Exploring the top 10
opportunities and risks
About
this report
This report consists of insight and
perspectives from Ernst & Young’s Calgary
Oil & Gas team, which has extensive
experience helping oil and gas companies
in Western Canada achieve their potential.
The research is drawn from the team’s own
conversations and experience advising
international, national and local oil companies.
All monetary figures are in Canadian dollars unless otherwise specified.
Key findings
In this report, our oil and gas team has uncovered a number of ways companies can turn today’s challenges and opportunities into results.
• One of the top trends we’re seeing today is the rising number of joint
ventures and partnerships in the industry, which is helpful for oilsands as it allows for sharing of resources, costs and skills.
• The industry is investing more in technology, and is collaborating on its use
and research.
• With the rise of globalization in the economy, it’s becoming more and
more important for Canada’s oil and gas market to break into new markets around the world rather than solely relying on the US for trade.
• With the rise of concern from stakeholders and the community, and with
government regulations, companies are focusing more on ways to curb their greenhouse gas emissions.
• Due to the perceived negative environmental effects of oil and gas
production, companies are working on their own public relations
management. It is important for the government to support these efforts by coming up with a federal energy strategy.
• In the wake of the global recession and crude price volatility, companies
are taking a fresh look at their strategies and improving their internal business operations.
Oilsands, also known as tarsands, are a mix of bitumen, sand and water. They are considered a type of unconventional petroleum deposit, since the process to extract oil from the sands is different from that used to extract the free-flowing hydrocarbon mixtures of crude oil traditionally produced from oil wells. Oil is extracted from oilsands through in-situ methods such as steam-assisted gravity
drainage (SAGD) during which low-pressure steam is continuously injected into horizontal wells to heat the oil and
reduce its viscosity.
Another more expensive form of extracting oil from the sands is surface mining, using large trucks and excavators. Surface mining is performed when the bitumen is covered by little overburden, which consists of water-laden peat bog over top of clay and barren sand. The oilsands are typically 40 to 60 metres deep, sitting on top of flat limestone rock. After excavation, hot water and
caustic soda are added to the sands to separate the oil.
The oilsands in Western Canada’s Sedimentary Basin are located in three
major deposits in northern Alberta: the
Athabasca-Wabiskaw oilsands deposits of northeastern Alberta, with the bulk of oilsands companies located in the town of Fort McMurray; the Cold Lake deposits in the northeastern part of the province; and the Peace River deposits of northwestern Alberta. Together, these three regions cover 225,308 square kilometres and hold proven reserves of 1.75 trillion barrels of bitumen.
The area contains at least 85% of the world’s reserves of natural bitumen, but they are the only deposits concentrated enough to be economically recoverable for conversion to synthetic crude oil at current prices. In fact, Canada’s oilsands reserves are ranked third in the world for proven oil reserves
behind Saudi Arabia and Venezuela.
Alberta oilsands properties
Athabasca-Wabiskaw
Deposit Peace River
Deposit Cold Lake
Deposit Peace River Fort McMurray Athabasca-Wabiskaw Deposit In-situ projects Mining projects Cold Lake
Oilsands
geography
Demand for Canada’s oil resources
is particularly evident in Alberta’s unconventional oil region, which plays an important role in the country’s oil and gas sector. The oilsands hold great resource potential, and there are a
growing number of projects on the rise
that consist heavily of an oil-focused mix. The region has generated interest
from foreign (notably Asian) investors
and partners as these countries look to secure their oil supplies to fuel rapidly expanding populations. To many, Canada offers a stable business environment that weathered the economic storm well, political stability, strong and transparent regulations, and the development of leading-edge technology and expertise in the oilsands.
The oilsands sector is evolving quickly. Risk continues to dominate the business agenda, but competition in a global marketplace is becoming a dominant feature. Market volatility, pricing pressure, variations in market performance and demanding stakeholders have all contributed to an economy that encourages competitive drive. And with that drive comes opportunity. After taking into account the many lessons learned from the recession, and the boom period from 2005 to 2008, oilsands companies are better equipped to succeed today than ever before.
The following are the top 10 opportunities we see emerging in the industry.
The top 10
emerging opportunities
As Canada’s economy recovers from the global economic
recession, its oil and gas industry is gaining strength at a
fast pace — entering a boom cycle. During the recession,
exploration, development and many capital projects were
put on hold, and now the industry is facing a growing global
demand for resources — a demand that oil and gas companies
are scrambling to take advantage of. This increasing demand
has been a driving force in Canada’s recovery, and we believe it
will remain so well into the future.
The oilsands are economically important to Canada
Canada’s oilsands play a significant contributing role in the oil and gas industry, and in giving Canada a global competitive edge. Canada’s current oilsands production is disproportionate relative to its large reserves base owing to high capital costs, restrictive regulatory requirements and the long lead times needed to bring oilsands production online.
Global demand is growing
The demand for oil around the world remains crucial to the viability of oilsands as a resource. The International Energy Agency forecasts continued growth and demand for fossil fuels of 36% between 2008 and 2035, with 36% of the increase coming from China. The US is also an important customer of Canadian oilsands production, accounting for approximately 22% of the world’s oil and gas consumption. The agency also predicts that coal, oil and natural gas will remain prominent sources of energy into 2035, and that Canadian oilsands and
Venezuela heavy oil will dominate production mix in the future globally.
1
2
State owned or controlled
78%
World oil reserves
Source: Oil & Gas Journal, December 2010
Accessible Canada’s oilsands Other accessible reserves 0 50 150 100 200 250 300 260 211 175 137 115 102 92 60 46 37 30 25 20 19 Saud i Arab ia Vene
zuela Canada Iran Iraq Kuwa it Abu D habi Russia Libya Nige ria Kaza khsta n Qatar China Unite d Stat es
Includes 170 billion barrels of oilsands reserves
52%
48%
Accessible oil reserves
B illion b arr els 36% – Alberta government 41% – Federal government 14% – Municipalities
9% – Provinces other than Alberta
Government revenue from oilsands 2000–2020
0 20 60 40 80 100 120 $ in billions
Source: CERI — Economic Impacts of Alberta’s Oilsands, Oct. 2005
$123 billion by jurisdiction
Here are some key numbers from the government of Alberta that highlight how the oil and gas industry contributes to the Canadian economy. The economic impact to Canada
•
generated from the oil and gas sector is $1.7 trillion per year
(GDP); 90% of this comes
from Alberta.
Reserves base — Canada has a
•
huge resource base of oilsands reserves comparable on a world scale to countries like Saudi
Arabia and Venezuela.
Another measure of government share or revenue from the development of the oil sands is to measure the direct and indirect revenues. This involves measuring the direct royalty and taxes paid, as well as the taxes paid by those supplying goods
and services to the oilsands projects and paid by their employees. A Canadian Energy Research Institute (CERI) study, titled The Economic Impact of Alberta’s Oil Sands, October 2005, quantified the measure of government revenue over the 20 year period from 2000 to 2020 and found Canada’s governments in aggregated
Oilsands are playing a more prominent
role in the oil production mix
Supported by several oilsands assets in either operations or construction, and
future growth plans both in-situ (drillable) and mining related, production is
expected to grow through 2025, according to the Canadian Association of
Petroleum Producers (CAPP).
Production growth mainly fuelled by oilsands is expected to strengthen the energy relationship between the US and Canada. In fact, CAPP expects oilsands
production to grow from 1.3 million barrels/day in 2009 to 2.2 million barrels/
day by 2015 and 3.5 million barrels/day in 2025.
Canadian oilsands and conventional
oil production forecast (2011–25)
Source: Canadian Association of Petroleum Producers 0 2 1 3 4 5 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Million b arr els /da y Actual Forecast Atlantic Canada Mining In-situ Conventional heavy Conventional light Pentanes/condensate
3
Canada is an attractive place to do business
Looking at the major global projects against the economics and political risk in Canada indicates SAGD oilsands and mining oilsands projects compare well on aglobal scale. Canada provides a politically stable economy and has a strong legal and business system in which to operate. Canada’s vast oilsands reserves and proximity to the US make it an ideal market for wealthy international and national oil companies.
Major oil and gas projects evaluated by size and political risk
Source: Company reports and CIBC World Markets Inc.
Typic al w ell ec onomic s ( aft er -t ax r et urn r at e) 60% 50% 40% 30% 20% 10% 0% Political risk Low High Australia LNG SAGD oilsands Mining oilsands Deepwater GOM Hebron
Tupi oil field
Papua New Guinea LNG
Libya redevelopment
Iraq redevelopment
GOM: Gulf of Mexico
LNG: liquefied natural gas SAGD: steam-assisted gravity drainage
4
Asian investment
in Canada topped
$10.9 billion
in 2010.
While Norway, France, the US and other international countries are heavy investors in Canada’s oilsands resource plays, Asian countries are showing a significant interest. In fact, the number of inbound oilsands-focused transactions from Asia tripled in 2010, as resource demand from China, Japan, Thailand and South Korea
continues to grow. According to DBRS Limited, a globally recognized provider of
credit rating opinions, consumption by non-Organisation for Economic Co-operation
and Development countries grew by 12.5 million barrels/day from 2000 to 2010 as a result of rapid industrialization and economic development. In particular,
China’s consumption growth averaged 6.6% per year since 2000, and it’s expected
to remain as robust going forward. Demand is growing as many Asian countries
are actively seeking to secure natural resources around the world to support their population growth.
Asia–Pacific has experienced significant growth with imports increasing by more
than 30% over the decade, according to DBRS. This growth has primarily been led
by China and India, whose imports increased 23% and 65%, respectively. Some examples of Asian investments and partnerships in Canada’s oilsands
include the following:
July 2011: CNOOC announced a $2.1 billion deal to acquire OPTI Canada.
•
June 2011: Petronas announced a joint venture with Progress Energy
•
for $1.07 billion.
January 2011: China’s Sinopec Corp. is one of the investors in its proposed
•
$5.5 billion Northern Gateway pipeline with Enbridge.
November 2010: Statoil Canada entered a US$2.28 billion joint venture with
•
Thailand’s PTT Exploration and Production Public Company Limited.
May 2010: China’s main sovereign wealth fund entered into a partnership with
•
Penn West Energy Trust to develop oilsands assets.
April 2010: Sinopec purchased a 9% stake in Syncrude Canada Ltd.
•
February 2010: State-run PetroChina Company Limited closed its agreement
•
to purchase a majority stake in Athabasca Oilsands Corp. It paid $1.9 billion for a 60% working interest in Athabasca’s MacKay and Dover assets.
April 2005: CNOOC Limited acquired a
Increased crude prices expected
The West Texas Intermediate (WTI) and Brent exchanges continue to show
evidence that the market is uncertain over oil and gas prices. The current forward strip certainly appears to support oilsands, but it also makes it difficult for those companies to plan and forecast accurately — especially recently with significant price volatility caused by the S&P downgrade of the US credit rating.
Forecasts reflect increased optimism over crude pricing, with most analysts expecting levels to stay above $80 per barrel in the long term. Higher crude prices are favourable for oilsands production as previous uneconomic assets and
costly projects suddenly become possible. The risk comes in when oil prices drop
below the costs of extracting oilsands, which is more expensive to produce than conventional oil production methods.
Companies with deep pockets and low cost of capital can be expected to handle the lower crude prices and take advantage of potential short-term lower material and labour costs.
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80 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (U S$ /b bl ) 140 130 120 110 100 90High forecast Investment banks Reserve engineers Low forecast
West Texas Intermediate forecasted prices
As of 30 June 2011
Source: Ernst & Young LLP
The US as a key customer is evolving
The US continues to be a very important customer of Canada’s crude oil production. Canada is the world’s sixth-largest crude oil producer, providing 21% of US
imports. Canada has been able to double production since 1980, and its share of US imports compared to Saudi Arabia, Venezuela and Mexico is expected to increase.
Most Americans strongly value Canada’s role as a secure, stable and friendly supplier of oil to meet the needs of US families and businesses, according to a poll conducted by Harris Interactive for CAPP and the American Petroleum Institute. “Americans naturally want to reduce dependency on imported oil, but to the extent that the US continues to rely on supply from other countries, Canada is very well regarded,” said Dave Collyer, President of CAPP. “Among Americans,
Canada is seen as a friend and ally, with positive environmental values and a
Project activity increasing in a controlled way
At Ernst & Young, we’re seeing renewed project activity in all facets of the oilsands sector. Projects that were shelved over the last few years are now coming back onstream. CAPP sees an increase in 2011 of $2 billion in capital spend in the oil and
gas industry compared to 2010. Some examples of this include the Sunrise Project — Husky Energy’s joint venture with BP; Suncor Energy Inc.’s Firebag expansion
stages three to six and the second stage of Mackay River; and Cenovus Energy Inc.’s
oilsands expansion project at Foster Creek and Christina Lake.
Compared to the early 2000s, we are noticing some key differences in terms of
project growth. These include fewer megaprojects with 100,000+ barrels of oil/day production, more cross ownership and collaboration, and smaller average project size. Collaboration between companies is helping them better control risk and deliver faster project results — it’s easier to get a smaller number of skilled resources to complete a project, rather than having to manage massive teams.
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Industry capital spending
($ in billions) 23 11 1.7 0.2 2.5 0.5 3 0.3 13 15 26 26 0 5 15 10 20 25 30 2009$34 billion $42 billion2010 (forecast)2011 $44 billion
Northern Canada Oilsands Western Canada East Coast offshore
Source: Canadian Association of Petroleum Producers, January 2011
CAPP sees an
increase of
$2 billion over
2011 in capital
spend in the oil
and gas industry.
However, reliance on the US is not without its challenges. US dependence on imported oil fell below 50% in 2010 for the first time in more than a decade — thanks in part to the weak economy and more fuel-efficient vehicles, the
US Department of Energy (DOE) has said. The DOE’s Energy Information
Administration said it expected the moderating trend in US oil-import dependency to continue through the next decade due to improvements in energy efficiency and even higher fuel economy standards. Therefore, Canada needs to focus on diversifying it’s oil and gas customers by building relationships globally. Such relationships are being formed with Asian countries and Canada is opening up many new opportunities by securing its position in new markets.
Infrastructure development continues
Canada has well-established oil and gas production infrastructure that has been built up over many years. This includes pipelines that supply the US and the potential to export to Asia, politically stable government, skilled workers who are experts in oilsands production, respect for contracts and low corruption levels.
Future infrastructure development projects like TransCanada’s Keystone XL
have the potential to further support export growth and security of demand for production. The tightening of differentials in the past few years has influenced the expanding pipeline capacity. In 2010, crude oil pipeline capacity was 3.3 million barrels/day compared to 2.5 million barrels/day in 2007.
Once it’s built, Keystone will initially transport 435,000 barrels/day, and Enbridge’s Northern Gateway will transport 525,000 barrels/day.
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In 2010, crude oil pipeline
capacity was 3.3 million
barrels/day compared to 2.5
million barrels/day in 2007.
Canadian and US crude oil pipeline proposals
Enbridge pipelines, AB Clipper and connections to the US Midwest Kinder Morgan Express
Kinder Morgan Trans Mountain TransCanada Keystone
Proposed pipelines to the West Coast Existing/proposed pipelines to PADD III Expansion in existing pipeline
The increasing role of technology
Technology and innovation continue to play an important role in supporting enhanced oil and gas recovery, and in reducing the environmental impact of production. Some examples of innovative technologies being implemented, and
those to watch over the coming years include the following:
Different processes for using solvents together with SAGD production,
•
improving recoveries and reducing greenhouse gas (GHG) emissions. The solvent-assisted process co-injects solvents such as butane and propane,
reducing the need for large amounts of steam, which decreases the steam-to-oil ratio.
Technologies to process produced bitumen that remove the heaviest hydrocarbon
•
components, facilitating transportation direct to refineries and eliminating the need for a separate upgrade step.
Wedge wells, which involve drilling incremental horizontal wells between existing
•
well pairs to harness incremental production.
Toe-to-heel air-injection could help dramatically decrease costs using
•
combustion technology and the vertical injection of air, creating a high
temperature that burns the oil and reduces the viscosity of the remaining oil.
The electro-thermal dynamic stripping process (ET-DSP) combines heat
•
transfer mechanisms.
– Privately held E-T Energy Ltd. is getting support from Total E&P Canada Ltd.
to fund its patented ET-DSP technology for producing heavy oil and bitumen
from oilsands. Total will provide financial and technical support for field testing as E-T prepares for its proposed 10,000 barrel/day phase one commercial development at Poplar Creek.
“Working with E-T Energy is an excellent opportunity for Total to help advance innovative extraction methods that continue to build on the development of environmentally sound practices in Canada’s oilsands,” said Jean-Michel Gires, President and CEO of Total E&P Canada Ltd.
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Smaller players create diversification
We are starting to see signs of a shift in industry emphasis and dynamics in a
few areas. First, there are a greater number of SAGD projects moving forward compared with new oilsands mining projects. This is partly due to the lower break-even points of SAGD projects (approximately $42/barrel) versus an upgraded mine project, which may require $90/barrel to break even.
We’re also noticing that mining projects are more labour intensive, and therefore face higher cost issues in a tight labour environment. SAGD projects are less labour
and capital intensive, more environmentally friendly, easier to manage and seem to have a better track record of being on time and budget compared to mining. The changing business model has allowed the emergence of smaller players like
MEG Energy and Athabasca Oilsands Corporation, which are focused on SAGD-type projects and operations with smaller production, high degree of control and
no upgrading capacity. Recently, MEG was ranked the top oilsands producer in the industry by Oilsands Review, and announced in April 2011 that its first quarter results had increased based on strong production at Cristina Lake.
The lower barriers to entry are helping to build a more diverse Canadian oilsands industry with smaller, more nimble players.
Combustion overhead gravity drainage uses combustion instead of steam to
•
heat the reservoir.
Thermal-assisted gravity drainage inserts an electric wire into the well and heats
•
the resevoir over a one-year period, avoiding the need for steam.
Non-aqueous extraction technologies that have the potential to eliminate the
•
need for water and the net for wet tailings ponds.
Here are some additional examples of companies that are leveraging new technology to enhance in-situ oil recovery.
Together with Saltworks Inc. Technologies, Cenovus Energy recently invested $6.3 million in energy and environmental technology, developing efficient ways to
convert saltwater to freshwater through desalinization. The technology removes
salt from seawater and underground saline water by harnessing low-temperature heat. The heat is created by solar energy and waste heat from a power generator, which produces mechanical and electrical energy.
Cenovus is also working with General Fusion Inc. to find ways of combining hydrogen atoms that generate energy. The byproducts are considered safe for the environment and don’t emit GHGs.
Imperial Oil is piloting new steam flooding techniques for late-life wells in which
it will drill new steam-only injector wells and continue to produce from
existing wells. The company has also commercialized laser technology, in which
solvent is added along with steam in mid-life wells, improving both recovery and GHG intensity levels with no additional steam input. Over about two cycles, recovery is up about 35% compared to a typical cyclic steam stimulation well, and GHG emissions are down approximately 25%.
With rapid growth and prosperity in Canada’s oilsands region,
the industry is also facing many challenges and risks. Like
many others today, the oil and gas industry as a whole is
dealing with changing regulations and compliance, new laws
around transparency and reporting, environmental and climate
change pressures from the community, government and
stakeholders, and price volatility in the market as people are
still uncertain about the state of the global recovery.
With the fast pace of change in the economy today, those companies that will succeed are nimble and can adapt quickly, innovate and come up with new ways to enter emerging markets. With the rise of global demand the industry will need the support of Canada’s government for continued success and growth in the face of today’s challeges. The following are the top 10 risks we believe the industry is dealing with today.
Cost inflation
The markets in general are starting to see early signs of a cost-inflation issue, which is accentuated in the oilsands due to the higher lifting costs per barrel of oil equivalent and break-even points. We see multiple factors at play in terms of driving costs depending on the oil or gas mix shown in the graph below.
Here are some of the challenges companies are facing from a cost perspective:
Fear of making short-term cuts that impair the company’s long-term growth
•
Governing a company that tells existing operations to cut costs, while project
•
teams are spending
Difficulty for rapidly growing (and sometimes very large) organizations to know
•
exactly how to manage costs more effectively
Fear of losing suppliers to a competing project in a seller’s market
•
The traditional “boom and bust” mindset when companies are forging ahead on
•
long-term investments
The paradigm that a company can’t be low cost and grow at the same time
•
1
Cost inflation — key drivers
Oil price volatility CAPEX spend
increasing, which is usually a sign of cost challenges Commodity prices increasing (e.g., steel) Accelerating use of alternative energy sources (includes gas) Lifting cost $/BOE of oilsands higher than conventional sources Labour shortages (talent increasing again, driving service costs up)
Sustained low gas prices New regional players reducing WCSB demand (Utica shale, United States) Gas oversupply (shale) Drilling rig use high, driving daily service costs up Future demand sources (NGVs,
power generation) uncertain Uncertain global economy/
geopolitical influences
North Africa and Middle East
Escalating OPEX
Capital allocation Growth
Profitability
Oil Gas Trend up, down or stay
WCSB – Western Canadian Sedimentary Basin NGV – Natural gas vehicle
Negative trend Positive trend No change Total shareholder
return
There are a number of trends, statistics and indicators supporting the reasons we think cost will become an important issue for oilsands companies, including
the following:
A) Operating costs for oilsands went from $19.6/barrel of oil equivalent in 2006 to $25.5/barrel of oil equivalent in 2010. Development and operating costs for
oilsands remain on the high end of the global scale.
The CERI report Canadian Oilsands Supply Costs and Development Projects
(2010–44) estimates that capital costs have declined by 3.6%, but operating
costs have risen by 5.8%. CERI’s supply-cost model assumes a three-year
construction period for oilsands projects with construction beginning this year. Over the construction period (2011–14), construction and operating costs are expected to rise by 19%.
B) General and administrative costs are increasing, which is evident in the graphs below.
Operating cost per unit of production
Traditional oil and gas onlySource: Canadian Association of Petroleum Producers, ARC Financial Corp.
0 5 10 15 20 1990 1995 2000 2005 2010 2015 Co st ($ per b arr el o f oil equivilan t)
Focus period Forecast
10% 5% 2%
Operating cost sensitivity to varying
Operating cost per unit of production
Oilsands onlySource: Canadian Association of Petroleum Producers, ARC Financial Corp.
0 10 40 50 20 30 1990 1995 2000 2005 2010 2015 Co st ($ per BOE)
Focus period Forecast
10% 5%
2%
Operating cost sensitivity to varying
rates of cost inflation
General and administrative costs
Total industry; per unit of production0 1.0 0.5 2.5 3.0 1.5 2.0 1990 1995 2000 2006 2010 2016 Co st ($ per BOE)
Focus period Forecast
C) Labour costs — Alberta was the only province in Canada with increased employment in February 2011. According to Statistcs Canada, in June 2011, Alberta, Ontario and Nova Scotia had employment gains of 22,000 — growing by 3.5% between June 2010 and June 2011. At the same time, average hourly wages have continued to increase yearly.
Since 2006, Alberta has had the highest average hourly wage rate in Canada. With increasing labour costs and the increasing difficulty of hiring strong talent now that baby boomers are retiring, oilsands operators will need to be more creative with their hiring plans, such as considering more talent from other countries around the world, and ensuring they have strong knowledge transfer, training and integration programs in place to bring new workers up to speed on processes as quickly as possible. Operating costs are susceptible to inflation, and labour and energy input costs are the primary drivers.
Alberta weekly wage earnings
Mining, quarrying, oil and gas extraction1,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 W ee kl y av er ag e ea rn in gs ($ ) 2,200 2,000 1,800 1,600 1,400 1,200 Focus period
Source: Statistics Canada
Hourly wage rates in Alberta
10 2001 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 A ve ra ge h ou rly w ag e ($ ) 26 24 22 20 18 16 14 12
D) Project costs — We continue to see signs of project-cost overruns, partly driven by higher labour costs, service costs (including drilling) and commodity costs, such as for steel and other raw materials. For example, the first phase of Imperial Oil Ltd.’s new Kearl oilsands mine in northern Alberta will now cost $10.9 billion — one-third more than the company first estimated at $8 billion. Imperial attributed the cost increase solely to a reconfiguration of the project, but some analysts suspect costs may increase further as a result of cost inflation.
Overall, the per-unit cost of steel, which is the primary material input for oilsands projects, is up almost 30% from the 2010 average, but it is still significantly below the 2008 high.
As crude prices increase, usually steel prices will follow.
* Syncrude includes base plant quality improvements and power
Source: Canadian Association of Petroleum Resources 60 40 80 100 120 20 0 2001 Production start date 2003 2006 2007 2008 2010 2011 Capit al $/ bbl/ da y ( upgr aded)
Millennium AlbianShell/ Aurora 2& UE 1* Nexen -OPTI Long Lake Shell Muskeg & Scotford CNRL -
Horizon PCA/UTSFort Hills
Oilsands capital cost increases
Global, not just local
$3.3 billion Capital cost of 100,000 bbl/day project $9–10 billion
The per-unit cost of steel, which
is the primary material input for
oilsands projects, is up almost
30% from the 2010 average.
Correlation between steel prices and oil prices
0 900 1,200 1,000 1,300 1,400 1,500 800June 01 June 02 June 03 June 04 June 05 June 06 June 07 June 08 June 09 June 10 June 11
Steel Crude H ot -r ol le d st ee l i m po rt s (U S$ /s ho rt to n) WTI pric e (US$/ barr el) 700 600 500 400 300 200 100 0 90 120 100 130 140 150 80 70 60 50 40 30 20 10 Source: Bloomberg
Current: US$763/short ton 2011 YTD avg. US$690/short ton 2010 avg. US$597/short ton 2009 low US$335/short ton 2009 avg. US$453/short ton 2008 high US$1,138/ short ton Current vs. 2008 high: down 33% Current vs. 2009 low: up 128% Current vs. 2010 avg.: up 28%
F) Commodity price volatility — Volatility in the commodity market is being driven by uncertainly in the global and local North American economy, especially during times of unsettlement in North Africa and the Middle East. It’s also being
driven by supply and demand imbalances, the influence of the Organization of
the Petroleum Exporting Countries, S&P’s downgrade of the US credit rating, and inventory for oil storage and spare oil production capacity. These drivers are making it very difficult for oilsands companies to manage their costs.
E) Drill rig use — The year 2011 is shaping up to be robust in terms of rotary rig counts compared to 2010 — a sign that there is service activity in the industry, which will most likely drive up service costs at a certain point. The following
graphs show that there was less drilling activity during the recession in 2008–09,
but that activity in 2011 is returning to pre-recession levels. In fact, the Petroleum Services Association of Canada’s revised forecast for 2011 is a total of 13,250
wells drilled (rig released) across Canada, representing a 5.7% increase in total
wells drilled compared to last year.
The Petroleum Services
Association of Canada’s
revised forecast for 2011
is a total of 13,250 wells
drilled (rig released) across
Canada, representing a 5.7%
increase in total wells drilled
compared to last year.
Canada rotary rig count
Total active rigs0 800 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 A ct iv e rig s
Crude oil pric
es US $/ barr el 700 600 500 400 300 200 100 0 120 100 140 80 60 40 20
Sources: Baker-Hughes, Energy Information Administration (DOE), WTRG Economics
(January 1991–27 May 2011)
Rotary rig count Crude oil
The need to break into new markets
Currently, the US is the largest market for Canada’s oilsands. But long term, as the US begins to look for more energy self-sufficiency and renewable sources of energy, it will be important for Canada to consider other sources of demand in Asia and Europe.
Being dependent on a single market is a risk as it leaves the country unprepared if its largest customer turns to a new supplier or is able to use a new product instead. A recent survey by the Asia Pacific Foundation of Canada identifies China as the
second most important economy for Canada — after the US. In fact, a majority of
Canadians believe that the global influence of China will exceed that of the US in 10 years. Asia is leading the global economic recovery, with most Asian economies buoyed by strong exports and vigorous domestic demand. And by 2040, China will be the largest economy in the world.
It is for these very reasons that we cannot underestimate the importance of this region — the future prosperity of our country may depend on it.
In order to supply more product to existing and new customers around the world, the industry will need to develop the proper infrastructure and access to global
markets. Here are some of the challenges to consider around future demand:
Skilled labour shortages
Unemployment rates continue to decline in 2011, edging towards 2007–08 levels when service costs escalated out of control in the industry. We expect labour availability will become an issue again, which will drive costs up in the coming year. With the large population of babyboomers retiring in the coming years, many of the skilled and qualified experts will be leaving the industry. A perfect demographic storm is developing in Alberta leading to severe worker shortages for many years to
come. Thomas Lukaszuk, Alberta’s Minister of Employment and Immigration, said
the province is already starting to see labour shortages in some sectors, and his government expects to see a shortage of 77,000 workers in the next decade.
2
Canadian unemployment rate
5.5 2008 2009 2010 2011 Pe rc en ta ge o f t ot al w or k fo rc e 9.0 8.5 8.0 7.5 7.0 6.5 6.0
Source: Statistics Canada
Unemployment
rates continue to
decline in 2011.
Competitive travel distances for Canadian supply
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Prince Rupert/Kitimat
Los Angeles
Santa Cruz San Jose/La Cruz
Persian Gulf Japan
South Korea China Taiwan
•
•
•
•
Far East • Target markets • US West Coast
~ 5,400 N miles
~ 4,500 N miles
~ 8,600 N miles
~ 1,400 N miles
~ 1,790 N miles
Source: Enbridge Pipelines
~ = approximate
N miles = nautical miles
In the US
New pipeline capacity is needed from Canada to the US:
• Suncor Energy Inc.
President and CEO Rick George says he believes energy security will be the key to
the US government’s decision to approve the proposed Keystone XL pipeline that
will carry Canadian crude to the concentration of refineries on the US Gulf Coast. He
said the crude that would travel down TransCanada Corp.’s proposed Keystone XL pipeline would displace heavy crudes from Mexico, Venezuela and Saudi Arabia.1 Large inventories in the US could mean less demand for Canadian crudes: •
Inventories of WTI, the US crude benchmark, continue to rise in Cushing — the
delivery point of the NYMEX crude oil futures contract. This is pushing down
the price due to lack of transportation options from the region to the large concentration of refineries on the US Gulf Coast
In Asia
New pipelines and long-term contracts are needed if Canada wants to export •
to Asia: It’s important for Canada to build long-term contracts with Asia in order to secure future demand. Canada will also need to run crude pipelines to its West Coast in order to increase its supply to Asia. Although, there is some resistance from First Nations around these proposed opportunities because of concerns that tankers off the coast could harm the habitat.
The map below compares the distances for oil tankers to transport their product from various ports. Canada’s West Coast is an attractive target for Asian countries because the exporting distance from its West Coast to Asia is shorter than it is from the US or the Persian Gulf — which makes it cheaper for transportation.
Large upfront capital investment
CAPP expects oilsands production to grow from 1.3 million barrels/day in 2009 to
2.2 million barrels/day by 2015 and 3.5 million barrels/day by 2025. The capital required to achieve this production is approximately $100 billion, not including sustaining capital to maintain operations and production. Many analysts note that the annual sustaining capital and maintenance spend in the oilsands is greater
than the capital for new projects. There are several challenges around capital
investment affecting the industry, including the fact that oilsands development is expensive, especially in mining, where heavy equipment is used, and with in-situ
horizontal drilling. Input costs are also high with the great need for water and
natural gas for production.
In order to upgrade extracted bitumen and turn it into synthetic crude, companies are required to use expensive upgraders for processing. Such high costs are the reason some companies, such as Canadian Oilsands Ltd. and MEG Energy are
not building large, integrated projects. Instead they are keeping projects smaller,
lowering the execution risk and considering the upgrader at a later point.
To help save costs, many oilsands companies extract the bitumen and then ship it to another country, such as the US, for upgrading and refining. But in the long-term, this process isn’t beneficial to Canada as we are exporting much of our
resources for processing rather than retaining the value and associated jobs.
The industry is converting US refineries to take Alberta heavy oil. These
challenges may require new sources of capital from companies around the world, such as Asian national oil companies.
4
CAPP expects
oilsands
production to
grow from 1.3
million barrels/
day in 2009
to 2.2 million
barrels/day by
2015 and 3.5
million barrels/
day by 2025.
Changing policy and regulations
Policies and regulations around fiscal, labour, environmental and export issues can be complex and overwhelming to many companies. It is not always clear to the industry where the federal and provincial government stand on items of importance, and the industry does not always have clear performance management metrics and targets. The government needs to set the direction while collaborating with industry.
Recently, there have been some changes in policy that have fundamental impacts on the industry. For example, the government changed its position on income trusts, which were phased out in January 2011. It introduced a more burdensome
fiscal regime under the New Royalty Framework (NRF), and the government
restructured the NRF to provide incentives for companies to use new technologies. The Alberta government has created an integrated plan for oilsands
environmental monitoring. The plan will be carried out in collaboration
between provincial, territorial and academic scientists, and includes provisions for monitoring air and water quality in the oilsands region. The plan will give the scientific foundation the government and industry needs to ensure environmentally sustainable development of the oilsands resource.
5
6
Complexity of tailings ponds
Creating and dealing with the politics around tailings ponds, which hold waste water from oilsands processing methods, remain a challenge for the oil and gas industry. The public has been concerned over the environmental impact of such ponds. There is also emotive interest involved when wildlife is unable to survive in these areas, which has become a prominent news feature in the past.
The ponds consist of a mixture of water, clay, sands and residual bitumen used
to settle solids and recycle water — 80%+ recycle ratio. Unfortunately, historically
there hasn’t been a great deal of collaboration within the industry to deal with the environmental aspects and concerns, or to return the areas to their natural state after the ponds are no longer used.
At the same time, we are seeing considerable investment and research going into
recycling and reducing pond size, and sharing this technology between companies
will be key to ensuring the ponds are returned back to normal. Here are some of
the current technologies:
Consolidated tailings
•
CO
• 2 treatment (Canadian Natural Resource Limited)
Thickeners, paste/dry tailings
•
Tailings reduction (Suncor Energy Inc.)
•
Atmospheric fines drying (Shell Canada)
•
Centrifuge (Syncrude Canada Ltd.)
Large water requirements
Oilsands production requires a considerable amount more water than conventional oil extraction. This is mainly due to the viscous nature of the bitumen and
the process-intensive steps required to produce synthetic crude. Despite the
comparison to conventional oil, the actual usage needs to be put into context. For mining, the oilsands currently uses only 0.5% of the annual flow of the Athabasca River. In comparison, this is one-third of the amount that the City of
Toronto uses. About 80%–90% of the water used by the industry is recycled, and
according to the Royal Society’s 2010 report, there is no impact on Athabasca water quality or its ecosystem, and no evidence of impact on human health in downstream communities.
With in-situ drillable oilsands production, companies use non-potable (saline) from sub-surface aquifers. About 90%–95% of the water is recycled, and most new projects are using 100% saline for steam.
Greenhouse gas emissions
One of the major challenges around GHG emissions in oilsands production is
that the targets vary depending on the federal or provincial level. Without clear and aligned targets, it’s difficult for the industry to make improvements. The other challenge lies in public belief. It is widely thought that oilsands production creates more GHGs than other industry, which has a negative impact on Canada’s reputation. For example, it is popular public belief that oilsands production creates more pollution than coal-fired power stations in North America, but, in actual fact, this is not true and is evident in the map below.
We believe this perception could be out there because oilsands production is fairly new. Managing and refining this perception will be key to profitable future growth and help companies get the social lisence they need to operate.
8
~ 1,400 N Miles
GHG emissions from Canadian and US coal-fired
power plants and oilsands operations, 2007
150 megatonnes 50 megatonnes 10 megatonnes
Legend
US coal-fired power plant
emissions, by state, 2007
Canadian coal-fired power plants emissions, by province, 2007 Canadian oilsands and upgrader emissions, by province, 2007
Clearly, oilsands production does produce GHGs, but, in our opinion, much of the public’s perception about the level of emissions released is not always based on fact. For example, Canada contributes only 2% of global emissions all together, according to CAPP. Of other emission-producing industries in Canada, the oilsands produces the lowest percentage of GHGs. According to the chart below, this number is 5% of the 2% of global emissions.
OECD Europe
15% Conventional oil and gas production
32% Japan 4% Oilsands 5% Electricity 16% Transportation 22% Agriculture 10% Residential 7%
Other fossil fuel
5% Manufacturing and heavy industry 15% India 5% Canada 2% Other 21% US 20% China 21% Australia/ New Zealand 2%
Non OECD Europe and Eurasia 10%
Global emissions
Canadian emissions
GHG emissions from oilsands: 5% of Canada’s GHG emissions Less than 1/10,000 of global GHG emissions Service industries 8%
Source: Canadian Association of Petroleum Producers
Chart does not equal 100% due to rounding
On average, oilsands GHG emissions are comparable to those produced from other sources of oil. While increased production in the oilsands is increasing GHGs
in absolute terms, the use of new oilsands technology since 1990 has reduced the GHGs produced by 39%. The graph below shows that most emissions are in fact
generated in the consumption stage rather than in production.
Common US imported crude oils
Source: Jacobs Consultancy, Life Cycle Assessment Comparison for North America and Imported Crudes, June 2009 0 20 60 40 80 100 120 Saud i Arab ia Mexic o Iraq Vene zuela Nigeria Impo rted weigh ted av g. US Gu lf coas t Califo rnia heav y Oilsa nds a vg. 98 102 102 102 106 102 104 114 107 Range of common US imported crude oils
On a lifecycle basis, oilsands have similar GHG emissions to other sources of oil.
Full cycle emissions, or “wells to wheels,” is the appropriate measure to use in setting carbon policies.
GHG emissions from production
and refining
GHG emissions from gasoline
consumption • • g CO e/MJ gas oline 2
Public relations and perception issues
Many Americans are unsure of how much oil the US imports from Canada, according to a survey by CAPP. About 56% of Americans feel that currently more than four million barrels/day should come from Canada. The most common guess by Americans is that Canada provides less than 100,000 of the eight million barrels the US imports every day. The reality is that roughly 20 times that amount, or about two million barrels/day, are imported into the US.
With a stronger focus on public relations, companies can better communicate the realities of the industry’s GHG emissions, their effects on Canadian forests and Canada’s important relationship with the US. Increasing transparency and making the public more aware of the oilsands and their significant resources are key to company and industry success.
“As the policymakers debate important questions about our energy security, Americans polled overwhelmingly want the administration to support greater use of Canada’s abundant resources,” said Jack Gerard, API President and CEO.1
9
Land disturbance and reclamation
In cases in which companies create open-pit mines for bitumen extraction or in-situ, they clear land to build well pads and related facilities in vast boreal forest areas. There are many concerns over the impacts of this development. But after they have completed their development and production, oilsands companies are required to return the land to its original state.
Today, the proportion of reclaimed land in the oilsands regions is smaller compared to the surface area disturbed through surface mining and tailings ponds, which suggests there is a lot of work to be done as the industry is still in the many stages of reclamation. There are several producers that are addressing the importance of reclamation, such as ConocoPhillips, which is piloting an
aggressive reclamation processes on land used for SAGD production.
10
Oilsands mining footprint and reclamation process
Source: Cambridge Energy Research Associates
0 200 100 300 400 500 2008 2020 2040 Tailings ponds Surface mining Reclaimed land Sq ua re m ile s Forecast Forecast
Canada’s boreal forest (3,200,000 km2)
Land covering the oilsands (142,200 km2)
Land that could be impacted by mining (4,803 km2)
Land mined over the last 40 years (*662 km2)
11% of land mined has been reclaimed
Canadian landscape
Inner
city Greater metropolitan area 8,418 7,125 28,164 8,900 * How big is 662 km2 ? Edmonton Toronto Chicago Oslo 684 630 606 454 Area(km2)
Source: Canadian Association of Petroleum Resources
According to the map below, a total of 4,802 square kilometres of land are impacted by the mining practice, in relation to the total boreal forest area of 3.2 million square kilometres.
Deeper industry collaboration
Joint ventures and partnerships
One of the key trends we are noticing in the oil and gas industry today is the rising
number of joint ventures and partnerships. These are important in developing
the unconventional oilsands reserves because they allow companies to share risks, resources, skills and talent, development costs, and they allow for greater
collaboration on various projects.
Such partnerships also help to avoid the labour supply crunches we saw in 2007. The availability of skilled trades is of particular importance, as well as avoiding
multiple 100,000+ barrel-type projects occurring concurrently. The recent joint venture between Suncor Energy and Total, and the merger between
Petro-Canada and Suncor Energy provide examples of where Suncor now has
greater influence over several industry capital projects and the sequence at
which they are developed.
In particular, we are seeing more collaboration and partnerships between Canada’s companies and those in Asia. And we believe deals such as the Statoil
PTT-EP joint venture or SINOPEC’s non-operated interest in Syncrude will become
more popular in the future.
Turning today’s challenges
and opportunities into
results
With the multitude of complex issues and risks that oilsands companies are facing today, great
opportunities abound. Our Calgary Oil & Gas team believes there are some key focuses that can
But such collaboration doesn’t come without challenges. Joint ventures involve complex governance issues. Companies need to be transparent about how they will make decisions and structure their reporting. Here are some of the issues your company needs to address when setting up such
a partnership:
Process
• — Ensure there is a clear understanding among your people of
how the project process is structured
and the standard operating procedures. All partners need to
understand the different project
stages, when decisions will be made and who will make them, who is
involved in the project and eventually,
how the asset will be operated.
Reporting
• — Inform all partners about what data and information will get reported, when and by whom. Reporting needs to be focused on delivering results and adding value.
Trust
• — Joint ventures need to be built on a base of trust from the very beginning. All partners need to trust each other and share common goals
for the project.
Organizational structure
• — In some
cases, it may make sense to build a
single organizational chart for the joint venture to show clear interface
points between all the companies and individual deals involved.
Sharing skills
• — Ensure that all those involved have a clear understanding of each other’s skills and how those skills from different companies will be involved, shared and leveraged.
Culture
• — There needs to be a “fit” between the companies; for example, can they work together and do they
Careful long-term management of demand
Market demand diversification
In order to keep up with global competitive demand, Canada’s oil and gas market will need to find ways to break into new markets around the world. Some analysts argue that the US should remain the market of focus, but if US consumer
behaviour and demand trends shift in the future, a more prudent approach is to consider multiple demand channels.
In the meantime, for future exporting, companies must build the required infrastructure, considering how forecasted production of bitumen and crude products will get to the US.
Technology investment and collaboration
The industry’s continued investment in new technology development and
deployment is crucial for success. Areas of focus include:
Water use
•
Tailings — dry tailings technology
• co-operation Surface impacts • Reclamation •
Steam-to-oil ratio reductions in-situ will reduce GHGs
•
New drilling methods to reduce ground disturbance
•
Role of research from universities in innovation of technology use
•
GHG reduction (process and carbon capture and sequestration)
•
Energy efficiency
Manage the environment
Reducing greenhouse gas emissions
With the general negative perception that the oilsands produce a relatively large amount of GHGs. That’s why a focus on energy efficiency, improved recovery processes and carbon capture and sequestration is important. More broadly, companies will need to continue to develop oilsands responsibly with sufficient measures to mitigate environmental issues. A national approach to climate change policy, which takes into account GHG emissions, is needed.
Here are some of the environmental factors companies can focus on to
reduce GHGs:
Energy efficiency
Using less energy input
•
Reducing energy waste/losses
•
Capturing waste heat
•
Cogeneration power/steam
•
Improved recovery processes
Lower temperature extraction
•
Additives to reduce use of both water and energy (steam)
•
Use of electricity rather than steam
•
Underground combustion rather than steam
•
Carbon capture and sequestration
Most effective at upgraders
Focused stakeholder management
Public perception
A public relations strategy is of growing importance in the industry today to help curb the negative perceptions that the public has of oilsands production and GHG emissions. Canada needs to better communicate the facts around this issue to build a better reputation. Companies could benefit from a more concerted effort by the industry in close collaboration with CAPP and others to maintain a fact-based discussions on oilsands.
Federal national energy strategy
With Canada’s reputation as an energy superpower competing on a global stage
with the likes of Saudi Arabia, Iran and Venezuela, the question is, how is Canada going to manage it?
We believe the industry needs a national framework with clear direction on
growth (how, when and by how much), environmental regulations and standards,
where there are gaps in skills, energy security, and how important oil is for the total resource mix for Canada. Part of this framework involves infrastructure planning, involving close collaboration between oilsands companies and the provincial government. Working in tandem with each other to share knowledge and experience, there needs to be a focus on reducing pressure on local
infrastructure and on planning so that the government investment is timely and tailored to the needs of the industry.
Improve internal
business operations
Measurement and reporting
Establishing common metrics and transparency in performance monitoring and reporting will be important to help establish a baseline for the industry on which to improve upon. Such metrics are crucial in terms of environmental performance and stewardship, and economic impacts.
Operating model
In today’s new business environments, it’s a good time to evaluate your company’s operating model to seek opportunities for improving your performance, including on-site requirements for people, low-cost country sourcing, remote operations and better use of technology. Take a close look at your people strategy, processes and technology operating model components to be sure they are strong enough to allow you to compete in today’s competitive and fast-paced market.
Cost management
Keeping your costs down is always key, but we expect it to be a growing issue in the coming years based on industry indicators. We recommend that you
address these cost issues early by:
Taking an enterprise approach to cost
•
management (avoid the silos)
Structuring your approach by setting
•
targets and identifying cost base; conducting analysis and examining improvement levers to diagnose improvement opportunities; managing implementation of initiatives for delivering benefits;
and implementing a stabilized
cost-reduction program Looking for sustainable
•
improvements without making arbitrary one-off cuts
Viewing cost reduction as a way to
•
create cash that will fund strategic growth opportunities, ensuring that your company emerges stronger and more efficient
Looking for opportunities to
•
reduce costs while maintaining the capabilities needed to support your business
Assessing the internal capabilities to
•
meet the cost-reduction targets (Do
you feel like your current initiatives/ programs, resources and skills are
sufficient to meet those targets?)
Strategically using benchmarks to
•
compare where your company sits among the competition
– Seeking opportunities to
collaborate with industry peers to
help manage costs; for example:
– Shared services between
companies and not just internally – Sequencing of projects
– Collaboration of technology that has cost impact
How
we can help
Operating model
We provide support in implementing and designing an appropriate operating
model strategy that aligns with your business. This involves analyzing the strategy
and specifications of the criteria for your model assessment, looking at your current business model before developing and designing the target model and helping you with your transition plan.
Our approach
Objective: Analyze current operating model and determine target operating model Objective: Design target operating model blueprint Objective: Develop transition plan Objective: Analyze the
corporate strategy and determine criteria for alternative operating models assessment
1 2 3 4
• Analyze the corporate strategy. • Shareholder Interviews.
• Design an enterprise-level process
map and define a list of key end-to-end business processes.
• Define key performance indicators. • Determine the operating model
assessment.
• Conduct strategic alignment workshop.
• Assess current operating model.
• Perform benchmark analysis with peer-group.
• Draft alternative operating models. • Compare and evaluate the
alternative operating models against the adopted criteria.
• Conduct strategic session to build consensus over the target operating model.
• Describe target authority
allocation between head office, branches and subsidiaries.
• List business processes and functions to be outsourced or shared.
• Develop flowcharts and process
manuals for the target key end-to-end business processes.
• Define key competences within the
target operating model.
• Conduct workshop to build consensus over the target operating model blueprint.
• Define key activities for
the transition.
• Assign responsibility for the key transition activities.
• Define key stakeholders and
develop communication plan.
• Conduct workshop to build consensus over transition plan.
• Perform training.
• Conduct monthly status meetings during six-month period after
People and organizational change
Our People and Organizational Change practice is made up of experienced
professionals who understand the complexities and risks associated with such issues. We can help support your plans for change, adoption and sustainability of business improvements.
1. HR transformation – To help you improve your organization’s HR function,
our offerings include vision and strategy development; service delivery model development and implementation; process re-engineering; business process outsourcing; and HR information system selection (request for proposal and
vendor management).
2. Talent and performance management – In times of both boom and bust, retaining your best employees and getting the best performance from them is a top priority — and a challenge. To help you manage your talent and improve their performance, our offerings include performance management strategy, plan and implementation; succession planning and management; role and competency design; and leadership development.
3. Enabling change – Our team can help you build an effective change management
program to help increase the success of your projects and their adoption
exponentially. We can help you develop, set up and execute the following: change
strategies and plans; leadership alignment, development and engagement; change readiness assessments; stakeholder alignment and engagement; communication strategies and plans; and training and development.
4. Organizational effectiveness – In order to execute on your strategy and
achieve desired returns, your organization needs to build necessary structures,
set appropriate talent priorities and align its culture. This can be done through restructuring, leadership modifications, a change in strategic direction or a broad-scale transformation.
To support you in realizing organizational effectiveness, our offerings include organizational development and design; competency development and role-mapping; organizational cultural assessment; workshop design and facilitation;
and process improvement and re-engineering.
Enterprise cost reduction
Our enterprise cost reduction methodology and approach are underpinned by an extensive set of tools and accelerators that we use on all comparable engagements. We go beyond theory and analysis to focus on results-oriented execution to deliver measurable benefits to your business.
3
Our cost-reduction methods
Stabilize cost/reduction program and rollout
SUSTAINABLE process
Manage implementation of initiatives for DELIVERY of benefits Conduct analysis and examine improvement
levers to DIAGNOSE improvement opportunities
Set targets and IDENTIFY addressable cost base
1 2 3 4 5
The Capital Agenda
Leading companies are adopting a range of practices across four key areas of the capital agenda to build competitive advantage. Our Transaction Advisory Services team can to help you make better and more informed decisions about how you strategically manage capital and transactions in a changing world. Whether you’re
preserving, optimizing, raising or investing capital, our team can bring the right skills, insights and experience to your organization.
The diagram below shows some of the ways we can support your capital agenda.
The capital agenda
Stress and distress — e.g., liquidity issues and turnaround plans Customer and supplier analysis Preserving tax assets and minimizing costsRefinancing or restructuring debt, equity and other obligations
Dealing with stakeholder relationships and pressure Dispute resolution • • • • • •
Acquisitions and alliances Planning and structuring transactions to optimize stakeholder return
Focused due diligence to mitigate risk and drive value
Cost- and tax-efficient structures
• • • •
Optimizing asset portfolio Delivery of synergies and effective integration
Improving working capital and releaseing cash
Optimizing capital structure Optimizing tax and corporate structure
• • • •
Fundraising (equity and debt)
IPO readiness, rights issues, PE, private placement and capital markets
Optimizing funding structures Asset divestment
Infrastructure projects
Cost-and tax-efficient structures
• • • • • •
The Capital
Agenda
Optimiz ing Pres ervin g Inv esting Raisi ngClimate Change and
Sustainability Services
We can work with you to develop global systems of controls to identify, mitigate and monitor material risks of non-compliance with business principles as it relates to sustainability. This type of work is designed to help support an improvement in contractor performance in relation to non-financial risk.
We provide advice on the implications
of climate change for your organization
by identifying the potential issues and which aspects of your business may be
affected. We can:
Make recommendations on the
•
development of an effective climate change strategy and the processes and controls required to implement it Review the adequacy of climate
•
change plans and the mechanisms used to track the benefits
Provide guidance on developing
•
compelling and credible external communications on climate change that you can rely on
Help prepare your company for
•
Learn more
To find out how our Calgary Oil & Gas team can help
your organization through its journey to growth and high
performance, please visit ey.com/ca/oilandgas or contact:
Barry Munro
Canadian Oil & Gas Leader [email protected] +1 403 206 5017 John McVicar [email protected] +1 403 206 5658 Lance Mortlock [email protected] +1 403 206 5277 Greg Pollard [email protected] +1 403 206 5479
Ernst & Young LLP
Assurance | Tax | Transactions | Advisory
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
About Ernst & Young’s Global Oil & Gas Center The oil and gas industry is constantly changing. Increasing regulatory pressures, price fluctuations and geopolitical complexities all present significant challenges. Our Global Oil & Gas Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately, it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference. For more information, please visit ey.com/ca. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
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This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication.
