Modest gains seen for Canadian oil output in 2011

* Analysts, officials see 2 pct to 7 pct gain in ’11

* NEB estimates 7 pct increase in 2010

* Shell, Suncor, Devon starting up expansions

By Jeffrey Jones

CALGARY, Alberta, Nov 23 (BestGrowthStock) – Oil production in
Canada, the largest supplier to the United States, is expected
to increase between 2 percent and 7 percent in 2011 as a
handful of oil sands projects begin operations, analysts and
industry officials said.

Such gains would be similar to the rise estimated for this
year, when new projects such as Nexen Inc’s (NXY.TO: ) Long Lake
development and Canadian Natural Resources Ltd’s (CNQ.TO: )
Horizon venture have been slow to hit their design capacity.

Still, the 2010 increase is the first following two years
of declines after companies slammed the brakes on as much as
C$90 billion ($88 billion) of project spending to cope with the
financial crisis.

Now, oil prices around $80 a barrel, tight discounts for
heavy crude and thawing capital markets have prompted a
rekindling of new projects and expansions.

“I think there is more realistic growth now, and growth
expectations,” said Purvin & Gertz analyst Steve Fekete, who
expects a gain of 5 percent to 7 percent next year.

“If you were to go back to the ’06-’07 period it was
over-exuberance. I think we’re seeing steady growth now.”

Martin King, analyst with FirstEnergy Capital Corp, said he
is admittedly conservative with an estimated gain of 2 percent
for 2011, a net increase of 60,000 barrels a day.

“I don’t see it as being a breakout year in terms of
multiple thousands of barrels a day,” he said.

Built into that are expectations for outages at major
projects, which have hampered gains in past years, King said.

The Canadian Association of Petroleum Producers, the
industry’s main lobby group, sees an overall gain of 5 percent
in 2011. Spokesman Travis Davies said the estimate does not
reflect a recent jump in activity in Saskatchewan’s Bakken and
Alberta’s Cardium unconventional oil plays.

NEB SEES 7 PCT GAIN THIS YEAR

According to figures from the National Energy Board, output
countrywide should average 2.89 million bpd in 2010, up 7
percent from 2.7 million bpd in 2009.

The biggest gains are in heavy crude and bitumen as well as
volumes that were upgraded into light synthetic.

As has been the case for years, overall light oil supply in
many regions of Western Canada is declining.

However, the tide appears to be turning. Saskatchewan’s
light production has jumped 27 percent in the past three years
as companies have rushed to develop the Bakken. There,
companies use horizontal drilling and rock fracturing
techniques that were developed to exploit shale gas.

Canadian heavy and bitumen output have averaged 1.15
million bpd in 2010, up 15 percent from 2009, as steam-assisted
production companies such as Cenovus Energy Inc (CVE.TO: ) and
MEG Energy Corp (MEG.TO: ) ramped up output.

Upgraded synthetic production has averaged 805,706 bpd this
year, a gain of 5 percent, the NEB said. Canadian Natural’s
Horizon project moved closer to capacity rates as the year
progressed and Suncor Energy Inc’s (SU.TO: ) output improved.

Overall Canadian light oil output rose about 6,000 bpd to
793,080 bpd.

Among oil sands developments due to start up in 2011, the
expansion of Royal Dutch Shell Plc’s (RDSa.L: ) Athabasca Oil
Sands Project targeted for the first part of the year. The mine
and upgrader expansion will add 100,000 bpd, boosting overall
output to 255,000 bpd.

First oil from the third phase of Suncor’s Firebag project,
a steam-assisted production venture, is expected in the second
quarter and will eventually ramp up to 60,000 bpd, doubling the
development’s output.

Devon Energy Corp (DVN.N: ) aims to start up the second phase
of its Jackfish development near the end of the year, taking
output to 70,000 bpd from 35,000.

Not all projects have had easy start-ups. Nexen said this
month it does not expect Long Lake, which began operations more
than two years ago, to hit its 72,000 bpd capacity in 2011.

($1=$1.02 Canadian)

(Editing by Lisa Shumaker)

Modest gains seen for Canadian oil output in 2011