Canada is the fifth largest producer of natural gas and the fifth largest producer of crude oil, and Canadian companies are known for excellence in a number of areas in the oil and gas industry. So why aren’t they exporting much? ExportWise sat down with Mark Salkeld, President and CEO of Petroleum Services Association of Canada (PSAC) to get his take on the state of the industry.
What are the major opportunities and challenges impacting Canada’s oil and gas industry?
Without a doubt, the main obstacle is the low oil and gas prices that are hurting us. After that, it’s access to tide water. Only having one customer for our product is very debilitating and getting some pipelines built to tide water would obviously broaden our market base and it would put Canadians back to work in building the pipelines. Therein lies the opportunity as this would also mean work for PSAC member companies in terms of filling up those pipelines and keeping them full. The low oil price is beyond our control, but the pipelines aren’t. Canada can build the pipelines if we want to.
What are the characteristics of successful of oil and gas companies?
The oilfield services companies that are surviving now are the ones that are financially prudent, with strong balance sheets and all that it takes to maintain that. They’re the ones that manage their debt really well or have no debt that allows them to be in a position of making acquisitions and broadening their business base because there are opportunities out there right now for sales and mergers and acquisitions.
I expect some of the companies in your group plan for these ups and downs in oil prices?
PSAC was formed 35 years ago, back in the early 80s to explain how debilitating the National Energy Program (NEP) was to the industry, and we still have a number of founding member companies involved with PSAC. Those companies are still in business because they plan for these downturns, such as the global economic crisis and now the oversupply glut. Start-up companies and new entries during a so-called “boom” period suffer because their services are in demand by customers here, and global customers, to provide more equipment and more people. Add to this great lending rates and easy access to capital, so they borrowed to support their customers. Then we experience an unforeseen oversupply of oil and those companies are caught short as the industry grinds to a halt. They could very well have been successful and well-managed companies, but they got caught up in it and didn’t hold anything back to support themselves through an extended downturn.
How does exporting play into Canada’s oil and gas industry?
This is becoming one of my favourite topics. PSAC did a study here where we showed that Canadian companies related to the oil and gas industry generated $42 billion in export revenues. That’s Canadian-based companies that are paying Canadian federal and provincial taxes. The oilfield services sector is growing in that area and I’m really excited about it and want to support our member companies that are looking internationally for export opportunities, whether it be product, service or knowledge. I think Canada has a very important role to play on the world stage with respect to our knowledge and our expertise and our ethically responsible way of developing our oil and gas industry in Canada.
I’m doing everything I can as an association lead to expose my members to export opportunities. I was in a meeting this morning with some folks from the Alberta government, looking at Central America, Mexico and South America. I was in India with the federal government in November last year, promoting trade between Canada and India, and identifying opportunities for our member companies. Not only does Canada have a role to play but there’s huge opportunity for Canada to expand its quality brand on the world’s oil and gas sector.
Has Canada traditionally been a bit insular in oil and gas?
Yes, there’s a conservativeness, just being cautious. That plays a role. I’ve worked internationally for Canadian-based companies in Australia, offshore Greece and western Siberia, but the numbers aren’t overwhelming and that’s part of what I want to do — help raise awareness for these Canadian companies of the multitude of international opportunities. WPSAC member companies have a lot to offer, but we’ve been very cautious by nature. The Americans have a reputation for being risk-takers and they go big. They receive lots of support from their governments and they’re leaders when opportunities open up.
I’m getting signals that there is strong support for more international activity for Canadian companies so I’m doing my best to identify them.
I just held a seminar with Export Development Canada, Business Development Canada, Alberta Treasury Branch and Global Affairs Canada . Between the four of them, they have more than $1 billion to support Canadian companies looking to export, so PSAC was trying to raise awareness that there is opportunity and support from government.
This oil patch in Canada has evolved over the last 70 to 100 years into a position where we can service our own exceptionally well. We’ve got 1,200 service rigs, 800 drilling rigs, we’ve got 10 hydraulic fracturing companies which supports an acceptable level of activity when we are busy and growing. PSAC has a very diverse membership. When we were busy — say 2011 to 2014 — we were drilling anywhere from 10,000 to 12,000 wells a year and that was absolutely ideal in that we were going full-on, just looking after our own. It was only a few companies that were putting money in the bank and looking for international opportunities. We do have some members who do that, but generally, when we’re busy here, the mentality is that we’re too busy to look elsewhere. Now we’re quiet here so companies are looking for anything now. We’ve got a moving company that used to move rigs that now moves wind turbines.
Supply chains are significant in the oil and gas industry. How can a Canadian company get into an oil and gas supply chain?
The first thing that comes to mind is join PSAC, for the networking opportunities. Come to the Global Petroleum Show to do some networking and identify the opportunities. When the auto industry collapsed a couple of years ago, there was a manufacturer that was 100 per cent dependent on automotive. He came west, made a few connections and realized if he retooled his factory, he could manufacture products for oil-sands customers. Now his factory is 40 per cent automotive and 60 per cent oilsands. He took the initiative to come west and investigate.
Canadian companies can get in touch with us, they don’t necessarily have to become members initially. It’s just a matter of getting involved in the industry, then we can talk membership. PSAC represents a number of companies getting involved with clean technologies. We’re shifting towards that more and more.
Do you have any advice for small and medium enterprises in the oil and gas industry?
Look at international opportunities to broaden your customer base, look at clean tech, look at new technologies and innovative ideas with respect to oil and gas production. The government knows the value of the Canadian oil and gas industry and knows it will be around for a while, but what is going to help them support the industry is cleaner sustainable technologies, and an ever-improving means of getting oil and gas out of the ground with the least amount of environmental impact.
What’s in store for Canada’s oil and gas industry?
It’s going to be difficult for at least another year, there’s going to be more bankruptcies, more mergers and acquisitions, more effort on looking for international opportunities. Even though we’re hearing rumblings about the global supply glut coming more into balance, it will still take a while to get oil prices back up to $60 to $70 a barrel and to get investor confidence back. And there will be the banks. Once companies start making money again, banks will want their pound of flesh. Then we’ll be struggling on labour, to get the talent back in and build up the levels of activity.