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Canadian Oil and Gas Prices Likely to Maintain Momentum to End of 2014

Loss of Edmonton Par data and other benchmarks still cause for concern as Canada eyes export markets outside the U.S.


Deloitte's Resource Evaluation & Advisory group released its current Canadian domestic oil and gas price forecast today, noting that the strengthening prices experienced during the second quarter are likely to continue, resulting in a stronger second half of 2014 for Canadian oil and gas producers.

"April through June has seen a strengthening of Canadian oil and gas prices as the U.S. works to refill their massive storage volumes and satisfy strong domestic demand," said Deloitte's Andrew Botterill, Senior Manager Resource Evaluation & Advisory. "This has increased our confidence in a stronger second half of 2014. But the long-range futures markets still indicate both oil and gas will remain softer for 2015 and beyond without increased exports to markets other than the U.S."

In the commentary accompanying Deloitte's June 30, 2014, forecast, Mr. Botterill focuses on the continuing disappearance of traditionally steadfast Canadian benchmarks such as Cromer Medium, Shell Edmonton Par and others. In recent years, companies have elected not to publish the oil and gas prices being paid at the refinery gate, thereby eliminating daily spot price benchmarks for different grades of Canadian crude. Edmonton Par is the latest to become extinct. Comprised of prices from Shell, Suncor (formerly Petro Canada) and Imperial Oil, Shell and Suncor stopped publishing some months ago. Deloitte predicted Imperial would likely follow suit and, on May 1 this year, they did - effectively eliminating the daily spot data behind the Edmonton Par reference price.

"Without these benchmarks, is it harder for Canada to have a good understanding of daily markets," Mr. Botterill. "Canada relies heavily on exports to the U.S. and the relationship between WTI and Edmonton oil prices can fluctuate greatly. Knowing when volumes are trading at a premium or a discount to the U.S., and understanding the economic drivers affecting this relationship, is vital for Canadian producers, investors and governments making decisions that affect our industry and our economy. At a time when Canada is looking to increase LNG and oil export volumes to markets other than the U.S., this adds more complexity to the way these volumes will be traded."

Deloitte's pricing team has developed an alternate Edmonton Par methodology that considers the near-term futures market and how it reflects the differentials between reference points in the next month.

Deloitte's June 30, 2014 forecast shows a WTI oil real price of US$100.00/bbl for 2014, decreasing to US$93.00/bbl for 2015 and eventually leveling out at US$85.00/bbl by 2018. Deloitte has forecast a US$7.00/bbl differential between WTI and Edmonton par that will decrease to US$2.00/bbl over the long term to match pipeline tariffs between the two markets.

With respect to natural gas, Deloitte's June forecast shows natural gas at an Alberta AECO real price of C$4.80/Mcf in 2014, dropping to $C4.40/Mcf for 2015 and up to C$6.00/Mcf by 2024. Deloitte's NYMEX real price is at US$4.60/Mcf throughout 2014, dropping to US$4.35/Mcf for 2015 and up to US$5.80/Mcf by 2024.

Canadian to U.S. exchange rate is forecast at $0.90 and is in line with current Canadian bank forecasts.

For Deloitte's complete oil and gas price forecast dated June 30, 2014 visit www.ajmdeloitte.ca/price-forecasts.html.

About Deloitte

Deloitte, one of Canada's leading professional services firms, provides audit, tax, consulting, and financial advisory services. Deloitte LLP, an Ontario limited liability partnership, is the Canadian member firm of Deloitte Touche Tohmatsu Limited. Deloitte operates in Quebec as Deloitte s.e.n.c.r.l., a Quebec limited liability partnership.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Gord Hawker
On behalf of Deloitte

Jeannie Tsang

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