Future strategy to survive discovering 1 out of every 20 bbls of oil we now use.

[SharperDingaan]

Store Co2 all over the WCSB in deep carbonates? Absolutely. That deals with 100% of the objections I raised, and is how I would do it if it was my problem. Might as well start with all the light oil reefs (Nisku type stuff) as you'll sweep a bunch of extra oil.

Store it in the oilsands formations (which are mostly not deep and not carbonates) that's a whole different story for a variety of reasons.

Economically, the sale of the swept incremental oil from CO2 injection - would both rapidly reduce the payback period of the injection facilty, and materially raise the IRR of the project. Furthermore, getting paid for the CO2 injection (carbon tax recipient) would diversify the facilities revenue stream, add an additional asset to the SCFP (PV of the commercial CO2 sequesture capacity), and the bulk of the money would stay in the WCSB as both polluters and sequesters are in the same place. But apparently carbon tax is a terrible thing, and just a money grab?

Out of the box thinking, that unfortunately is having to be imposed.
On an industry that doesn't want to hear it; because it wasn't invented here? or we 'know best' and don't want to change?

SD

[bizaro86]

If the carbon tax gets high enough and politically stable enough that will happen. I was in a pitch meeting for a Co2 sequestration project once, and it got declined on the basis that the carbon regime might change, stranding the capital.

Co2 flooding has been used in the WCSB for a long time (weyburn) there isn't resistance to the technology. The resistance is to economics that depend on fickle politicians.

[Uccmal]

If the carbon tax gets high enough and politically stable enough that will happen. I was in a pitch meeting for a Co2 sequestration project once, and it got declined on the basis that the carbon regime might change, stranding the capital.

Co2 flooding has been used in the WCSB for a long time (weyburn) there isn't resistance to the technology. The resistance is to economics that depend on fickle politicians.

Whitecap and their predecessor having been using Co2 flooding since 2000 in Weyburn.  Personally, Aside from specialized uses I dont see Co2 sequestration as a viable means of reducing atmospheric Co2.  Every part of a sequestration would require energy which would come from where? 

[bizaro86]

The hardest part of CO2 sequestration is getting a decent CO2 stream to the wellsite. Injecting it into the ground takes a really nominal amount of energy, but separating it into a pure enough stream can be tricky, and pipelines are on the expensive side.

Weyburn started with CO2 from a coal gasification plant in the US, and added a second source from a coal power plant in SK a few years back.

If hydrogen fuel ever takes off CO2 sequestration might be viable, because the logical way of producing hydrogen fuel has a Co2 byproduct stream.

[Spekulatius]

Feels like we have a little bit of a problem with the largest oil supplier:
https://www.newyorker.com/news/news-desk/in-the-wake-of-khashoggis-disappearance-saudi-arabias-crown-prince-is-pushed-to-the-brink

[SharperDingaan]

Just to tie off the sequester discussion.
Valid point re feedstock volume and reliability.

The alternative to a nearby single C02 source (gasification, coal-powered power plant) is a collector network; a first mile tie-up from source to network, and a last mile tie-up from network to injection facility. Refurbish and reuse the existing collection network in spent fields, and 1) capital costs come down quite a bit, 2) proximity favours CO2 from a local basin returning to the same basin, and 3) CO2 emission has economic incentive to feed into the network versus simply vent. Collector networks become environmental ‘assets’ enabling physical tracking of CO2 processing, digital tracking via blockchain, fully transparent reporting of ‘net’ versus ‘gross’ environmental CO2 emission, and robust carbon-trading. If both source and injection facility are in the same province - it is also a much easier political ‘sell’.

There are really ‘two’ carbon cost recovery prices. A high cost to extract diluted carbon from the atmosphere (energy, diluted concentration, minimum scale, etc.), and a much lower cost to extract carbon from a much more concentrated and reliable source (injector facility cost structure resembling a refinery). Pay more to dispose via venting, or less to dispose via the collector facility (plus a cost of $X per km transported). Then add to it that the injection facility is both a monopoly AND a clean air refinery, and that the existing collection facilities of o/g producing provinces gives them a competitive advantage.

Sequestment is ‘social enterprise’ investing; and very strongly resonates with both Gen Z (born >1995) and Millennials (born 1981-1995). Furthermore, recent surveys indicate that on average ‘consumers would spend 17% more for products that came with social or environmental benefits; 58% of responders also wanted to understand the impact they’re having when they buy a product linked to a social cause' (WEconomy; Keilburger, Branson, Keilburger, p129). Us ‘older’ generations, arguing against carbon-tax because it will both disrupt and raise prices, just don’t get it. Yes, we may win battles in the near-term, but we aren’t going to stop the flow of the river.

Hence new attitudes, and new approaches.

SD

[bizaro86]

I think eventually the single source model becomes a multi source network as you add new nodes. The cement plant and old Nisku field build a line between themselves. Then someone builds a Co2 capture gas power plant and connects to the same line. Then a new field can jump on with a small extension and so on.

The first few pieces are the most expensive, but it is a natural monopoly, so whoever puts up the first tranche of capital will end up with a great midstream asset.

[Joe689]

Man, all this stuff is right over my head.     

This board is "value investor's haven" right?  Can't believe no one is discussing specific names in the upstream Canadian oil.     2019 cashflow vs EV is insane.  That is you believe these differentials are temporary due to refinery turn around. 

Finally the egress issues are getting publicity.  Just in time for the FED to pretend to care.   Maybe they do something material and take credit for "saving everything"

[Cardboard]

Hi Joe689,

I have brought up multiple names over the last few weeks: WCP, CPG, CQE. Did I forget TOG, CJ, PPR, CVE, ZAR debentures?

They are all really cheap and contrarily to in 2016 when oil got down to $26/barrel (although, WCS is doing well on that front  ) you no longer have to take much balance sheet risk to get good deals. You can pick cheap companies with sustainable dividends and now high yields such as WCP and TOG with best in class netbacks and solid balance sheets.

OBE is another cheap one but, like I said, they are all really cheap so you can't own them all.

What has killed Canadian energy lately are the differentials which are nuts. It is being said that it is because of around 800,000 bls/d of refining capacity close to Canada being offline for maintenance until November.

However, refineries do that twice a year so even if there is a little more capacity than average at this time of year it seems to me that pessimism has caused most of it following the TransMountain debacle. In other words, we had the same kind of panic in 2016 for WTI when people thought we would run out of storage at Cushing. It never happened and based on Genscape saying that Canadian oil storage is at around 59% of capacity and with refineries restarting soon, it seems like a well orchestrated panic by buyers/traders of oil.

If you want to hear from a knowledge person on the topic, tune in to BNN tomorrow at noon as Nuttall will be on discussing energy stocks. Replays are available on their website if you can't or don't have it.

Cardboard

[Spekulatius]

The only thing I own in the oil patch is CVE, which I bought in the low $7 range. I like the way things are going, their refinery assets balancing out the large spreads and probably add to my position in the low $8 range. I also follow CNQ, which IMO is one of the best managed large caps, but they are not as cheap.

The E&P sector in Canada looks like a giant value trap. I like ENB better, because it pays better to wait, but these names above for sure trade below their NAV. I think some trouble with Saudi Arabia could be a catalyst to get this sector rerated.