Petroleum Services News - Spring 2015

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2015 Drilling Activity Forecast Update When to Permit, When to Prorate T H E O F F I C I A L V O I C E O F T H E P E T R O L E U M S E R V I C E S A S S O C I AT I O N O F C A N A D A

Experts weigh in on the gloomy forecast for low oil prices

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Success at STARS & Spurs 2015

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CONTENTS SPRING 2015

Departments MESSAGE FROM THE PRESIDENT IN THE FIELD

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News, notes and events from the industry

BUSINESS MATTERS

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Should you consider registering a vehicle under the International Registration Plan?

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Features TAKING A BALANCED APPROACH Experts take on the doom and gloom surrounding low oil prices

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PSAC IN ACTION

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MEMBER PROFILE A LOOK AT LEADERSHIP Getting to know PSAC board members Ian McConnell and Dave McHattie

COVER

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2015 DRILLING ACTIVITY FORECAST

PITCHING IN The 21st annual STARS and Spurs Gala rings in another year of big success

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26 WWW.PSAC.CA

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Leaders never rest.

No matter what the hour, or how many hours they have in front of them, leaders stay the course. Through good times and bad, we’ve done just that, custom building solutions to help our clients do what they do best‌lead.

Because Alberta means the world to us. atb.com/Leaders

TM

Trademarks of Alberta Treasury Branches.

MESSAGE FROM THE PRESIDENT Embarking on a Challenging Year Ahead

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ELL, HOW TIMES CHANGE!

In the blink of an eye our industry has been hit by spiralling commodity prices and headlines are screaming of mass layoffs.

We were quite optimistic about the year ahead when we released our 2015 Canadian Drilling Activity Forecast back in late October amidst uncertainty that was already starting to brew in response to declining prices. As of the end of January, we have revised our forecast pricing assumptions and have adjusted our drilling activity forecast from 10,100 wells (rig releases) to 7,650. See page 22 for the detailed breakdown of PSAC’s revised forecast.

The year ahead promises to have some challenges as industry continues to respond to the changing economic landscape we now face. But there is still Mark Salkeld, President & CEO optimism to be had. With the strength of our collective membership, PSAC will continue to forge ahead to make inroads on the issues that matter most. Despite what may be some turbulent times ahead, the work to champion the interests of our members, including removing unnecessary obstacles to their future business success, is as important as ever.

We will continue to focus on four key strategic areas: health and safety, knowledge leadership, human capital and technology, and competitiveness and innovation. When prices rebound, we want to make sure our efforts help our members to be resilient and drive towards long-term business success.

Even in these times which we have faced before and survived, our industry remains generous and committed to supporting safe and vibrant communities. The PSAC-hosted 21st Annual STARS and Spurs Gala once again showcased that generosity, raising nearly $1.1 million supporting STARS’ life-saving emergency medical services. Thank you to this year’s guests, volunteers and donors, whose unparalleled generosity shows that when the going gets tough, well, the tough keep doing the right thing. See the re-cap of the event on page 24.

While there will be some uncertainty and pain points for our industry as we continue to ride the waves of pricing, the year ahead will be a time for us to demonstrate our commitment to innovation, operational excellence and the entrepreneurial spirit that transcends our membership and industry, putting Canada’s oil patch back in a leading position sooner than later. We have been through this before and came out better. This time will be no different.

Best Regards,

Mark Salkeld PSAC President & CEO

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You Gotta See thiS FrackinG thinG!

SPRING 2015 VOL 14 • No.4 The Petroleum Services Association of Canada is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC represents a diverse range of nearly 250 member companies, employing close to 75,000 people and contracting almost exclusively to oil and gas exploration and production companies.

PETROLEUM SERVICES ASSOCIATION OF CANADA 1150 800 6TH AVENUE SW CALGARY, AB T2P 3G3 TEL: 403.264.4195 FAX: 403.263.7174 EMAIL: info@psac.ca PRESIDENT AND CEO: MARK SALKELD VICE PRESIDENT, COMMUNICATIONS: KELLY MORRISON

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IN THE FIELD

News, events and activities in the industry COMING EVENTS PSAC’S DRILLING ACTIVITY FORECAST MID-YEAR UPDATE April 30, 2015 Westin Calgary, Alberta PSAC EDUCATION FUND GOLF CLASSIC July 16, 2015 Carnmoney Golf Club DeWinton, Alberta For more information and to register for an event, visit www.psac.ca/event

Canada’s Energy Blueprint, brought to you by ATB Financial LOOKING AT THE FUTURE STATE OF INDUSTRY April 22, 2015 Calgary, Alberta PSAC is pleased to present the first event in its 2015 Canada’s Energy Blueprint series, featuring Peter Tertzakian of ARC Financial, who will be presenting a comprehensive outlook on Canada’s oil and gas industry. Tertzakian will highlight some of the key outcomes to expect three, five and 10 years from now based on technology development, cost containment and efficiency, social acceptance and regulatory development.

Find out more at www.psac.ca/event.

PSAC 2015 Scholarship Competition Now Open PSAC IS NOW ACCEPTING online applications for its 2015 Education Fund scholarships. The awards include five $1,000 PSAC Regular Member scholarships and one PSAC Roger Soucy Legacy Scholarship, funded by KPMG in the amount of $2,500. The scholarships are open to PSAC Regular Member employees and their children.

The application deadline is April 24, 2015. To apply, visit www.psac.ca/education

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NEW MEMBERS REGULAR MEMBERS Big Guns Wireline Services Blue Spark Energy Expro Horizon Oilfield Solutions Inc. ASSOCIATE MEMBERS DivestLINK Advisory Partners LP ESI International Finning (Canada) LeaderSharp Group PFM Capital Inc. SunCity Chem & Polymers Canada Inc. Volvo Trucks Canada

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PETROLEUM SERVICES NEWS

Taking a Balanced

APPROACH Experts take on the doom and gloom surrounding low oil prices

BY ROBIN BRUNET

T

HE HEIGHT OF THE MEDIA’S

from the collapse of oil sands production to the bottom dropping out of B.C.’s liquefied natural gas projects.

But the reality and the news are two different things, and Todd Hirsch, chief economist at Calgary-based ATB Financial, is bewildered by the panic. “I just heard [Alberta’s] premier calling the price plummet the worst downturn in generations,” he says. “That could only be true if you have the lifespan of a golden retriever. About the only reason I can come up with for him making such an outrageous statement is that he’s trying to prepare Albertans for a tough budget.”

Hirsch says that even the experts can’t always be relied on to accurately predict the ebb and flow of prices. “As recently as five years ago, I inadvertently stuck my foot in my mouth by declaring that oil couldn’t go below $80 per barrel, and it promptly dropped to $30 – which is $17 less than it is today. I guess what I’m trying to say is that oil prices have always been like playing a game of snakes and ladders. Unexpected dramatic drops are, in a way, entirely expected.”

Mark Salkeld, president and CEO of the Petroleum Services Association of Canada, goes one better: “In my time I’ve seen oil plummet to $18 will still be down: “It’s going to be very hard per barrel, and yet we’re all still here,” he says.

Salkeld and his colleagues fully appreciate the challenges facing for Alberta to avoid a recession this year,” them. “There’s a lot of hype and talk going on, and rightly so, and he added.

It was just the latest in a daily spectacle of there’s no denying that the drop will break the backs of some playworried reporters citing $47-per-barrel oil ers, primarily newcomers,” he says. “But a few facts must be kept in prices as a potential trigger for everything mind. First, I don’t know of any significant producer that doesn’t have

obsession over the drop in oil prices came on January 13, when news outlets reported the Conference Board of Canada’s prediction that the drop will precipitate a recession in Alberta. Glen Hodgson, the Conference Board’s chief economist, was widely quoted as saying that even if oil rebounds to $65 per barrel, investment, profits and consumer spending

“WE WILL SURVIVE AND BOUNCE BACK, AND JUST AS HAS BEEN THE CASE IN PRIOR DOWNTURNS WE WILL BE LEANER AND STRONGER FOR IT, PLUS WE’LL HAVE FURTHER DEVELOPED TECHNOLOGY THAT PROVIDES EVEN GREATER PRODUCTION EFFICIENCIES.” – MARK SALKELD

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a 20-year plan in place, with everything calculated to accommodate a wide range of price downturn scenarios.”

Salkeld cites Crescent Point Energy Corp. as a perfect example of how seasoned producers weather price drops. “That company’s policy-makers have vowed to keep drilling all the way down to $20 WTI, plus it’s maintaining the $2.76 per share dividend this year partly because it hedged 50 per cent of its production next year at US$90 per barrel.”

Indeed, companies that hedged production in 2014 are significantly insulated from the price plummet. Calgary-based Encana Corp. hedged about 30,400 barrels a day of expected oil production between July and December of 2014 at an average WTI price of US$97.34 per barrel.

Cenovus Energy Inc. added financial hedges on 14,500 barrels a day of expected 2015 production, at an average Brent price of C$113.64.

Other Canadian energy producers benefiting from hedges include NuVista Energy, Whitecap Resources Inc. and Bonavista Energy Corp.

Salkeld’s second point is that business opportunities abound during any downturn.

Case in point: in December 2014, Tundra Oil & Gas Limited announced the purchase of 550 oil wells in southwestern Manitoba from a subsidiary of EOG Resources Inc. The wells produce approximately 7,000 barrels of light oil per day in the Waskada and Pierson areas. Tundra’s total production will now exceed 30,000 barrels of oil daily.

In December 2014, Tundra president Ken Neufeld told reporters, “Despite the recent volatility in the world oil markets, we take a long-term approach to our business and we believe that the addition of these assets will provide us not only with additional oil production in the short term, but with further development and enhanced recovery opportunities over the longer term.” Tundra will spend $70 million this year to drill and expand the newly acquired assets.

Much has been said about OPEC’s manoeuvring in response to the overwhelming success of hydraulic fracturing in the U.S. “It’s no secret that OPEC, led by Saudi Arabia, is trying to drive out the high-cost producers,” says Hirsch. “But I question the long-term sustainability of this strategy. While Saudi Arabia is a

12 SPRING 2015

low-cost producer, other OPEC members such as Venezuela are not, and it’s doubtful that ramped up production will be able to continue indefinitely.”

So, what form would the experts like a price recovery to take? “For the sake of industry overall I would prefer a gradual increase in prices; otherwise we will lose out on all the benefits associated with the ratcheting down of costs,” says Hirsch. In its first quarter 2015 Economic Outlook, ATB has outlined three risk scenarios for global energy prices and their implications for Alberta. In the first scenario, OPEC refuses to cut production – this would result in an oil price floor of US$40 WTI, more layoffs and provincial real GDP growth slowing to between 0.5 and 1.5 per cent.

In the second scenario (which ATB believes is most likely), OPEC members are not able to maintain production levels. This will mean a price rebound of above $60 per barrel starting in the summer. Oil sands production would be cut back, and GDP growth would hover at two per cent.

In the third (and least likely) scenario, global growth accelerates, OPEC dramatically reduces production and prices climb to US$70-90 per barrel. This would result in only modest curtailment in the oil sands, and GDP growth would remain above 2.5 per cent.

Although in all three scenarios Alberta experiences the slowest rate of GDP growth since the 2009 recession, the provincial unemployment rate remains at or below the national average, “and in no scenario does Alberta experience a recession,” says Hirsch.

The ATB Economic Outlook does, however, discuss other concerns about the oil and gas sector. “Energy transportation and access to markets will remain a key concern for producers in 2015,” it states in its overview. “As of the beginning of the year, there is still no resolution on any of the major pipeline projects (i.e., Northern Gateway, Keystone XL, Energy East or TransMountain). There is some optimism that the Republican-controlled Congress in the U.S. will approve the Keystone XL project, but a presidential veto is still possible, meaning the pipeline remains uncertain.”

For his part, Salkeld remains bullish about the long-term prospects of Western Canada oil producers. “We will survive and bounce back, and just as has been the case in prior downturns we will be leaner and stronger for it, plus we’ll have further developed technology that provides even greater production efficiencies.”

Hirsch sums up the sentiments of his colleagues when he concludes, “Nobody is denying the hurt that plummeting oil prices are causing. The only thing I don’t understand is how people who should know better think this is anything new, or out of the ordinary, or something that won’t be soon corrected. Anyone with a passing acquaintance of past trends knows that prices will climb in the spring and summer. Yes, job losses are occurring, but 2015 will essentially be a rebound year.”

“FOR THE SAKE OF INDUSTRY OVERALL I WOULD PREFER A GRADUAL INCREASE IN PRICES; OTHERWISE WE WILL LOSE OUT ON ALL THE BENEFITS ASSOCIATED WITH THE RATCHETING DOWN OF COSTS.” – TODD HIRSCH

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SURVIVING

THE DOWNTURN What oilfield services managers should consider in 2015

BY DAVID YAGER, NATIONAL LEADER, OILFIELD SERVICES, MNP

B

Y NOW, THOUSANDS OF oilfield

services owners and managers across the WCSB have realized that 2015 is going to be a long and difficult year. As upstream cash flow available to oil company clients for reinvestment declines because of lower commodity prices, capital budgets are being slashed. Customers are also asking their suppliers to share in the correction by seeking reduced pricing for goods and services. Services companies don’t have much choice in this market.

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THE OBJECTIVE IS TO GET THROUGH THE DOWNTURN WITH THE COMPANY INTACT WHILE PRESERVING THE GREATEST NUMBER OF JOBS.

STRIVE FOR PROFITS, NOT PRACTICE, AND YOU’LL BE AMAZED AT WHAT YOU CAN LIVE WITHOUT WHEN YOU HAVE TO.

We’ve been here before. While oil prices are well below replacement cost and are ultimately unsustainable, a fundamental change in world oil markets has taken place. Low-cost producers in the Persian Gulf have abandoned their traditional role of “swing producers” to support prices.

It’s now up to other producing regions to reduce supply (or increase demand) to raise prices. This will take time. Meanwhile, doing nothing and waiting for a recovery simply isn’t an option for the service and supply sector, which must deal with the market as it exists today. Here are some ways to help your company manage these tough times and emerge with a leaner, more efficient organization:

COMMUNICATE HONESTLY WITH LENDERS Lenders hate surprises. They don’t want your assets or your company; they want their money back and they’ll work with you if you show them you have a strategy to survive the downturn, position yourself for the recovery, and ultimately pay them back. Every oilfield services company with debt is facing the same challenges, so your lender won’t be surprised if you are delivering bad news. Be honest and don’t wait too long. If you don’t have a plan, make one fast.

HAVE QUALITY FINANCIAL STATEMENTS AND FORECASTS Should you want or need to refinance or restructure your debt, raise equity, merge with a competitor or otherwise change your financial structure, quality and timely financial statements are essential. This includes monthly TELL YOUR STAFF WHAT’S GOING ON Getting through this slump will be a team effort, so you’ll need your team P&L reports plus Review Engagement annual statements. Many financial on your side. The job market is shrinking fast, so your staff will be ready institutions won’t lend to or invest in companies without comprehensive (maybe) for some “tough love.” Don’t be alarmist, but be honest: this is and independently prepared annual financials. While forecasting is certainly not the time to ask for a raise. The objective is to get through the difficult in today’s dynamic market, being able to demonstrate you can downturn with the company intact while preserving the greatest number model your future revenue and expenses is critical. of jobs. Elicit everyone’s help to cut costs wherever possible. Align their RETOOL FOR PRICE CUTS success with the company’s success.

With oil and gas prices down, clients will be looking for their suppliers to share the pain by working for less. “No” is the wrong answer; instead SLASH DISCRETIONARY SPENDING Be merciless in determining what you can live without. Review all non- “how” has become the challenge. Oilfield services companies cannot essential expense accounts, unassigned employee use of company vehicles, succeed unless their customers succeed. The primary way E&P companies travel and club memberships, and determine which capital expenditures compensate for lower commodity prices is by spending less and the oilfield and repairs can be deferred. Close unprofitable locations and dump services must participate. But oil companies know they cannot succeed marginal service and product lines. Strive for profits, not practice, and by bankrupting their vendors, so as you negotiate, ask if your clients are making the same cuts they’re asking you to take. you’ll be amazed at what you can live without when you have to.

16 SPRING 2015

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CONSIDER PAY CUTS AND JOB SHARING In the 2009 slump, many services companies cut wages for managers and staff. This works in a downturn because all your competitors are in the same boat and your employees have nowhere to go. Management must lead by example – if the top dogs make proportionately bigger sacrifices, everyone will fall into line. Retool your company’s base and bonus compensation to reward success, not activity. Promise to return everyone to higher income levels as soon as possible and follow through.

RUN CREDIT CHECKS Available cash for oil companies will be reduced in three ways: lower production revenue, reduced credit facilities and much higher costs for equity. If your clients can’t pay their lenders, they certainly can’t pay you.

When the order comes in, don’t move until you’re sure you’ll be paid.

Doing the work then not collecting will exacerbate an already challenging financial situation.

STRESS-TEST YOUR STATEMENTS AND BALANCE SHEET Will your company make it through a prolonged downturn? Will you have the money and flexibility to continue to operate the business in the most normal fashion possible, ensuring your assets, shareholders’ equity and your “sweat equity” are preserved so that when the recovery comes (and it will come) you’ll be able to exploit it and preserve your work and investment?

MNP’s Corporate Recovery group is staffed by financial advisory specialists who can help managers and owners determine financial risks, analyze cash flows, optimize cash management and review lender KNOW YOUR JOB DELIVERY COSTS As you reduce prices, extracting the maximum possible gross margin from obligations to minimize the chances of a default and avoid the worst each transaction becomes essential. It’s important to know and control possible outcomes. This includes reviews of accounts receivables, payables, direct costs. If your staff is efficient and does every job right the first time, inventory and underutilized capital assets with an objective of maximizing in some cases you can make the same margin at lower prices. With fuel cash flow. prices down and labor under control (see above), pleasant surprises can emerge from doing less work better.

FULL DISCLOSURE In 2009, the writer was CEO of a medium-sized, TSX-listed services company. Between 2008 and 2009, revenue slumped from $114 million MERGERS WORK One proven way to preserve shareholders’ equity is consolidation with to $82 million and EBITDA plunged from $10.4 million in 2008 to $0.8 competitors. The objective is to spread management costs across a larger million in 2009. The company shrank from 900 employees to 625. We revenue base. Clients want to do more work with fewer and larger vendors, defaulted on our senior debt covenants, but our banker stayed with us. so put your ego on the shelf and find a way to preserve your investment, Every strategy above, except the merger, was employed and we lived to fight perhaps by owning less of a larger organization that has a fighting chance another day. It was sold in 2012 for more than six times what it traded at during the bottom of the 2009 slump. of being positioned to exploit the recovery when it comes.

STREAMLINE MANAGEMENT In good times, organizations often become top heavy. The objective should be to keep the greatest percentage of your skilled and trained revenuegenerating personnel while examining all levels of non-revenue generating management to maximize efficiency. The primary criterion for who stays and who goes should be performance, not seniority.

QUALITY AND TIMELY FINANCIAL STATEMENTS ARE ESSENTIAL.

MANAGEMENT MUST LEAD BY EXAMPLE – IF THE TOP DOGS MAKE PROPORTIONATELY BIGGER SACRIFICES, EVERYONE WILL FALL INTO LINE.

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Times are tough.

And so are you.

Successful oilfield services companies know the importance of adapting quickly to volatile markets. MNP’s Oilfield Services team delivers the financial management and business advisory tools you need to become more cost efficient, effective and competitive. By optimizing business fundamentals, we help your operation become more resilient—and better equipped to overcome the toughest times.

Contact David Yager, MNP’s National Oilfield Services Leader at 403.461.8566 or david.yager@mnp.ca

Photo courtesy of Beaver Drilling Ltd

BUSINESS MATTERS

When to Permit, When to Prorate SHOULD YOU CONSIDER REGISTERING A VEHICLE UNDER THE INTERNATIONAL REGISTRATION PLAN?

BY SANDY JOHNSON

I

RECENTLY MET WITH an Alberta company that won

WHAT TO KNOW If your company is based outside of the province you’re working in., there could be a provincial sales tax on vehicles (“goods”) that come into the province for “temporary use.” This takes into consideration how many days the vehicle is used in the province over a 12-month period. In general, a vehicle is exempt from PST if the number of days is five or less.

For instance, in British Columbia under the temporary use formula, you pay seven per cent PST on the depreciated value of the vehicle in instalments over a three-year period. In this case, the company owed roughly $23,000 PST in 2014, 2015 and 2016.

The fleet manager didn’t know about the PST issue until an accountant at the company’s head office asked why they had recovered $312 from the customer for the trip permit but not any of the $23,000 in PST. But here’s the kicker: the customer had called about doing more jobs in B.C. and also Saskatchewan, which has a five per cent PST on any commercial equipment, vehicle or tools used in the province for one or more days in any 12-month period.

Now what?

A DECISION TO MAKE Instead of paying for single trip permits and PST, the company could license vehicles under the International Registration Plan. With IRP, you pay licensing fees and prorated sales tax to your base jurisdiction at the time of registration. The jurisdiction will calculate and forward the proper amounts to other IRP jurisdictions according to the proportion of distance you travel there.

Licensing a million-dollar rig that spends 80 per cent of its time in Alberta and the other 20 per cent divided between B.C. and Saskatchewan would cost a total of $2,396 per year under IRP. It would be exempt from PST and instead the owner would pay a

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PHOTO COURTESY BELCO DRILLING EQUIPMENT

a contract moving equipment from Slave Lake to Prince Rupert, B.C. They had factored a 30-day trip permit ($312) and Alberta base plate ($2,400) into their bid, but failed to account for having to pay roughly $70,000 in B.C. provincial sales tax on the million-dollar piece of trailing equipment used during the move.

When your business crosses provincial borders, considerations like this can cause mass confusion about what is and isn’t taxable.

Unfortunately, confusion isn’t a valid excuse during an audit. Here’s what you need to know about operating vehicles across the border:

“LICENSING A MILLION-DOLLAR RIG THAT SPENDS 80 PER CENT OF ITS TIME IN ALBERTA AND THE OTHER 20 PER CENT DIVIDED BETWEEN B.C. AND SASKATCHEWAN WOULD COST A TOTAL OF $2,396 PER YEAR UNDER IRP.” prorated sales tax of $3,294 to B.C. and $2,353 to Saskatchewan.

The company could operate in all three provinces for three years for roughly what it would cost for one year of trip permits and PST paid to British Columbia alone.

WHEN TO PERMIT Whether to use trip permits or register vehicles under IRP depends on how many days you plan to operate outside your home province and whether the company has already paid sales tax on that equipment.

Registering a vehicle under IRP doesn’t represent a cost savings in every case. But it’s worth calculating the real cost of using single trip permits.

Sandy Johnson is the founder of North Star Fleet Solutions, a Calgarybased provider of vehicle tax and licence compliance services. She can be reached at 1-877-860-8025 or northstarfleet.com.

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mergency Response Assistance Canada (ERAC) formerly LPG Emergency Response Corp. (LPGERC) began operating in 1997 with a mission to provide 24/7/365 emergency preparedness and response services to shippers and carriers of LPG gas covered under the TDG Emergency Response Assistance Plan (ERAP) Act and Regulations. ERAC provides the ERAP development and a national preparedness and response capability to more than 300 organizations across Canada. When activated, our Response Teams (RTs), Remedial Measure Advisors (RMAs) and Flammable Liquids Technical Specialists (FLTSs) will report to Incident Command, who is often the local Fire Department Chief or designate. Operating under Incident Command System, the ERAC Response Team reports to Operations as a strike team.

ERAC has developed preparedness and response plans that cover the entire country in support of oil and gas producers, carriers and first responders.

ERAC ensures well-trained and qualified people, quality equipment, knowledgeable advice and timely assistance to allow responders to deal effectively with LPG incidents by road, rail and stationary tanks greater than 450 L. LPG Products included are: Propane (UN1978) Butane (UN1011) Propylene (UN1077) Butylene (UN1012) Isobutene (UN1969) Isobutylene (UN1055) LPG (1075) Recently, after the tragic events of Lac-MĂŠgantic, Quebec where a train carrying crude oil derailed and exploded killing 47 people, Transport Canada issued a Protective Direction 33 which requires shippers to have an ERAP for the following: Flammable Liquids, N.O.S. (UN1993) Alcohols, N.O.S. (UN1987) Gasoline (UN1203) Hydrocarbons, Liquid, N.O.S. (UN3295) Ethanol (UN1170) Petroleum Distillates, N.O.S. (UN1268) Fuel, Aviation, Turbine Engine (UN1863) Diesel Fuel (UN1202) Petroleum Crude Oil (UN1267) Ethanol and Gasoline Mixture (UN3475 ERAC, with support from the Canadian Propane Association, Canadian Association of Petroleum Producers and the Rail Association of Canada, created a new ERAC Flammable Liquids (FL) Division to support the requirements of Protective Direction 33.

One significant difference, in the new Protective Direction 33 ERAP requirement for the Flammable Liquids, is Transport Canada requires all ERAP holders to provide firefighting technical advice and firefighting foam and equipment to the first responders on scene as needed. ERAC is committed to providing this support on behalf of our Plan Participants (those we serve as shippers and carriers of dangerous goods). ERAC has developed detailed activation and response plans which identifies significant foam and equipment caches strategically located coast to coast. In addition, we have recruited Flammable Liquids Technical Advisors (FLTAs) available 24/7 to provide firefighting advice by phone and Flammable Liquids Technical Specialists (FLTSs) to provide firefighting advice at the scene alongside the rail technical specialists identified in our Plans.

ERAC operates across Canada with 10 LPG Response Teams, 34 LPG RMAs, 4 Home Base Coordinators (HBCs), 11 FL Response Teams, 14 FLTSs, 6 FLTAs and 1 Emergency Call Centre operated under a division of STARS. ERAC takes great pride in providing the training and assessment of all of our responders and being Canada’s only national emergency preparedness and response organization with a Transport Canada approved ERAP. Our priority is to ensure we have competently trained individuals ready and able to support flammable gas and liquids incidents to ensure public and first responder safety.

ERAC response personnel are extensively trained in the handling, storage and/or transportation of LPG and Flammable Liquids products and containers.

ERAC provides Plan Participants with responders trained using National Fire Protection Association standards as guidelines. Once a year, Regional Training and Assessment is held in each region across Canada for the RMAs, Response Team Leaders (RTLs), Alternate Team Leaders (ATLs), FLTSs, FLTAs and the Response Team Members to test their skills and update them on any new developments. Once every two years, a National Training session is held for all the RMAs, HBCs, FLTSs, FLTAs, RTLs and ATLs across Canada to share their experiences, learn new skills and refresh their knowledge. In addition to the above training, all FLTAs and FLTSs will receive Fire Specialists training for crude and flammable liquids.

More information on ERAC and our services is available at www.erac.org.

DRILLING ACTIVITY FORECAST UPDATE

Drilling Forecast Revised PSAC’S 2015 DRILLING FORECAST DECLINES 24 PER CENT AMID SLUMPING OIL PRICES 2015 CANADIAN DRILLING ACTIVITY FORECAST (NUMBER OF WELLS)

ALBERTA: 4,187 SASKATCHEWAN: 2,679 BRITISH COLUMBIA: 415

MANITOBA: 364

TOTAL IN CANADA: 7,650 Note: Total includes activity in Northern and Eastern Canada.

I

N ITS FIRST UPDATE to the 2015 Canadian Drilling

Activity Forecast, the Petroleum Services Association of Canada (PSAC) has revised its forecasted number of wells drilled (rig releases) across Canada for 2015 to 7,650 wells. This is a decrease of 2,450 wells from PSAC’s original 2015 drilling forecast released in late October 2014, representing a 24 per cent decline.

PSAC is basing its updated 2015 forecast on average natural gas prices of C$2.50 /mcf (AECO), crude oil prices of US$57bbl (WTI) and the Canada-U.S. exchange rate averaging $0.84.

“The rapid decline of oil prices over recent weeks is taking hold,” says Mark Salkeld, president and CEO of PSAC. “There is enormous pressure on services companies to cut costs even in the face of slim margins.

They are responding and some difficult times may lie ahead in the immediate term, but companies are focusing on what can be done now to keep key personnel, enhance efficiencies and optimize operations.”

On a provincial basis for 2015, PSAC now estimates 4,187 wells to be drilled in Alberta, down from 5,740 wells in the original forecast.

Approximately 25 per cent fewer wells are also expected to be drilled in British Columbia, with PSAC’s revised forecast now at 415 wells for the province, down from 555 in the original forecast. The revised forecast

22 SPRING 2015

for Saskatchewan now sits at 2,679 wells, compared to 3,365 wells in the original forecast, and Manitoba is forecasted to see 364 wells, or a decline of 66, in well count for 2015.

“The impacts of the current downturn have sent ripple effects throughout Canada. This is not just affecting our industry negatively,” continues Salkeld. “We have been through this before and will get through it, but how long the pricing environment persists is a real unknown. Although people may appreciate the dollars they save at the pump, the negative impact to investment portfolios, other industries and government coffers is serious.”

The Petroleum Services Association of Canada is the national trade association representing the service, supply and manufacturing sectors within the upstream petroleum industry. PSAC represents a diverse range of nearly 230 member companies, employing approximately 70,000 people and contracting almost exclusively to oil and gas exploration and production companies. The Canadian Drilling Activity Forecast can be used with the PSAC Well Cost Study to effectively determine potential drilling and completion market sizes, as well as pricing and activity direction. For more information, contact PSAC at info@psac.ca or 403-264-4195.

PETROLEUM SERVICES NEWS

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2015 Mid-Year Drilling Activity Forecast Thursday, April 30, 2015 11:30 am – 2:00 pm Westin, Calgary

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Join the Petroleum Services Association of Canada as we present its 2015 Mid-Year Drilling Activity Forecast on April 30, 2015 to get important business intelligence to help fuel your ongoing planning to deal with the current downturn.

Can’t Join Us? You can get forecast numbers and other key information on top operators, meterage, and well type breakdown in regions across Canada in PSAC’s Canadian Drilling Activity Forecast publication.

When used in conjunction with the PSAC Well Cost Study, the Canadian Drilling Activity Forecast can be used to determine potential market sizes for drilling and completion products and services, as well as pricing and activity direction.

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23

24 SPRING 2015

PETROLEUM SERVICES NEWS

PSAC IN ACTION THE PETROLEUM SERVICES ASSOCIATION OF CANADA (PSAC) CONTINUES TO KEEP THE SERVICE, SUPPLY AND MANUFACTURING SECTORS FRONT AND CENTRE THROUGH ADVOCACY AND OUTREACH. LABOUR AND WORKFORCE MANAGEMENT

• PSAC met with Alberta’s new Jobs, Skills, Training & Labour Minister Ric McIver to introduce him to PSAC’s membership and PSAC’s various labour initiatives underway. Also attending by conference call were the minister’s chief of staff and assistant deputy minister (workforce strategies division).

• While in Ottawa, PSAC met with Eric Johnson, director of Alberta-Federal Relations for the Government of Alberta, to introduce PSAC’s membership and key facts, issues and initiatives.

Premier Prentice has announced that, notwithstanding changes to key positions for that office, Eric Johnson will remain in Ottawa.

• PSAC participated in an employer forum hosted by the Canada Employment Insurance Commission, which included presentations and discussions with deputy ministers and senior government staff from Employment & Social Development (ESD) Canada as well as a roundtable discussion with ESD Minister Jason Kenney. PSAC also participated in a roundtable event hosted by Citizenship and Immigration Canada Minister Chris Alexander on the new Express Entry program due to launch on January 1, 2015.

HEALTH AND SAFETY PROPOSED CHANGES TO THE ALBERTA OCCUPATIONAL HEALTH & SAFETY (OH&S) CODE • PSAC participated in a joint project with the other upstream petroleum industry trade associations to propose changes to Part 37 – Oil and Gas Operations – of the Alberta OH&S Code. The project was undertaken in response to the Alberta government’s scheduled review of parts of the OH&S Code.

• The associations are also working on a proposal to harmonize OH&S legislation governing oil and gas operations in the four western provinces. This proposal is being advanced through the process set up by the premiers of Alberta, British Columbia and Saskatchewan under the New West Partnership.

RIG MOVING AND HEAVY HAUL IN SASKATCHEWAN • PSAC arranged a meeting in Regina between member companies and representatives from the Saskatchewan Ministry of Transportation to discuss concerns raised by members related to the permitting process for the movement of rigs and heavy equipment in Saskatchewan.

INTERNATIONAL BUSINESS AND TRADE • PSAC had the opportunity to sit down with senior policy personnel from the Department of Foreign Affairs and Trade Development to introduce PSAC’s membership and to discuss technology, exports and corporate social responsibility initiatives, all of which have an impact on Canada’s image abroad.

PSAC PRESENTS In February, PSAC delivered presentations to the following: • The University of Calgary School of Public Policy, on hydraulic fracturing • The Association of Financial Professionals – Calgary chapter on PSAC’s 2015 revised Canadian Drilling Activity Forecast, and • The Energy Council of Canada on workforce and labour issues CONGRATULATIONS TO PSAC MEMBERS • Calfrac Well Services’ Ed Oke was honoured as Senior Human Resources Executive of the Year in Alberta Oil’s C-Suite Energy

WWW.PSAC.CA

Executive Awards. ComplyWorks Ltd. and McCoy Global were both recognized in Alberta Venture’s Fast Growth 50 rankings, and ENTREC Corporation and STEP Energy Services ranked first and second place respectively on the list.

Congrats to all!

PSAC IN THE MEDIA • PSAC was recently quoted or featured by several media outlets, including the Calgary Herald, CTV News Calgary, Daily Oil Bulletin, Edmonton Journal, and National Post.

25

Pitching In

The 21st-annual STARS and Spurs Gala rings in another year of big success More than 1,000 people attended the 21st Annual STARS and Spurs Gala presented by PSAC

A STARS helicopter

D

Canadian country music artist Corb Lund entertains the crowd

26 SPRING 2015

ESPITE A TROUBLING ECONOMIC FORECAST amid falling oil prices, Canada’s energy sector showed its support for STARS on January 24, by helping to raise more than $1 million.

The long-running STARS and Spurs Gala, an annual fundraiser in Calgary presented by the Petroleum Services Association of Canada (PSAC), has raised more than $11 million over the past 21 years. Mark Salkeld, president and CEO of PSAC, says he is proud of the industry’s support for the one-of-a-kind event, and credits all sectors in oil and gas for working together to help ensure STARS is available to be there for critically ill and injured patients.

“This year’s event was another huge success,” says Salkeld. “Our event helps ensure that STARS’ emergency medical response services stay in the air. Our partnership with STARS has endured two decades, and it’s no wonder with the continued generosity and support of PSAC members and the industry as a whole.”

The continued backing of individuals, corporations and the energy industry left STARS president and CEO, Andrea Robertson feeling overwhelmed. “We are humbled by the support we received from PSAC and those who participated in the gala this year,” says Robertson.

“Twenty-one years and more than $11 million raised has led to thousands of lives saved. This partnership reflects the commitment our community has to helping others.”

PETROLEUM SERVICES NEWS

Premier Jim Prentice and his wife Karen were among the special guests in the audience, as was MLA Rick Fraser. In a speech, Prentice acknowledged the downturn in the economy, noting that Albertans are “tough” and will weather the storm.

The event, held at the BMO Centre at Stampede Park in Calgary, was attended by nearly 1,200 guests, who enjoyed dancing to music by local country singer Corb Lund and participated in an entertaining live auction, led by auctioneer Bill Brown and his team from Elevate Auctions.

The live auction was an incredible success and a highlight of the evening, raising $657,000 through 16 different items. The live auction packages ranged from a Primetime Emmy award experience to drilling services valued at $100,000. One energy company generously spent $268,000 on three different industry packages. Meanwhile, there were 194 items in the silent auction that raised nearly $100,000. The silent auction saw spirited bidding too, with the top prize – a Paul McCartney-autographed guitar – selling for $4,600.

“OUR PARTNERSHIP WITH STARS HAS ENDURED TWO DECADES, AND IT’S NO WONDER WITH THE CONTINUED GENEROSITY AND SUPPORT OF PSAC MEMBERS AND THE INDUSTRY AS A WHOLE.”

THANK YOU TO THE SPONSORS OF THE 2015 STARS AND SPURS GALA, PRESENTED BY PSAC: DIAMOND SADDLE: Clean Harbors Halliburton Ruby Reins Canyon Technical Services Black Diamond Group EMERALD LARIAT: DiCorp Williams Joseph

Savanna Energy Service Newalta Corporation MNP Baker Hughes Grant Production Testing Services Ltd. Crescent Point Energy Western Energy Services Corp.

Strad energy Services

SILVER SPUR: JuneWarren-Nickle’s Energy Group Cargill Wells Fargo

BRONZE BUCKLE: CIOC Tenaris Schlumberger Willow Park Wines & Spirits Style Craft Printing

– MARK SALKELD

In addition to representatives from the energy sector, the event was attended by a number of STARS’ volunteers and Very Important Patients (VIPs). One of those VIPs, Larry Stevens, was injured in November 2011, when he fell into an auger while working on a farm near Stettler in central Alberta. He was joined on stage by STARS’ flight paramedic Ron Pasieka and flight nurse Pat Jeffery – the air medical crew on Stevens’ mission. The trio painted a vivid picture of Stevens’ ordeal and rescue, which ended with him losing his leg due to the extent of the damage.

Despite his loss, Stevens said he is grateful every day.

“Before all of this happened, STARS was just a few helicopters that flew around,” Stevens told the audience. “I will admit, I never really donated at all, but I am living proof that it really can happen to someone you know. I donate now more than ever and I am there to help out STARS any chance I get.”

Next year’s gala, the 22nd-annual, will be held on January 23, 2016.

PSAC presents STARS with a cheque for close to $1.1 million. From left to right: Andrea Robertson, STARS President and CEO; Mark Salkeld, PSAC President and CEO; Wally Dumont, PSAC and Gala Committee Chair

WWW.PSAC.CA

ner

Part

ce

plian

om s in C

Partners In Compliance

Member organizations exceed benchmarks developed by industry leaders, Alberta Transportation and Enforcement. PIC members have transformed their safety programs into safety cultures.

To learn more about what membership might mean for you please call 1·877·448·7456 (Northen Alberta) 1·800·267·1003 (Southern Alberta) www.partnersincompliance.com

Excellence

on our roadways 27

MEMBER PROFILE

A Family Affair ELLIOT & ASSOCIATES CONSULTING COMBINES LOFTY SAFETY STANDARDS WITH CLOSE CLIENT RELATIONSHIPS

BY ROBBIE JEFFREY

F

OR TWO DECADES,

Debbie Elliot worked for a major oil company, managing its cathodic protection operations and supervising field surveys for engineering coop students every summer. After the company left Canada, she started Elliot & Associates Consulting, which was incorporated in 2004. Today, the company’s logo is the Elliot clan badge, and Elliot runs the company along with her niece, April. It’s a small operation, but the company thrives on close-knit relationships with its clients. Elliot says she “can’t imagine ever being big enough that someone else is answering my phone,” and she stands behind a decade-long commitment to safety and enduring partnerships with her clients.

“OUR RELATIONSHIP WITH OUR CLIENTS IS VERY PERSONAL – IF THEY HAVE A CATHODIC PROTECTION PROBLEM, THEY CAN CALL THE OFFICE AND KNOW WHO THEY’RE TALKING TO.” – DEBBIE ELLIOT

Cathodic protection, as Elliot succinctly describes it, is the science of protecting steel using a sacrificial metal. It can happen through galvanic corruption, where a less noble metal will corrode when it’s attached to a more noble metal, or with an impressed current system, using a DC current. Cathodic protection fell under the purview of electricians until February 2013, when it became a designated occupation under regulations drafted by industry associations and Alberta’s Apprenticeship and Industry Training Board.

Now, the industry requires some extra training of its practitioners, including a week-long training course at Enform. But that’s nothing new for

28 SPRING 2015

Elliot & Associates, where safety is the bedrock of the company.

With its office in Lethbridge and operations predominantly around the Fox Creek and Red Deer area, Elliot & Associates distinguishes itself by making safety paramount. “We’re a lot more adamant about safety than some people with skilled experience are used to. We have quite a high work standard,” Elliot says. “I wouldn’t be able to handle someone being seriously hurt doing the work we do because our standards are rigid enough where that really shouldn’t happen.” Elliot & Associates sends its employees to a driver training evaluation, and Elliot personally spends a few days with them in the field to establish a strong, trustworthy relationship.

And while the company has grown to include large international clients, it stays true to its roots. “Our very first client had three fields and a total of seven wells and seven pipelines,” Elliot says. “That was his entire operation, and we still do his work. He was our very first field survey. Our relationship with our clients is very personal – if they have a cathodic protection problem, they can call the office and know who they’re talking to.”

Elliot says that even if she had her way, the company would never be bigger than eight to 10 people, and she sings the praises of April, whom she says her clients can call upon at any time and her response will be instant.

“I really like to work that way, and I like to work with other companies that also work that way,” she says. Ultimately, the most rewarding part of the job for Elliot is knowing that her company effectively balances rigorous safety standards and close relationships with its clients. If you don’t believe it, you can call them – Elliot will answer.

PETROLEUM SERVICES NEWS

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A LOOK AT LEADERSHIP PETROLEUM SERVICES NEWS TALKS WITH PSAC’S BOARD OF DIRECTORS AND TAKES A PERSONAL LOOK AT LEADERS IN THE SERVICES SECTOR. THIS ISSUE WE MEET: IAN MCCONNELL Vice-President, Corporate Core Laboratories Canada Ltd. DAVE MCHATTIE Vice-President, Institutional Relations, Canada Tenaris Global Services Inc. IAN MCCONNELL

DAVE MCHATTIE

IF YOU COULD HAVE ANY OTHER JOB OR OCCUPATION, WHAT WOULD YOU BE? IM: Airline pilot.

DM: University professor.

WHAT MOTTO OR PHRASE DO YOU LIVE BY? IM: Treat people the same way that you would want to be treated.

DM: What is the right thing to do?

WHAT IS YOUR FAVOURITE BOOK OF ALL TIME? IM: Because We Are Canadians: A Battlefield Memoir by Sergeant Charles Kipp.

DM: Good to Great by Jim Collins.

IF YOU COULD TRAVEL ANYWHERE IN THE WORLD, WHERE WOULD YOU GO? IM: The Cook Islands and New Zealand with my golf clubs, a hat and some sunscreen.

DM: The guesthouse in Hawaii from Magnum, P.I.

WHAT ABOUT MOVIE? IM: Butch Cassidy and the Sundance Kid. DM: Tin Men or Ferris Bueller’s Day Off.

IN 10 WORDS OR LESS, WHAT WOULD YOU SAY ABOUT HOW 2015 IS GOING TO TURN OUT? IM: Please God, give us one more chance at this oil patch.

DM: An opportunity to build a strategic platform for the future.

IF YOU COULD INVITE THREE PEOPLE (DEAD OR ALIVE) TO DINNER, WHO WOULD THEY BE AND WHAT WOULD YOU SERVE? IM: Winston Churchill and my two grandfathers. I’d feed them my signature meal (below).

DM: Wayne Gretzky, Mahatma Gandhi and Warren Buffett. The meal would be unimportant.

WHAT DO YOU THINK IS THE BIGGEST CHALLENGE FACING CANADA’S ENERGY INDUSTRY AT THIS TIME? IM: Low oil and gas prices, quickly followed by public perception.

DM: To provide Canadians with the economic literacy required to understand the opportunity of energy development for our nation’s economy. If they don’t understand the value of developing the oil and gas sector, I fear Canada will never again see private businesses invest in the infrastructure projects required to get our energy to market.

WHAT WOULD YOU SAY IS YOUR BIGGEST ACCOMPLISHMENT TO DATE? IM: In my personal life, my three sons, all taller than me, though that last bit isn’t saying much. In business, I took a f ledgling, struggling company and, along with my team, made it the “best in class” in its niche industry.

DM: Achieving a career that brings challenges every day.

30 SPRING 2015

IF YOU COULD CHANGE ONE THING ABOUT YOURSELF, WHAT WOULD IT BE? IM: Height-to-weight ratio.

DM: I would like to be more outgoing.

WHAT IS YOUR MOST TREASURED POSSESSION? IM: Ryan, Michael and Matthew, who call me Dad. DM: My Wayne Gretzky rookie card.

WHO ARE YOUR HEROES IN REAL LIFE? IM: My parents (who grew up during the Great Depression and started a family after WW2 with nothing) and my wife Laurel.

DM: My family.

WHAT FOOD DO YOU CRAVE? BETTER YET, WHAT IS YOUR SIGNATURE MEAL? IM: Are jelly beans a food group? I crave veal cutlets, and my signature meal is fried chicken, creamed corn, salad with poppy seed dressing and a cold Canadian 67 beer delivered in a Saskatchewan Roughrider frosted glass, followed by another beer.

DM: I crave penne arrabiata, but I no longer have any time to cook for myself.

PETROLEUM SERVICES NEWS

SUCCEEDING in turbulent times Maintaining in a downturn market means knowing how to leverage your options—pursuing acquisitions or divestitures, corporate carve outs, accessing and structuring debt or equity capital, as well as preserving cash flow.

KPMG’s Corporate Finance advisory team has robust experience to provide strategic advice to help meet your business objectives.

For more information on how KPMG can assist you, please contact:

Rhys Renouf

Managing Director KPMG Corporate Finance 403-691-8426 rrenouf@kpmg.ca

Othello Tuason

Vice President KPMG Corporate Finance 403-691-8384 otuason@kpmg.ca

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© 2015 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 8316

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