Orphan basin.

"We now look at the East Coast of Canada in a preferred way," Luquette said. "We can be competitive in the East Coast. The oilsands for us has fallen to the bottom."

© The Vancouver Sun 2008