Winners, Losers and Unlikely Survivors in the New Energy Order | Alberta Oil and Gas Industry

Here we take a 360-degree snapshot of who’s up, who’s down and who’s reinventing themselves in the oil and gas business

Apr 1, 2010

by Michael McCullough Scott Messenger and Stephanie Sparks

Greentech

Though plans for pumping megatonnes of CO2 underground are garnering most of the resource industry’s environmental accolades, oilsands economics are fostering all manner of green technology. For example, toe-to-heel air injection (THAI) technology pioneered by Petrobank Energy and Resources Ltd. will mimic SAGD results but, through underground in situ combustion, reduce emissions and reliance on natural gas. To meet increasingly rigorous water consumption targets, Tangent Environmental Technologies Ltd. has developed a treatment system to reuse water recovered from the extraction process. Monitoring and clean-up companies are also set to profit. Among novel technologies are Airdar Inc.’s emissions detection system that identifies costly facility leaks and the low-cost Primawave system from Wavefront Technology Solutions Inc. to flush well-site contaminants from groundwater. Overall, industry trends revolve around efficiency more than ever. With the resulting reduce-reuse-recycle mentality, a more innovative – and competitive – Alberta might be ready to bury, along with all that CO2, its reputation for “dirty oil.”

Engineers

Engineers are nabbing the top spots in Alberta’s oil and gas companies, positions once held primarily by geoscientists. Randy Eresman (EnCana Corp.), Rick George (Suncor Energy Inc.), Tom Katinas (Syncrude Canada Ltd.) and Hal Kvisle (TransCanada Corp.) are just a handful of engineers on the top rungs. Membership files from the Association of Professional Engineers, Geologists, and Geophysicists of Alberta (APEGGA) reveal a ratio of nine engineers to every geoscientist in Alberta.

The ascendancy of engineers has to do with the maturity of the Western Canadian Sedimentary Basin as a source of fossil fuels, explains Hugh Mosher, vice-president, business development at AJM Petroleum Consultants, a geologist by training. “There’s not the raw exploration any more in our basin. It’s a manufacturing concern, how to extract what’s left in a cost-effective manner.”

However, APEGGA president Jim Beckett, P.Eng., doesn’t believe there to be any more engineers today than ever before. “The demand for engineers has always exceeded the demand for geologists and geophysicists. Geologists and geophysicists tend to be focused in the natural resource areas,” he says. “Engineers have a much broader scope of opportunities because of the many disciplines of engineering that are practiced here in Alberta.”

Broader scope or specialized focus, there is little difference between pay levels for engineers and geoscientists, at least according to APEGGA’s annual salary survey. Oil and gas companies value both professions’ strong educational background in science and math, which is applicable to the technical issues that arise in the job. But engineers are just more prevalent in the industry and the odds are in their favour for promotions into executive roles.

“When you think about it from the perspective of the pool of talent that’s available to move into these senior positions, I think that’s a big reason why there is a trend toward engineers.”

Upgrader Alley

With the price differential between a barrel of bitumen and synthetic crude too slim to justify spending billions on upgrading infrastructure, producers are currently on course to pipe an increasing amount of raw bitumen direct to American facilities. Is the Alberta government ready, willing and most importantly able to keep the resource – and value-added jobs, economic activity and tax revenue – from flowing out of the province? Read “Crude Awakening.”

Oilsand Opponents

This month marks two years since Greenpeace activists rappelled from the rafters at a Progressive Conservative Alberta party fundraiser and, in the most memorable of a series of public stunts to stop the oilsands, unfurled a banner alleging an unseemly alliance between the industry and the government. For a while, the world seemed to sympathize, ready to shun so-called dirty oil for the tidier sort of hydrocarbons the Obama administration claimed would meet U.S. demand. Since then, business in what activists like to call the tar sands hasn’t been the same. For the most part, it’s better, despite Royal Dutch Shell’s decision to scale back in 2008. In 2009, Imperial Oil Ltd. announced plans to go ahead with its 100,000 barrel-per-day Kearl Lake project, PetroChina and the Korean National Oil Corp. bought in big, and, early this year, Conoco-Phillips Canada and Total E&P Canada revealed plans for more than fourfold increase in capacity at their Surmont SAGD operation southeast of Fort McMurray. Canada remains the top exporter of crude to the U.S. – still the world’s most voracious consumer of oil. As of last November, we shipped nearly two million barrels a day, a quantity virtually unchanged from the previous year. However, oilsands opponents are not without victories: In February, major U.S. retailers Bed Bath & Beyond and Whole Foods Market announced they will shun bitumen-derived vehicle fuels in favour of greener gasoline for their fleets.

Unlikely Survivors

Oilsand Juniors

The credit crunch of 2008-09 hit the capital-intensive oilsands sector hard. As recently as a year ago, companies like UTS Energy Corp. were given up for dead. Yet UTS, whose main asset is a minority stake in the stalled Fort Hills oilsands project, not only fought off a hostile takeover from French multinational Total SA but also turned out to be the best-performing energy stock on the Toronto Stock Exchange in 2009. The little guys, widely felt to be fire-sale fodder for the majors following Total E&P Canada’s acquisition of insolvent Synenco Energy in 2008, are still around, thanks to a rebounding oil price, demand for reserves and once again functioning capital markets. Not only technical wunderkind Petrobank Energy and Resources Ltd. but also Connacher Oil and Gas Ltd., Opti Canada Inc., Osum Oil Sands, Athabasca Oil Sands Corp., Laricina Energy Ltd., E-T Energy Ltd., Ivanhoe Energy Inc. and more are hanging in there.

The (Former) Trust Sector

When federal Finance Minister Jim Flaherty announced his “Halloween surprise” in 2006 – a tax on distributions from income trusts – the intermediate tier of Canada’s oil and gas industry, mostly made up of tax-efficient trusts, was thought to be a goner. Just months away now from the T-day of Jan. 1, 2011, though, the intermediates are in fact alive and well. These days, when an income fund such as Enterra Energy Trust announces its pending conversion to a more growth-oriented corporation, the markets cheer (Enterra’s shares rose 26% on Jan. 18, the day it announced it was becoming Equal Energy Ltd.).

The ones that took it on the chin from the trust tax, it turns out, were the junior exploration companies for whom selling out to a trust had become the go-to exit strategy. The ranks of publicly traded juniors are noticeably thinner, due to the combination of the elimination of trusts, increased bureaucracy involved with a public listing and the malaise of the conventional natural gas sector to which most belonged.

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