Title: Canada ISA -- Canada's Oil and Gas Sector

Report Type: Planned Market Research

ITA Industry Code: OGM

Contacts: Sharon Atkins, Sr. Commercial Specialist, CS Calgary

Date: May 31, 2005

##### CANADA'S OIL AND GAS INDUSTRY OVERVIEW

INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S.
DEPARTMENT OF STATE 2005. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED
STATES.

# ![](media/image1.jpeg){width="1.8034722222222221in" height="1.4604166666666667in"}

# 

With the price of oil over \$50 per barrel and gas at \$6.30 per cubic
meter, Canada's abundant energy sector is booming. Ample opportunity
exist for American suppliers, and the U.S. Commercial Service stands
ready to advise and assist companies looking to export to Canada and
beyond.

# 

# **Summary** 

Canada is the world\'s third largest producer of natural gas and the
seventh largest producer of crude oil. Its oil production comes 36
percent from oil sands, seven percent East Coast offshore operations,
and the balance in traditional drill and gush operations. Undeveloped
energy resources include major crude oil and natural gas deposits in
offshore areas in the north, gas reserves in the Yukon and Northwest
Territories, and massive reserves of oil sands in Alberta. The upstream
petroleum industry is active in 11 of the 13 provinces and territories.
The building of the \$4 billion Mackenzie gas project promises massive
gas production from Canada\'s north by 2010.

Confident Canadian producers are drilling at record levels, 23,920 wells
in 2004 and an anticipated 25,000 in 2005. Sustained high oil and gas
prices, together with the hunt for natural gas supplies are driving the
growth.

# **Market Overview**

In 2004, producers are expected to invest over US\$20 billion on
exploration, development and field equipment. In excess of 80 percent of
the spending will be in the Province of Alberta on conventional and oil
sands development. Significant amounts will also be spent in British
Columbia (BC) due to the discovery of a world-class natural gas field in
north eastern BC, and on offshore activity in Canada\'s maritime
provinces, primarily Newfoundland and Labrador.\
\
With increased demand and price strength, experts forecast the market
for oil and gas field machinery to increase by four percent through 2005
and total market size will reach \$6 billion. Traditionally imports from
the U.S. amount to approximately 90 percent of the total import market;
in 2004 they are estimated to have reached \$3.3 billion.\
\
U.S. products in the sector are recognized for their excellent quality,
technological benefits and reputable after-sales-service. Promising sub
sectors include drilling equipment and well monitoring technology as
well as drill pipe for oil and gas drilling and boring and sinking
machinery

Oil and Gas Field Machinery Stats:

  ------------------------------------------------------ -------------- ------------ -------------------
  ![](media/image2.png){width="8.333333333333333e-3in"   2002           2003         2004 (estimated)
  height="8.333333333333333e-3in"}                                                   

  Total Market Size                                      4,999          5,450        6,081

  Total Local Production                                 3,203          3,494        3,820

  Total Exports                                          1,017          1,110        1,280

  Total Imports                                          2,810          3,066        3,541

  Imports from the U.S.                                  2,449          2,726        3,285
  ------------------------------------------------------ -------------- ------------ -------------------

(The above statistics are unofficial estimates)

2004 Industry Statistics:

(source CAPP -- Canadian Association of Petroleum Producers)

Capital Spending: Conventional \$20.5 billion

Oil Sands \$ 4.8 billion

Wells Drilled: Oil 4,700

Natural Gas 16,000

Total 23,920 (including dry and service)

Production: Conventional Oil 1,409,000 barrels per day

Surface Mining 465,000 barrels per day

In-situ bitumen 532,000 barrels per day

Pentanes plus/

Condensate 163,000 barrels per day

Crude Oil 2,569,000 barrels per day

Natural Gas 17.4 billion cubic feet per day

Industry Revenues: \$68 billion

Exports: Crude Oil 1,611,000 barrels per day

Natural Gas 7.4 billion cubic feet per day

Refineries: Number: 20

Capacity: 1,960,000 barrels per day

#### **The Oilsands of Alberta**

# ![](media/image3.png){width="1.7916666666666667in" height="2.2708333333333335in"}

# 

# 

In 2005 production from Canada's oil sands will exceed one million
barrels per day and is forecast to increase to 2.5 million by 2015. Oil
sand reserves are in excess of 175 billion barrels of recoverable oil
and using current technology, this resource is second only to those in
Saudi Arabia.

According the CAPP, capital spending totaled more than \$28 billion from
1996 to 2004, and Canadian companies will spend close to \$7 billion on
oil sands capital investments in 2005. There are 35 projects in the
planning or expansion process.

![](media/image4.png){width="2.53125in" height="1.6145833333333333in"}

Suncor's Oilsands Facility

###### Oil Sands Potential by Project

***Company Project Name Volume (bpd) Year Cost***

***(000) (\$B)***

*Suncor Firebag Voyageur 550 2012 5.4*

*Shell/Chevron/*

*Western Upgrader Jackpine 525 2013 3.5*

*Syncrude Aurora Mine/Upgrader 455 2009 4.3*

*Husky/Imperial Kearl Lake 250 2012 3.3*

*Imperial Cold Lake 225 2010 1.4*

*CNRL Horizon 225 2011 5.4*

*True North Energy Fort Hills 190 2008 2.4*

*SynEnCo Northern Lights 150 2011 2.7*

*CNRL Wolf Lake Primrose 120 2010 0.9*

*Encana Foster Creek 100 2007 1.1*

*Conoco (Gulf) Surmont 100 2010 0.8*

*ExxonMobil Kearl Lake 100 2005 2.2*

*Petro-Canada Meadow Creek 80 2007 0.5*

*Encana Christine Lake 70 2008 0.4*

*OPTI-Nexen Long Lake 70 2008 1.6*

*Petro-Canada Lewis Creek 60 2010 0.5*

*JACOS Hangingstone 50 2008 2.7*

*Petro-Canada Mackay River 30 2003 0.2*

*Black Rock Orion EOR 30 2007 2.7*

*Deer Creek Deer Creek 30 2006 0.2*

####### Husky Tucker Lake 30 2005 3.4

*Rio Alto Kirby 30 2006 2.7*

*Devon Dover 10 2006 0.7*

***TOTAL 3,480 49***

Specific opportunities identified by industry sources include:

a shortage of diluents -- any lighter hydrocarbon, such as pentanes
plus,

added to heavy oil or bitumen in order to facilitate pipeline transport;

environmental products, for reclamation of tailing ponds, created by

oil sand extraction, and

machinery and products used in extraction plants, specifically cokers,

separators, scrubbers, vessels, steam injection processors, and pressure

vessels.

Downstream opportunities also exist for upgrading/refining, upgraded
products and energy efficiency. Upstream opportunities exist for new
in-situ fuels, field upgrading and technology advances.

Two major procurement offices are: Suncor Supply and Services -
[www.suncor.com](http://www.suncor.com/) and Syncrude Materials and
Services -- [www.syncrude.com](http://www.syncrude.com/)

#### **OFFSHORE** 

![](media/image5.wmf)

Canada has significant proven offshore reserves, which have received
more attention in recent years due to the decline in production of
conventional fields.

Since production first began in 1992 at the Cohassett field off Prince
Edward Island, this industry has invested an estimated US\$14.5 billion
in offshore exploration and drilling off the East Coast of Canada.
Industry analysts forecast, nearly US\$1.4 billion has been committed
for expenditures in 2005. As current estimates of East Coast natural gas
reserves reach as high as 100 trillion cubic feet, offshore exploration
is building and new players emerging. Traditionally, American suppliers
of equipment have captured 75 percent of the Canadian import market in
this sector. Industry analysts predict real growth of three percent in
2005.

While the offshore industry focuses on the East Coast due to supply,
reservoirs and proximity to markets, the British Columbia government is
considering a lift on the ban of offshore exploration and production on
the West Coast of Canada. New technologies are available to develop the
Pacific's Hectate Strait, just south of the Alaskan Panhandle. The
Hectate has total reserves of 9.8 billion barrels of oil and 25.9
trillion cubic feet of gas. Further, technology used to construct a
first undersea pipeline, carrying oil from Prudhoe Bay, may open the
North American Arctic.

Atlantic Canada affords US companies opportunities to supply support
products and services to the many existing and proposed projects.
However, because of the region\'s distance from US suppliers and
end-user location, many American firms have found success by appointing
distributors. Others negotiate some form of business relationship or
partnership with regional or national chains located in the Atlantic
Provinces.

## BEST PROSPECTS, SYSTEMS, AND PROJECTS

Products: American companies involved in the supply of the following
equipment will find good export potential in the offshore sector:

Cables, umbilicals and accessories Chemicals, fluids and lubricants

Controls, consoles and panels Corrosion, cathodic protection and
coatings

Drilling services and equipment Instrumentation

Environmental and oil spill equipment FSPO vessels and equipment

Lifting Equipment, cranes and winches

Systems: Companies make decisions on their drilling and working
facilities depending on water depth and environmental conditions. These
facilities include: the platform**,** which supports the upper
facilities, as it floats or sits on the seabed, and contains storage
silos for crude oil; and, the topsides, where all operating and support
functions are housed.

Currently there are three types of oil wells drilled: (1) exploration
wells -- to confirm seismic surveys; (2) delineation wells -- to
determine deposit size and, after regulatory approval (3) development
wells -- for production. Each has four major parts: drill pipe to join
to drill string; drill bit to cut; rotating equipment; and drilling
fluids. Some current projects are:

+-------------+-------------+-------------+-------------+-------------+
| # PROJECT   | # OWNER     | #           | # TERM      | # TYPE      |
|             |             |  PRODUCTION |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Sable       | Sable       | Six fields  | 2025        | Gas         |
| Island      | Offshore    |             |             |             |
| Scotia      |             | 85 bcm      |             |             |
| Shelf       |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Terra Nova  | P           | 400bb       | 2020        | Oil         |
| Grand Banks | etro-Canada | million     |             |             |
|             |             | recoverable |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Hibernia    | Hibernia    | 615bb       | 2020        | Oil         |
|             |             | million     |             |             |
| Grand Banks |             | recoverable |             |             |
+-------------+-------------+-------------+-------------+-------------+
| White Rose  | Husky Oil   | 82 bb       | by 2005     | Oil         |
| Grand Banks |             | million     |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Deep Panuke | PanCanadian | 400 mcf/day | by 2005     | Gas         |
|             |             |             |             |             |
| Scotia      |             |             |             |             |
| Shelf       |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Marathon    | Marathon    | Exploration | Nine year   | Gas         |
|             | Canada Ltd. |             | license     |             |
| Nova Scotia |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Hebron      | Chevron     | 650 bb      | Regulatory  | Oil         |
| Field       |             | million     |             |             |
+-------------+-------------+-------------+-------------+-------------+
| Onondaga    | Shell       | Exploration | n/a         | n/a         |
|             | Canada      |             |             |             |
| Thebaud     |             |             |             |             |
+-------------+-------------+-------------+-------------+-------------+

# **Sector Import Market**

American companies supply the lion's share of the import market in this
sector from between 87% for onshore and 74% for offshore. Third country
competitors include Japan, Finland, Germany and France. Domestic firms
supply project components and the service needed to develop, construct
and maintain existing structures and equipment.

A sound relationship between U.S. manufacturers and a local distributor
is the key success factor when selling to end-users. While domestic
enterprises purchase much of their heavy equipment directly from
manufacturers, local distributors sell most components. The primary
objective of the distributor is establishing product reliability with
purchasing officials.

End-user procurement analysts and engineers determine the needs of a
project and write specifications for the bid process at each tender
stage. When calling for tenders, procurement executives use an approved
supplier list that each company *develops.*

##### Sector Market Access

Sector experts recognize U.S. products for their excellent quality,
technological benefits, and good after-sales-service. U.S. manufacturers
can improve market share by offering state-of-the-art products and
employing reputable agents and distributors located near the market.

Because of the single-market dynamics of this sector, pricing tends to
not be an issue. The U.S. supplies almost all-major equipment, while
domestic companies supply components, support and service.

Canadian tax requirements, shipping and brokerage fees, and provision of
credit terms, should be considered prudently. Products manufactured in
the U.S. meeting NAFTA rules or origins are free of duties and tariffs.
However, all goods are subject to a 7% Goods and Services Tax (GST), a
value-added tax applied to all domestic and imported goods and services.
With the exception of Alberta, each province has a retail sales tax
(PST).

##### Useful Links 

**-- Canadian Petroleum Industry Organizations and Regulatory
entities:**

Canadian Oilwell Drilling Contractors Association --
[www.caodc.ca](http://www.caodc.ca/)

Canadian Association of Petroleum Producers --
[www.capp.ca](http://www.capp.ca/)

Alberta Energy Research Institute --
[www.aeri.ab.ca](http://www.aeri.ab.ca/)

Alberta Energy and Utilities Board --
[www.eub.gov.ab.ca](http://www.eub.gov.ab.ca/)

Alberta Energy -- [www.gov.ab.ca](http://www.gov.ab.ca/)

Petroleum Society -- [www.petsoc.org](http://www.petsoc.org/)

##### Upcoming Trade Events

The producer of all the major Canadian oil and gas trade shows, dmg
world media, has its website at
[www.petroleumshow.com](http://www.petroleumshow.com/) for registration.
The following is a listing of its events pertaining to the oilsands
sector.

September 2005 -**Oil Sands Trade Show and Conference**-- Fort McMurray

Held in conjunction with a major conference program, this annual show
highlights latest technologies and innovations. The event features
keynotes from industry leaders, project updates, and a free series of
leading technology presentations.

June 2006 - **Global Petroleum Show 2006** - Calgary

Global Petroleum Show is a pivotal showcase for world-class technology
in the fields of exploration, production and transportation of oil and
natural gas. In 2006, the show is held in conjunction with the Petroleum
Society\'s 55th annual International Petroleum Conference. Together,
these two major events will attract an anticipated 50,000 visitors from
around the globe.

June 2007 - **Go-Expo: Gas and Oil Exposition** - Calgary

## Held in conjunction with the Petroleum Society\'s 55th Annual Canadian International Petroleum Conference. GO-EXPO showcases latest innovations. The 2007 event also features keynotes from industry leaders, project updates, and a series of free presentations. This show will run concurrently with the Canadian International Petroleum Conference - The premier organization for professionals, the Petroleum Society presents well over 100 technical presentations and its annual Awards Banquet. Contact 403-237-5112 to register.

**U.S. Commercial Service Goldkey Service**

If you are planning to attend any of the shows listed above, consider
using our Goldkey Service. This very productive and cost effective
resource will make your trip to Canada the most successful it can be.
Commercial Service staff in Calgary will work with you to tailor an
appointment schedule to help you meet your goals in the Canadian oil and
gas sector. Contact Sharon Atkins at sharon.atkins@mail.doc.gov.