%on­av­ista En­ergy Cor­po­ra­tion out­look fol­low­ing third quar­ter re­sults

The McLeod River Post - - The Patch -

Spe­cial to the 3ost

The en­ergy in­dus­try is among the largest eco­nomic en­gines driv­ing the Cana­dian econ­omy. Abun­dant, re­li­able, af­ford­able en­ergy is es­sen­tial to eco­nomic growth, im­prov­ing our stan­dard of liv­ing and en­hanc­ing our qual­ity of life. Sim­ply put, en­ergy is the lifeblood of our econ­omy and pro­vides for our way of life here in Canada.

Canada is the fifth largest pro­ducer of nat­u­ral gas and sixth largest pro­ducer of oil in the world. The si]e and qual­ity of our re­sources cou­pled with our world class en­vi­ron­men­tal and so­cial per­for­mance stan­dards should po­si­tion Canada to be the pre­ferred sup­plier of cost and car­bon com­pet­i­tive nat­u­ral gas to the global mar­ket. Global en­ergy de­mand is ex­pected to grow 30 per cent by 2040 ac­cord­ing to the ,nter­na­tional En­ergy Agency’s World En­ergy Out­look. This out­look high­lights that oil and nat­u­ral gas will pro­vide more than half of this en­ergy to the world, with global de­mand for nat­u­ral gas fore­cast to grow 43 per cent by 2040 led by in­dus­trial and power sec­tors.

Un­for­tu­nately, the Cana­dian oil and gas sec­tor is ex­pe­ri­enc­ing nu­mer­ous chal­lenges which place Canada in a dif­fi­cult po­si­tion to com­pete. Large pro­duc­ers and many ser­vice providers have re­al­lo­cated peo­ple, equip­ment, and cap­i­tal to more com­pet­i­tive Muris­dic­tions. Cana­dian oil and gas eq­uity raised an­nu­ally by this sec­tor has van­ished to less than $1.0 bil­lion year-to-date from $10 bil­lion in 2016. Clearly, the Cana­dian en­ergy sec­tor is un­der ex­tra­or­di­nary pres­sure.

The crit­i­cal com­pet­i­tive­ness is­sues are re­lated to mar­ket ac­cess and reg­u­la­tory time­lines. Our world class re­sources are land-locked and our pipe­lines full. Cur­rent poli­cies and reg­u­la­tory bur­dens have de­layed, or in cer­tain cases can­celed, the ex­pan­sion of much-needed in­fra­struc­ture in Canada re­quired to serve na­tions ex­pe­ri­enc­ing en­ergy poverty, and in dire need of cleaner en­ergy.

Our largest cus­tomer over the past five decades has re­cently be­come our fiercest com­peti­tor. Over the past two years, the US has grown their nat­u­ral gas ex­port vol­umes by 85 per cent and oil ex­port vol­umes by 300 per cent to meet the ever-in­creas­ing global de­mand for en­ergy. Abun­dant Cana­dian nat­u­ral re­sources are be­ing held cap­tive with­out ac­cess to sim­i­lar global mar­kets. ,n western Canada, we cur­rently sell our oil and nat­u­ral gas to the US at an unimag­in­able 40 per cent and 50 per cent dis­count, re­spec­tively, while in eastern Canada, we are im­port­ing en­ergy at global prices, from for­eign sup­pli­ers. This sce­nario par­aly]es eco­nomic growth across our na­tion from sea to sea and should create an ur­gent and grow­ing im­per­a­tive to set pol­icy across Canada which ef­fi­ciently di­ver­si­fies oil and nat­u­ral gas mar­kets be­yond our ex­ist­ing soli­tary ex­port mar­ket. We, as a na­tion have proven that eco­nomic growth and en­vi­ron­men­tal re­spon­si­bil­ity can work to­gether. Statis­tics Canada re­ported that of the $11.8 bil­lion spent on en­vi­ron­men­tal pro­tec­tion, in the most re­cent year of col­lected data, the oil and gas sec­tor ac­counted for the largest share of ex­pen­di­tures, spend­ing $6.5 bil­lion or 55 per cent of to­tal busi­ness en­vi­ron­men­tal pro­tec­tion ex­pen­di­tures. ,n 2016, green­house gas (“GHG”) emis­sions in our Cana­dian en­ergy sec­tor rep­re­sents only 0.31 per cent of global GHG emis­sions. The en­ergy in­dus­try con­tin­ues to col­lab­o­rate and share tech­nol­ogy and in­no­va­tion to re­duce GHG emis­sions in­ten­sity and de-cou­ple pro­duc­tion growth from emis­sions growth. With ex­panded mar­ket reach, our coun­try can un­de­ni­ably play a lead­er­ship role on the world stage in sup­port­ing other coun­tries in their en­ergy de­mand and cli­mate obMec­tives.

)un­da­men­tally, the com­mod­ity price volatil­ity cre­ated in Cana­dian mar­kets by the pre­ced­ing phe­nom­e­non makes it chal­leng­ing for our sec­tor to eco­nom­i­cally de­velop our abun­dant nat­u­ral re­sources. 'es­pite these chal­lenges, our team at %on­av­ista has re­sponded by adapt­ing our cost struc­ture, fo­cus­ing on liq­uids-rich nat­u­ral gas de­vel­op­ment and en­hanc­ing the eco­nomic qual­ity of our as­sets with tech­nol­ogy and in­no­va­tion. With con­tin­ued pur­suit of these high-qual­ity de­vel­op­ment op­por­tu­ni­ties, we ex­pect to gen­er­ate a to­tal of $90 to $100 mil­lion of sur­plus funds flow in 2018, as we spend $155 to $165 mil­lion, in­clu­sive of ac­qui­si­tions and di­vesti­tures, to main­tain pro­duc­tion and exit the year at ap­prox­i­mately 70,000 boe per day.

We are en­cour­aged with the nat­u­ral gas de­mand trends we are cur­rently ex­pe­ri­enc­ing in North Amer­ica. Specif­i­cally, US liq­ue­fied nat­u­ral gas (“LNG”) ex­port has been ex­pand­ing rapidly with ca­pac­ity fore­casted to grow three-fold to nearly 10 bcf per day by this time next year. As well, elec­tri­cal gen­er­a­tion nat­u­ral gas de­mand has been at record lev­els in both Canada and the US for most of this past cool­ing sea­son, which has led to near record low nat­u­ral gas in­ven­tory lev­els in North Amer­ica as we head into the win­ter heat­ing sea­son. We are also en­cour­aged with ex­pan­sion plans un­der­way by Tran­sCanada 3ipeLines Lim­ited (“TC3L”) to ex­port an ad­di­tional 2.5 bcf per day of nat­u­ral gas out of western Canada by 2021. Given that our nat­u­ral gas pipe­lines are full to­day, it would be a sucess for our in­dus­try if this time­line could be ac­cel­er­ated by over­com­ing cur­rent reg­u­la­tory chal­lenges. Lastly, the re­cent fi­nal in­vest­ment de­ci­sion an­nounce­ment by LNG Canada has rein­vig­o­rated our longterm fun­da­men­tal view of Cana­dian nat­u­ral gas sup­ply and de­mand.

While these fun­da­men­tals are en­cour­ag­ing, we in­tend to re­main dis­ci­plined with our 2019 cap­i­tal spend­ing plans de­signed to gen­er­ate max­i­mum sur­plus funds flow while main­tain­ing pro­duc­tion. We be­lieve that the fun­da­men­tals are in place for Cana­dian nat­u­ral gas prices to grad­u­ally rise over the next decade, but not with­out con­tin­ued volatil­ity in the short term. With that be­lief, it is in our best in­ter­est to re­main prag­matic stew­ards of cap­i­tal, in­no­va­tive with our de­vel­op­ment pro­grams, and driven by our fi­nan­cial flex­i­bil­ity. As we an­tic­i­pate struc­tural im­prove­ments in Cana­dian nat­u­ral gas fun­da­men­tals, we will un­doubt­edly re­main ag­ile in our re­sponse to these im­prove­ments. ,t is our in­tent to pro­vide com­pre­hen­sive guid­ance with our 2019 cap­i­tal bud­get in -an­uary. We would also like to en­cour­age our share­hold­ers to re­view our in­au­gu­ral Cor­po­rate Re­spon­si­bil­ity Re­port re­leased on our web­site on Oc­to­ber 12, 2018. ,t show­cases our suc­cess not only within the realm of our en­vi­ron­men­tal, health and safety re­spon­si­bil­i­ties, but also how we have suc­cess­fully col­lab­o­rated with many of our stake­hold­ers as we adapt to the ev­ere­volv­ing busi­ness en­vi­ron­ment. ,t is our goal at %on­av­ista to be an in­dus­try leader in ef­fi­ciently and sus­tain­ably sup­ply­ing the world with re­spon­si­ble Cana­dian en­ergy for years to come. This re­port demon­strates the many strides we have taken thus far.

We thank our em­ploy­ees for their com­mit­ment and ded­i­ca­tion and our share­hold­ers for their on-go­ing sup­port. We look for­ward to re­main fo­cused on fi­nan­cial flex­i­bil­ity through­out the re­main­der of 2018 and value cre­ation through the com­ing years.

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