CN derailmeNt Near Plaster roCk due to meChaNiCal failure

Fire burns at derailment of crude, propane in northwest New BrunswickThe CN Rail derailment that is behind a massive fire near Plaster Rock in New Brunswick was caused by a mechanical failure affecting the brakes, says an official with the Transportation Safety Board.Dan Holbrook told CBC’s Maritime Noon that the train experienced an “undesired brake application” as a result of a break in the continuous airline through the train coming apart, causing the brakes to go into emergency mode.“Trains have a continuous pipe running throughout the train that supplies air to the brake system on every car,” said Holbrook.“If that brake pipe comes apart, that causes the brakes throughout the train to go into emergency … and that means the train will stop as fast as it can.”Fire burned through the night and into Wednesday morning following the

derailment of the CN Rail train, which was hauling crude oil and propane in northwestern New Brunswick.“We could see the fire from quite a distance, so we haven’t went right into it yet because we had to determine what was in those cars first,” said Plaster Rock Fire Chief Tim Corbin.

“We have determined that the cars that are affected in the derailment are crude oil and propane cars,” said Corbin.A news briefing scheduled for 11 a.m. AT was more than 60 minutes late in starting and no new information was available from emergency officials.

The derailment happened around 7 p.m. Tuesday.The train was headed east from Toronto to Moncton, N.B.Corbin said there are no homes or buildings in the immediate area, but about 50 homes in the vicinity have been evacuated.

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Jim Feeny of CN Rail says 16 of the 122 cars on the train derailed. One of the derailed cars is at the front of the train and the other 15 are at the back of the train.Of the 15 cars at rear, four are carrying crude oil and four are carrying propane, said Feeny.Helicopter to check the areaSome cars were carrying butane, but they were not among those that derailed, said Feeny.“The biggest concern is the propane cars,” said Corbin. “That’s our biggest concern because if they happen to explode, we’re looking at major damage.“So we’re trying to just keep everybody at a safe distance right now until we can get a clear picture of what we’re dealing with.”

Feeny said it is not known if the cars carrying crude oil or propane are involved in the fire.“Those cars are in the fire zone,” said Feeny. “But at this point, because it is still dark, we have not yet determined if those cars are actually on fire.“We know there is a fire but we haven’t confirmed what is actually involved,” he said.“At first light this morning there will be a helicopter surveillance that will give us a better indication of what the situation is on the ground.”Corbin says he has heard reports of explosions associated with the derailment, but isn’t able to confirm whether any occurred.A train that caught fire in Wapske, N.B., was carrying propane and crude oil at the

time of the derailment. (Google)Hazardous material responders from Toronto, Moncton and Montreal were sent to the scene overnight.Feeny said not all the cars may have necessarily originated in Toronto. Once the train arrived in Moncton, the goods being hauled would have been dispersed throughout Atlantic Canada, he said.Feeny said he was not in a position to state the ultimate destination of the crude oil and propane cars.The derailment happened in Wapske, in the area of the Longley Road where lumber cars are loaded.People five kilometres away in Plaster Rock reported seeing flames.Air quality alert issuedThe derailment and subsequent

fire prompted the provincial Health Department to issue an air quality alert for the Plaster Rock area.The regional medical officer of health for the area said residents should take precautions when heavy smoke affects air quality.“Infants, children, pregnant women, older adults, smokers and people with chronic heart or lung diseases should stay indoors to reduce their exposure to the outdoor air,” said Dr. Yves Léger, regional medical officer of health for the area.Anyone experiencing difficulty breathing or chest discomfort is advised to contact a physician.Léger also recommended that anyone who can taste or smell smoke in the air follow guidelines including to:• Reduce levels of

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physical activity as necessary.• Consider shelteringindoors with windows closed.• Turn air exchangersoff so as to avoid bringing outside air into the home. • Remember that dustmasks, bandanas or other clothes (even if wet) do not offer protection from smoke.Feeny said there were no injuries to the crew. There have been no reports of injuries to the public.A spokesperson for Transport Minister Lisa Raitt declined an interview request.“We thank the first responders for their quick action,” said Ashley Kelahear in an emailed statement. “Transport Canada is monitoring

the situation and is in close contact with local officials. “The proper authorities will determine the cause of the incident.”The Red Cross established a shelter for evacuees in Plaster Rock, though it was not utilized by anyone overnight.

10 stoCk PiCks iN the CaNadiaN oil field serviCes seCtor

Canaccord Genuity Oilfield Services analyst John Bereznicki has initiated coverage of the Canadian oilfield service sector with 10 names, including:Contract drillers: Trinidad Drilling Ltd. (TSX: T.TDG, Stock Forum), CanElson Drilling Inc. (TSX: T.CDI, Stock Forum) and Western Energy Services

Corp. (TSX: T.WRG, Stock Forum). Pressure pumpers: Trican Well Services Ltd. (TSX: T.TCW, Stock Forum), Calfrac Well Service Ltd. (TSX: T.CFW, Stock Forum) and Canyon Services Group Inc. (TSX: T.FRC, Stock Forum).Providers of various oilfield products and services in Canada and abroad: Total Energy Services Inc. (TSX: T.TOT, Stock Forum), Essential Energy Services Ltd. (TSX: T.ESN, Stock Forum), ENTREC Corp. (TSX: V.ENT, Stock Forum) and McCoy Corp. (TSX: T.MCB, Stock Forum).In the initiation report, Bereznicki highlighted several key themes. 1. Investing in the Canadian oilfield sector has become increasingly challenging as activity shifts to deeper pockets

and public market value creation undergoes significant upheaval;2. We expect a single-digit increase in Western Canadian Sedimentary Basin (WCSB) producer spending this year, although foreign-joint venture spending, improving equity market conditions and a falling C$ provide upside potential.3. We estimate a one billion cubic foot per day liquid natural gas export facility could generate an incremental 3% in WCSB producer spending. This would drive continued re-tooling of the WCSB rig fleet and help rebalance the domestic pressure pumping market;4. The Canadian oilfield sector is trading near its historic mid-point based on consensus EV/EBITDA. The sector is trading at or below a mid-cycle P/Book

valuation, and Bereznicki believes there is significant upside potential should LNG export become reality. Bereznicki sees selective opportunity among contract drillers and expects the pressure pumpers to remain volatile, but range-bound for the near to medium-term.His top picks are Trinidad Drilling, ENTREC and McCoy.On Wednesday, McCoy shares were off 2% to $7.10, leaving a market cap of $194.6 million, based on 27.4 million shares outstanding. The 52-week range is $7.31 and $4.11.ENTREC was unchanged at $1.75, leaving a market cap of $202.4 million, based on 115.7 million shares outstanding. The 52-week range is $1.95 and $1.05.Trinidad Drilling was up 0.31% to $9.65, leaving a market cap

of $1.3 billion, based on 138.1 million shares outstanding. The 52-week range is $10.84 and $6.46.

fraCkiNg Boom is dollar BooN

iN eNergy iNdePeNdeNCe:

CurreNCies

Oil’s negative drag on the dollar is weakening as rising U.S. natural gas and crude production propels the nation to the highest level of energy self- sufficiency in two decades. The boom from hydraulic fracturing, or fracking, which uses pressurized water to drive gas and oil from shale rock, will bolster the greenback by narrowing the current-account deficit and trimming cash paid to oil exporters that then diversify away from U.S. assets, according

to UBS AG. The dollar will be on average 2 percent stronger against 46 currencies by the end of 2014, as the price of West Texas Intermediate crude rises 14 percent, according to Bloomberg economist surveys. Fracking Boom is Dollar Boon in Energy Independence Fracking helped America meet 83 percent of its energy needs in the first eight months this year, on course for the highest annual level since 1991, Energy Department data show, and an intelligence advisory panel said last week that the nation could achieve energy independence in as little as 10 years.Fracking helped America meet 83 percent of its energy needs in the first eight months this year, on course for the highest annual level since 1991, Energy Department data

show, and an intelligence advisory panel said last week that the nation could achieve energy independence in as little as 10 years. Photographer: Matthew Staver/Bloomberg “If the U.S. becomes less reliant on foreign energy, the negative relationship between oil and the dollar should break down,” Shahab Jalinoos, a senior currency strategist for UBS in Stamford, Connecticut, said on Dec. 13. BlackRock Inc. (BLK), Goldman Sachs Group Inc., Citigroup Inc. and UBS are all betting on dollar gains as U.S. energy production outweighs a Federal Reserve committed to keep interest rates at record lows and printing cash to buy bonds. Fracking helped America meet 83 percent of its energy needs in the first eight months this year, on course for

the highest annual level since 1991, Energy Department data show. An intelligence advisory panel said last week the nation may achieve energy independence in as little as 10 years.

dollar iNdex UBS predicts the dollar will strengthen to $1.15 per euro from $1.3157 at 10:01 a.m. in London, and to 90 yen in the fourth quarter of 2014 from 83.81 yen today. The Dollar Index (DXY), which tracks the currency against those of six major trading partners, has

fallen 0.7 percent to 79.61 this year as the price of crude-oil futures declined 12 percent. The gauge will rise to 82.3 by the end of 2014, according to the median estimate of economists in a Bloomberg survey. Crude-oil for January settlement was little changed today at $86.72 after closing at $86.73 a barrel last week. The U.S. benchmark is forecast to trade at $98.50 a barrel in 2014, according to a separate Bloomberg News survey. The dollar has had a growing negative relationship to crude

since March 2003, with the one-year rolling correlation between the U.S. currency and the West-Texas Intermediate crude futures falling to as low as minus 0.54 in September, where a reading of negative 1 signals two assets move inversely. A measure of positive 1 means they move in lockstep. The gauge was at negative 0.52 on Dec. 14. Dollar Correlation The correlation between the dollar and crude will increase over the next two years as U.S. energy production grows, according to UBS, which means the greenback would strengthen as oil prices rise. “The dollar-negative impact of rising oil prices is muting,” said Jalinoos. The U.S, which bought 21 percent of exports from the Organization of Petroleum Exporting Countries last year, has boosted its shale output

to a record 6.8 million barrels a day, according to the Energy Department, as drillers including Exxon Mobil Corp. and Chesapeake Energy Corp. (CHK) use fracking to unlock once inaccessible reserves in the shale formations of North Dakota, Texas, Pennsylvania and Ohio. Pricing Power Rising domestic production may limit OPEC’s power to set global prices, the National Intelligence Council said in a Dec. 10 report. Additional production may cut oil prices and increase U.S. economic activity by more than 2 percentage points, according to the council, an adviser to the director of national intelligence. “U.S. production of shale gas has increased dramatically, and oil production is rising and will rise much further,” Goldman Sachs strategists, including Kamakshya Trivedi in

London, wrote in a Dec. 5 note to investors. “These shifts in production are also likely to support an improving U.S. current- account position and a somewhat stronger U.S. dollar.” Goldman Sachs forecasts the dollar will weaken to $1.40 per euro by 2014 before strengthening to $1.25 by 2016. The current-account deficit undermines the dollar because it shows the nation is using the currency to import more than it is exporting. The U.S. deficit narrowed in the second quarter, shrinking 12

percent to $117.4 billion from $133.6 billion in the previous three months, Commerce Department data show. BlackRock View The last time the U.S. reported a surplus in the current account, which is the broadest measure of trade, was in the first two quarters of 1991. That was a period when the Dollar Index jumped 15.5 percent to 96.03. “We are bullish on the U.S. dollar due to the country’s energy boom, and long-term growth prospects,” BlackRock said in its 2013

investment outlook document published on Dec. 12. “The prospect of U.S. energy self-sufficiency could underpin a bullish dollar stance, and a cautious view toward countries dependent on dollar funding.” While the U.S. continues to import, oil-exporting countries are again adding to holdings of U.S. government debt. Treasuries owned by oil producers and proxies for Middle East nations rose 9.2 percent this year through September, to $634.8 billion, after an 11 percent decline in 2011, according to Treasury data. The amount

includes the sovereign wealth funds of the OPEC nations as well as some U.K. banks that often act as proxies for Middle East nations. Even as the world’s reserve currency -- the dollar accounts for 62 percent of global foreign-exchange reserves, more than double that of the euro -- the appeal of the greenback is limited. The Fed said it intends to keep interest rates at a record low until unemployment falls, while making open-ended purchases of $85 billion a month in Treasuries and mortgage- backed debt.

Shale Boom The U.S. central bank views energy fluctuations as transitory when considering monetary policy. Oil-price increases also may offset some of the impact of increased U.S. energy production, according to David Petitcolin, a global strategist at Royal Bank of Scotland Group Plc. While the shale boom has created a surge in stockpiles in the U.S. and depressed prices this year, crude-oil futures are still trading 24 percent above

the average for the past decade. “The impact will not be that big on the balance of payments because the U.S. will probably remain a net oil importer,” London-based Petitcolin said in a Dec. 13 telephone interview. “The oil balance is going to come down, but very, very slowly. And if the price continues to rise, or stay high, then -- in dollar terms -- that will erase all the gains from fewer barrels a day.” Fracking Regulation Fracking, which has been linked

to groundwater contamination, air pollution and earthquakes, may also face greater regulation. A Dec. 7-10 Bloomberg National Poll found 66 percent of Americans want more government oversight of the process, up from 56 percent in September. Industry groups for chemical, fertilizer and steel companies are trumpeting gains from fracking for the U.S. economy, as low-cost natural gas may generate $72 billion in capital investment as petrochemical companies relocate or boost investments in the U.S., according

to the American Chemistry Council. At the same time, President Barack Obama is promoting development of natural gas and crude oil as an economic resource, and formed a task force this year to avoid federal rules that would slow fracking. The National Intelligence Council, which concluded that concern about the environmental impact is the “greatest obstacle” to fracking, estimates that U.S. oil production may expand to 15 million barrels a day -- enough to make the nation

“a major energy exporter” by 2020. “It is very possible that the U.S. could become an energy exporter, given the reserves they’ve discovered,” Steven Englander, Citigroup’s New York-based global head of G-10 strategy, said in an interview on Dec. 12. “It could be a real dollar positive.” Citigroup forecasts the Dollar Index will rise 6 percent to 84.70 by 2014.

B.C. Natural gas reserves ClimB

agaiN, oil also uP

The BC Oil and Gas Commission’s (OGC’s) annual reserves report shows an increase in both remaining reserves of natural gas and oil.The report for 2012 shows an increase in natural gas reserves to 1,138.5 billion cubic metres (40.2 trillion cubic feet of raw gas) as of Dec. 31, 2012, from 974.9 billion cubic metres (34.6 trillion cubic feet) the previous year.This represents the province’s

highest level of proven gas reserves inventory, which continues a 12-year trend of annual increases, the OGC states.Oil reserves increased over the same period to 120.3 million barrels from 114.5 million barrels as of the end of 2011.For 2012, the Montney was the dominant zone targeted (73 per cent), with drilling activity also occurring in the Horn River Basin and the Hay River Bluesky “A” oil pool. A total of 455 wells were drilled in British Columbia in 2012, the commission reports.The unconventional Montney play trend represents 33 per cent (13.4 trillion cubic feet) of the province’s remaining recoverable raw gas reserves. In 2012, 0.6 trillion cubic feet was produced from the Montney, accounting for 40 per cent of total gas production in the province.The Horn River Basin represents 28 per cent (11.1 trillion cubic feet) of the province’s remaining recoverable raw gas reserves. In 2012, 0.1

trillion cubic feet was produced from the Muskwa-Otter Park and Evie formations within the Horn River Basin, accounting for 11 per cent of total production in the province.The Liard Basin is a new unconventional resource in northeastern British Columbia, with a preliminary established ultimate recovery of 104 billion cubic feet booked in 2012, based on production from three existing wells, two vertical

and one horizontal. With promising initial results and a prospective area of one million hectares, the Liard Basin is a potentially large future gas-producing region, the report stated.As for oil, the majority of the reserve increase came from the introduction of Montney oil reserves in the Heritage-Montney “A” oil pool.The year 2012 saw 41 new oil production wells, with 10 injector wells drilled for pressure maintenance.