WTI OIL: US$79.36+$0.51 per barrelAugust delivery

NYMEX: N Gas: US$2.767+$0.870 per MMBTU

July delivery

Published By NEWS COMMUNICATIONS since 1977 Canadian Edition Wednesday June 27, 2012

NORTH AMERICAN RIG COUNTS

The U.S. rotary rig count was down 5 at 1,966 for the week of June 22, 2012. It is 84 rigs (4.5%) higher than last year. The number of rotary rigs drilling for oil was up 16 at 1,421. There are 418 more rigs targeting oil than last year. Rigs drilling for oil represent 72.3 percent of all drilling activity reaching another all time high for the weekly data Rigs directed toward natural gas were down 21 at 541. The number of rigs currently drilling for gas is 332 lower than last year's level of 873. Year-over-year oil exploration in the U.S. is up 45.5 percent. Gas exploration is down 38.0 percent. The weekly average of crude oil spot prices is 11.9 percent lower than last year and natural gas spot prices are 41.3 percent lower. Canadian rig activity was down 10 at 238 and is 21 (12.1%) lower than last year's rig count. The number of rigs drilling for oil was down 3 to 195 and is 3 (1.5%) lower than last year. Gas directed rig count was down 7 at 43 and is 33 (43.4%) lower than a year ago.

CAUSTIC VAPORSSHUT MOTIVA REFINERY

In the end, all it took was a small chemical spill -- perhaps less than a barrelful -- to bring down the newest, mightiest oil refinery in the United States. Three weeks ago, while workers repaired a minor leak at the Port Arthur, Texas plant owned by Motiva Enterprises, a few gallons a day of so-called "caustic" was inadvertently seeping into the newly built crude distillation unit (CDU), the 30-story-high network of interconnected cylinders and latticed pipelines at the heart of the refining process. While harmless when mixed with crude, the undiluted caustic vaporized into an invisible but devastating agent of corrosion as the chamber heated up to 700 degrees Fahrenheit (370 Celsius); the chemical gas raced through key units, fouled huge heaters and corroded thousands of feet of stainless steel pipe. Now, just weeks after they commissioned the biggest U.S. refinery project in a decade, two of the world's biggest oil titans -- Royal Dutch Shell and Saudi Aramco , which own Motiva -- are rushing to repair the potentially billion-dollar glitch that has added an embarrassing and costly coda to a landmark $10 billion expansion. After a five-year effort to double the plant's capacity, making it the largest in the country, they must now reassemble many of the same people and parts for a blitzkrieg fix that may exceed the original $300 million cost of the unit: corrosion experts are flying in from across the world; hundreds of workers are being hired; bespoke 30-inch (75-cm) stainless steel

ilfield NEWSoilfieldnews.ca www.markmilne.com

pipelines and 30-story cranes may need to be obtained quickly, according to sources involved in the repairs. Sources familiar with the effort provided Reuters with the most detailed account yet of what officials believe went wrong at the 325,000-barrels-per-day (bpd) unit known as vacuum pipestill-5 (VPS-5), showing how a series of seemingly minor glitches crippled the vast plant. Motiva has said little about the

incident. Late last Wednesday, 11 days after it occurred, the company confirmed for the first time that the unit might remain shut for "several months". Sources say officials are telling workers that the unit could be idle for as long as a year. On Friday, Motiva spokeswoman Kayla Macke confirmed the contamination: "The preliminary inspection indicates that parts of the new unit have been contaminated with elevated levels of

caustic." The extent of the damage is still not known as portions of the crude unit are too hot to enter, according to the sources. Some areas may not be accessible for weeks. Motiva has not reached a final conclusion as to the cause of the damage, but has developed a working theory on what experts said appeared to be a rare instance of "accelerated chemical corrosion". The unit's intense heat was critical: the rate of

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corrosion can double with every 10 degrees Celsius. Even as it pitted the inside of the atmospheric section, a giant still that performs the initial and most basic stage of converting crude oil into fuel, the damage went undetected. Only when two fires broke out and a heater ruptured -- once crude resumed flowing -- did operators suspect something was amiss. "They had the first fire and then they had the second one 20 feet away. They knew they had a problem," one of the sources said. Why caustic continued flowing into the unit while it was idled to repair an unrelated leak is unclear, and is a key part of the investigation to establish cause. It is thought a valve failed to shut completely, but why that happened is unknown. Meanwhile, every day the unit remains shut is an estimated $1.5 million in profit margin that Motiva isn't earning, and another 144 million miles (230 million km) worth of gasoline that isn't being supplied to the U.S. market during the height of the driving season. As for oil prices, the incident will have a mixed effect. Unless it cuts production, Saudi Arabia will have to find new buyers for the crude that was earmarked for the refinery, weighing on oil prices. But the premium on regional wholesale gasoline may be pushed higher by the prolonged loss of supply, which should help buoy profit margins at rivals such as Valero and ExxonMobil. While Motiva has been spared the kind of tragedy

that struck BP Plc's Texas City, Texas refinery in 2005, when 15 workers were killed and 180 injured in a vapor cloud explosion, the Port Arthur incident will likely stand as one of the most surprising to hit the U.S. refining industry in modern times. Operators have continued to run many of the unharmed secondary units, although without the crude tanks they must buy intermediate feedstock from other refiners or shut peripheral units, as Motiva did last week. But stainless steel piping, some sections as large as 30 inches in diameter, was damaged. Such equipment, part of more than 700 miles of pipe used on the expansion project, is often built to order, and may be difficult and costly to replace. "If someone has 30-inch stainless steel pipe for sale, I would guess they're going to charge a premium price," one of the sources said. Instrumentation on the unit is also known to be damaged, according to the sources. Up to 50 heat exchangers will need to be cleaned throughout portions of the new plant, according to IIR Energy, an industrial intelligence firm that gathers data on operations and project activity on thousands of assets globally. Work on exchangers 300 feet (90 meters) above the ground will require large cranes, though likely not the giants needed for the original construction. The heat exchangers, which look like 30-foot-long cylinders collected in a metal frame, house lengths of tubing

where feedstocks are warmed and refined products are cooled as they go to and from a refining unit. Soon the question of who is to blame will arise. The cost to complete repairs may be as much as replacing the whole unit, which was originally estimated to cost some $300 million when the project was launched in April 2005, according to IIR. Without knowing exactly why the caustic leaked, it's not possible to say who, if anyone, is at fault. Meanwhile, the investigation continues, and oil traders await any word on when the plant will resume operations. Motiva will likely be "extra-cautious" in restarting, Auers of Turner, Mason and Co said. "They're really focused on the repairs," one of the sources close to refinery operations said. "They don't need to know the cause now. They've got 12 months to figure that out and fix it."

OIL COMPANIES RESUMEGULF OUTPUT AFTER DEBBY

Oil and gas producers in the Gulf of Mexico continued to restart operations on Tuesday as Tropical Storm Debby, the first named storm of 2012 to disrupt the basin's energy operations, weakened and made landfall in Florida. U.S. regulators said more than half of the Gulf's output that was shut for the storm had been restored by midday, reflecting rapid ramp-ups after Debby had moved east of the basin's energy infrastructure. The U.S. Bureau of Safety and Environmental Enforcement said 18.1 percent of daily oil output, or 250,187 barrels

per day, and 17.2 percent of daily natural gas production, or 773 million cubic feet per day, was still shut. Those figures peaked on Monday because of Debby, with 44.1 percent of daily oil and 34.8 percent of natural gas output shut. BP Plc, the largest oil producer in the Gulf, said it continued restaffing its seven oil and gas platforms as offshore weather conditions improved. "Our oil and natural gas production will be ramped up in coming days as the facilities are restaffed," spokesman Brett Clanton said. BP's affected facilities include Thunder Horse, the world's largest oil and gas platform, which is designed to produce up to 250,000 bpd of oil and 200 mmcfd of gas. Anadarko Petroleum Corp, the largest natural gas producer in the basin, said it had restaffed and restarted production at two of its four platforms that were shut and evacuated as the storm approached, with restart on the horizon for the other two. Those last two are the gas-only Independence Hub, which can produce up to 1 billion cubic feet of gas per day, and Neptune, which can produce up to 14,000 bpd of oil and 23 mmcfd of gas. The Independence Hub, about 185 miles (297 km) southeast of New Orleans, is the

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LINN BUYING GASASSETS FROM BP

Linn Energy LLC will buy natural gas acreage in southwest Wyoming from BP America Production Co for $1.03 billion, its second such deal with the British company this year at a time when prices for the fuel have hit decade-lows. Weak prices have prompted several companies to sell off natural gas properties, presenting a bargain for those willing to wait for a turnaround. "Linn is very opportunistic and they are in a very good position to acquire

assets from forced sellers," said National Securities analyst Boris Pialloux. Linn earlier this year bought natural gas assets in Kansas from BP for $1.2 billion. "We are commodity agnostic when it comes to acquisitions," Linn Chief Executive Mark Ellis said in an emailed statement, adding that the company was continuously on the lookout for acquisitions. Linn has spent $3 billion on deals so far this year. BP, which is raising billions of dollars to help fund the cost of the 2010 Gulf of Mexico oil spill, is selling all of its working interest in about 260 wells among other assets. Linn, as a limited liability company, has a corporate structure that allows it to reduce its tax burden by passing on most of its cash flow to unitholders. This also provides a greater access to capital. "Multiples for Linn are much higher than that of corporations. If they are going to issue stock, they have a much more expensive currency to buy assets," said Pialloux. Houston-based Linn's distributions have more than doubled over the past six years. It paid $2.70 per unit in 2011. Linn said the latest BP deal is

expected to immediately add to distributable cash flow per unit. Separately, Linn Co LLC, a company that will hold no assets other than Linn Energy units, filed with U.S. regulators to raise up to $1 billion in an initial public offering of shares. The IPO will help the company get investment from institutional investors.

APACHE ANNOUNCES LARGE B.C. SHALE GAS FIND

Apache Corp has made what it believes may be one of the world's largest shale-gas discoveries in a remote corner of northeastern British Columbia, a massive field containing as much as 48 trillion cubic feet of recoverable natural gas. The company has drilled three wells into its holdings in the Liard Basin in British Columbia, just south of where the province's northern border meets the borders of the Yukon and Northwest Territories. Those wells tapped into a massive shale-gas reservoir that alone could supply U.S. needs for almost two years. "This is probably the best shale gas reservoir in the world," John

Bedingfield, the company's vice president of worldwide exploration, said at a company presentation on Thursday. Only one of the three wells drilled in the region was treated with the multiple-stage hydraulic fracturing process that has been key to unlocking North America' prolific shale-gas reserves. That well, which was "fracked" six times, delivered 21.3 million cubic feet of gas per day over its first thirty days of production, which Apache said was the most prolific shale-gas test well ever drilled. Shale gas discoveries have transformed North America's natural-gas industry. The massive fields have created a surplus of the fuel that has driven prices down to 10-year lows and sparked the creation of a nascent liquefied natural gas industry as producers look to tap high-paying markets in Asia and elsewhere. Apache owns 430,000 acres of exploration lands surrounding its new find and its wells have already been connected to pipelines in the region. However the field could also supply an LNG export facility the company and partners Encana Corp and EOG Resources Inc are planning to build at

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Kitimat on British Columbia's northern coast. Bedingfield said the company will not rush to develop the field while gas prices remain low but called the field "a huge resource for the future." The find was one of several the company detailed for investors on Thursday. Along with its Liard field, the company said its 580,000 acres of land in the Mississipian Lime field in Kansas and Nebraska could contain as much as 2 billion barrels of oil while its holding in Montana's Williston Basin may hold another 1 billion barrels. As well, it's targeting as much as 1.3 billion barrels of oil in Alaska's Cook Inlet and 1.4 billion barrels from its holding off the shore of Kenya. It will drill in both regions later this year. Apache said its holdings in western Oklahoma and the Texas panhandle could also hold another 5.4 billion barrels of oil equivalent while the Permian Basin in west Texas and New Mexico hold 3.4 billion barrels of oil equivalent. Analysts said Apache, a company that has often focused on growing by acquisition, will now focus on building production by drilling its existing properties worldwide. "Apache has typically ... been viewed as an M&A driven company," said Rob Cordray, an analyst at Guggenheim Securities. "But this shows a tremendous amount of organic growth potential. There's a huge drilling inventory for these guys."

EXPRESS PIPELINE NOTAPPORTIONED IN JULY

Kinder Morgan Energy Partners said on Monday that it would not need to ration space on its Express oil pipeline to Wyoming from Alberta in July as nominations came in below the line's available capacity. Kinder Morgan said nominations for the pipeline totaled 227,000 barrels a day, 53,000 below capacity. The Guernsey, Wyoming, to Wood River, Illinois, segment of the adjoining Platte pipeline system was oversubscribed, however. The new shipper category was apportioned by 82 percent for July, the company said. Meanwhile, Kinder Morgan said on Friday that its Trans Mountain pipeline system between Alberta and the Pacific Coast is overbooked by 73 percent in July, resulting in shippers being limited to just 27 percent of their nominated volumes. Total nominations for the system are 280,389 barrels a day for the Trans Mountain pipeline, 119,646 bpd for the Puget Sound line and 77,458 bpd for the Westridge Dock.

NEXEN ACHIEVES IMPORTANTMILESTONES AT LONG LAKE

Nexen Inc. has announced that we have reached two major milestones in our plan to fill the Long Lake upgrader: first oil production from pad 12 and first steam into pad 13. We exceeded our expectations for first production from pad 12 with conversion of wells to SAGD after approximately 70 days of steam circulation versus our previous experience of approximately 90 to 120 days. The acceleration was due to new completion technologies and processes that will now be the standard for future

wells. Currently three of the nine wells are in production with the remainder expected to be converted over the next few weeks as we install the electronic submersible pumps. Steam injection on pad 13 is also ahead of schedule primarily as a result of the efficiency of steam utilization on the pad 12 start-up. We are now steaming all nine wells on the pad. First bitumen production is expected later this year. Production from pads 12 and 13 is expected to ramp-up to full rates over an 18 to 24 month period. "Exceeding expectations on these two milestones is a significant accomplishment. We continue to see real progress at Long Lake," said Kevin Reinhart, Nexen's interim President & CEO. The Long Lake project is also progressing in other areas. Pad 11 continues to ramp-up and is trending towards the upper end of our expected range of 4,000 to 8,000 bbls/d. On pads 14, 15 and Kinosis 1A, we are progressing site civil work and engineering, and expect to start drilling mid-summer. Steam injection is expected on pads 14 and 15 in the second half of 2013, with Kinosis 1A following by mid-year 2014. Nexen has a 65% working interest in both Long Lake and Kinosis and is the operator. The remaining 35% interest is held by CNOOC Canada Inc.

TWIN BUTTE TO AQUIREAVALON EXPLORATION

Twin Butte Energy Ltd. has announce that it has entered into an arrangement agreement providing for the acquisition by Twin Butte of all of the outstanding class A common shares of Avalon Exploration Ltd. on the basis of 1.1 common shares of Twin Butte for each outstanding Avalon Share. Avalon is a private company with 100 percent of its production being heavy oil from properties located in the greater Lloydminster area. Based on the five day weighted average trading price of the Twin Butte Shares ended June 22, 2012 of $2.29, the exchange ratio for the Acquisition represents a deemed price of $2.52 per Avalon Share. The deemed purchase price is approximately $88.9 million in value, comprised of the issuance of approximately 23.3 million Twin Butte Shares (at a deemed price of $2.29 per Twin Butte Share) and the assumption of approximately $35.6 million in net debt and estimated transaction costs. At closing, Twin Butte anticipates it will have approximately 215.5 million shares outstanding. The Acquisition is consistent with Twin Butte's historic strategy of acquiring quality assets, with large resource potential within focus areas where Twin Butte has expertise. The Acquisition materially increases the size and scope of heavy oil lands and opportunities for Twin Butte. The Avalon lands are contiguous to Twin Butte's and effectively double Twin Butte's net undeveloped land position in the Lloydminster heavy oil fairway from approximately 77,000 to 162,000 acres. The Acquisition further establishes Twin Butte as a significant operator in the area. Twin Butte management has a successful

history operating and growing heavy oil production and has extensive operational experience within the Lloydminster heavy oil fairway which will ensure a seamless transition and ultimately generate numerous operational efficiencies. As a larger, stronger company, Twin Butte will use its financial flexibility to capitalize on its expanded low risk drilling inventory. Twin Butte and Avalon believe that this strategic transaction offers an exceptional opportunity to create substantial value for their respective companies and shareholders. David Bredy, President and Chief Executive Officer of Avalon commented that "The transaction will provide Avalon shareholders, liquidity and the opportunity to participate in a much larger, well capitalized and hedged

company. In addit ion, the Avalon shareholders will be able to participate in Twin Butte's monthly dividend stream. Avalon's assets are an excellent fit with Twin Butte and they will definitely benefit from Twin Butte's strong technical team and greater access to capital." In addition, it is anticipated that the Company's credit facility will be increased to $240 million from the current $205 million upon closing. The Acquisition is to be effected by way of a plan of arrangement under the Business Corporations Act (Alberta). Completion of the Acquisition, which is anticipated to occur in late August 2012 The Acquisition is to be effected by way of a plan of arrangement. Completion of the Acquisition, which is anticipated to occur in late August 2012

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