From the Globe & Mail – April 5, 2011

The Alberta government has proposed new environmental rules that would
revoke a number of oil sands leases – including those which already have
active projects – in an effort to protect sensitive habitat, wildlife
and forest land in the most industrialized area of the province.

The government on Tuesday unveiled a plan to set aside two million
hectares, or about 20 per cent, of Alberta’s oil sands zone, for
conservation. Lease maps of the oil sands show that a number of major
energy producers have properties in the area, including Nexen Inc., (NXY-T23.88-0.32-1.32%) Suncor Energy Inc., (SU-T42.76-0.84-1.93%) Canadian Natural Resources Ltd. (CNQ-T47.25-0.70-1.46%) and Imperial Oil Ltd. (IMO-T51.08-0.94-1.81%)

Alberta is under harsh international scrutiny for the way it manages the
development of the oil sands, but Tuesday’s announcement sent shock
waves rippling across an industry that has spent vast sums of money to
acquire land in the region. The prospect of having parts of it ripped
away prompted one executive to compare Alberta to Venezuela, and to warn
that any expropriation of land may frighten away investment crucial to
developing one of Alberta’s most important economic resources.

“It’s like taking away money,” said a senior industry source who requested anonymity. “It’s really messy.”

Fourteen energy companies and 10 mineral outfits have assets in the
proposed conservation areas. Conventional oil and gas companies will be
governed by softer regulations, allowing them to keep their leases and
further develop projects, although under greater scrutiny, government
officials said. New leases will not be issued for land in the protected
zones.

Mel Knight, the provincial minister for Sustainable Resource
Development, said he is prepared to deal with any backlash from affected
companies. However, he said repatriation plans have happened before,
with compensation helping to soothe the pain.

That compensation will be negotiated between companies and the
government and could include refunding what companies paid to the Crown
for the leases and development and reclamation costs, plus interest.

However, Mr. Knight is willing to consider concerns that energy and
mineral companies may have regarding the proposed rules. Tuesday’s
proposal is still a draft.

“This is not written in stone,” Mr. Knight said in a press conference. “This is a consultation.”

The consultation process is scheduled to wrap up in 60 days, and the
minister said he wants to have the final draft of legislation before
Cabinet in 90 days.

While energy companies and other market players were caught off guard by
the announcement, Mr. Knight noted the government has been openly
working on a plan for the Lower Athabasca Region. Energy companies were
part of the consultation process and should have had a reasonable idea
whether they would be among those affected by the new rules, he said.

The new rules will hit some of Canada’s largest oil sands players,
including Canadian Natural Resources Ltd., Cenovus Energy Inc., and
international players like BP plc and Statoil. Small outfits also have
holdings in the protected zones, and companies are already firing back.

One of them is Sunshine Oilsands Ltd. The government is proposing a
massive Birch River conservation area that falls over a substantial
swath of land the company spent last summer drilling. It found an
estimated 7.6 billion barrels of bitumen in place. It’s not clear how
much, if any, of that will be recoverable. But it is clearly a
substantial resource.

The company says the government was using old data that did not show
what it has discovered there – and plans to lobby hard to have the
protected area changed. The prospect of having that land expropriated is
so surprising that David Sealock, the company’s vice-president of
operations, said he can’t imagine the Alberta government carrying
through with its current plan.

The area in question “represents huge amounts of jobs, huge amounts of
royalties, huge amounts of upside for the public,” he said.

If the government does not back down, however, “it could send a very
negative message to those contemplating investment in the oil sands,”
Mr. Sealock said.

The most controversial issue in the weeks and months ahead is likely to
concern compensation. Sveinung Svarte, the chief executive of Athabasca
Oil Sands Corp., said companies will resist letting go of their land in
exchange for simply a refund of the money they have already paid.

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From Reuters – March 31, 2011

* Investing in tar sands is up to firm, not state -trade min

* Environmental groups Greenpeace, WWF condemn decision

OSLO, March 31 (Reuters) – Statoil’s majority owner, the
Norwegian state, will not ask the firm to get out of Canada’s
tar sands, killing a proposal at the upcoming annual general
meeting to abandon the controversial oil project.

“There will be no intervention from the Norwegian government
on Statoil’s involvement in oil sands,” Norway’s trade and
industry secretary Trond Giske told Norwegian daily Dagens
Naeringsliv on Thursday.

“We have concluded that investing in oil sands is a decision
that is not up to us as an owner. This is a decision for the
company.”

The Norwegian state owns 67 percent of Statoil’s shares.

Green groups Greenpeace and the World Wide Fund For Nature
(WWF) have for several years campaigned for Statoil (STL.OL: Quote) to
pull out of its Kai Koh Dehseh project in Alberta, which it
bought in 2007 in order to diversify from its ageing North Sea
oilfields.

Earlier this month the groups scheduled a motion for
Statoil’s AGM on May 19 calling on the company to avoid
exploiting the Canadian soil saturated with bitumen.
[ID:nLDE6491O0] It was the third year in a row they did so.

They have the backing of several Statoil investors,
including major Norwegian insurer Storebrand (STB.OL: Quote).

“Unfortunately the Norwegian government has decided to
ignore a key issue in the climate debate, which is what
resources it is possible to base our future energy production
on,” Rasmus Hansson, head of WWF Norway, told Reuters.

“The production and use of tar sands produce such massive
amounts of greenhouse gas emissions that they will make it
absolutely impossible to stay below the 2 degrees (increase in
global temperature targeted by the UN).”

Canada’s oil sands represent the largest crude reserves
outside Saudi Arabia. That and the country’s relative political
stability have attracted Statoil and a host of other foreign
investors.

But environmentalists are highly critical of the impact of
development on air, land, water and local communities.
(Reporting by Gwladys Fouche; editing by James Jukwey)

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From The Ecologist – March 29, 2011

by Will McLennan

An attempt to classify tar sands oil as more
environmentally-damaging than conventional oil would effectively ban its
sale within European Member States

The European Union is moving to prevent tar sands oil from entering
the European market due to the greenhouse gas emissions (GHG)
associated with its production.

Oil from the tar sands industry
is set to be classified as having greater GHG emissions than
conventional oil in a review of the European Union’s Fuel Quality
Directive. Recognising the greater environmental impact of tar sands oil
will effectively ban its use in EU states, where fuel providers are
legally bound to aim for 6 per cent reductions in GHG emissions by 2020.

Tar
sands are deposits of oil-rich bitumen mixed with clay and sand
embedded in rocks often buried beneath the surface. Two tonnes of
topsoil have to be removed to produce each barrel of bitumen, creating
vast open mines. Extracting the deposits is estimated to be three times more carbon-intensive than conventional oil sources.
It also causes the loss of natural habitats with vast areas of boreal
forest cleared in order to mine the sandy bitumen – and pollution of
local waterways with toxic chemicals.

The largest reserves of tar sands in the world are held in Canada, which plans to increase production from 1.5 million to 7 million barrels a day by 2020. Both Shell and BP
are major investors in tar sands with BP having acquired a 50 per cent
stake in the Sunrise Project, a tar sands extraction site near Alberta.

The
EU had previously dropped the attempt to classify tar sands oil as more
environmentally-damaging than conventional oil after strong lobbying by
the Canadian government and the oil industry. However, following a
year-long campaign by a coalition of environmental groups led by the
Co-operative and including WWF, Greenpeace, Friends of the Earth and
Transport & Environment, it is now being reconsidered. Campaigners
hope changing tar sand’s status in the Fuel Quality Directive will halt
the tar sands expansion.

Canada had argued the move would create a
trade barrier, however, European politicians believe by changing tar
sand’s status the EU is putting the onus on fuel suppliers to reduce
their emissions.

‘Nothing that we do will stop people importing
tar sands, it will simply label tar sands accurately, so people who are
under a legal obligation to reduce their carbon footprint are more
likely to chose cleaner fuels,’ said Linda McAvan, Labour MEP, who
helped bring this issue to the European Commission’s attention.

The
Co-operative led alliance will now be engaging with EU member states,
to counterbalance any pressure being applied by the Canadian government
and oil industry, and guarantee the new value for tar sands oil is
included in the revised Fuel Quality Directive.

‘This is a clear
signal to oil companies and investors that tar sands expansion is a
risky business, as Europe is a global leader in environmental standards,
it will likely lead to similar standards being adopted elsewhere around
the world,’ said Colin Baines, toxic fuels campaign manager at the
Co-operative. ‘The oil industry should think twice about investing
billions of dollars in expanding tar sands developments. They could end
up producing a fuel that nobody wants.’

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From the Vancouver Sun – Feb 10, 2011

PetroChina Co., the nation’s biggest energy producer, agreed to buy a 50 percent stake in Encana Corp.’s Cutbank Ridge assets for C$5.4 billion ($5.4 billion), giving the Chinese company its first gas asset in North America.

The acquisition would give PetroChina daily production of 255 million cubic feet of natural gas from 635,000 acres in the Canadian provinces of Alberta and British Columbia, Encana said in a statement today. The companies will also form an equal venture to increase output, the Beijing-based producer said.

The deal would bring the total value of energy acquisitions by Chinese companies since last year to about $46 billion to supply the world’s fastest-growing major economy. The Canadian transaction follows PetroChina’s decision last month to form a venture with U.K. refiner Ineos Group Holdings Plc to process crude oil at plants in Scotland and southern France.

“PetroChina is now buying assets in developed countries like Canada and the U.S. as well as developing nations as part of its strategy to become an international oil major,” said Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai. “The focus on gas is because demand for the fuel in China is growing. Gas demand is rising by about 20 percent a year and the government is encouraging its use because it’s cleaner.”

China’s government wants to triple the country’s use of gas, which pollutes less than oil and coal, by 2020 and the fuel to account for about 10 percent of energy consumption. PetroChina plans to spend at least $60 billion on global assets in the next decade to increase reserves and production. The Encana deal, announced after market close yesterday, requires approval from the Canadian and Chinese authorities.

Share Gains

PetroChina has risen 25 percent in Hong Kong trading in the past year, outpacing the 17 percent increase in the benchmark Hang Seng Index. The stock fell 3.8 percent to close at HK$10.54 yesterday. Encana dropped 1.9 percent to C$30.65 on the Toronto Stock Exchange.

“By combining resources with PetroChina in this joint venture, we would expect to recognize additional value through accelerating our pace of development,” Encana Chief Executive Officer Randy Eresman said in yesterday’s statement.

The Calgary-based company in 2009 spun off Cenovus Energy Inc. to focus on natural gas as prices for the resource began falling because of oversupplies generated by an onshore drilling boom in North America.

Encana shares have gained 5.4 percent this year as investors expect ventures with Chinese competitors would shelter the Canadian company from the slump in natural gas prices, said Daniel Pratt, director of oil and gas equity research at Ticonderoga Securities, before yesterday’s announcement. Encana’s shares gain is double that of the Standard & Poor’s/TSX Composite Index this year and tops the 2.8 percent increase for the Canadian energy index.

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