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Canadian Energy Research Institute

Western Canadian Oil and Gas Sector Overview

Dinara MillingtonVP Research

2016 International Cold Regions Oil & Gas SeminarSeoul, South KoreaDecember 7-8, 2016

Relevant • Independent • Objectivewww.ceri.ca

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Canadian Energy Research InstituteOverview

Founded in 1975, the CanadianEnergy Research Institute (CERI) is anindependent, non-profit researchInstitute specializing in the analysisof energy economics and relatedenvironmental policy issues in theenergy production, transportation,and consumption sectors.

Our mission is to provide relevant, independent, and objective economic research of energy and environmental issues to benefit business, government, academia and the public.


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Supporters include:

In-kind support is also provided:


Agenda

Canadian Oil and Gas Resources

Industry Contribution to the Canadian Economy

Oil and Oil Sands: Why Market Access is Critical!

Natural Gas: Is the Market Truly Disappearing?

LNG: Build it Now or Not at All?

Conclusions


Oil Reserves and Natural Gas Resources

Source: AER, NEB Source: NEB

Conventional Oil, 5.5

Mining, 32.1 In Situ, 133.3

Oil Sands, 167.1

Total Remaining Established Reserves in Canada = 171 Trillion barrels (at end of 2015)

Ontario, 1

Quebec, 7

Maritimes, 1

Frontiers, 223Conventional,

68

Tight Gas, 512

CBM, 48

Shale Gas, 371

WCSB, 855

Total Remaining Marketable Gas Resources in Canada = 1230 Tcf (at end of 2015)


Oil Proved Reserves by Country(billion barrels and % of total at end-2015)

Source: BP Statistical Review of World Energy, June 2016

300.9

266.6

172.2157.8

143.1

102.4 101.5 97.8

17.7%

15.7%

10.1%

9.3%8.4%

6.0% 6.0% 5.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Venezuela Saudi Arabia Canada Iran Iraq RussianFederation

Kuwait United ArabEmirates

(bln barrels)

96% (165.4 billion barrels) of Canadian reserves are in the oil sands

World Oil Proved Reserves - 1,697.6 Billion barrels (at end of 2015)80 % are state-owned or controlled


World Oil Production by Country(million barrels per day and % of total world crude production)

Source: BP Statistical Review of World Energy, June 2016.

12.7012.01

10.98

4.39 4.31 4.03 3.92

2.63

13.0%13.0%

12.4%

4.9% 4.9% 4.5% 4.2%

3.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

(MMbpd)

World Oil Production- 91.7 Million barrels per day (at end of 2015)

Canada is the 4th largest global oil producer


World Gas Production by Country(billion cubic feet per day and % of total world gas production)

Source: BP Statistical Review of World Energy, June 2016.

74.2

55.5

18.6 17.6 15.8

22.0%

16.1%

5.4% 5.1%4.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

(Bcfpd)

World Gas Production- 342 Billion cubic feet per day (at end of 2015)

Canada is the 5th largest gas producer in the world


Canadian Economy Annualized GDP by Industry or Sector(as of August 2016)

Source: Statistics Canada.

At a Glance….

• Good producing sectors amount to 30% of total GDP, service-producing – 70%.

• Real estate and rental and leasing - largest segment of Canada's economy.

• Manufacturing is the second largest component at 10.5%.

• The oil and gas sector has long been a significant contributor to Canada’s economy accounting for 8% of GDP.0.7%

0.7%

1.6%

1.9%

2.2%

2.4%

2.5%

3.0%

4.4%

5.2%

5.3%

5.4%

5.8%

6.5%

6.8%

6.8%

7.2%

7.9%

10.5%

13.1%

0.0% 2.5% 5.0% 7.5% 10.0% 12.5% 15.0%

MANAGEMENT OF COMPANIES AND ENTERPRISES

ARTS, ENTERTAINMENT AND RECREATION

AGRICULTURE, FORESTRY, FISHING AND HUNTING

OTHER SERVICES (EXCEPT PUBLIC ADMINISTRATION)

ACCOMMODATION AND FOOD SERVICES

UTILITIES

ADMINISTRATIVE AND SUPPORT, WASTE …

INFORMATION AND CULTURAL INDUSTRIES

TRANSPORTATION AND WAREHOUSING

EDUCATIONAL SERVICES

PROFESSIONAL, SCIENTIFIC AND TECHNICAL SERVICES

RETAIL TRADE

WHOLESALE TRADE

PUBLIC ADMINISTRATION

CONSTRUCTION

HEALTH CARE AND SOCIAL ASSISTANCE

FINANCE AND INSURANCE

MINING, QUARRYING, AND OIL AND GAS EXTRACTION

MANUFACTURING

REAL ESTATE AND RENTAL AND LEASING


What Does Canada Export?

Source: Statistics Canada.

At a Glance….

• Goods exports amount to 30% of GDP (service exports ~5% of GDP)

• The third largest category of goods exports is Energy Products (oil, natural gas and other) at 14% of total exports, a decline of 10% from 2014 prior to oil price collapse.

• The United States still accounts for the vast majority of Canadian exports at 75% share.

0.8%

2.0%

3.3%

4.1%

5.2%

6.1%

6.3%

6.4%

7.9%

11.5%

14.2%

14.4%

17.8%

0.0% 5.0% 10.0% 15.0% 20.0%

SPECIAL TRANSACTIONS TRADE

OTHER BALANCE OF PAYMENTS ADJUSTMENTS

METAL ORES AND NON-METALLIC MINERALS

AIRCRAFT AND OTHER TRANSPORTATION EQUIPMENT AND PARTS

ELECTRONIC AND ELECTRICAL EQUIPMENT AND PARTS

FARM, FISHING AND INTERMEDIATE FOOD PRODUCTS

BASIC AND INDUSTRIAL CHEMICAL, PLASTIC AND RUBBER PRODUCTS

INDUSTRIAL MACHINERY, EQUIPMENT AND PARTS

FORESTRY PRODUCTS AND BUILDING AND PACKAGING MATERIALS

METAL AND NON-METALLIC MINERAL PRODUCTS

ENERGY PRODUCTS

CONSUMER GOODS

MOTOR VEHICLES AND PARTS

Land AcquisitionCrown Land Sales

Evaluation

Construction

Operation and Maintenance

Production

Wages

Royalties

Western Canada’s Oil and Gas Sector

Land AcquisitionCrown Land Sales

Conventional Drilling

Completion and Tie in

Operation and Maintenance

Production

Wages

Royalties

2015 Expenditures: $49.6 billion 2015 Expenditures: $46.3 billion

Oil and Gas Drilling Oil Sands Developments11


Historical Expenditures in Conventional Oil and Gas

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

(‘0

00

CD

N $

)

BC TOTAL AB TOTAL SK TOTAL Territories TOTAL Western Canada

2014-2015: CAPEX Decline of 23%

2015-2016E: CAPEX Decline of 44%

Source: CAPP, Arc Financial


Historical Expenditures in Oil Sands

Source: CAPP, Arc Financial

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

(‘0

00

CD

N $

)

Capital Operating Royalties Total

2014-2015: CAPEX Decline of 28%2015-2016E: CAPEX Decline of 20%


Canadian Crude and Oil Sands Production Outlook


2015 Facts about Canadian Crude

2015 Average Day Volumes• Western Canada Conventional Light/Medium Production 663,296 bbls/day• Eastern Canada Conventional Light/Medium Production 175,754 bbls/day• Canadian Condensate Production (C5+) 218,922 bbls/day• Canadian Conventional Heavy Production 430,117 bbls/day• Canadian Upgraded Bitumen Production (SCO) 976,208 bbls/day• Canadian Non-Upgraded Bitumen Production (Bitumen) 1,405,173 bbls/day• Total Canadian Production of Crude Oil and Equivalent 3,869,469 bbls/day

In June 2016• Production of Crude Oil and Equivalent 3,289,182 bbls/day

2Q16 Day Export Volumes (%Change – 2Q15)• Exports of Crude Oil and Equivalent to US 2,848,752 bbls/day (-3.7%)• Total Crude Oil Exports to PADD II 1,781,229 bbls/day (-6.3%)• Total Crude Oil Exports to PADD III 392,724 bbls/day (+2.9%)

Source: National Energy BoardNote: Some of the year-end volumes have not been finalized and thus are estimates


Canadian Crude Exports to the US (2Q2016)

Source: National Energy Board

218,152

1,781,229

392,724

221,381 235,265

-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

PADD I PADD II PADD III PADD IV PADD V

bb

l/d

Conventional Light Conventional Medium Conventional Heavy SCO Bitumen Total


Conventional Oil Production Forecast(Study 159, September 2016)

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036

Bb

l/d

ayTh

ou

san

ds

Alberta British Columbia Saskatchewan Manitoba Newfoundland CAPP 2016 Forecast

Source: CERI, BCOGC, AER, Gov’t of SK, Gov’t of MB, CNLOPB, PSAC, CAPP


Oil Sands Production Forecast(Forthcoming Study)

-

1,000

2,000

3,000

4,000

5,000

6,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

('0

00

b/d

)

Mined Bitumen Extraction Total In-Situ Bitumen Extraction Total Bitumen Extraction - CAPP


Oil Pipeline Infrastructure


North American Liquids Pipelines

Source: CAPP


Pipeline Network: Proposed Pipeline Export Capacity

Source: CAPP, company websites

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

'00

0 b

/d

Enbridge Line 3 Restored Kinder Morgan TMX Expansion TransCanada Energy East Existing Export Capacity


Net Available Export Supply

Source: CERI

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

'00

0 b

/d

Total Western CDN Convetional Export Supply Total SCO And Diluted Bitumen Supply Enbridge Line 3 Restored

Kinder Morgan TMX Expansion TransCanada Energy East Existing Export Capacity


Factors Affecting Canadian Oil

1. Global Demand

Economic growth in major consuming regions: Europe, US, China

Future demand growth

2. Global Supply

High levels of inventories (short term)

Delayed investments

Geopolitical Issues: Middle East, South America, Russia

3. Market Access

4. Oil Prices

5. Climate Change Policies and Emissions


Canadian Natural Gas Production Outlook


2015 Facts about Canadian Natural Gas

2015 Average Day Volumes• Western Canada Marketable Gas Production 14,763 Mmcf/day• Eastern Canada Marketable Gas Production 210 Mmcf/day• Total Canadian Marketable Gas Production 14,972 Mmcf/day

In July 2016• Total Canadian Marketable Gas Production 14,852 Mmcf/day

2015 Day Export and Imports Volumes (%Change – 2014)• Exports 7.4 Bcf/d (0%)• Imports 1.9 Bcf/d (-9.5%)

Source: National Energy BoardNote: Some of the year-end volumes have not been finalized and thus are estimates


Raw Natural Gas Production Forecast in WCSB

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Raw

Nat

ura

lGas

Pro

du

ctio

n (

mm

cf/d

ay)

WCSB Solution Gas Alberta Alberta Coal Bed Methane British Columbia Saskatchewan BC LNG Field Supply

Source: CERI, NEB, BCOGC, AER, Gov’t of SK, PSAC, CAPP


Canadian Natural Gas Supply and Demand

Source: CERI, NEB

0

5000

10000

15000

20000

25000

2005 2010 2015 2020 2025 2030 2035

mm

cfd

Pipeline Exports LNG Exports Supply Demand


Factors Affecting Canadian Natural Gas

1. Declining production volumes driven by lower demand for exports in the US

Emerging supply sources and inter-basin gas-on-gas competition

2. Western Canadian export volumes to Ontario and Quebec have declined, competing with US exports out of Marcellus

3. Domestic demand is providing upside relief to market driven by industrial demand (oil sands, petrochemicals and power generation)

4. Low natural gas prices

5. LNG facilities


Canadian Natural Gas Infrastructure and LNG Terminals


West Coast Natural Gas Pipelines and LNG Facilities


Asia-Pacific LNG Demand and SupplyLNG Export Potential to the Pacific Basin

Source: CERI, IEA


Factors Affecting Canadian LNGLNG Export Potential to the Pacific Basin

1. Global Competition

Supply

• Pipeline access (China and Europe)

2. Demand Growth

3. Geopolitics Europe/Russia

4. How many plants get built in Canada if any

5. Natural Gas and Crude Oil Prices

6. Carbon Management Policies


Conclusions

Source: CERI, IEA

• Markets for conventional oil and oil sands will grow, albeit slowly.

• Eastern Canada access to Western Canadian Oil dependent on pipeline access.

• Western Canadian-sourced gas evolving into a regional market.

• Eastern Canadian markets likely to be sourced almost completely by US shale gas.

• LNG markets highly uncertain due to risk valuation of supply availability


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