Upgrading Crude by Rail Capacity Summit Houston

Transcription

1 Upgrading Crude by Rail Capacity Summit Houston Examining Western Canadian Production Forecasts, Loading Capacities And Producer Strategies On Expected Volumes, Location And Quality Of Crudes To Allow For Accurate Assessment Of Takeaway Crude By Rail Investment Presented by John Homan Sr. Marketing and Logistics Representative February 26, 2013

2 Outline Sustainability of resources Production forecasts Expansions and new plays Crude quality Production efficiencies Condensate Producer take-away strategies Rail vs. pipe Understanding the differences between the oil sands and tight oil February 26, 2013 WE PRODUCE 2

3 Forward-looking statements advisory This Laricina Energy Ltd. (the Company ) presentation contains certain forward-looking statements. Forward-looking statements may include, but are not limited to, statements concerning estimates of exploitable original-bitumen-in-place, predicted recovery factors, steam-to-oil ratios and well production rates, estimated recoverable resources as defined below, expected regulatory filing, review and approval dates, construction and start-up timelines and schedules, company project potential production volumes as well as comparisons to other projects, statements relating to the continued overall advancement of the Company s projects, comparisons of recoverable resources to other oil sands projects, estimated relative supply costs, potential cost reductions, recovery and production increases resulting from the application of new technology and recovery schemes, estimates of carbon sequestration capacity, costs for carbon capture and sequestration and possible implementation schedule for carbon capture and sequestration processes or related emissions mitigation or reduction scheme and other statements which are not historical facts. You are cautioned not to place undue reliance on any forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both generally and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Although the Company believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct and, accordingly that actual results will be consistent with the forward-looking statements. Some of the risks and other factors that could cause results to differ materially from those expressed in the forward-looking statements contained in this presentation include, but are not limited to geological conditions relating to the Company s properties, the impact of regulatory changes especially as such relate to royalties, taxation and environmental changes, the impact of technology on operations and processes and the performance of new technology expected to be applied or utilized by the Company; labour shortages; supply and demand metrics for oil and natural gas; the impact of pipeline capacity, upgrading capacity and refinery demand; general economic business and market conditions and such other risks and uncertainties described from time to time in the reports and filings made with security regulatory authorities, contained in other disclosure documents or otherwise provided by the Company. Furthermore the forward-looking statements contained in this presentation are made as of the date hereof. Unless required by law the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this presentation are expressly qualified by this advisory and disclaimer. February 26, 2013 WE PRODUCE 3

4 Western CDN production sustainability Original oil in place (bn bbl) 1, Alberta's Bitumen Resource Trillion Barrels Under development Just getting started Athabasca Cold Lake Peace River W McMurray Mineable W McMurray In-Situ Grosmont Nisku Grand Rapids Bluesky-Gething Clearwater Grand Rapids Source: ERCB Reserves 2011 and Supply/Demand Outlook Debolt Wabiskaw-McMurray Shunda Belloy 1.8 February 26, 2013 WE PRODUCE 4

5 Western Canadian resource development The new plays Grand Rapids 600k bbl/d of planned production Players: Laricina, Cenovus, Cavalier, Black Pearl Grosmont Over 400 billion bbls of oil in place Potential for 1 MM bpd of production Players: OSUM, Shell, Husky, Suncor Laricina has the first thermal horizontal well pilot in the Grosmont McMurray bitumen trend > 10 metres Grosmont sub crop Nisku sub crop Grosmont bitumen trend > 18 metres Grand Rapids bitumen trend > 18 metres February 26, 2013 WE PRODUCE 5

6 Production projections ~1.5 MM bpd of new production from 2013 to % of new production is Oil Sands Heavy *Forecast doesn t include new frontier plays like the Grosmont, Grand Rapids, and Leduc February 26, 2013 WE PRODUCE 6

7 Pipelines export capacity is increasingly under pressure based on production forecasts Capital rationing is increasingly becoming a limiting factor on production growth February 26, 2013 WE PRODUCE 7

8 Production projections 180# 160# 140# Western"CDN"projected"produc5on"from"non8pipeline" connected"facili5es" 000"bbl/d" 120# 100# 80# 60# 40# 20# Laricina internal forecast As smaller projects out grow trucking they will move to pipeline connectivity over time as the infrastructure is built February 26, 2013 WE PRODUCE 8

9 Upcoming supply shock: Imperial s Kearl project Projected to be online in Q at initial volumes of 110k bpd Likely will be shipped to Imperial/Exxon refineries Equivalent amount of Cold Lake (CLK) likely backed out in to the market BP/Marathon conversion projects will off-set the incremental volumes but likely not until late 2013 Will provide insights as to how the pipeline systems handle the extra volume Source: Imperial Oil company website February 26, 2013 WE PRODUCE 9

10 Rail loading capacities ~200k bpd of capacity by end of 2013 Currently ~120k bpd ~50% is light oil going to East Coast / Midwest ~50% is heavy oil/bitumen primarily going to the USGC Given production forecasts likely >400k bpd on rail by 2020 February 26, 2013 WE PRODUCE 10

11 Transloading locations Rail transload facility Mostly heavy production Mostly med/light production Source: CN Website Torq Transloading website Enbridge website February 26, 2013 WE PRODUCE 11

12 Basic transloading facility Tankage is helpful in allowing rateable rail car loadings Heavy grades vary widely requiring segregated tankage February 26, 2013 WE PRODUCE 12

13 Crude Quality: The complexity of CDN crude Unlike light sweet crude CDN Heavy crude production methods, quality specs, and transportation requirements vary widely Creates opportunities and challenges for producers, refiners, midstreamers and rail transloaders Optimized refinery crude slates Refiners can target certain producers and vice versa Stream segregation ex. Access Western Blend Market acceptance Blending efficiencies Segregated tankage Diluent requirements February 26, 2013 WE PRODUCE 13

14 Crude Quality STREAM Grade API Gravity Sulfur TAN Conventionals MSW Light Sweet <0.1 LSB Light Sour Midale Medium Sour Peace Sour Medium Sour Bow River Heavy Lloyd Blend (LLB) Heavy Pipeline spec dilbits Cold Lake (CLK) DilBit Access Western Blend (AWB) DilBit Borealis Heavy Blend (BHB) DilBit Peace River Heavy DilBit Western Canadian Select (WCS) DilBit BS&W treated dilbits (not pipeline spec) Various bitumen producers DilBit Canada offers lots of variety Unlike some conventional heavy crudes (LLB), dilbit cannot be readily blended in to the Fuel Oil market due to a low flash point from C5+ addition February 26, 2013 WE PRODUCE 14

15 Crude Quality Athabasca DilBit has a higher yield of lower valued naphtha and vacuum residue fractions Vacuum residue content consumes coker capacity It also has a lower yield of higher valued distillate when compared to WCS New resource plays are showing the ability to decrease diluent addition while new technologies could drastically alter quality specs in the future February 26, 2013 WE PRODUCE 15

16 Crude Quality Total Acid Number (TAN) High TAN, defined as crude having a TAN >1.0 mg KOH/g, is becoming increasingly prevalent in new bitumen plays This trend is set to accelerate over the coming years High TAN stream segregation hurts producers but helps refiners *Note: In general higher sulphur content high TAN crudes cause less severe erosion then low sulphur content crudes Gulf coast refineries are best suited to run large amounts of high TAN product Challenge for refiners not set up to run higher TAN crudes but beneficial to those that are, and able to target high TAN producers via rail shipments February 26, 2013 WE PRODUCE 16

17 Production efficiencies Technological improvements drive growth: New injection strategies to reduce steam-oil-ratios (SOR s) Non-compressible gas injection Solvent cyclic steam assisted gravity drainage (SC-SAGD) Thermal non-steam reservoir heating Toe to heal air injection (THAI) Electro thermal Dynamic stripping process (ET-DSPTM) Enhanced Solvent Extraction Incorporating Electromagnetic Heating (ESEIEH) Partial upgrading MEG s Hi-Q Imperial s paraffinic froth treatment technology (PFT) February 26, 2013 WE PRODUCE 17

18 Production efficiencies New resource plays Carbonates vs. Sandstone Higher average well productivity potential Increases bitumen treatability thus lowering condensate requirements Beneficial for rail deliveries that do not require meeting pipe spec Condensate C5+ remains an integral part of bitumen production Treatment: Base sediment and water specs (BS&W) Transportation: Pipeline density and viscosity specs Rail advantage by avoiding pipeline spec but still has to meet BS&W February 26, 2013 WE PRODUCE 18

19 Condensate supply/demand outlook Reduced diluent requirements from rail and potential C5+ backhaul??? Diluent recovery units (DRU s) Recover and recycle diluent for shipment back to production sites Potential for implementation at production sites or rail terminals February 26, 2013 WE PRODUCE 19

20 Take-away strategies Truck to: Pipeline terminal Rail terminal Rail to: End user Barge port Pipeline to: End user Rail terminal Barge port February 26, 2013 WE PRODUCE 20

21 MEG Energy Rail terminal capacity by direct pipeline connections to MEG s Stonefell terminal Entered in to leasing agreements for barges to provide transportation to markets in the U.S. Gulf Coast via US inland waterways (Wood River) Contracted capacity on rail terminals and barges are expected to accommodate MEG s mid 2013 production Additional contracted capacity on the Flanagan South pipeline All together MEG s strategy creates optionality in their marketing program Canexus Bruderheim rail terminal *Rail acts as a hedge to pipeline exposure February 26, 2013 WE PRODUCE 21

22 Southern Pacific Alberta operations Trucking STP will truck 100% of Phase 1 volume (~14.5k bpd of dilbit) from Mackay project to CN s Lynton terminal Trucking route to Lyton terminal CN rail line to the US Rail CN has space at Lynton for transloading from truck to tank to rail car CN rail line to Ft. Mac is weight restricted to ~ bbls / rail car depending on crude density 14,500 bpd and 525 bbls per rail car could require as many as 800 rail cars to ensure ratable take-away to the USGC Source: CN Website February 26, 2013 WE PRODUCE 22

23 STP to Mississippi operations Lynton to Natchez, Mississippi is ~4,500 kms CN must use a short-line to get to Natchez (NTZR Natchez railway) implying longer transit time and extra costs From Natchez the crude will be put on barges and sent down the Mississippi river to the USGC Key Refineries Key Ports Natchez Many steps and middlemen but room for efficiency gains Condensate backhaul??? Source: CN Website February 26, 2013 WE PRODUCE 23

24 Western Canada is not the Bakken CDN heavy oil has larger scale and duration then tight oil Bakken production likely in decline by 2020 Rail will act as a hedge against pipeline problems in the medium to long term End of the day pipe is the answer for Western CDN oil February 26, 2013 WE PRODUCE 24

25 ONEOK example Crude pipeline to connect the Williston Basin (Bakken) in North Dakota and Montana to Cushing, OK Received in-sufficient longterm commitments to move forward Why did it fail? What is different from Western Canada? Answer: Resource duration, scale and geography February 26, 2013 WE PRODUCE 25

26 McMurray / East Athabasca Infrastructure in place but requires expansion West Athabasca (circled) Major Infrastructure is 3-5 years out Grand Rapids / Grosmont are challenged by geography / topography Not well served by rail, not cheap to build rail, but rail will help bridge the gap between trucking to pipe Pipelines needed to remove trucks from the equation in the long term February 26, 2013 WE PRODUCE 26

27 Pipeline proposals West Athabasca Laricina s Stony Mountain Pipeline Connects West Athabasca to Cheecham pipe and rail terminal TCPL and Phoenix Energy Holdings Grand Rapids Pipeline Runs from northwest of Fort McMurray to Edmonton February 26, 2013 WE PRODUCE 27

28 Rail vs. Pipe capturing the arb All else equal WCS to Maya arb fully captured ~$4 WTI/Brent spread for rail to break even with pipe to EDMT market Laricina internal analysis: Vertical axis is Bitumen netback, Horizontal axis is the WTI/Brent spread February 26, 2013 WE PRODUCE 28

29 Rail vs. Pipe capturing the arb All else equal WCS to Maya arb 50% captured ~$20 WTI/Brent spread for rail to break even with pipe to EDMT market Laricina internal analysis: Vertical axis is Bitumen netback, Horizontal axis is the WTI/Brent spread Break even spread level is sensitive to how much of the arb captured If anything less then 100% of the arb is captured the cost of condensate increases with the WTI/Brent spread thus reducing netbacks February 26, 2013 WE PRODUCE 29

30 Contact us Laricina Energy Ltd. 800, st Street SW Calgary, Alberta T2P 3L laricina@laricinaenergy.com February 26, 2013 WE PRODUCE 30