Canada’s oil and gas operators—like those worldwide—must adapt to sagging commodity prices that alter assumptions about the future. A new report by the Canadian unit of PricewaterhouseCoopers (PwC), entitled “Compete, Survive or Prosper?” offers some projections for what may lie ahead for the Canadian industry.

The report summarizes interviews with 15 Canadian energy thought leaders from the upstream, midstream and field service sectors on what they see ahead. The accounting and consulting firm released the study May 28 at its 6th annual Energy Visions Business Forum in Calgary.

Midstream participants included Al Monaco, president and CEO of Enbridge Inc. (ENB), and Stewart Hanlon, president and CEO of Gibson Energy Inc.

“What we found was that the industry is learning how to navigate through a new reality,” said Reynold Tetzlaff, national energy leader for PwC Canada. “Given the duration of this downturn, the Canadian industry as a whole needs to manage costs, address global access and find ways to attract global investment.”

The recent flood of light oil from U.S. shale plays, coupled with growing production of heavy oil from Canada’s oil sands, “caught the world by surprise,” Hanlon observed in the report. He added things may be changing soon for the U.S. industry.

“But to a certain extent, in the Bakken, in the Eagle Ford, a lot of the easy lifting has been done and those basins are expensive. Twelve months from today we are going to start seeing 2016 plans being impacted in the higher-cost basins,” he said.

Several of the executives interviewed questioned whether U.S. shale oil production will flatten out or even decline in the near future. In contrast, most saw the large-scale, long-lead time Canadian oil sands projects continuing to increase production in the foreseeable future. Darren Andruko, deputy CFO and treasurer at Husky Energy Inc., quoted estimates of an incremental increase of 400,000 barrels per day of oil sands and bitumen from northern Alberta.

The new price environment that emerged following OPEC’s November 2014 decision to opt for market share over price creates a special challenge for Canada, industry experts agreed. Most added they expect prices to remain volatile for the next couple of years.

Long-term projects can ride out price downturns but they have special problems of their own, Monaco said in the report.

“The longer a project takes, the more uncertain it is,” he said. “That’s going to drive up your cost of capital and it’s going to increase volatility, which has more of an effect on cost of capital and things are just not going to get done.”

However, a number of issues continue to constrain the industry, including restricted market access, higher production costs, availability of labor and global competition, according to PwC.

PwC’s Tetzlaff said the report found “our industry leaders recognize the new realities and are determined to move towards viable solutions. Ultimately, these challenges may lead to changes that make our industry stronger. Key executives understand the need to be more efficient and effective—reduce costs and introduce technology—these are the keys to compete, survive and prosper.”

Some of the reflections that emerged from the wide-ranging interviews include:

  • Cost structure is a primary area for ensuring continued survival;
  • Government plays a role by providing a cohesive energy strategy, building public awareness about the importance of resource development, providing the right fiscal, tax and regulatory regimes;
  • One of Canada's main advantages is its excellence in technology use; and
  • The nation’s energy industry has the fundamentals to emerge strongly from the current downturn, but changes are needed.

Gibson Energy’s Hanlon spoke to the industry’s need to control costs and added doing so can be very uncomfortable, comparing it to a visit to a sweat lodge. “There is certainly room for wringing out the costs,” he said. “This happens every five to seven years and we go through this process and we are certainly not immune to that as a midstream company.”

Monaco said government needs to work with the industry to assure future success.

“I think Ottawa’s role is to be more supportive and to make sure we have the right fiscal structure, and more importantly their role is making sure regulatory bodies deal with things in an orderly fashion,” he said. “I think oil prices are where people are focusing right now, but I go back to the bigger problem. The bigger problem is opposition to energy infrastructure and energy fossil fuels generally.”

Looking ahead, the report concluded that Canada’s energy industry “will compete, survive and prosper, but it will not be an easy journey during the duration of this low-price environment.”

It recommended that Canada should “use our natural advantages, resource endowment and stable business environment to overcome current industry challenges for the benefit of present and future generations is of prime importance when dealing with current issues facing the energy sector.”

Contact the author, Paul Hart, at pdhart@hartenergy.com.