Agqw3y4rh5alberta oil august 2015 by amauteruasa

ENERPLUS TAKES FLEX TIME TO A WHOLE NEW LEVEL

WHY YOUR BOARD NEEDS MORE WOMEN

The Business of Energy

Can an energy company make money and save the environment? Suzanne West thinks so â&#x20AC;&#x201C; but now she has to prove it

SHAREHOLDER ACTIVISM First Barrick, and then CIBC. Is energy next?

FULL DISCLOSURE How the best companies are paying their people (and what you can learn from them)

More in our exclusive Executive Compensation Report

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A LEADING POLYTECHNIC COMMITTED TO STUDENT SUCCESS

AUGUST 2015

volume  issue  CONTENTS

FEATURES

41 The XX Factor Women continue to be underrepresented on corporate boards in the energy sector – and it could be affecting everyone’s bottom line BY JAY SMITH

44 A Silent Killer

Many people in the workforce suffer from depression and anxiety, and that’s doubly true in difﬁcult economic times. But very few ever talk about it, and that’s a big, big problem BY JESSE SN Y DER

REBEL WITH A CAUSE Suzanne West believes that she can build an oil company that’s both sustainable and highly proﬁtable. Is she out to lunch – or on to something huge? BY M ARZENA CZ AR NECK A

More Than a Few Good Men The Canadian Forces produces thousands of veterans that are technically skilled, professionally trained and ready to work. So why isn’t the energy sector hiring enough of them? BY JAMES W ILT

EXECUTIVE COMPENSATION SURVEY

Money Talks

Speaking Up

The Art of (Proxy) War

Our annual ranking of who made what in the energy sector

Two of Canada’s biggest gold companies lost sayon-pay votes in 2015. Will the energy sector start to feel the heat from its shareholders soon?

As Sun Tzu once said, “the greatest victory is that which requires no battle.” How energy companies can prevent a battle when it comes to executive compensation – and why they probably shouldn’t wait to do so

BY M AX FAWCET T

48 AUGUST 2015

volume  issue 

AUGUST 2015

CONTENTS

THIS MONTH ON

REPORT ON HUMAN CAPITAL

The Big Picture

Live and Let Fly

Thousands of energy sector jobs have been cut so far in 2015. Which ﬁelds are being hit the hardest?

Enerplus recently implemented an HR policy that’s more at home in Silicon Valley than downtown Calgary – and that’s not a bad thing

ALBERTAOILMAGAZINE.COM

BY JESSE SN Y DER

Man Tracker

Risky Business

Is equipping oil sands employees with RFID systems an important new safety measure – or an invasion of workers’ privacy?

Life in the ﬁeld isn’t without its share of risks. We map where the biggest ones are found, and what companies are doing to minimize them

EXECUTIVE COMPENSATION: THE COMPLETE LIST In print, we gave you a sneak preview of who made what in the energy sector in 2014. Online, ﬁnd the entire list of CEO compensation, and see how you fared against them – if you dare

BY TODD COY NE

DEPARTMENTS

READY, AYE, READY?

6 EDITOR’S LOG

Why the energy sector needs more women 11 OBSERVER

The Northwest Territories strikes it rich in reserves; oil sands producers pull off a ﬂawless ﬁre drill; ARC Financial closes its biggest fund yet

If you’re looking to enlist a few good men into your own organization, well, we’ve got you covered. Head to our website and read up on where to ﬁnd those new recruits

62 JUNIORS

The ﬁeld-level data hints at some upside for oil prices over the rest of the year. Why this debt-laden intermediate might be the best way to play it BY JODY CHUDLEY

64 CRUDE REPORT

It’s time for the energy sector to put an end to the ads

Your favorite energy-related podcast is back for another month of clips and conversations about the issues that matter in your world Available on iTunes

BY JAMESON BERKOW

66 THE LAST WORD

This month we give it to Donna Kennedy-Glans, who thinks that leadership is key to Alberta meeting the challenge of climate change

COVER JOHN GAUCHER CONTENTS IMAGES JOHN GAUCHER, COURTESY GOVERNMENT OF ALBERTA, COURTESY PATRICK TOWER

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Visit albertaoilmagazine.com/energyink for the latest from our editors

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EDITOR’S LOG

Women’s Work I SPENT SEVEN YEARS IN UNIVERSITY

getting two different degrees, but to be honest there’s not that much that I remember about that period of my life. It’s not that I don’t remember the broad strokes, be it the people I met or the subjects that I studied, but when it comes to speciﬁc lessons or learnings I tend to draw a blank. That is, with one notable exception: the socalled “Druggist Dilemma” from In a Different Voice, a 1982 book by American feminist, ethicist and psychologist Carol Gilligan. In it, she posits a hypothetical situation to adolescent respondents in which a person’s spouse is gravely ill, the local pharmacy has the medicine needed to cure them – and makes a healthy proﬁt from its sale – but the family doesn’t have the money to pay for it. Should the spouse steal the medicine? The gender differences in the answers given were striking. While the male respondents, generally speaking, saw the situation in moral terms – that the right to life, for example, was more important than

In the next issue of AO

the pharmacist’s right to a proﬁt – their female counterparts tried to ﬁnd ways to satisfy the needs of both the pharmacist and the imaginary spouse. The experiment spoke to the different ways in which men and women saw the world, and it underscored the fact that adding female voices to decisionmaking conversations was crucial. It still is. And while we’ve come some distance when it comes to adding those voices, we haven’t added anywhere near enough of them. That’s particularly true in the energy sector, where female voices at the executive and director level are still too few in number and too far between to be heard as clearly as they need to be. And that’s particularly important right now as the energy sector faces a set of challenges that demand creativity, imagination and a willingness to try new things. I’m not suggesting that women are somehow magically invested with these talents or that they’re able to solve problems that men can’t, because that would be nearly as sexist as think-

Lowered Expectations In our annual Report on the Oil Sands we investigate how the sector is adapting to the changing economic landscape – and ﬁnd out what it would mean if that new normal is here to stay

ALBERTAOILMAGAZINE.COM

Building a Better Crude Car Crude oil rail cars have demonstrated a nasty habit of blowing up lately. Can the industry build a truly safe tanker car without blowing the bank?

ing the reverse, something we did for far too long. But I am suggesting that diversity at the decision-making table is an unalloyed good, and that the energy sector needs more of it. That’s why we’re featuring a story from Jay Smith on the continued underrepresentation of women on corporate boards in the energy sector and why that matters. That’s also why we decided to put Imaginea Energy CEO Suzanne West, one of the few female CEOs in the industry, on our cover, and gave Marzena Czarnecka 2,000 words to tell us why West matters. Yes, the oil and gas industry isn’t necessarily the most hospitable place for women. But we can change that – and we ought to get on with it before it’s too late.

MAX FAWCETT

mfawcett@albertaoilmagazine.com

Return on Investment We debut our new department, which will feature companies using innovation to save money for their customers – and make money for themselves. First up: a company that’s taking computer modeling to a whole new level

PHOTOGRAPH RYAN GIRARD

all y! C oda t us

The Business of Energy VOLUME 11 ISSUE 2 Publisher and Editor-in-Chief RUTH KELLY rkelly@venturepublishing.ca Editor MAX FAWCETT mfawcett@albertaoilmagazine.com Deputy Editor TODD COYNE tcoyne@albertaoilmagazine.com Senior Writer JESSE SNYDER jsnyder@albertaoilmagazine.com Associate Director of Digital Initiatives JIM KERR jkerr@venturepublishing.ca Copy Chief KIM TANNAS Art Director KIM LARSON Associate Art Director RYAN GIRARD Assistant Art Director COLTON PONTO Graphic Designer BEN RUDE Production Manager BETTY FENIAK Production Technician BRENT FELZIEN Production Technician BRANDON HOOVER Web and Systems Architect GUNNAR BLODGETT Director of Circulation SHARLENE CLARKE Circulation Co-ordinator JENNIFER KING Circulation Co-ordinator KAREN REILLY Marketing Services Co-ordinator TAMARA PLANT Marketing Co-ordinator LAURA PAPIRNY Event Co-ordinator NATALIE BUTTS Controller DIANE MOTKOSKI Accounting Assistant GLENNA GRAVEL Executive Assistant TANIA WOROBEC

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Observer

NEWS NUMBERS PEOPLE PLACES

LEADING INDICATOR

If the NEB’s recent report is any indication, the Northwest Territories might soon be known for licenses of a different kind

The Indicator: 191,171,000,000 THAT’S THE NUMBER OF BARRELS OF OIL IN PLACE

that are contained within the Canol and Blueﬁsh shale formations in the Northwest Territories, according to a May report from the National Energy Board. The two formations, which are located in the Horn River Group of the Mackenzie Plain near the city of Norman Wells, sit atop a limestone formation that has already produced 274 million barrels of oil. But it’s the shales that lie beneath that limestone where the real prize is, and according to the NEB’s mid-range forecast, there are approximately 144.8 billion barrels sitting in

PHOTOGRAPH JOHN JOHNSTON

the Canol shale and another 46.3 billion in the Blueﬁsh shale. Tapping them won’t be easy, though, and while companies like Husky and ConocoPhillips that are active in the region have made $627.5 million in work-bid commitments in order to secure 14 exploration licenses since 2010, the current price environment has put most of those exploration plans on hold. Still, despite the geographical and geological challenges inherent to the play, a recovery rate of just one per cent would yield 1.45 billion barrels of production – an impressive score for industry and a huge boon to the economy of the N.W.T.

AUGUST 2015

THE ASK

Under Review In the days after the May election, some of the energy sector’s most inﬂuential executives did their best to discourage the newly elected NDP from carrying out the royalty review that they’d promised Albertans during the course of the campaign. Some threatened to shift operations to other jurisdictions. Others postponed previously scheduled events for investors. And one can only imagine the kinds of conversations that went on behind closed doors. But according to JASON AMBROSE, the managing director of Palantir Solutions, they probably didn’t need to be quite so dramatic about the situation. Ambrose says there’s a case to be made that a royalty review could actually be a good thing for the industry. “The new Alberta government has been elected in a place where everyone acknowledges that energy is king,” he wrote, “and they have every incentive to ensure that this royalty review leads to a longlived, stable, fair and transparent investment environment.” Such an environment might actually mark a departure from the one companies were working in previously. Alberta Oil caught up with Ambrose to ﬁnd out more about his take on the impending review.

Jason Ambrose, managing director of Palantir Solutions

ALBERTAOILMAGAZINE.COM

PHOTOGRAPH BOOKSTRUCKER

Is there a case that can be made that a royalty review could actually end up being a net positive for the oil and gas industry?

I think there is. If you look at the current terms, you could have royalties from ﬁve to 30 per cent. There are so many different combinations that it’s difﬁcult for people to really understand what their ultimate royalty will be, so they’re left to interpret it. And anybody who’s making an outside investment is going to tend to be conservative, and that might really color their interest. If you have one of the Asian national companies like KNOC or CNPC or Petronas who are interested in taking a position, if they see that they could be paying up to 30 per cent in royalties, that really removes the incentive to being involved. And if it’s a publicly traded international company, they’re really going to look at that – it’s just too much risk to be paying up front. Is the problem with the current Alberta Royalty Framework (ARF) that there’s too much complexity – and that, as a result, it becomes a bit of a black box for current and potential investors?

There are a lot of legacy terms that are in the current royalty framework – things for new oil, old oil, third-tier oil and so on – that were put in place to make sure that decisions that were made would have some stability, so that once the well was classiﬁed it would stay on those terms. As a result, we’re very geared towards wellby-well decision making, which is what we saw in the later stages of the conventional oil and gas industry in Alberta. But we’re now seeing a major shift towards projects that involve huge land areas and

have huge infrastructure requirements, and we’re really not seeing that well-bywell decision making happening. And yet, the royalty terms remain well-by-well, and it just makes it much more difﬁcult for people to understand what to do with their projects. In the unconventional environment the stakes are much higher, and the complexity makes it really difﬁcult to understand how their technical model translates into an economic model. How important is it to get this review right?

I think it’s critical, and I think it has to be done in conjunction with an understanding that once the regime is in place the Alberta government has to stand by it. A government can’t be seen to want to be providing incentives in down times and then all of a sudden decide that they’ve given too much away in the good times and start adding supplemental taxes. The U.K. has made that mistake. They had a very simpliﬁed and progressive regime that was in line with the state of their industry, and then when prices rose they decided that they needed to claw back some of that value rather than just accepting that oil prices will go up and down and they have to have the patience to manage their way through it. Some people have suggested that the NDP should get the review out of the way as quickly as possible in order to provide certainty to the market, while others have said it’s better to take the time to do a full consultation and really stick the landing. How do you see it?

I think it’s important that there’s some sense of urgency. We need a review, or guidance on the policy setting, some time in the next 12 months. After that, people

are going to have to move ahead and make decisions. I think right now the industry is taking some time to reﬂect on what to do in the lower price environment. Maybe if there’s an opportunity to take quicker action people would be able to take advantage of some tax incentives. But the lower price environment is much more challenging for Alberta than a lot of people are thinking because of the competitiveness of U.S. oil and gas, and the lack of access to markets in Canada means that there’s a discount or an additional cost associated with it. There has to be a decisive move, and then the wherewithal to stick with that for the long term. What should the government be trying to achieve with this review?

If you take the Canadian manufacturing tax regime, it’s been in place for decades in its current form. Everybody knows that Canada is quite a fair tax environment from that perspective, and that’s its reputation overseas. The government should be looking to establish that same reputation for the oil and gas industry’s ﬁscal framework, and making sure that there are enough levers that can be changed so the government can react if the environment changes, but that the overall framework stays consistent. Whereas the ARF was put in place for wells that would last one or two years, the projects that are in place right now will be there for 20, 30, even 60 years. Changing the ﬁscal terms as you go impacts people’s decisions, and it could really adversely affect the companies that have invested in them. And above all else, people investing in these huge projects want stability and predictability.

AUGUST 2015

NEW ENERGY

On the Case Meet an energy lawyer with an endless appetite for knowledge – and a talent for putting it to work NEVER UNDERESTIMATE TELEVISION’S ABILITY TO INSPIRE

people. After all, the decision to watch old episodes of Matlock when she was just eight years old put Chidinma Thompson on the path to becoming a lawyer. “I’ve always wanted to be a lawyer,” she says. “I was that little girl watching TV, looking at lawyers and wanting to be like them.” And while the genteel courtrooms that played host to Andy Griffith’s legal gymnastics were a long way from Aba, the major trading hub in southeast Nigeria where Thompson grew up, they planted a seed that would eventually take root in Canada. Today, Thompson is a regulatory and litigation lawyer at Borden Ladner Gervais LLP in Calgary, but her legal career began in Lagos, where she spent two and a half years representing various domestic and international energy companies after completing a law degree at the University of Nigeria. She moved to Alberta in 2004 after being accepted into the master of laws program at the University of Calgary, and if moving to a new country and learning the ropes in a new legal system wasn’t challenging enough, she also had to find a way to balance her studies with the arrival of a newborn son named Daniel. That often involved bringing him to the library with her while she studied, which meant bringing along a car seat, diaper bag and a book bag – and fending off some curious looks. “They looked at me like, ‘Something must be wrong with that lady,’ ” she says. Apparently not, given that Thompson not only finished her LLM but went on to get a PhD, which she completed in 2013. Her thirst for knowledge is not only evident in her academic achievements but also in the way she approaches the job that came later. She’ll often learn technical details about the sector purely out of curiosity, such as how to study the cross-sections of well logs to determine the types of resource and their location in the formation. “I’m a lawyer but I can look at [well] logs now and begin to understand something lawyers usually don’t know.” For Thompson, the opportunity to work with geologists, engineers and other professionals in the industry is one of

ALBERTAOILMAGAZINE.COM

IN BRIEF Age: 38 Birthplace: Aba, Nigeria Education: Bachelor of Laws, University of Nigeria; Master of Laws, University of Calgary; PhD in Law, University of Calgary Current Position: Regulatory and litigation lawyer, Borden Ladner Gervais LLP

her job’s best features. So too is the ability to work on projects with a variety of clients, and she’s handled everything from LNG projects and oil sands developments to disputes between First Nations and stakeholders, pipeline applications and well approvals. Her ability to manage that diversity, and the enjoyment she gets out of doing it, is a big part of why she’s a rising star in the world of regulatory and litigation work. “It’s the multidisciplinary nature of the energy sector,” she says. “There’s something new for me always – I’m the kind of person who likes to be challenged. It is a team sector.”

PHOTOGRAPH ROB MCMORRIS

DEALMAKERS

Not-So-Crazy Eight THE DEAL: ARC Financial closes its latest energy fund THE DATE: June 8, 2015 THE DOLLARS: $1.5 billion THE PARTICULARS: In 1997, ARC Financial closed its first energy fund, and raised $154.5 million in the process. In its latest round of fundraising for Energy Fund 8, it attracted ten times that much in capital. That’s a testament both to the opportunities that are available for private equity in the energy sector right now and the performance of its first seven funds, two of which have been wound up and five of which are still ongoing. Lauchlan Currie, the co-CEO of ARC Financial, said that the new fund “will enable us to maintain our approach of developing investment opportunities through our extensive network in the Canadian energy industry in conjunction with our Executivein-Residence program.” He also said that ARC would continue to focus on investments of between $50 million and $200 million “with the highest quality management teams.” And while ARC will have some competition when it comes to attracting those management teams given all the private equity money that’s sloshing around Calgary these days, it stands to reason that their local advantage – they were the first private equity manager to focus exclusively on the Canadian oil and gas sector – will keep it near the front of that particular line. THE PAYOFF: Time will tell. None of the

money has been deployed yet, and the fund’s term is 12 years long, which means it won’t wrap up (and get wound down) until 2027. But that will give its managers plenty of time to do their due diligence, and its investors plenty of time to reap the rewards of their commitments. And given ARC’s track record to date and the buyer’s market into which it’ll be deploying that $1.5 billion in capital, it’s hard to imagine that both parties won’t end up doing very, very well.

ONEOFF

Special Operations IN LATE JUNE, THE GOVERNMENT OF ALBERTA ANNOUNCED TWO KEY

appointments that will shape the direction of its policy on energy and climate change. Andrew Leach, the proliﬁc University of Alberta professor (and former Alberta Oil contributor) was named as the chair of the climate change advisory panel, and a few days later ATB’s Dave Mowat was tapped to lead the royalty review. Here’s what we know about the two men and how they’re likely to approach their new roles. ANDREW LEACH

DAVE MOWAT

Chair of the climate change advisory panel

To lead the provincial royalty review

“ The greenhouse gas policy challenge in Alberta is about more than oil sands and more than large industrial emitters. The panel’s mandate is clear – deliver a comprehensive overview of greenhouse gas mitigation options across the economy.”

“Ultimately, for Alberta to be successful, everyone involved in this whole process has to be successful. And I think in this world you have to be competitive.” – Ofﬁcial press conference, June 26, 2015

– Macleans, June 25, 2015

Professional Highlights: Leach is an associate professor (and former Enbridge Professor) at the University of Alberta’s School of Business, where he’s the academic director of energy programs. He was recently seconded to Environment Canada, where he worked on greenhouse gas policy for the oil and gas industry.

Professional Highlights: Mowat is the President and CEO of ATB Financial, a job that he’s held since 2007. Prior to that he worked as the CEO of VanCity, a B.C.-based credit union, and he has spent three decades working in banking and ﬁnance.

“Getting the world to move off of fossil fuels is equivalent to getting a Tyrannosaurus Rex to switch from meat to parsley.” –Peter Tertzakian, ARC Financial

AUGUST 2015

FREEZE FRAME

Fire Drill When the evacuation plans of northern Alberta oil sands operators were put to the test this spring, it was in every way a real-world trial by ﬁre WHEN HUMAN CARELESSNESS MEETS

nature’s indifference, the results can be, well, incendiary. Take what happened in Alberta this spring when two small man-made fires whipped up into massive wildfires that threatened several oil sands operations in the northeast of the province. Sites operated by Cenovus Energy and Canadian Natural Resources near Cold Lake were among the first hit with mass evacuation orders, with MEG Energy’s Christina Lake site and the smaller nearby Athabasca Oil and Statoil operations following right behind as flames closed in on the only access roads in and out of the areas. All told, the fires would temporarily shut in about 235,000 barrels per day of production, or roughly 10 per cent of Canada’s total oil sands output. But the heavy smoke clouds bore silver linings for the oil industry – and not just for the shine the production cut would give to the price of Western Canadian Select, which came within $7 of parity with WTI. Because the wildfires had come during a spring turnaround season that fell on the heels of years of rapid oil sands expansion, the timing was right for a safety training refresher. MEG Energy’s evacuation plan included double and even triple redundancies, with air- and waterborne evacuations from the company’s private airstrip or by boat from Christina Lake serving as plans B and C. Eventually the fires passed, the people returned and the production began to flow again. And while output forecasts for were trimmed at a few sites due to the time lost, on the whole a potential disaster was turned into a minor inconvenience. PHOTOGRAPH COURTESY GOVERNMENT OF ALBERTA

ALBERTAOILMAGAZINE.COM

235k

130

500+

Barrels of daily production the ďŹ res temporarily shut in

Number of wildďŹ res burning in Alberta at the height of the disaster

Square kilometers burned in April and May

AUGUST 2015

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MONEY TALKS FORGET RELIGION AND POLITICS. In North America, money is the single biggest taboo subject when it comes to polite conversation with other people. We’ll happily talk about our diet, our dating lives and even our deepest secrets before we tell friends and family about how much dough we take home every year. That’s doubly true when times are tough, which puts energy company executives in a tight spot given that most of them are still doing just ﬁne judging by the contents of the most recent year’s compensation packages. That said, there’s a lot to be learned by taking a deeper dive into those ﬁgures, both in terms of who made the money and the forms in which they received it. And so, in the spirit of full disclosure (and because energy sector executives are an irrepressibly competitive and insatiably curious bunch), we’ve captured the contents of those summary compensation tables for you.

AUGUST 2015

ALBERTAOILMAGAZINE.COM

THE ENERGY SECTOR: BY THE NUMBERS

$2,283,000 Murray Edwards, Canadian Natural Resources

$1,898,551

$2,235,619 Fernando Aguilar, Calfrac Well Services

AVERAGE TOTAL COMPENSATION, 2014

$1,680,774 Jason Skehar, Bonavista Resources

Steve Williams Suncor $12,384,676

$1,645,503 Pat Carlson, Seven Generations Energy

$990,884 52.2%

$9,367,668 John Rooney, Northern Blizzard Resources

AVERAGE SHARE AND OPTION BASED COMPENSATION

$9,253,986 Ronald Pantin, Paciﬁc Rubiales

$8,979,029 Scott Saxberg, Crescent Point Energy

He won’t make most executive compensation lists for 2015 because his company, Talisman Energy, no longer exists as an independent entity. But former Talisman CEO Hal Kvisle would probably be near the top of them, given that he will take home at least $15.1 million as a result of the change of control provision that was exercised when Repsol bought Talisman earlier this year.

$8,899,654 Doug Suttles, Encana

TOTAL COMPENSATION

$8,192,765 Asim Ghosh, Husky

$8,102,008 Russ Girling, TransCanada

$7,962,498 Brian Ferguson, Cenovus Energy

$6,892,977 Rich Kruger, Imperial Oil

$429,479 22.6%

$4,760,640 Kevin Neveu, Precision Drilling

$4,044,798 Michael Ebsary, Oryx Petroleum

$3,976,024 Lorenzo Donadeo, Vermilion Energy

$3,892,770 Lyle Whitmarsh, Trinidad Drilling

$3,822,200 James Bowzer, Baytex Energy

$3,772,124 Tom Buchanan, Athabasca Oil

$3,594,484 Myron Stadnyk, ARC Resources

$3,591,732 Derek Evans, Pengrowth Energy

$3,590,197 Christian Bayle, Inter Pipeline

$3,570,000 Andrew Phillips, PrairieSky Royalty

$3,536,221 David Roberts, Penn West Petroleum

$3,484,060 Thomas Simons, Canadian Energy Services & Technology

$3,470,135 Fernando Aguilar, Calfrac Well Services

$3,432,535 James Riddell, Trilogy Energy

$3,388,018 Mike Rose, Tourmaline Oil

MONEY TALKS

* All ﬁgures for CEOs or senior executives

AVERAGE SALARY OTHER

$409,477 21.6%

AVERAGE NON-EQUITY INCENTIVE PLAN COMPENSATION SALARY

SHARES AND OPTIONS

TOTAL COMPENSATION BREAKDOWN

AVERAGE OTHER COMPENSATION

$68,711 3.6%

NON-EQUITY INCENTIVE PLAN

AVERAGE TOTAL COMPENSATION, 2013

$1,986,427

BIGGEST RAISES

(NOT INCLUDING NEW CEOS/CEOS OF NEW COMPANIES)

Rich Kruger Imperial Oil $2,778,917

John Rooney Northern Blizzard Resources $7,855,553

100.0% ($120,465) Trent Yanko, LGX Oil + Gas

LARGEST SHARE AND OPTIONBASED COMPENSATION

97.9% ($1,400,000) Paul Colborne, Surge Energy

Mike Rose, Jim Riddell, Paul Colborne, David Wilson and Murray Mullen are among those who took no cash salary in 2014. Murray Edwards, as always, took home a salary of $1.

$2,182,500 John Hooks, PHX Energy Services

$2,131,391Doug Suttles, Encana

$2,097,110 Clayton Riddell, Paramount Resources

LARGEST BONUS

$2,088,180 Ronald Pantin, Paciﬁc Rubiales Energy

$2,058,000 Asim Ghosh, Husky Energy

$2,055,000 Steve Williams, Suncor Energy

$1,925,100 Thomas Simons, Canadian Energy Services & Technology

$1,699,000 Russ Girling, TransCanada

$1,683,383 Robert Geddes, Ensign Energy Services

Technically, former Niko Resources CEO – no stranger to executive compensation lists – took home the largest salary in the energy sector 2014 at $2,736,509. But that’s only because it came in the form of a retirement arrangement that his former company’s compensation committee awarded him.

94.9% ($3,580,875) Tom Buchanan, Athabasca Oil

$1,388,257 Ronald Pantin, Paciﬁc Rubiales

$1,361,731 Steve Williams, Suncor Energy

$1,350,000 Brian Ferguson, Cenovus Energy

$1,300,008 Russ Girling, TransCanada

$1,227,976 Michael Ebsary, Orxy Petroleum

$1,118,000 Al Monaco, Enbridge

$1,081,885 Scott Saxberg, Crescent Point Energy

$943,689 Doug Suttles, Encana

$881,391 Rich Kruger, Imperial Oil

Ingram Gillmore, Gear Energy $-5,210,600

LARGEST SALARY

93.9% ($2,509,385) Tim de Freitas, Ikkuma Resources

$6,919,468 Scott Saxberg, Crescent Point Energy

$5,599,998 Brian Ferguson, Cenovus Energy

$5,530,223 Ronald Pantin, Paciﬁc Rubiales

Murray Mullen Mullen Group 100% ($900,000)

$5,430,034 Doug Suttles, Encana

David French, Bankers Petroleum $-3,781,176 Scott Saxberg, Crescent Point Energy $-3,806,245

Asim Ghosh Husky Energy $1,704,500

$4,875,000 Russ Girling, TransCanada

$4,837,802 Rich Kruger, Imperial Oil

$4,152,312 Asim Ghosh, Husky Energy

$3,580,875 Tom Buchanan, Athabasca Oil

HIGHEST PROPORTION OF TOTAL COMPENSATION TAKEN AS BONUS

$3,047,884 James Riddell, Trilogy Energy

84.7% ($10,730,000) Murray Edwards, Canadian Natural Resources

82.8% ($2,097,110) Clayton Riddell, Paramount Resources

74.0% ($2,182,500) John Hooks, PHX Energy Services

62.7% ($1,683,383) Robert Geddes, Ensign Energy Services

Doug Suttles, Encana $-3,558,598

BIGGEST PAY CUTS

Murray Edwards Canadian Natural Resources $10,730,000

Paul Colborne Surge Energy $-12,245,917

HIGHEST PROPORTION OF TOTAL COMPENSATION TAKEN IN SHARES David Wilson Kelt Exploration 100% ($377,830)

For more stats and ﬁgures on executive compensation, please visit albertaoilmagazine.com/ compensation2015

AUGUST 2015

MONEY TALKS

ALBERTAOILMAGAZINE.COM

SPEAKING

UP By Max Fawcett

For the ďŹ rst time in history, a majority of shareholders have voted against pay packages at three major Canadian companies. Will the next no vote be in the energy sector?

AUGUST 2015

IT’S BEEN A TOUGH slog lately for Canada’s gold miners. The biggest of the bunch, Barrick Gold, lost more than $3 billion in 2014 after losing more than $10 billion a year earlier as the price of its namesake commodity was nearly cut in half. Its shares, which had routinely traded above $50 in 2011 and 2012, closed at $10.91 on the ﬁrst day of trading in 2015. But if you thought that performance might have tempered the generosity of the company’s compensation committee, well, you’d have been wrong. Barrick chairman John Thornton was rewarded with a $3.46-million raise, one that brought his overall pay package up to $12.9 million in 2014. That didn’t wash with the Canada Pension Plan Investment Board (CPPIB), which joined the British Columbia Investment Management Corporation and the Ontario Teachers’ Pension Plan Board (OTPPB) in coming out against Barrick’s compensation package. “We continue to be concerned with the company’s practice of granting outsized awards on a largely discretionary basis, which we believe is inconsistent with the governance principle of pay-for-performance,” it said in a statement. At Barrick’s annual general meeting on April 28, fully three-quarters of shareholders voted against the proposed pay package for Thornton and the rest of Barrick’s executive team. And while the vote wasn’t binding, it was the second time in three years that Barrick management had lost a say-on-pay vote. As Osler’s Andrew MacDougall wrote in the days after the April 28

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Barrick AGM, the combination of rising executive compensation and falling share prices was just too much for shareholders to stomach. “The 2015 vote result appears to reﬂect dissatisfaction with the size of cash incentive compensation paid to Barrick executives, especially the executive chairman, in a year where shareholders continued to experience a decline in share price, both in absolute terms and relative to gold indices.” If there was any solace for Barrick’s executives in their say-on-pay defeat, it was that they weren’t alone. Two days after

CLOSE CALLS No Canadian energy company has ever lost a say-on-pay vote, but Canadian Natural Resources came awfully close in 2013. The company’s compensation package was approved by just 55.8 per cent of shareholders, and it was an outcome that sent its compensation committee back to the proverbial drawing board. “In response to the 2013 vote, the compensation committee solicited feedback from shareholders holding 50 per cent of the outstanding shares, enhanced disclosure of executive compensation practices, engaged an independent consulting ﬁrm,

Barrick’s AGM, Yamana Gold’s shareholders handed their executive team a defeat of their own, with 63 per cent voting against the compensation package that had been pitched to them in proxy circulars. CEO Peter Marrone acknowledged the results of the vote and pledged to forfeit the 450,000 performance share units he’d been granted by the board as a result of Yamana’s 2014 takeover of Osisko Mining. The message was clear: If a company’s shareholders are feeling pain, their executives should avoid conspicuous displays of pleasure.

and adopted a more rigorous approach to awarding shortterm incentives,” Osler’s Sean Bernstein and Andrew MacDougall wrote in Say On Pay 2014: Losing Steam in Canada. Crescent Point Energy had a close call of its own in 2014, with only 56.7 per cent of its voting shareholders supporting a pay package for senior executives that included a 130 per cent raise for CEO Scott Saxberg. The board responded to that outcome with a new compensation package built around a long-term incentive plan that uses backwards-looking performance metrics rather than forward-looking

ones, something that it described in its 2015 management information circular as “a key and fairly unique feature.” It was popular with shareholders, at the very least, as 97.3 per cent of them voted in favor of the revised compensation strategy.

HE SAY-ON-PAY MOVEMENT GOT its start in the United Kingdom in 2002, when the Blair government introduced regulations that required public companies to put a remuneration report to a shareholder vote at each annual general meeting. It didn’t take long for that legislation’s impact to be felt, either, as GlaxoSmithKline saw its 2003 pay package voted down by 50.72 per cent of its shareholders. In March 2009 the SEC introduced regulation that required any publicly traded company in the United States that received funds from the U.S. Treasury to put its executive compensation package to a shareholder vote, and that was extended to all public companies under the auspices of the Dodd-Frank Act in 2011. Say-on-pay is also mandatory in Sweden, Norway, Denmark, Australia and the Netherlands. In Canada, though, it’s still optional, and while 157 public companies had adopted sayon-pay policies as of October 31, 2014, the only negative votes took place in 2013, when Barrick Gold, Golden Star Resources and Equal Energy all had their compensation packages rebuffed by shareholders. There were no negative votes in 2014, and, as a whole, the Canadian companies with say-on-pay policies saw the number of shareholders voting in support rise from 89.55 per cent to 91.36 per cent.

UT FOR ANYONE WORRIED THAT the momentum behind say-onpay in Canada is going in the wrong direction, the 2015 proxy season has shown that shareholders are still

willing to stand up and speak out against what they perceive as the arbitrary and unjust enrichment of senior executives. “The three recent failures [Barrick Gold, Yamana Gold and CIBC] were important because, frankly, there had been relatively little interest in say-on-pay in 2014,” says Osler’s Andrew MacDougall. “Vote approval levels were going up, nobody failed, and it was becoming relatively uninteresting. These vote results show that, in fact, shareholders are paying attention to say-on-pay.” The involvement of major institutional players like the CPPIB and the OTPPB also signals an important shift in the landscape, and given their role in agitating against both underperforming gold companies and one of Canada’s big banks, it seems unlikely that they’ll recede into the background any time soon. The question now for many energy executives is whether that attention shifts onto their own compensation decisions. And given that their key commodities have sold off even more sharply over the last year than gold did in 2014, it might be more a matter of when rather than if that attention shows up in the rooms that play host to annual general meetings in Calgary every spring. The pain that energy company shareholders have been feeling of late didn’t translate into any defeats in this year’s proxy season, as all of Canada’s energy companies that have adopted say-onpay made it through their 2015 votes unscathed. But ISS Corporate Services executive director John Roe says that

“The three recent failures were important because, frankly, there had been relatively little interest in say-on-pay in 2014. Vote approval levels were going up, nobody failed, and it was becoming relatively uninteresting. These vote results show that, in fact, shareholders are paying attention to say-on-pay.” - ANDREW MACDOUGALL, OSLER

the real test will come in 2016. “I think next year is going to be the big bellwether for say-on-pay and energy companies. For 2015, I think a lot of shareholders are giving oil companies in particular a pass and waiting to see how the compensation committee reacts once they’ve gone through the decision-making cycle in this very uncertain commodity price environment. They’re going to be much more aggressive in holding compensation committees accountable for their decisions in the 2016 season.” Roe says that management teams in the patch shouldn’t let the outcomes of the 2015 proxy season lull them into a false sense of security about where their shareholders are at on say-on-pay. “The support that energy companies received for their 2015 compensation packages may have been as much a tacit acknowledgement that those packages were the product of a very different commodity environment than it was a vote of conﬁdence. When you think about the pay decisions that are being

AUGUST 2015

BONUS BABY You know how they say everything is bigger in America? Well, apparently that extends to the compensation packages that their CEOs take home – or try to take home, anyways. Take Charif Souki, the CEO of Cheniere Energy, who trousered US$142 million in 2013. That’s more than any other senior executive at an American publiclytraded company and ten times as much as anyone in the Canadian energy sector. He wasn’t the only one being rewarded for his efforts, either – all told, Cheniere’s board awarded their senior executives $2

billion in mostly stock-based compensation, and that after handing them $1.7 billion a year earlier. While such lavish compensation might be defensible if the company was minting profits, well, that wasn’t quite the case. Yes, the company’s shares had more than quadrupled between January of 2013 and September of 2014, but that wasn’t enough to allay concerns on the part of shareholders, who were troubled by the fact that executive pay was being linked to construction milestones rather than the corporation’s financial performance. And while making progress towards completing the Sabine Pass LNG terminal – the first new major export terminal in the United States – was a goal worth pursuing, the Houston Chronicle’s Chris Tomlinson noted that it wasn’t enough to justify the billions being splashed

reﬂected in the circulars that have come out this year, most of those decisions were made in late 2013 or very early 2014,” he says. “The grants that are being shown reﬂect the enthusiasm

ALBERTAOILMAGAZINE.COM

around the C-Suite. “While it is true that Cheniere has contracts that will pay out whether the export facility is used or not – just as it has income from imports that never happened – this is not the way to make money in the long run,” he wrote. “Shareholders are right to demand to see some revenue.” That demand eventually came in the form of a class-action lawsuit that was settled in Delaware this past March. As part of it, the company agreed that it wouldn’t ask shareholders to make any stock grants to its executives before 2017, and that any requests thereafter would be put to a vote. In return, Cheniere’s executives got to keep the options that they’ve already been granted. Time will tell whether Sabine Pass and the proﬁts it has been projected to produce will live up to the compensation it’s already yielded.

that the stock market had at the end of the record year 2013 rather than the drop we saw at the end of 2014. I think what a lot of investors are looking for is the responsiveness in the pay packages

being set at the end of 2014 and early 2015, but for most of those we won’t know the outcome until the circulars are released in 2016.” According to Matt Fullbrook, manager of the Clarkson Centre for Board Effectiveness at the Rotman School of Management, when those 2016 circulars are released they need to reﬂect a proactive approach to justifying compensation. “What these compensation committees can do is start working on the way that they justify – and I’m talking speciﬁcally about public issuers here – the outcomes of their compensation to shareholders. This is obviously going to be mostly the institutional shareholders who will have the power and the market, but this disclosure is valuable for small shareholders as well as research groups like us or the proxy advisors like Glass-Lewis and ISS. The more transparent the decision-making is around compensation, the less likely they are to be open to criticism.” But make no mistake, Fullbrook says: that criticism is here to stay. “There tends to be, in many cases, behavior that seems as though the executives are rewarded for great performance but when performance isn’t so good it seems like they’re allowed to say, ‘Well, that was just commodity prices.’ Now that investors have a formal opportunity to react through say-on-pay, I don’t think they’re going to tolerate those types of excuses as much as they have in the past.” AO

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ART OF (PROXY)

WAR

As Sun Tzu once said, ‘Every battle is won before it’s ever fought.’ Here’s how compensation committees in the energy sector can prepare for their next one By Max Fawcett

ALBERTAOILMAGAZINE.COM

The energy sector may have emerged from the 2015 proxy season unscathed, but it’s fair to say that the people who sit on compensation committees at every publicly traded company in the sector are already preparing for the challenges that lie ahead in 2016. That’s why we’ve tapped a handful of leading experts on executive compensation in order to ﬁnd out what companies should be focusing on – and what they can’t afford to forget.

A CULTURE OF OWNERSHIP The move away from discretionary bonuses and cash payouts has been underway for some time now, but the recent say-on-pay defeats will only accelerate that trend. “What companies are trying to do now is achieve real share ownership for their executives through incentive compensation, both through short- and long-term incentives,” says Robert Levasseur, a managing director with McDowell Associates. One way to do that is by replacing stock options with performance and restricted share units, which can have a variety of triggers and targets that more effectively bind the interests of the employee in question to their company and its shareholders. And even if employees are getting options as part of their pay package, they’re often coming with new restrictions and conditions. “Traditionally, even when an employee gets stock options, they don’t really own the

shares – they’re just borrowing them, because everything ends up getting settled in cash. Now what organizations are doing is starting to insist that executives receive their compensation in equity at the end, and some of them are starting to institute hold periods to make sure you’re actually holding the equity.” As part of that effort to align performance and pay, many companies are doing away with the automatic grants that used to be standard practice in the past. “The assumption is that if the stock doesn’t do well then the options will be underwater, and that’s how we’ll be seeing how you’re paying for performance,” Levasseur says. “But

share advocacy groups and the institutional investors have been applying more and more pressure through the say-on-pay votes to discriminate yearover-year in terms of the number of options or restricted share units you’re going to be applying. What they’re doing is referred to as “look back performance measurement” – you’ll look back at the last three years of an organization’s performance and then make a decision. If the target grant is, say, 10,000 options, then if the company hasn’t performed well you might be restricted to 5,000 options or none at all. This is very, very new. Previously, come hell or high water, every year you’d be getting your 10,000 options.”

“If you weigh everything to share price and total shareholder return, you’re going to get some people who are focused exclusively on that and really forget that they have to be managing the place for the next ﬁve to 10 years rather than the next quarter’s target.” - ROBERT LEVASSEUR, MCDOWELL ASSOCIATES

AUGUST 2015

WAITING IS THE HARDEST PART It’s the compensation committee’s version of a Catch-22. On the one hand, you want to link executive behavior and shareholder interests, and equity ownership is the best way to do that. But on the other hand, increasing the proportion of executive compensation that comes in the form of shares tends to incentivize the people receiving them to pay a lot of attention to the short-term activity of those shares – sometimes at the cost of the long-term health of the business. And while the move away from stock options and towards restricted share units has helped mitigate that sort of activity, Levasseur says that it’s still an issue that needs monitoring. “That’s been one of the problems with using vehicles like stock options and restricted share units is that you’re really managing quarter by quarter to ensure that the analysts are still supporting your company,” he says. “Sometimes, you have to have a much broader view than that, which is pressure that smaller private organizations don’t have.” ARC Resources is neither small nor private, but it’s found a way – ways, really – to resist that pressure. In 2011 it introduced a share option plan under which the options didn’t vest until the fourth and ﬁfth anniversaries of the grant date (50 per cent each year). “As a result,” the company’s 2015 circular said, “ARC employees who are granted options will not be able to realize the value of options held by them until a considerable time has passed since the date of grant – thereby encouraging long-term thinking and behaviors.”

“If there’s a view that pay decisions have been made irrespective of the overall performance of the organization – that it seems to be discretion that isn’t tied to deﬁnitive performance standards – that can be a catalyst. Another key area is if shareholders have noted concerns and brought those forward in prior say-on-pay votes and it doesn’t appear that companies have addressed these, and haven’t hit them head-on in their disclosure, that can be another irritant that would inﬂuence those negative votes.” - JOHN HAMMOND, TOWERS WATSON

But ARC took that one step further with a new plan that it put to shareholders in 2015, and it’s one that other energy companies might want to look at more closely. Under the terms of the proposed

ALBERTAOILMAGAZINE.COM

“In the U.S. we’re starting to see some commentary that we should be moving back to more fundamental balance sheet-based metrics, instead of using TSR [Total Shareholder Return]. It’s not a huge movement yet like it is in the U.K., but we’re starting to hear the grumblings. I think over the next ﬁve years we’ll see more pressure to move in that direction.” - JOHN ROE, ISS

long-term restricted share award plan, the board can grant actual shares issued from treasury (rather than cash equivalents) that have a 10-year term and vest in one-third increments on the eighth, ninth and 10th anniversaries of the grant. They’re not ironclad, either, as any unvested shares would be forfeited if the recipient in question resigns voluntarily or is terminated (either with or without cause). Likewise, a change of control will not lead to shares granted under ARC’s long-term restricted share award plan vesting automatically. Instead, they’ll require a so-called “double trigger” in which there is a change of control and a “termination event” within two years of that change. As ARC’s own circular suggests, this sort of plan is relatively unheard of in the energy sector. “These extended vesting periods are substantially longer than typical practices in the energy sector and will encourage our executives to think and act with a clear focus on the long term,” it says. Levasseur thinks the kind of big-picture thinking that it seeks to encourage is particularly well-suited to the energy sector, which tends to involve business plans with longer time horizons. “To the extent that you’re sitting on a reserve base and you have

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a good line of sight to a longer-term strategy, then you’ll have a greater inclination to put a plan with longer vesting terms in place,” he says. And while ARC’s plan was well supported by its shareholders, introducing those longer vesting terms might be a tougher sell with the people who are directly affected by them. “With that comes the challenge of setting targets and measuring performance over a longer timeframe,” says Towers Watson’s John Hammond. “There will have to be a balance there – if you’re going to have a longer vesting period, particularly if there are performance conditions on the vest, how are you going to set those targets and ranges around those targets and measure performance and disclose how you made the decisions? It doesn’t come without its challenges.”

FULLER DISCLOSURE What do the average proxy circular of an energy sector company and a set of instructions from Ikea have in common? They’re both impenetrable to the average user and seemingly designed to produce frustration and confusion. But while Ikea’s bafflingly incomplete instructions continue to inspire domestic conflict and poorly constructed furniture around the world, the circulars coming out of Canada’s energy sector are clearly getting better. That’s because, according to Hugessen Consulting’s Scott Munn, companies have realized that needlessly arcane or obtuse language around executive compensation has a way of causing more problems than it can solve. “There’s a lot of misunderstanding among folks that read the proxies, so there’s a recognition that in order to make the real pay decisions transparent to the shareholder you have to boil it down to plain English and actual outcomes.” But that need for simplicity and transparency is also being driven by proxy advisory services firms like Glass Lewis and ISS, whose recommendations can shape the

ALBERTAOILMAGAZINE.COM

“It’s relative that matters, not absolute. You could have a scenario where the whole sector goes down and you’re the best performer of a poor lot, and you end up with a decent payout. That, by itself, isn’t problematic, but it can be if it’s starting to happen over and over and over again.” - SCOTT MUNN, HUGESSEN CONSULTING

outcome of a say-on-pay vote. “Because of their influence on how institutions vote shares, there’s an increasing proportion of boards that realize that they need to have a clean document out there so that those two firms are able to quickly understand the pay decisions and as a result give advice to their clients,” Munn says. One of the areas that energy companies will want to pay particular attention to in the circulars to come is the spread – often substantial – between the compensation that’s granted to executives and what they end up actually realizing. “One of the challenges with reported pay in a summary compensation table is it’s done on a static basis – it’s essentially reflecting money earned in the annual sense plus pay opportunities in the medium- and long-term sense,” Hammond says. “How that ladder plays out is where realized pay comes in – it’s trying to disclose to shareholders in a more dynamic fashion that this is where this thing is tracking. If a company’s having share price performance challenges, that underscores that message – that our senior executives aren’t receiving what we intended for them to get with those grants because of the decline in share price. I think, selectively, companies will be looking at conveying the message in a few different ways to help shareholders understand how executives are faring relative to their experience, and ultimately rationalizing how pay decisions are being made.” But, Hammond says, companies shouldn’t put the demands of disclosure ahead of their corporate objectives. The secret is to get ahead of the issue rather than trying to play catch-up later. “Disclosure is important, but ultimately you have to do what’s right for the business and make sure that when the decisions are made – be that the amount of pay that’s awarded through incentive programs or the types of plan you use – you tie that to your business strategy and decisions,” he says. “The more you can convey that upfront in an executive summary or a letter to shareholders in a succinct fashion, the greater the likelihood is that you’re going to have acceptance of your programs.” AO

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THE XX FACTOR Women continue to be underrepresented on the corporate boards of Canadian energy companies. Why that’s to everyone’s detriment

BY JAY SMITH

AUGUST 2015

HEN JACYNTHE CÔTÉ WAS APPOINTED TO Suncor’s board of directors in February 2015, the company highlighted the fact that its board was among the most diverse in the energy sector. And yet, on its 14-person board, Côté joined just two other women. This is not unusual, unfortunately. When it comes to women on the boards in Canada’s oil and gas sector, the industry has the unfortunate distinction of being the worst for gender parity in the country. A Globe and Mail report from last fall found that, of Canada’s largest 251 companies in JACYNTHE CÔTÉ KATHY SENDALL the S&P/TSX composite index, 55 per cent of the energy companies had all-male boards. By way of comparison, 42 per cent of mining and forestry they contribute so positively to their organizations. But because those companies and 16 per cent of non-resource contributions continue to be underappreciated, the Ontario Securities companies had similarly one-dimensional boards. Commission implemented new rules last year that require publicly Meanwhile, just 7.8 per cent of board members at listed companies to report annually on the number of women on their publicly traded oil and gas companies are female, boards as well as what they’re doing to attract more of them. The first compared to an average in other sectors of the proxy circulars including that information will be released this year. economy of 20 to 25 per cent. These numbers exist – and persist – KATHY SENDALL KNOWS ALL ABOUT WHAT WOMEN CAN BRING TO A in spite of the growing body of evidence company – and why those skills continue to be overlooked. showing the considerable benefits of She’s a former Petro-Canada VP, a past chair of the board including women on boards. Simply of governors at CAPP and the first woman to be named the put, companies that have more womJarislowsky Fellow in Business Management at the Haskayne en on their boards outperform those School of Business. She sees the new OSC regulations as being a that do not. A Credit Suisse study from “game-changer,” and says that the ongoing inability of oil and September 2014 noted that companies gas companies to put more women on their boards is a product with greater diversity on their boards PER CENT of cultural inertia, particularly within smaller companies. have higher returns on equity (comThe industry, she says, is shaped like a “barbell,” with a panies with at least one female board Of board members large number of smaller and larger companies but relatively member since 2005 had ROE of 14.1 per at publiclytraded oil and few medium-sized ones. These smaller companies bring the cent versus 11.2 per cent for those with gas companies averages for board diversity in the whole industry down. zero representation), higher price/book are female “If we look at the small producers and explorers, they’re valuations (an average of 2.3 times for just struggling to get to the next day dealing with a lot of shortboards with female representation and term issues,” Sendall says. “Having a gender-diverse board is not 1.8 times for those without) and superior at the top of their list of priorities.” She notes that these smaller stock performance (an average of five per companies often don’t have term limits for their boards, which cent better for companies with female is something else the OSC regulations address. These smaller representation). companies also don’t tend to use external search firms when Paul Dunn, a professor at Brock they are looking for new board members, which means that University who studies corporate they are more likely to rely on pre-existing social connections – governance, says that women who rise to PER CENT ones that involve more men than women. She believes that the level of corporate governance tend to Of Canada’s the OSC regulations will definitively change the industry’s have more advanced academic degrees, publicly-traded performance on gender parity. “I believe [it’s] a catalyst to break broader business backgrounds and energy companies have all-male some of the inertia” surrounding the advancement of women, greater international experience than boards she says. Organizations now have the motivation to look deeper their male counterparts. “Women bring for candidates. “It’s amazing how many qualified women are out an alternative skill set,” he says, which there when you’re forced to look for them.” he believes may be one of the reasons

7.8

ALBERTAOILMAGAZINE.COM

IT’S A MAN’S WORLD

David and Robert 11.9% John,

6.1%

And you thought gender parity in the workforce was bad. As this chart illustrates, just 6.1 per cent of the people who sit on the boards of directors at publicly traded Canadian energy companies are women. By comparison, 11.9 per cent are men named John, David or Robert.

93.9%

And while not all of the larger companies have committed to increasing female representation, many have. Erin Leonty is the Western Canada regional director at Catalyst, which works to help the advancement of women in the workplace, including helping organizations find qualified female candidates for board positions. She cites Shell, Enbridge and ConocoPhillips Canada as companies that have specifically devoted resources to increasing diversity, and she agrees that the benefits of having more women on boards are manifold. She says that “diverse leadership drives greater innovation,” which is essential for success in a sector such as oil and gas. And while more women – and diversity – at the board level will help, she says companies need to take a bottom-up approach to achieving that. “Oil and gas needs better talent stewardship, not just diversity. This means being in a better position to attract top talent that is diverse, and advance [this talent] into leadership.” She recommends two mechanisms for improving the representation of women (and minorities) in the upper echelons: creating senior sponsors of diversity, those already established who are willing to support

change, and ensuring that so-called ‘hot jobs’ are given to women and other underrepresented groups. “These highly visible ‘hot jobs’ are often subjectively allocated,” Leonty says. As such, consciously choosing to have women in these positions allows women throughout the organization to visualize it as a viable career path. That’s something that Mac Van Wielingen, the chair of the board of directors at ARC Resources and Alberta Oil’s 2015 Chairman of the Year, is trying to do. ARC currently has one woman on its board, although its VP of operations and VP of engineering are both female. Another woman will be joining ARC’s board at the end of 2015, and Van Wielingen says that ARC spent over half a year looking for this female candidate using a search firm that explored potential contenders throughout North America. His first concern, he says, is finding qualified candidates, and he points out that the women he knows would like to believe that they were hired on the basis of their merits, not their gender. “The paramount issue [when hiring] is industry knowledge and executive leadership experience in the industry,” he says. “If we start to move away from that, we’re going to have to find some creative ways to maintain the influence on the board from industry.” But he knows that the industry has to do a better job than it has in the past of balancing industry experience and diversity – or, better yet, finding ways to combine the two. “In my career, I’ve seen a lot of change. But when you look at the statistics, there’s still a lot to be done.” AO

CAREER WOMAN Judith Smith, a senior manager at Shell (and the author’s aunt) has worked in the oil and gas industry for over 30 years. In addition to her job she’s served for organizations in the industry such as CEMA and the Canadian Land Reclamation Association, and she says the shift in terms of how women are treated that’s taken place over the course of her career has been incredible. “There were no females anywhere when I started out,” she says. “I remember 20 or 30 years ago, going to conferences, and I would be the only woman.” Like many female pioneers in maledominated arenas, she talks about having to adopt traditionally masculine demeanors,

never showing emotions, learning how “to go to meetings, cut into the conversation to get my say, and behaving more conﬁdently than women were expected to behave.” But when she was presented with the opportunity in her 40s to move into the C-suite, she balked. At that point in her career, she had a young family. She observed how the very successful women around her seemed to have switched gender roles with their spouses. “They had husbands that did all the traditionally female roles. It took me a long time to have a family. I wanted to enjoy it.” She doesn’t regret her career path – she enjoys how her work involves dealing with

stakeholders, aboriginals, government and NGOs. Had she been more ambitious, she says, her work would have taken her out of the ﬁeld and into very long days and packed meeting schedules. That said, Smith has seen plenty of other women at Shell make the move into management in recent years. That’s because Shell is one of the companies that has made a deliberate effort to increase gender parity. The fact that this effort is, apparently, so closely tied to its success should be encouraging to companies that have yet to reconsider their hiring and promotion practices . That is, if all the other beneﬁts of diversity weren’t already enough.

AUGUST 2015

Silent iller K The

BY JESSE SNYDER

Many people in the workforce Z\ﾄキY MYVT KLWYLZZPVU HUK HU_PL[` WHY[PJ\SHYS` PU [V\NO LJVUVTPJ [PTLZ I\[ ]LY` ML^ L]LY [HSR HIV\[ P[ >O` [OH[ ULLKZ [V JOHUNL HUK ^OH[ `V\ JHU KV HIV\[ P[

ALBERTAOILMAGAZINE.COM

AUGUST 2015

FOR KUMARI CARUANA, EVERYTHING

seemed to go wrong all at once. She was in the midst of a divorce from her husband of eight years – one that left her with a long list of new responsibilities at home and a bundle of anxiety about her future – when she was laid off from her job at Stantec in February. “It’s pretty stressful,” she says. “I’m a single mom so that was really stressful, too. The unknown that followed – how was I going to support myself, my daughter – that was deﬁnitely a weight on my mind.” And while her depression worsened after losing her job, her struggle with it had begun well before then. Unresolved personal problems from her past began to creep back into her life and they made it difﬁcult for her to focus on her work. The job required detailed analysis of construction plans for various oil and gas projects, and she would have to edit her work repeatedly before it was ready to be sent to clients. The extra hours at work only seemed to make things worse, as the more time she put in, the more stressed she became, and the more stressed she became, the more her focus dulled. Eventually, Caruana decided it was time to speak to a counselor oneon-one. “It reached a point for me where I had nowhere else to go,” she says. “Eventually I just had to say, ‘OK, I’m just going to bite the bullet and go in there and do what I need to do.’ ” Stories like Caruana’s aren’t unique, and they appear to be increasingly common amid widespread layoffs in the energy sector. Between November 2014 and March 2015, the Calgary Counselling Centre, which offers counseling services to sufferers of mental illness and abuse, saw requests for service increase 12 per

ALBERTAOILMAGAZINE.COM

cent over the same period as the year before, while the number of face-to-face sessions grew 25 per cent. “Every week I have clients come in who either lost their jobs or have partners who have lost their jobs,” says Christine Berry, a counselor at the center. “It’s stressful to think about things you can’t control. And for some people, that’s what’s happening, particularly in this economy.” But depression and anxiety aren’t conﬁned to people who have lost their jobs or have troubled relationships. Depression abounds – counselors often liken it to the common cold – and its incidence rate doesn’t rise and fall in lockstep with ﬂuctuations in the price of oil. About 70 per cent of Canadians suffering from depression are in the workforce, according to the Canadian Mental Health Association (CMHA), and in a 2011 survey by the Conference Board of Canada, 32 per cent of respondents in

It also takes a toll on the company’s balance sheet. Every year in Canada billions of dollars are lost due to absenteeism and lackluster productivity caused by mental health issues, according to the CMHA. A report by the U.K.’s National Institute for Health and Clinical Excellence found that even a small investment in awareness or early identiﬁcation programs can reduce productivity losses by as much as 30 per cent. If they go undetected, those losses could amount to almost $400,000 over one year at a company with 1,000 employees, according to the report. But part of the problem with depression and anxiety is identifying the illness. Few employees feel comfortable admitting they are unequal to the task at hand, and some decide to keep it a secret. Only about half of the people who struggle with depression and anxiety seek help, according to a survey from

“We have this stigma that says somehow depression is a character ﬂaw – that somehow it’s a sign of weakness.” -Christine Berry, Counselor the workforce said they had past experience with mental health issues while 12 per cent of respondents said they were currently suffering. WHILE DEPRESSION IS COMMON, ITS

effects are more subtle than those of most common illnesses. People who suffer from depression – or from severe anxiety – can feel a lack of energy, minimal ambition, a diminished appetite and a general feeling of being overwhelmed. And those symptoms carry over into the workplace. “The energy it takes to come into a meeting and pretend that everything is OK when you’re having a hard time concentrating – when your stomach feels like it’s dropping out the bottom, when you feel numb or ﬂat – that takes a toll on you,” Berry says.

the University of Toronto. “We have this stigma that says somehow depression is a character flaw – that somehow it’s a sign of weakness,” Berry says. And it’s not. It’s a state of mental unwellness. It’s got nothing to do with your character. But the stigma suggests that for some reason, if you’re dealing with depression, it’s because you’re just not strong enough.” While there is little information on mental health in the energy space specifically, it is a high-pressure work environment compared to many other industries. There is a culture of resiliency in the Canadian oil patch, and people tend to pride themselves on their ability to find solutions in tough times. In some cases, Berry says, that could translate into heightened pressure on workers to keep their emotions under control and

to themselves. “Chances are there a lot of folks at these oil companies who are going home and weeping because they’re distressed. You can’t really talk about it.”

Number of people laid off in Canada’s oil and gas sector in the month of February 2015

SOLUTIONS TO THE PROBLEM ARE NOT

necessarily expensive, and many of the larger oil and gas companies like Shell Canada and Enbridge have programs in place to create a work culture that is aware of mental health challenges. Devon Canada, for its part, offers coaching to employees who require it, as well as biometric assessments to monitor the progress of their programs. Karen Hume, a workplace mental health consultant at CMHA, works with various companies to try to identify and reduce depression in the workplace. She says programs that address mental illness are a small investment considering the returns that are seen in improved productivity. “All of these things can be done at low cost, and with low risk to the organization – and the ROI is seen in keeping people working.” A research

Percentage of the Canadian workforce that suffers from depression or anxiety

team at the University of Calgary recently received $1.9 million from the Movember Foundation to investigate ways to identify, prevent and reduce mental illness in maledominated industries like oil and gas. Mental health in the workplace is also a legal issue. A voluntary safety standard launched in January 2013 by Canada’s Mental Health Commission has strengthened the legal case for employees to hold their employers liable for psychological damage. And some groups, including the CMHA, are lobbying to make that safety standard mandatory, which would further increase employer liability. “Otherwise,

we’re half in and half out,” says Hume. For anyone who is suffering from depression and anxiety, those efforts could eventually pay dividends. That’s because they might help to reduce the stigma attached to mental illness, something that people who treat it say is central to fighting depression and anxiety in the workplace. Most people who talk to a counselor for their illness see some level of improvement, and Caruana is a perfect example of that. Since she began talking to a counselor, she says she has started to feel more in control of her life again, more confident in addressing problems and more invested with purpose and direction. She even plans to go back to school and change careers, even though the job market remains tight. There are still bad days, she says, but they’re now outnumbered by the good ones. “I’m definitely having a lot more of those.” AO For a list of local resources that employers and employees can turn to, go to albertaoilmagazine.com/mentalhealth

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FEW GOOD MEN The Canadian Forces produce thousands of veterans that are technically skilled, professionally trained and ready to work. So why isn’t the energy sector hiring enough of them? By James Wilt • Photo Bryce Myer

[LEFT] Patrick Tower, at the Sanjel Campus in Calgary [ABOVE] Patrick Tower on patrol in Afghanistan in 2006 as a Sergeant in the First Battalion, Princess Patricia’s Canadian Light Infantry

PHOTOGRAPH THIS PAGE COURTESY PATRICK TOWER

AUGUST 2015

WHEN PATRICK TOWER WAS READY TO JOIN THE REAL WORLD AFTER NEARLY 25 YEARS IN THE MILITARY, HE HAD A RESUME THAT FEATURED A MASTER’S DEGREE IN BUSINESS ADMINISTRATION AND AN AWARD FOR THE DARING LEADERSHIP HE SHOWED WHILE DEPLOYED IN AFGHANISTAN. Applying for a job should have been a walk in the park. It wasn’t. “It is daunting,” Tower says. “You have this whole career that you’ve done with lots of experience and things you can offer a company, but you’re going in at 40 years old and have never been in a job interview before, never written a resumé before. You’re kind of behind the eight ball compared to other candidates vying for the same job.” In 2012 he landed a prime position as the manager of leadership and development at oilfield services company Sanjel, a job that he says gives him as much pride as serving his country did. Unfortunately, not every employer is willing to take a chance on veterans. A 2013 survey of 850 Canadian companies conducted by Navigator for the Veterans Transition Advisory Council found that only 27 per cent of employers had veteran-specific hiring initiatives, and a mere 13 per cent had HR departments that could properly read a military resumé. For people like Towers, that’s a problem. That’s also a problem for those companies, given that approximately 5,000 new veterans enter the workforce every year. The energy sector will need an estimated 125,000 to 130,000 new hires by 2022, according to a 2013 Petroleum Human Resource Council forecast, and while those numbers look optimistic in the current commodity environment it’s safe to assume it won’t last forever – and that when it does end the energy sector should look to the growing number of veterans in order to fill those vacancies.

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George LeDrew, an operations trainer at Cenovus’s Foster Creek SAGD project and a former Air Force avionics technician, emphasizes the overlap between working for the military and working for the energy industry. “Being relied upon, being asked to take ownership of your work, to show up on time every day and to put your best foot forward every day is something we do in the Canadian Forces and something that’s really looked for in this world as well.” But the list of special qualities that a vet brings to a job site doesn’t end there. Ted Daywalt, the founder of the U.S.-based VetJobs, says leadership, a good attitude and co-operation are at the center of both occupations. Gregory Matte, the executive director of Helmets to Hardhats Canada, a veterans’ employment services program, believes that their solid work ethic and strong communication skills set veterans apart from their job-seeking peers. Mark Salkeld, the president and CEO of the Petroleum Services Association of Canada and former air weapons tech for the Air Force, agrees with both assessments. “They’re a perfect fit for the industry,” he says. “We need as many as we can get. They’re smart, hard-working and well trained.” Still, negative stereotypes about war veterans persist. Fears about post-traumatic stress disorder (PTSD) and other combat-related mental health problems was the second-most frequently cited reason after concerns about skills translation for not hiring a veteran among 69 American companies that were surveyed in 2012. Daywalt says that the stigma around mental illness took off in the United States following the 2009 Fort Hood shooting, and he remembers how dozens of people approached him in the weeks after asking how the “spread” of PTSD could be prevented. A spike in suicides among Canadian Forces members in 2011 may have reinforced that apparent correlation between military service and PTSD, and while the evidence clearly states that such incidents are the exception rather than the rule, they can still dissuade companies from taking the risk on battle-hardened soldiers. That said, a few energy companies are already taking steps to address low rates of veteran employment. Canada Company’s Military Employment Transition Program (MET) lists the likes of Cenovus, Shell and Schlumberger as “military-friendly employers,” while Matte points to TransCanada, Syncrude and Suncor as leaders in the field. A few companies outside of the energy sector are jockeying for that talent, too. Canadian Pacific Railway, Home Depot Canada and Irving Shipbuilding were identified as strong partners in veterans’ employment in a June 2014 Senate

report titled, “The Transition to Civilian Life of Veterans.” That transition isn’t always easy when it comes to the energy sector. Salkeld says that the “degree of entrepreneurialism or self-thinking in the oil patch can be difficult to transition into.” And Matte, who previously served as a brigadier-general in the Air Force, says that translating the skills a veteran picked up in the military to the ones energy sector employers are looking for can be a challenge. “They have their own language, they have their own training system and they have their own qualification levels and whatnot. To try and translate that into civilian terms can be quite tricky. In the case of some particular trades we deal with in the military, they do have a direct correlation with civilian trades, whether it’s a vehicle mechanic or carpenter or something like that. But the vast majority do not.” Some HR departments have certainly stepped up their game over the past decade, encouraging vets to use the job application and interview as an opportunity to educate the company on how their military service might relate to the job they’re applying for. Scott Treadwell, an energy services analyst at TD Bank and a former Canadian Navy navigator, says that “driving a ship” may not be intuitively related to, say, driving a Caterpillar 797 in Fort McMurray. But what is? To “civilianize” one’s qualifications takes work and sometimes a little imagination, as anyone who has ever applied for a job in a new field can attest to. Eddie Kamps, a project manager at TransCanada and a former infantry officer, says showing how he could adapt his skills from the military was the toughest part of breaking into the energy sector. “I bet you I’d lose my mind if I went back and saw the resumés I was passing out when I was getting out.” Maureen Sander, a senior recruitment advisor at Cenovus, says the fact that the company’s Foster Creek SAGD site is within the Canadian Forces’ Cold Lake Air Weapons Range means many soldiers who are already living in the area can make an easy transition to working for the company. But not every vet, nor every company, is that lucky. Peter Stoffer, the federal NDP critic for Veterans Affairs, says the Canadian government needs to be more aggressive in promoting programs that get veterans back to work. “If you go to chambers of commerce or the Federation of Canadian Municipalities, they know very little about the veteran hiring program,” he says. Indeed, according to the 2014 Senate report on getting veterans into the workforce, “Unfortunately, as the subcommittee learned in the course of this study, little outreach efforts have been made on the part of

PHOTOGRAPH SHAUN ROBINSON

MARK SALKELD, THE PRESIDENT AND CEO OF PSAC AND FORMER AIR WEAPONS TECH, SAYS “THEY’RE A PERFECT FIT FOR THE INDUSTRY, AND WE NEED AS MANY AS WE CAN GET. THEY’RE SMART, HARD-WORKING AND WELL TRAINED.”

DND [Department of National Defence] and VAC [Veterans Affairs Canada] to promote private-sector employment of veterans.” Veterans Affairs minister Erin O’Toole declined to be interviewed for this story. Currently there are 10 military trades, including plumbing, machining and cooking, that are honored with Red Seal qualiﬁcations in Alberta. But oddly, given the job’s prevalence in both the military and the energy sector, heavy-duty truck driving isn’t among them. That’s something Helmets to Hardhats is working with the Department of National Defence to ﬁx. It’s a small but important step towards opening the door to all the other skills veterans can bring to the job site. “It’s just reaching out to them and giving them a chance,” Tower says. “You can bring someone in who knows how to run a frack pump, but there’s no way you can teach him the leadership and non-tangibles that a military guy brings. Whereas you can bring in a military guy, get those non-tangibles and then teach him how to run a frack pump.” AO

AUGUST 2015

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REPORT ON Human Resources

BIG PICTURE

Labor Pains It wasn’t that long ago that the energy sector was starved for new people. Now it’s had its ﬁll – and then some

employment in the energy sector has taken a huge hit so far in 2015. But a May report from the labor market information division of Enform clariﬁed just how big that hit has been, and where it’s being felt most acutely. It also underscored the fact that, contrary to what some people in the rest of Canada might want to believe, energy truly is a national industry. Yes, Alberta is going to bear the brunt of the approximately 185,000 jobs – direct and indirect – that will be lost because of falling oil and gas prices (and spending) this year. But approximately one-third of those jobs are – or were – in other parts of the country, and according to Enform’s forecast, that could include 20,000 in British Columbia and 14,000 in Ontario. Indeed, while Alberta’s labor force will take the largest aggregate hit, on a relative basis it’ll be Saskatchewan and British Columbia where the spending cuts are felt the deepest. Alberta’s energy-related workforce is expected to shrink by 38 per cent, while both its neighbors to the east and west can expect to see their head counts drop by 46 per cent. All told, it’s a 25 per cent decrease from 2014 levels, and

one that’s already begun showing up in Canada’s economic data. Despite a surprise rate cut of 25 basis points in January by the Bank of Canada, the country’s GDP shrank in real terms by 0.6 per cent in the first quarter of the year, the worst performance since 2009. That’s largely due to the impact of falling oil prices, energy sector layoffs and the trickle-down effect that pain is having on businesses that depend on people employed by the energy sector, be they banks, bakeries or high-end boutiques. But nobody’s feeling more pain than those attached to the business of building and maintaining energy projects, where 74,510 jobs are expected to be lost on a year-overyear basis. The support services sector comes in second in the Enform report with an estimated decline of 25,934 jobs, while architecture and engineering firms can look forward to employing 13,998 fewer people. If there’s a silver lining in this, it’s that the wave of layoffs has flooded the labor market with available talent and given organizations throughout the industry an opportunity to assess their own rosters with an eye to the future. But it’s clear that for now, at least, the days of worrying about widespread labor shortages in the energy sector are over.

Change in Direct and Indirect Employment Impacts Between 2014 and 2015, by Major Industry

721,811

700,000

EMPLOYMENT

IT’S NO GREAT SECRET THAT

191,869 89,963 74,595 -8,760

-25,934

2014 2015, change -74,510 -184,019

-300,000 Oil and gas extraction Support activities for oil and gas extraction Oil and gas engineering construction Total Source: Petroleum Labour Market Information

AUGUST 2015

REPORT ON Human Resources

LIVE AND LET FLY Companies are discovering the beneﬁts of offering ﬂexible work arrangements – but not everyone is sold yet By Jesse Snyder

IN THE OIL PATCH, THE WORKDAY ISN’T OVER UNTIL THE JOB IS DONE. That’s also the case at Enerplus, but with one exception: The structure of those workdays can be tailored to an employee’s personal needs. The company rolled out a new policy at the beginning of the year that allows them to choose their own work hours. “It’s really about having the flexibility to be able to leave at 3 p.m. to pick up your kids, or being able to see the school play,” says Ian Dundas, the CEO of Enerplus. His company has 700 people on its payroll, and about 10 per cent of them are in a management role. Under the policy, which the company has dubbed OURtime, those managers are directly responsible for the people working under them, and are able to let workers come and go as they see fit – given that employees are meeting workload expectations. “Leaders need to use their judgment in what needs to be done,” Dundas says. “Honestly, it puts a spotlight on leaders, and it will be harder for them because instead of the senior team giving rules we’re giving principles.” Enerplus’s new program fits in well with the overall thrust of energy sector HR strategies, which tend to be more generous than those in other sectors. But while many offer plenty of time off and “free floater” days, there has yet to be a wide adoption of flexible work arrangements that are now common in the tech industry. In Mercer’s 2014 survey of 200 Canadian energy companies, 67 per cent of respondents indicated that they offered some level of flexible work hours, while 35 per cent said they offered earned days off (with a median total of 15 flex days per year). Dundas says many of his colleagues are wary of encouraging flexible work arrangements out of a fear that it will be misinterpreted as permission to work less. “A fair number of CEOs are worried that this is going to get confused, and turn their workplaces into a country club attitude,” he says. “This has nothing to do with less work. This is about more flexibility in your work.” The policy comes at a time of shifting expectations from young workers. In BP’s 2013 Global Diversity and Inclusion Report, over 70 per cent of the 3,000 oil

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and gas employees surveyed said flexible work arrangements were highly important when choosing an employer. Only “transparency in remuneration” was considered more important by both female and male respondents. Employees today feel especially stretched between various commitments, and the requirement to shape their lives around a rigid work schedule can exacerbate that stress. Studies from the Conference Board of Canada and Statistics Canada suggest that a quarter of employees in the energy space feel moderate to high anxiety at work. Creating more flexibility around work hours is one way to improve peoples’ work-life balances. “This way, workers are focused on what they should be focused on, not simply feeling guilty about what they should be doing outside of work,” Dundas says. And while you might think that after years of fierce competition for employees, energy companies would be taking advantage of the slowdown to re-evaluate their HR policies, according to Brian Lindenberg, a senior partner at Mercer, an international HR consultancy, that hasn’t been happening. “Are we seeing companies taking this opportunity to make a change? For the most part, we’re not,” he says. “Most are more focused on the short term and getting through the next six to 12 months.” Enerplus, though, is one of the exceptions. “Some people might think that it’s not a great thing that we’re establishing this policy during the downturn, but I actually think it’s perfect,” Dundas says. “The only risk we’re taking with this OURtime policy is that people will confuse it with time off.”

“It’s really about having the ﬂexibility to be able to leave at 3 p.m. to pick up your kids, or being able to see the school play.” – IAN DUNDAS, ENERPLUS CEO

Lindenberg expects there may yet be some companies that decide to implement ﬂexible work arrangements – though there are limits to it. “This works well for the corporate jobs, but it doesn’t necessarily work if you’re running a gas plant in rural Alberta, for example,” he says. Dundas isn’t expecting to see bottom-line results from the new policy, but he says it’s part of a broader move within the company to open up the ofﬁce work culture. The company dress code, for example, was long ago dropped. For the most part, even in downtimes, he sees the policy as an attractive bonus for prospective employees. “You attract people who think, ‘Oh, you’re valuing my work, not the base time I contribute. You’re valuing my results – and I want to be there.’ ”

TACTICAL EMPLOYMENT What some companies are doing to retain and attract workers during downtimes

REDEPLOYMENT // When it’s time for layoffs, a company will always want to retain its most talented people. But what if those workers are in the very positions that need to be cut? One solution is redeployment, where high-skilled people are temporarily shifted over to other, more low-skill positions in order to keep them on the payroll during downtimes. For service companies, that can mean putting senior people like drillers or operators into roles that include, say, equipment maintenance, which makes those workers even more useful when activity picks back up. It can also include geographical redeployment. Tarpon Energy Services gave some of its employees the option to relocate to another region without any reimbursement for travel costs, according to a report by the Petroleum Human Resources Division of Enform.

DIVERSIFYING THE WORKFORCE

JOB SHARING

// Companies want to have the deepest pool possible from which to draw new employees, and a quick way to do that is to widen the scope of the search. Some oil and gas companies are looking to bring diversity to their workforce by reaching out to parts of the population that may be less inclined to choose a career in energy. Take Enbridge, which partnered with the Association of Professional Engineers and Geoscientists of Alberta (APEGA) and the Edmonton Catholic School Board (ESCB) on a program that matched aboriginal high school girls with mentoring engineers from the energy industry. For years Shell Canada has similarly partnered with Actua to connect with hard-to-reach youths through science, technology, engineering and math education programs.

// If a job is too big to do it alone, share it with someone else – and vice versa. Some energy companies are ﬁnding that job sharing can be beneﬁcial in bumping employees from full-time to part-time work during slower periods. According to a report by the Petroleum Human Resources Division of Enform, a representative from Ensign Energy Services said job sharing was a viable alternative to time off, as long as employees’ workloads aren’t reduced too much. There are also many government grants available to companies who wish to explore job-sharing programs, and many companies reported positive reviews of such programs, according to PSAC.

COMPANY TIME Oil and gas companies are among the most lenient when it comes to offering ﬂexible work hours. Still, some have a lot further to go when it comes to valuing their employees’ time

67%

10%

50%

35%

Companies that offer some level of ﬂexible work hours

Companies that adjusted their core hours during summer months

Companies that offer ﬂoating days off (average between 3-9 days per year)

Companies that give earned ﬂex days (median of 15 days per year) Source: Mercer survey of 200 Canadian oil and gas companies

AUGUST 2015

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REPORT ON Human Resources

MAN TRACKER Is equipping oil sands employees with RFID systems an important new safety measure – or an invasion of their privacy? By Todd Coyne — Illustration Jack Dylan

WHEN AS MANY AS 1,500 CONTRACTORS SHOWED UP RECENTLY AT Shell Canada’s Albian Sands bitumen mines for maintenance jobs this spring, they were crossing into a kind of uncharted territory that was suddenly, remarkably chartable. For years radio-frequency identification (RFID) systems have been used by industry to keep track of assets, account for wear and tear on equipment and, if necessary, find replacement parts. But in April, as the first of two scheduled month-long turnarounds got underway at Albian Sands, RFID was used for the first time ever to keep tabs on oil sands workers, as well. And while the pilot program was touted as a way to monitor worker fatigue and increase overall workforce productivity, it made some people wonder if it was really being deployed to improve safety conditions or if it was to simply improve the company’s bottom line. AUGUST 2015

In April, the Albian Sands mine became the ﬁrst to use RFID tracking on its contract workers

SHELL’S FINDINGS FROM THE PILOT HAVEN’T BEEN MADE PUBLIC, and it isn’t known if the trial achieved any of its stated safety or productivity goals. If successful, however, it will raise some important questions. Will the technology become permanent at Albian? And will Shell’s peers also deploy the technology within their own workforces? One thing there is no question about is Shell’s sincere interest in the results. “We saw value for [RFID] in this particular instance, and it allows us to vet it after the fact and see if it might be applicable elsewhere,” says Shell Canada spokesperson Cameron Yost. “That’s the benefit of a pilot project – you get to test drive it and see what else might be possible.” Indeed, what’s already possible with RFID is remarkable. Radio-frequency identification has transformed industries like shipping and transportation, and when used to track non-personnel assets in the energy sector, the gains it provides in efficiency are unmatched, and without controversy. Oilfield services giant Weatherford International pioneered the downhole use of RFID, creating traceable drillpipes and reamers that could respond to multiple activation signals while relaying information on temperature, pressure and cumulative operating hours, back to the surface. Other companies have long used RFID to co-ordinate the movement of equipment across supply chains or to track the movement of vehicles around mining sites. Vancouver’s Guard RFID recently partnered with Focus FS of Newfoundland to track and manage tools – and in the event of an emergency, personnel – in the Maritime province’s offshore oilfields. “It’s really a great tool,” says Richard Eichel, the Calgary-based

ALBERTAOILMAGAZINE.COM

secretary-treasurer and principal ofﬁcer for Teamsters Local 362, which represents unionized workers across the Prairies, including at Albian. “But only as long as it’s used properly. With a good principled employer, it’s no problem. But not all of them are going to be that way.” The worry from organized labor’s perspective is that companies could use the tracking technology to keep tabs on each employee’s time on tools, comparing the productivity of one against that of all and making workforce adjustments accordingly. For its part, Shell insists that was never the intention for its estimated 1,200 to 1,500 spring contractors who work at Albian. “We operate under the assumption that when our contractors come to work at Shell during these maintenance programs they want to do a good job, and we see this as an opportunity to remove some of the barriers that might be getting in the way of that,” says Yost. The RFID trackers used at Albian aren’t as precise as, say, GPS locators, and are only accurate to within 50 to 100 feet, according to the company. Therefore, the majority of the worker data they provide is an aggregate taken from groups of workers, rather than data on speciﬁc individuals.

PHOTOGRAPH BRYCE MEYER

What’s more, the company says, very few Shell operations staff were ever allowed to view the RFID system map and fewer still were given the tools to identify the dots on the control room screen as specific workers. The company promised the contractors that at no point would their on-site data be shared with their employer. “While laws prohibit us from individually attributing any information, what the RFID tags are able to provide is information in aggregate,” Yost says. “So what we’re able to see in real time are where there may be some pinch points. In a previous turnaround we had heard there was a bit of a bottleneck at our permitting station – where workers have to come in, apply for permits for the work they’re doing and then go out and do it – and historically it’d take us a little while to identify the problem through word of mouth or through the supervisor and then you’d have to go watch the problem for yourself. But with this system we could ideally be able to rectify the problem in real time on a much shorter time scale.” But good intentions aside, not everyone’s comfortable with Shell’s new toy. Having the capability to micromanage a workplace in real time and reduce worker productivity to a data set – even if explicitly not used in such ways – is for many a step too far. There is a phenomenon known as database creep, and it describes how an otherwise benign technology like location tracking can become unintentionally paired with an existing data set and reveal something that the employer never intended to track in the first place. And once that capability is there, it’s very hard to remove. A 2008 report to the Office of the Privacy Commissioner of Canada details how introducing workplace RFID can be a first step down a slippery slope to workplace surveillance. “If an RFID tag on a tool or object in the workplace is read in context with other chipped devices, such as the employee’s identification card, the potential for employee surveillance becomes very real,” the report says. “The value of tool tracking may be considered to be higher than the dignity of the workmen who use the tools.” Sometimes just the feeling – whether valid or not – that a company is secretly keeping tabs on some unspecified measure of worker performance is enough to sour relationships between employers and employees. For others, it’s the feeling of never being fully off-duty, even during break times, that can have a negative impact. And employee tracking can have repercussions outside the workplace too. The privacy commission report details how RFID records can be sought for reasons unrelated to employment, such as for law enforcement or civil court proceedings – as in divorce cases – where it’s useful to prove someone’s whereabouts at a particular time. Ken MacKenzie of the Edmonton chapter of the International Brotherhood of Electrical Workers, which represents tradesmen at Albian Sands and across the oilfield sector, says that while the union hasn’t officially taken a position on RFID tracking, he thinks the technology is part of an ongoing trend towards a greater emphasis on worker productivity. Safety, he says, has nothing to do with it. “Ultimately it’s all about the money. Any independence a worker has on the job today is really limited.” Shell’s use of radio-frequency tracking first came to the union’s attention by way of workers who had posted their concerns about privacy, ironically, to social media. But he says the creep of technology and especially

tracking into the workplace tends to raise fewer concerns among younger workers who have grown used to electronic monitoring as a part of modern life. “Overall you’ve got a younger generation working today who may be more accepting, but personally I’d ﬁnd this kind of thing degrading,” MacKenzie says. “It’s just a different world now.”

“If there’s an opportunity for us to increase the level of safety that our workers have on the job, then I think we should be open-minded about it.” – WARREN FRALEIGH, EXECUTIVE DIRECTOR OF THE BUILDING TRADES OF ALBERTA

Still, the arrival of electronic monitoring in the oilﬁeld only underscores the fact that the most valuable resource in the energy sector is the human one. But there may be better ways to show it. The Building Trades of Alberta is a federation of more than 75,000 skilled professionals in the province, and its position on Shell’s RFID pilot is that if the program improves workplace safety – and is within the bounds of the labor code – then it’s a no-brainer. “If there’s an opportunity for us to increase the level of safety that our workers have on the job, then I think we should be open-minded about it,” says Warren Fraleigh, the union’s executive director. “We’re still hurting people on the job and people are still dying on the job, so we need to ﬁnd a way to get to zero and I guess to do that you have to look at every option. You have to evaluate this at the end of the day and see if there were abuses of this technology that did affect somebody’s privacy.” As such, the real value of the pilot program won’t be determined by any safety or productivity gains made this time around but instead by how any data gleaned from the technology is used – or perhaps not used – in the future. AO

AUGUST 2015

REPORT ON Human Resources

RISKY BUSINESS Eight years of data on oilﬁeld fatalities in Alberta indicate where the dangers are – and what can be done to minimize them

HEART ATTACKS 3 DEATHS Workplace hazards can amplify the risk of stress-induced heart failure – and so can shoveling snow on a rig site.

THEY’RE YOUNG, ALMOST EXCLUSIVELY men in their 20s and 30s and their deaths are often preventable. Between 2006 and 2014, traumatic blunt-force injuries were responsible for a large proportion of the 86 recorded worker fatalities in the Alberta oil patch, second only to automobile accidents which accounted for one-third. Of course, wherever there is heavy machinery at work there is a special set of dangers, and backhoes, excavators, conveyor belts and haul trucks are still responsible for a large share of vehicular deaths in the oil patch. And then there is the inhospitality of northern Alberta’s natural environment, where inclement weather and even wildlife – as in the fatal mauling of a 36-year-old woman by a bear last year – can kill workers. That said, gains are being made in improving oil patch safety, and working in the energy sector is far from the most dangerous occupation for Alberta workers; construction is. In the early spring, the Oil Sands Safety Association announced its Seven Life Saving Rules for the oil patch. And while they might seem like obvious rules to work – and live – by, the OSSA wanted a common set of workplace safety principles to be shared by all Fort McMurray-area oil sands operators. That way, there could be no confusion among employees and especially contractors moving between sites over the course of their careers. While these rules alone won’t cut the number of oil patch deaths to zero, having clearly deﬁned boundaries about what’s safe and what’s unsafe out in the ﬁeld has to be the priority of any company operating in the sector.

ALBERTAOILMAGAZINE.COM

DERRICKS AND RIGS 16 DEATHS Falls, explosions and injuries from stray equipment accounted for the largest share of oilﬁeld deaths at the wellhead.

Want to ﬁnd out more about the Oil Sands Safety Association’s Seven Life Saving Rules? Go to albertaoilmagazine.com/ lifesavingrules to ﬁnd out.

PUMPJACKS 3 DEATHS The rotating counterweight on a pumpjack can be deadly for those unlucky enough to be struck in the head by it or pinned to the ground underneath.

COMMUTER VEHICLES 33 DEATHS

PIPELINES AND INFRASTRUCTURE MAINTENANCE 9 DEATHS

It’s no surprise that one of the top causes of death in young Canadians is also the top cause of death in the Alberta oilﬁeld. While there are dangers involved in many oilﬁeld jobs, getting to and from work remains the most dangerous part of the workday.

Steam burns, pressure releases, poisonings, crush injuries and pipelayer rollovers claim on average about one worker per year.

HEAVY EQUIPMENT 11 DEATHS Collisions and mishaps involving heavy haulers, excavators, augurs, backhoes, pressure trucks, water trucks and a conveyor belt have claimed nearly a dozen lives since 2005.

ELECTROCUTION 4 DEATHS Raising a ﬂare stack or derrick near power lines, or just tending to a control panel, proved fatal for these four oilﬁeld workers.

WILDLIFE STORAGE TANKS

1 DEATH

6 DEATHS

In 2014, a 36-year-old Irish oilﬁeld technician was attacked and killed by a large black bear near Fort McMurray. Prior to her death, the last recorded fatal black bear attack in the Alberta oilﬁeld was in 1980, when two riggers were mauled near Zama City.

As benign as they may seem, oil and biodiesel storage tanks were involved in a half-dozen oilﬁeld deaths in the last nine years – mainly from falls during their assembly or explosions while being welded.

AUGUST 2015

JUNIORS

The Walking Dead IF WHAT THE U.S. ENERGY INFORMATION

Administration (EIA) is predicting in its monthly Drilling Productivity Reports is accurate, we are going to see a significant move up in oil prices in the near future. Each month, the EIA releases a projection for where production in the major shale plays is headed month on month based on the underlying decline rate of existing production, the number of rigs currently drilling and the productivity levels of new wells being drilled. It is fairly scientific and should – more on that in a moment – be fairly accurate. That’s good news, given that its July forecast is highlighted by a 91,000-barrel-per-day drop compared to June. I think that is a big deal because without an immediate and large increase in the number of rigs drilling that means that we are going to see continued declines in the following months as well. This is actually the third straight month that the EIA thinks shale production will drop from the previous month. For May it predicted a drop of 57,000 barrels per day and for June it was 86,000 barrels. Over those three months, then, the EIA is suggesting that shale production will drop by a total of 234,000 barrels per day. If that happens, oil prices are moving higher. And if they don’t, well, I’ll eat my hat. Six months ago I couldn’t find anyone who would agree with me that shale production would level off in 2015. Now it appears like it might actually decline significantly. Of course, what puts a big “if” in front of all of this is the fact that these projections are coming from the EIA, an organization whose recent track record is less than impressive. In May, for example, it had to revise its first quarter U.S. production estimates up by

ALBERTAOILMAGAZINE.COM

20 15 10 5 0 Dec 2010

Dec 2011

Dec 2012

Dec 2013

Dec 2014

200,000 barrels per day. If they can’t get actual numbers right, why would we think that they could accurately forecast anything? That’s why you have to try and do some thinking for yourself, and for me it all comes down to knowing what producers are telling me and what the rig count is trying to. Every producer I’ve looked at is showing production decreasing from Q1 levels in the coming months. They don’t actually say that (because they don’t want to), but you can piece it together by looking at annual guidance and where Q1 production was. And while there are a lot of talking heads on the financial networks who keep telling me that the oil rig count drop from over 1,600 to 630 isn’t going to slow production because of efficiency gains, I don’t buy it. Yes these shale producers keep getting better and better – they have been getting better for the past eight years. But no matter how much more effective they’ve gotten, that can’t offset the loss of more than 60 per cent of the drilling rigs in the field. So, who would stand to gain the most from a quick move up in oil prices? Penn West Petroleum, for one. Yes, I know all about its debt levels and its over-leveraged balance sheet. I’m afraid to say that I found religion on the importance of clean balance sheets a little bit too late. With oil prices at current levels many of these companies are basically the walking dead – alive, but unable to grow or deleverage. And Penn West is a company that certainly looks like another debt laden zombie. But its CEO, Dave Roberts, has done some excellent work in focusing the company on only its best plays and driving the inefficiency out of Penn West’s operations. If you think the price of oil isn’t going to improve I would stick with the companies with the best balance sheets. But if you do think that oil is headed higher in the coming months, then it’s the companies struggling with debt like Penn West that offer the most torque. I think if oil gets back over $70 per barrel it will allow Penn West the opportunity to significantly reduce its debt level by selling non-core assets at decent prices. Doing that would remove fears of long-term viability that are weighing on its share price and potentially create a significant revaluation higher. AO Jody Chudley is the author of The Punchcard Portfolio, a value-orientated newsletter with a focus on Canadian oil and gas stocks.

Source: Yahoo Finance

The ﬁeld-level data hints at some upside for oil prices over the rest of the year. Why this debt-laden intermediate might be the best way to play it

Penn West Petroleum (TSE:PWT)

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CRUDE REPORT

A Strategic Retreat If it’s going to win the war for social license, it’s time for the energy sector to acknowledge that it’s lost the battle for public support

ADVERTISING IS NOT A WAR ALBERTA’S

energy industry can win. It doesn’t matter whether the pro-oil ads come from lobby groups or individual companies. And it especially doesn’t matter whether the ads contain useful facts about environmental progress or just an adorable dog wearing goggles. The result is always the same: Viewers who already support the energy sector get reinforcement of their opinions while opponents of oil and gas extraction get reason to become even more galvanized in their opposition to it. Nobody undecided on the issue of oil sands expansion is going to say ‘yes’ after watching 30 seconds of anything, even if it is the most clever, witty and informative content that the world’s most expensive and talented Mad Men-types can produce. Meanwhile, anti-oil activists can create far more evocative imagery and compelling arguments simply by ﬂashing a few climate change facts over 30 seconds of billowing smokestacks, tailings ponds and open pit mines. Even if a small minority of viewers does become more sympathetic to the energy sector as a result of its own ads, the ammunition they provide to their vast and vocal opposition does disproportionately

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more damage to the industry’s cause. Take the recent “Boycott Tims” fiasco. Enbridge ads on ‘Tims TV’ for five weeks might have influenced the opinions of a few customers, and the coffee chain’s decision to pull the ads a week early in response to an online petition might have even encouraged some of them to stand up and rightly call that decision out. Heck, you could even argue the ads were more effective than the pipeline company intended as a result of the whole situation. But doing that would require you to ignore why the petition to have the ads removed was created in the first place: People just don’t trust Big Oil. Sure, this country’s two largest pipeline companies might also be Canada’s largest producers of wind and solar power, and sure, energy executives are openly supporting a price on carbon. And yet, even if some people know about those things, they are still going to be outnumbered by those who believe something sinister is happening behind the scenes simply because ‘Big Oil’ is reputationally on par with ‘Big Tobacco’. The comparison is, of course, completely unfair, given that tobacco provides no direct benefit to humanity whereas cheap and reliable energy supports the very core of our modern way of life. But what the energy sector seems unable to realize is that, when it comes to public relations battles, fairness doesn’t matter. What matters is perception, and no matter how much money the energy sector spends on advertising it’s unlikely to change the perception that it doesn’t take climate change seriously. As David McLaughlin, former CEO of Canada’s National Round

Table on the Environment and the Economy wrote in a recent Globe & Mail op-ed, “The energy security mantra of the first decade of this century that assumed ‘the oil will always get through’ has given way in the first half of the second decade to a climate-change and sustainabledevelopment frame that casts fossil-fuel exploitation as a declining benefit, at best.” The last two words bear repeating: “At best.” With the world now viewing all oil and gas development through the lens of its potential impact on climate change, everyone is going to need more convincing on its merits than even the best 30- or even 60-second spot can provide. This is the new reality for the oil and gas industry, and it requires an entirely new process of public engagement. At the same time, with the sector struggling through one of its worst downturns in a generation, every dollar saved is of the utmost importance. In that context, it seems obvious to me that spending half a million dollars to hire a few more pairs of boots on the ground who can engage with the public on the industry’s behalf will be more effective than spending several million dollars on a new TV commercial. Energy executives are just now beginning to understand that direct engagement has become their best – and possibly last – hope of winning over their ever-expanding opposition. But in order for that process to truly start, the ads need to stop. AO

Jameson Berkow is BNN’s Western Correspondent. This article also appears on BNN.ca. Watch BNN in Edmonton on Shaw: channel 70 and in Calgary on Shaw: channel 89, as well as on Bell ExpressVu: channel 504, and Bell Fibe TV: channel 1504 across the country.

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