Even in an industry where nothing ever stays the same for long, 2023 was a year filled with surprises. From commodity price volatility to inflation, OPEC+ drama to insecurity in the Red Sea, there were many global trends that kept industry observers enthralled this past year. On the Canadian side, we had political duels over carbon taxes and roadblocks in the finalization of the Trans Mountain pipeline expansion among other big stories. Many of these themes will carry over into the new year, so we thought it would be a good idea to briefly recap some of the major running themes in 2023.
Big stories in Canadian oil and gas mean big stories for us as well, and this was one of our most active years ever. To supplement our thematic discussion, we’ve revisited our top performing articles from last year.
The Trans Mountain Pipeline Expansion Project
The Trans Mountain Pipeline was perhaps the biggest story in Canadian oil and gas; we published multiple stories per month on the ups and downs of the company’s oil pipeline expansion project. Progress has been made throughout the year, but roadblock after roadblock has piled up and prevented the project from crossing the finish line. 2023 began optimistically, with the CEO of MEG Energy suggesting in a January interview that the oil pipeline would begin linefill by the end of the year and be fully operational in early 2024. Trans Mountain itself further signaled in a March 10 press release that the expansion was 80% complete with mechanical completion expected by the end of the year. As of this press release, the total expected cost for the projected was expected to total $30.9 billion compared to an initial budget of $7.4 billion in 2017. Rumors of a sale of the pipeline to an indigenous-led initiative continued to circulate in 2023, echoing similar reports in 2022.
The year’s fresh troubles began in April, when the Canada Energy Regulator announced that an injury had halted work on the project. Reports of additional loan guarantees from the government surfaced in June and were confirmed in August. The project’s cost overruns saw Trans Mountain file regulatory applications for tolls on the pipeline expansion, proposing a base toll of $11-12 per barrel, significantly impacting the economics for shipping oil via the pipeline. Energy companies including Suncor Energy, Cenovus Energy, and BP Plc registered to intervene in the toll application process, citing concerns concern over the escalations in costs and expenses. Ultimately, the CER set interim benchmark tolls of $11.46 per barrel in November.
While Trans Mountain was not impeded by summer fires in BC, the year’s most significant challenges were related to the company’s application in August to modify the route of one of the sections of pipe not yet completed and its subsequent application in November for a size variance. Trans Mountain indicated that project completion could be delayed to December 2024 if the route change was not approved, an argument that ultimately led to the CER approving the route change in October. Approval was not given for the pipeline size variance, however, prompting Trans Mountain to warn of 2 year delays. The year ended with another government loan guarantee of $2 billion and another change application to the CER. Depending on the outcome of this application, Trans Mountain suggests that line fill will take place in either March or May of this year.
OPEC+ & Price Drama
This year illustrated the limits of OPEC+ influence on global oil prices, although this is not to say they are not a major (perhaps the most major?) factor in hydrocarbon pricing. Faced with a deteriorating picture on both the supply and demand side of oil markets, OPEC+ met numerous times in 2023. After some deliberation, the organization agreed to substantial production cuts in April and November to support crude pricing. Adherence to this regime was mixed, however; OPEC data suggests Iran and Venezuela both increased crude production throughout 2023. The year ended on a surprising note, however, with Angola deciding to leave OPEC in December on account of a quota dispute. While Angola only accounted for around 4% of total OPEC production in November 2023, the country’s departure may serve to undermine the organization’s credibility. It’s also worth noting that up-and-coming oil producer Guyana refused to join OPEC, which may indicate the group has lost appeal for new members.
2023 saw an impressive amount of M&A activity among Canadian E&Ps. In total, we caught wind of 35 transactions of a wide variety of deal sizes this year. Among 2023 deals with valuations available, the combined transaction considerations was almost $18 billion. The first major deal was Baytex Energy’s February acquisition of US-based Ranger Oil for a total consideration of C$ 2.9 billion, while the last major deal was Crescent Point’s November acquisition of Hammerhead Energy for $2.5 billion. Numerous companies were involved in multiple transactions including Crescent Point, Lycos Energy, Cygnet and Baytex among others. Two TSX-listed companies ceased trading as a result of acquisitions: Pipestone Energy and newly-public Hammerhead Energy. Common transaction rationales from acquirers included increased scale, access to new or better-integrated plays and improved pro forma breakeven metrics. With borrowing costs expected to moderate in the year ahead, it’s possible that we see even more dealmaking in 2024.
“Canadian government-owned Trans Mountain Corp asked the country’s energy regulator on Thursday to reverse a decision rejecting proposed construction changes on its oil pipeline expansion, warning of a possibly “catastrophic” two-year delay and billions of dollars in losses.”
#2: Canada Energy Regulator issues reasons for decision for denying Trans Mountain’s pipe size variance application (December 20 2023)
“The Commission of the Canada Energy Regulator has determined that Trans Mountain did not adequately address concerns about pipeline integrity and related environmental protection impacts in its pipe size variance application. These concerns outweighed the benefits for earlier completion of the Trans Mountain Expansion Project (TMEP).”
#3: Whitecap Resources Inc. announces receipt of proposal letter from the Canada Revenue Agency to reassess and intention to defend (May 23 2023)
“Whitecap Resources Inc. (“Whitecap“) (TSX: WCP) announces that it has received a letter (the “Proposal Letter“) from the Canada Revenue Agency (the “CRA“) advising that, subject to submissions by Whitecap, the CRA is proposing to reassess a former subsidiary of Whitecap to deny non-capital loss deductions relevant to the calculation of income taxes for the years 2018 and 2019.”
#4: Canada Energy Regulator says injury halts work on Trans Mountain expansion project (April 26 2023)
“The Canada Energy Regulator said it was notified on Tuesday of a serious injury at a work site on the government-owned Trans Mountain oil pipeline expansion project near Chilliwack, British Columbia. The regulator said work has been stopped at the job site, and inspection officers and the Royal Canadian Mounted Police are attending.”
#5: Mystery buyer of Montney/Duvernay assets from Athabasca and Murphy officially revealed – BOE Intel (September 5 2023)
“On July 31, Athabasca announced that it had entered into a definitive agreement to sell its non-core light oil assets for $160 MM. A few days later on August 3, Murphy announced that “a subsidiary of Murphy signed a Purchase and Sale Agreement to divest a non-core portion of its operated Kaybob Duvernay assets and all of its non-operated Placid Montney assets.” The buyer of both was listed as simply a private company, but now we can see on BOE Intel that the buyer was Cygnet Energy Ltd.“
Special Mention: Top Column
Column: Who is brave enough to enter the oil patch these days? A salute to the few, courageous and needed (March 21 2023)
We are proud to collaborate with a group of writers and contributors at the BOE Report, and we wanted to specifically highlight our top Column this year. The piece, an ode to those courageous enough to enter the increasingly complicated Canadian energy industry, was penned by none other than Terry Etam. You can continue to read Terry’s work on the BOE Report, and don’t hesitate to check him out on X.
We have lots planned for the BOE Report and BOE Intel in the year ahead, keep your eye out for news, original content, and more.