SUMMER 2013
Financial Planning for the Rest of 2013
SERVICES
FracFocus Expands into Canada Worker Engagement Highlights Spring Conference
MADE IN
CANADA Hyduke Energy and other services sector companies are finding a high demand for their innovative technology in markets around the world
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It’s a done deal Mergers & Acquisitions Winning the deal is easier when you hold all the cards. At KPMG, our network of mergers and acquisitions professionals possess the experience and forward thinking necessary to help you meet the time constraints of the deal.
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Alex Henderson Partner, Transaction Services (403) 691-8140 alexanderhenderson@kpmg.ca
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© 2013 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. 2249
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CONTENTS
SUMMER 2013
Departments Message from the CHAIR In the Field
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News, notes and events from the industry
Drilling Activity Forecast Update
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Increased activity is expected in the Western Canadian Sedimentary Basin
PSAC in Action Advocacy initiatives from PSAC spread far and wide
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Features Globe Trotters Canada’s energy services sector exports innovative technology around the world
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Member Profile A Look At Leadership Up close and personal with PSAC board members Quinn Holtby and Doug McNeill
FULL DISCLOSURE A website using transparency to dispel myths about hydraulic fracturing comes to Canada
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Financial planning for both increased and decreased activity in the field
Pentagon Optimization Services monitoring new technology
COVER
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Business Matters
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Educate, Engage and Excel Highlights from the annual PSAC Spring Conference
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MESSAGE FROM THE CHAIR Building Trust Through Transparency
I
t has become clear that the Canadian petroleum services,
supply and manufacturing sectors are global leaders through innovations used at home and abroad. Technology advances are continuously improving the operational, environmental and safety performance in the field, along with increasing productivity. However, many Canadians are unaware of how these technologies actually work and their far-reaching benefits. To increase the understanding of the processes and regulations involved across the upstream oil and gas value chain, PSAC hosted its inaugural Canadian Energy Technology Blueprint Summit in March. Expert panelists demystified technologies and innovations related to seismic, hydraulic fracturing, water treatment and reclamation, and pipelines. This event was Lucas Mezzano, PSAC Board Chair well attended and well received by government representatives, students and PSAC member company employees. With hydraulic fracturing operations, commonly known as “fracking,” receiving increased attention this was a timely opportunity to improve the general understanding of this technology. But this is just a first step. PSAC recognizes that hydraulic fracturing is a critical part of our industry’s business and without it accessing many proved reserves of oil and natural gas could quite literally grind to a near halt. The complexity of today’s modern wells is undoubtedly hard to understand for people who don’t work closely with these technologies every day. PSAC members are very confident about how well we operate, so we welcome the opportunity to improve transparency in our performance as a way to build public trust. That’s why PSAC has launched the Working Energy Commitment. Our members are the ones who perform hydraulic fracturing and associated services, and that’s why our voice needs to be heard in the ongoing discussions about how we operate. We also need to communicate more openly and regularly about service sector innovations that are drivers of the continual improvement in our industry’s performance. The Working Energy Commitment is our way of communicating the commitment of our members, who carry out hydraulic fracturing operations, to listen and address public concerns. It began with a Statement of Principles that are a set of values to guide us as we communicate and collaborate with our on-the-ground stakeholders and industry peers. The Working Energy Commitment will be the framework within which we can discuss with Canadians the petroleum services sector’s contribution to the industry, and map a set of operating practices that reflect the innovation applied to a very old technology – hydraulic fracturing. Or, to put it more simply, a hydraulic fracturing code of conduct. To do this, PSAC will gather stakeholder input from residents, land owners and elected officials through a series of conversations with Canadians over the coming months. This input will help us draft a code of conduct based on four cornerstones: health, safety and environment; technology and innovation; stakeholder communication; and community respect. This is a significant undertaking for PSAC and for the industry as a whole, and supports our broader strategy of increased stakeholder engagement to increase the profile of PSAC and its more than 250 members. This communication process will be done across Canada, with meetings from British Columbia to New Brunswick. Establishing meaningful dialogue with stakeholders is important, with our primary focus always on enhancing our advocacy efforts to help us run successful businesses. In this regard, PSAC’s Board of Directors and senior executive met recently for two days in Red Deer to update the association’s strategic plan. This is an exercise that is done every three years. A member survey was recently conducted to help stir PSAC’s strategic direction and guide efforts over the next cycle. Member engagement will be a priority and I look forward to helping establish an ongoing conversation with members that will be critical to PSAC’s ability to deliver on its members’ behalf. We always welcome your feedback on all of our activities and initiatives, and encourage you to get more involved with your association.
Lucas Mezzano PSAC Board Chair
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Petroleum services news
2013-05-17 2:54 PM
SERVICES SUMMER 2013 VOL 13 • No.1 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 260 member companies, employing more than 80,000 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 PRESIDENT AND CEO: MARK SALKELD VICE PRESIDENT, COMMUNICATIONS: KELLY MORRISON COMMUNICATIONS COORDINATOR: LINDA ALDRIDGE
PETROLEUM SERVICES NEWS IS PUBLISHED FOR PSAC BY VENTURE PUBLISHING INC. 10259-105 STREET, EDMONTON, AB T5J 1E3 TEL: 780.990.0839 FAX: 780.425.4921 TOLL-FREE: 1.866.227.4276 CIRCULATION@VENTUREPUBLISHING.CA PUBLISHER: RUTH KELLY ASSOCIATE PUBLISHER: JOYCE BYRNE MANAGING EDITOR: STEVE MACLEOD CONTRIBUTING WRITERS: Eric Astley, Alexandria Eldridge, Jordan Wilkins ART DIRECTOR: CHARLES BURKE ASSOCIATE ART DIRECTOR: ANDREA DEBOER ASSISTANT ART DIRECTOR: COLIN SPENCE PRODUCTION MANAGER: BETTY-LOU SMITH PRODUCTION TECHNICIANS: BRENT FELZIEN, BRANDON HOOVER DISTRIBUTION: KAREN CRANE ACCOUNT EXECUTIVES: DAVID FRAZIER, DENNIS McCORMACK
PRINTED IN CANADA BY RHINO PRINT SOLUTIONS. RETURN UNDELIVERABLE MAIL TO 10259 105 ST. EDMONTON AB T5J 1E3. CIRCULATION@VENTUREPUBLISHING.CA • PUBLICATIONS AGREEMENT #40020055 CONTENTS © 2013 PSAC. NOT TO BE REPRINTED OR REPRODUCED WITHOUT PERMISSION.
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Audit t Tax t Advisory
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in the field
News, events and activities in the industry
Petroleum Services Sector Employees PSAC Opens Online Receive Certifications Auction to Support Congratulations to the individuals Education who have received their Petroleum Competency Program (PCP) certifications in the past year. PSAC is proud to support this program, which is managed by the Petroleum Human Resources Council of Canada – now a part of Enform – and is designed to build a national, skilled workforce with standardized, identifiable skills by using competency standards to assess and certify workers. For more information, visit www.petrohrsc.ca.
Snubbing Services Chad Barney Chad Clarke Nelson Cripps William Dunford Graham Fraser Graham Gaudet Todd Gripich Martin Jean Roy Muckler Carl Nylen Ryan Rechlo Patrick Schlyter Transportation Melvin Budge Colin Dineen John Hoglund
COMING EVENTS PSAC Education Fund Golf Classic July 18, 2013 Calgary Elks Lodge and Golf Club Calgary, Alberta
2014 Canadian Drilling Activity Forecast October 30, 2013 TELUS Convention Centre Calgary, Alberta
PSAC Pre-Drilling Season Meeting September 12, 2013 Fort St. John, British Columbia
PSAC Industry Insights Dinner October 30, 2013 TELUS Convention Centre Calgary, Alberta
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Education Fund Golf Classic online auction is now open. Proceeds from the auction go to the PSAC Education Fund, which supports Canadian students and helps to build the future labour force for the oil and gas industry. This year’s auction items include three terrific packages including: Flames Fever, a package to attend a Calgary Flames game in a luxury suite; Kokanee Springs Resort Golf Getaway, the ultimate getaway for a foursome; and the Nokian tires package, a set of four Nokian passenger or light truck tires. The auction closes at 1:30 p.m. on July 18, 2013. The winning bids will be announced at the PSAC Education Fund Golf Classic Tournament and will be posted on PSAC’s website. For more information and to place a bid, visit www.psac.ca/onlineauction.
New Members
Well Testing Chris Berlinguette Jason Brooks Jamie Rempel
PSAC Annual General Meeting October 30, 2013 TELUS Convention Centre Calgary, Alberta
The 2013 PSAC
For more information about PSAC events, visit www.psac.ca/events
Regular Members Aker Well Service, A Division of Aker Solutions Oilfield Services Canada Inc. Arctic Therm International, A Division of Enterprise Group Inc. Evolution Well Services Fall Protech Consulting Ltd. Forum Energy Technologies Hi-Kalibre Equipment Ltd. Mustang Well Services Ltd. Jewel Energy Service Inc. PTI Group Inc. Associate Members Accretive Financial Corp. Choice Office Furniture Ltd. Cube Data Management System Dynamic Filtration Ltd. Jim Pattison Lease Lloyd Sadd Insurance Brokers (Calgary) Ltd. RPM Industries LLC
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DRILLING ACTIVITY FORECAST UPDATE
Rising Rig Activity PSAC’s drilling forecast continues upward trend
T
he Petroleum Services Association
of Canada (PSAC) has revised its 2013 Canadian Drilling Activity Forecast with another slight increase in the expected number of wells drilled during 2013. PSAC has added 600 wells to its original forecast from November 2012 for an estimated 12,000 wells drilled (rig releases) across Canada for 2013. PSAC is basing its April 2013 update on average natural gas prices of CDN$3.40/mcf (AECO) and crude oil prices of US$90 per barrel (WTI). “Drilling activity is keeping on a steady pace this year, and we
anticipate another pickup in activity in Q3 and Q4,” says Mark Salkeld, president and CEO of PSAC. “Even with steady levels of activity this year, continued low gas prices and the impact of infrastructure bottlenecks that are squeezing access to new markets are certainly having an impact.” PSAC’s mid-year update was released at a luncheon on April 25. The 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.
2013 CANADIAN DRILLING ACTIVITY FORECAST (NUMBER OF WELLS)
ALBERTA: 7,563
457
286
12,000
SASKATCHEWAN: 3,268
BRITISH COLUMBIA: 457
MANITOBA: 670
TOTAL IN CANADA: 12,000
Note: Total includes activity in Northern and Eastern Canada.
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Petroleum services news
2013-05-17 2:57 PM
Globe
Trotters by Jordan Wilkins
Innovative technology developed by Canada’s energy services sector is being sought after from around the world
H
yduke Energy Services Inc. wandered
a little further outside of its own backyard during 2012 and more than doubled its international business. The drilling rig and well servicing equipment manufacturer increased its international revenue from 22 per cent of its overall business in 2011 to 45 per cent of the company’s $108 million of revenue in 2012. Hyduke’s president and CEO Gord McCormack learned pretty quickly during his company’s expansion to overseas markets that there is a huge demand for products that meet Canadian standards. With temperatures ranging from 30°C to -30°C, an abundance of heavy oil, and rock formations that can be difficult to drill into, Western Canada is one of the most expensive basins in the world to produce oil and natural gas. Since Alberta’s first natural gas well was spudded in 1908 at Bow Island in the southeast corner of the province near Medicine Hat, Canadian companies have been forced to develop new technologies to combat the harsh environment and improve industry processes. This has led to advances in the Canadian services sector being the most reliable, and thus sought after, technology in many of the major petroleum markets in the world. “If it’s good enough for Canada, it’s good enough for the rest of the world,” McCormack says. “We work in extremely challenging conditions and we generally only do so a few months out of every year.” Hyduke is headquartered just south of Edmonton in Nisku’s industrial hub, and has been providing Alberta’s oil and gas industry with drilling rigs and other well servicing equipment for more than 35 years. The company now operates in more than 20 countries, ranging from the frozen tundra of Siberian Russia to deserts in the
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Middle East and Australia, and tropical jungles in South America and Southeast Asia. Hyduke’s increased work in international markets earned the public company the Exporter of the Year award at the Alberta Export Awards, which are presented by the Canadian Manufacturers & Exporters and the Alberta Government. The need to expand its work in foreign countries was partly to combat what McCormack calls an often misleading amount of local activity in the Western Canadian Sedimentary Basin. “The oil and gas sector is very cyclical, especially when it comes to the new equipment end of the business,” he says. “There are years where there is very little capital spending (in Alberta), despite the fact that there is a lot going on. Our international customers help us maintain sustainable revenue when this is happening. When you want to grow as a company, the first step is to diversify.” Many Canadian petroleum services companies looking to diversify and maintain a consistent revenue stream have found mutually-beneficial partnerships in foreign markets where companies are looking for Canadian-made products and technology. McCormack attributes a combination of meeting environmental challenges and a strong focus on maintaining high industry standards as the reason Canadian petroleum technology is in high demand. “Our industry is very robust
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in regards to our safety standards,” he says. “Self-regulation has led to some of the highest worldwide standards and many international organizations turn to Canada for leadership.” Unscheduled downtime also negatively affects Canadian petroleum companies more than in other parts of the world because the window for opportunity in Canada is relatively small in comparison. “We’ve designed equipment that compress downtime,” McCormack says. “This obviously increases productivity and efficiency; if I’m a multi-national oil company, those are two things I’m looking for in the product I’m buying.” As the industry continues to innovate, the processes employed to extract oil and gas from difficult to access rock formations has created an increasingly complex suite of technologies. The industry’s ability to further deploy these innovations, abroad and domestically, partly hinges on the ability to demystify technology for the general public to make the industry more accessible and transparent. Part of Hyduke’s export program also includes its knowledge and expertise. The company focuses on providing service and maintenance to its extensive product line after they have been
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deployed in other parts of the world. McCormack says the growing international popularity of horizontal wells and multi-stage hydraulic fracturing has put many Canadian companies, including his own, in advantageous positions. Pipe handling and automation technology is another area that McCormack has seen take off in other regions of the world. Hyduke was joined by Kudu Industries Inc. as a major award winner at the most recent edition of the Alberta Export Awards. Kudu, which was named Exporter of the Year at the 2011, took top spot in the Leadership category at the award’s presentation back in March. Kudu’s main line of business is manufacturing progressing cavity pumps (PCPs) that extract everything from heavy oil to light oil, dewatering gas wells and coalbed methane out of the ground. Several years ago, Kudu made it a company goal for half of its revenue to come from exports by 2015. Hans Gjerdrum, vice-president of international business development with Kudu, joined the company around the time that goal was made and predicts that in 2013 about 60 per cent of the company’s revenue will come from international clients. He says that part of Kudu’s success comes from the company’s willingness to adapt its product line to meet the needs of its customers. But, with customers in several oil and gas producing regions around the world, the demands from each area can vary greatly from one another. Kudu’s company culture places a large emphasis on research and development in order to keep innovation high for its foreign and domestic clients. Kudu’s PCP solutions are supported and serviced by industry specialists and incorporate designs for a variety of well conditions. As well as being designed to work with several different natural resources, the pumps meet a wide-range of well types including horizontal, slant and directional drilling. Gjerdrum believes that it’s this innovation and adaptability to the industry that has made many petroleum services companies successful outside of Canada’s borders, despite foreign competition that is usually considerably larger with more resources and lower manufacturing costs. “In Canada, a lot of companies are small and specialized but are competing against giants,” he says. “This is a challenge but it can be done, you just have to learn from other companies.” Several other services sector companies are already operating in various markets around the world and a handful of them were also award
recipients at the 2013 Alberta Export Awards. For other services sector companies looking to take advantage of Canada’s reputation as a world class provider of innovative oilfield processes and technologies, proper market research and analysis should be undertaken before stepping out onto the world stage. “People who want to grow exports need to step outside of their own company and product,” Gjerdrum says. “When looking at a specific market, you should find out what other companies are doing and analyze their successes and their failures.” Canadian companies looking for examples of success don’t have to look very far. Hyduke has partners in many aspects of the petroleum industry, and in several different countries. But, whenever it comes time for the company to search for a product outside of its specialty, McCormack says they rarely look outside of Canada. “Canadian companies are no doubt leaders in this industry,” he says. “There may be disadvantages to working in Canada, but our reputation isn’t one of them.”
TEACHING TECHNOLOGY The Petroleum Services Association of Canada (PSAC) is increasing its communication with communities in an effort to provide a clearer picture on how the relationship between regulations and technology mitigates the risk of completing wells. The association hosted its inaugural Canada’s Energy Technology Blueprint Summit in March as part of its public engagement strategy. The full-day session featured experts to discuss several technologies used in the field, such as seismic, hydraulic fracturing, water treatment and reclamation, and pipelines; as well as the innovations that help make these operations more efficient, safer and more environmentally friendly. It’s these advances that appeal to foreign operators around the world. “I do think we are a leading player and the response is overwhelming in the industry that people seek out our knowledge,” said Greg Boone, Calgary market leader for business and tax incentives with Ernst & Young LLP, during the event.
Petroleum services news
2013-05-17 4:10 PM
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Petroleum services news
2013-05-17 4:10 PM
Full
Disclosure A website that helps educate and inform the public about hydraulic fracturing comes to Canada
A
by Alexandria Eldridge
n American website is moving into Canada
the site for reporting new wells beginning on January 1, 2012. On the first day of 2013, Alberta operators were also required to use FracFocus.ca for reporting new wells, after the Energy Resources Conservation Board enhanced the reporting requirements for fracture fluids. The other western provinces require companies to submit ingredients to their respective provincial regulator, but haven’t adopted the FracFocus.ca site as a reporting tool. There’s certainly a possibility of that happening, as Nickolaus believes FracFocus provides a benefit to the industry in its efforts to improve its relationship with the public. Rather than forcing FracFocus.org was started in the United States and is an initiative of interested people to dig up information through provincial or state the Groundwater Protection Council (GPC) and the Interstate Oil and regulators, FracFocus makes it easy to find and access the information, Gas Compact Commission. The site was created as a way to create public creating more transparency and awareness about the practice increasing public awareness. of hydraulic fracturing. “We were trying to provide “We knew there was a great something that was much easier deal of interest by the public for the public to access and much with respect to finding out more transparent for them,” says what chemicals were being – Mike Nickolaus, special projects director FOR GPC Nickolaus, adding that in the used in hydraulic fracturing,” U.S. more than 500 companies says Mike Nickolaus, special use FracFocus voluntarily, for those very reasons. “[Industry] projects director with the GPC. recognizes that there’s a public relations issue. People think that Part of the website is dedicated to education and explains in layman’s terms the process of hydraulic fracturing and chemicals used the industry is very secretive and they don’t want to tell anybody anything.” in the process. The site also serves as a registry of completed wells and In most cases, companies aren’t sharing information on FracFocus their hydraulic fracturing ingredients, searchable by fields such as that the public wouldn’t already be able to access through provincial region and operator. regulators. In Canada, operators and suppliers can apply for Launched in April 2011, FracFocus.org has attracted more than exemptions for disclosing confidential business information to protect 500,000 visitors, has more than 41,000 disclosures and 11 states are using it as their mandatory reporting mechanism. Shortly after the site trade secrets. FracFocus.ca will continue to have more information on operations launched, the B.C. Oil and Gas Commission entered an agreement to in Alberta and B.C. in the summer months as operators report their use the FracFocus system in Canada and FracFocus.ca was created. All newly drilled and completed wells. well operators in the west coast province were required to start using
and using transparency as a way to help dispel myths about hydraulic fracturing. While hydraulic fracturing technology has unlocked enormous potential for growth in unconventional oil and gas plays, misinformation about the practice is widespread, which leaves the public with questions about health and environmental safety.
“We were trying to provide something that was much easier for the public to access and much more transparent for them.”
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Educate, Engage and Excel T PSAC SPRING Conference Provides Several Opportunities to Empower Services Sector Workers
he PSAC 2013 Spring
Conference held in Red Deer, Alberta, on April 16 and 17 offered delegates a wide array of timely topics related to transportation, human capital management and leadership development. The opening plenary session provided an overview of drug and alcohol testing in the workplace. Wayne St. John of CannAmm Occupational Testing Services characterized drug and alcohol policies as an important element that needs to be part of a company’s larger safety program, akin to policies regarding required safety gear for workers. “It’s simply no different,” he said, “because it’s really all about safety and reducing accidents.” St. John emphasized that a well-written drug and alcohol policy does not need to be written from scratch, but it must be legally defensible, comply with human rights and be applied consistently to be effective. He also noted that a well-designed program balances the rights and protection of the employee with the rights of the company, including providing a safe work environment for all employees. The importance of consistency was also heard in Martin Kratz’s presentation, The Boundaries of Social Media. Kratz, a lawyer with Bennett Jones LLP, advised delegates to engage internal stakeholders including human resources, marketing, management and IT when developing a policy. Kratz also recommended the policy should not be a “motherhood statement,” but that it should be a detailed statement of expectations, applied consistently and have consequences when it is breached. “Quite simply,” he said, “it must be important to the company.” Kratz said that although consistency is
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Jim Tittemore of Bottom Line Impact delivered an enlightening and entertaining final session to a full house entitled, “Coach or Mentor: What’s the Difference?” critical to the success of a social media policy, it should be flexible so it can adapt to changing uses of social media platforms. He also highlighted the importance of planning for a crisis stemming from social media and gave many examples of the sudden and dramatic impact an incident can have on a company’s reputation. Daryl Johnson’s presentation, Pay It Forward: Fostering Culture and Total Rewards, also touched upon the consistency theme but in an entirely different context. He addressed the issue of consistent labour shortages now and into the future in Canada, due to reduced birth rates and the growing number of retiring Canadians. To retain workers, Johnson said, they must be engaged. He pointed out that increased financial compensation is not necessarily the best means of engaging employees. Offering benefits like more flexible schedules and recognizing contributions consistently can have a much greater and positive impact on engagement, and thereby employee retention. Johnson said engaging employees is not merely a feel-good thing, but that it drives bottom line results. For example, studies have shown that companies with an engaged workforce can have up to 19.2 per cent higher operating income than companies with a disengaged one.
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Delegates were armed with conversation ice breakers at the 2013 Spring Conference with a PSAC trivia game designed to encourage delegates to visit exhibitors. The game also provided participants with a few facts outside of the education sessions.
PSAC president and CEO Mark Salkeld presents Ted Graul of Strad Energy with the $250 prize for winning the 2013 Spring Conference evaluation form draw. Other highlights from the conference included the session, Strategies for Managing a Safer More Effective Fleet. Mike Koebel of AssetWorks Inc. outlined a variety of options where technology, such as electronic logs, combined with behaviour-based safety is the most effective strategy for reducing workplace incidents. Douglas Smith of Baker Hughes stressed the importance of conducting a risk assessment and developing a journey plan to prevent injuries. Jim Tittemore of Bottom Line Impact delivered an insightful and entertaining final plenary session, which focused on the value of mentoring and coaching programs. Through examples and through an exercise akin to CBC’s Dragons’ Den television show, Tittemore was able to communicate the difference between mentoring (passing on knowledge) and coaching (helping someone achieve goals). At the end of the day, he noted that both programs are about creating good feelings, and that benefits both the company and employees. The spring conference dinner also brought a message of consistency – the importance of always wearing personal protective equipment (PPE). Guest speakers, Jamie and David Dyck recounted their powerful story of David’s miraculous survival following a violent explosion while performing a routine maintenance procedure. PSAC’s Spring Conference will be held again next April in Red Deer, Alberta.
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Thank you to the 2013 Spring Conference Sponsors Major Sponsors Baker Hughes Capilano Truck Driver Training Institute Cenovus Energy Enterprise Commercial Trucks GEOTrac Systems JuneWarren-Nickles Energy Group Kal Tire Conference Sponsors AbaData Arresting You Ltd. AssetWorks CANNAMM Occupational Testing Services Ditch Hitch Driving Force EHS Partnerships Enform J.J. Keller & Associates Inc. Nexus Exhibits Ltd. Northbridge Insurance OBP Promotions & Awards Ltd. Partners in Compliance Productivity Alberta Roadata Rogers Insurance SAIT Polytechnic Sterling Western Star Trucks Alberta Ltd. Conference Supporters Alberta Government WCB – Alberta Willson Audio Visual WorkSafe BC
Petroleum services news
2013-05-17 3:00 PM
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2013-05-17 3:00 PM
PSAC in action The Petroleum Services Association of Canada (PSAC) continues to keep the services sector front and centre through advocacy and outreach PSAC Launches the Working Energy Commitment
PSAC, together with 11 of Canada’s leading pumping services companies and PSAC members, recently launched the Working Energy Commitment. This initiative is aimed at increasing public confidence in hydraulic fracturing operations and outlines principles under which its members conduct themselves, now and into the future. By supporting this initiative, these member companies signify their pledge to communicate with communities and continuously improve how they deliver services that support the responsible development of Canada’s vast oil and gas resources. Over the coming months, PSAC will be holding meetings with community members and stakeholders in key operating areas to discuss a Code of Conduct that will define mutual expectations of how services companies and communities can work together, and to set out service sector operating practices to respond to issues and concerns related to hydraulic fracturing. More information on the Working Energy Commitment can be found at www.oilandgasinfo.ca. Public Disclosure of Chemicals Used in Hydraulic Fracturing Operations In March, PSAC hosted an information session with representatives from Health Canada and Environment Canada, as well as provincial regulators from across Canada to discuss the public disclosure of chemicals used in hydraulic fracturing operations. This event featured a presentation from the developers of FracFocus, an online registry used for these operations, and a panel discussion with subject matter experts. Awareness of public disclosure requirements is important to companies operating in Alberta and British Columbia, as the Energy Resources Conservation Board and the B.C. Oil and Gas Commission have mandated the use of FracFocus for this purpose.
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PSAC Continues to Address Labour Issues Prior to the release of the 2013 federal budget, PSAC participated in a pre-budget roundtable discussion hosted by Rona Ambrose, federal Minister of Public Works and Government Services and vice-chair of the Treasury Board, and recommended a review of taxable benefits related to transportation and accommodation for out of province/town workers, the reinstatement of the Overseas Employment Tax Credit (OETC), training credits and infrastructure to aid competitiveness. PSAC also met with representatives from Human Resources and Skills Development Canada (HRSDC), and Alberta Enterprise and Advanced Education to continue discussions on addressing eligibility issues through foreign worker programs for skilled workers without post-secondary or trade credentials. PSAC Participates in Alberta’s Regulatory Enhancement Project PSAC attended an Alberta Regulatory Enhancement Project (REP) roundtable discussion this spring regarding notification processes for licensing and land use notification. The discussion centred around approval timing, notice to landowners, and reciprocal timing for responses from all parties when issues arise. PSAC Promotes the Canadian Petroleum Services Sector in Colombia
Mark Salkeld, president and CEO of PSAC, presents to delegates attending the Colombia Generates conference in Cartagena, Colombia in February 2013. PSAC was invited by the 2013 Colombia Generates conference organizers to deliver a presentation to delegates in Cartagena, Colombia in February. The presentation highlighted the advances and successes of the Canadian petroleum services sector with the purpose of developing relationships and networks for Canadian companies who currently operate and those with intentions to operate in the area.
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BUSINESS MATTERS
Financial Game Plan With two quarters down and two to go, here are six ideas for completing 2013 on a winning note by Lisa Ricciotti
B
ruce Edgelow doesn’t have
a crystal ball, but he does have a talent for long-range forecasts. Edgelow, vice-president of energy with ATB Financial, watches industry trends and its players closely, and right now Edgelow doesn’t see easy victories ahead. “The market isn’t as robust as a year ago,” he says. “It’s a cautious, rather skittish environment; activity is muted. At best, the challenge for the energy services sector is to maintain the same results as last year.” Still, the market could change rapidly to either brighter or gloomier times, so Edgelow suggests a savvy plan for both contingencies. 1. Don’t stay the course, make the course Without robust growth, most companies expect to work a little harder, but that means doing more, not just more of the same. Before developing a strategy, companies should start with some self-reflection. “To determine what ‘doing more’ means for you, start by revisiting the touchstone questions of your business: Who are we? Who are we serving? Who generates the most revenue for us? Who takes a lot of time for small returns?” Edgelow asks. 2. Grow with good businesses An examination of a company’s client base will usually prove the 80/20 rule, where the majority of income is coming from a short list of names. Businesses should focus on the most profitable of their customers and identify a key company that’s in a growth cycle. How can you grow with them? Is there a new service you could add that this company needs? Initiate discussions by making your willingness to “grow with them” known.
22 Summer 2013
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3. Think strategic growth Expanding operations into new geographic regions or taking on new clients could be good moves to grow a company, but growing just for the sake of growing is not always beneficial to the overall business. “The business buzz might be that everyone is opening shops in the U.S., or wherever, but that doesn’t necessarily mean it’s right for you,” says Edgelow. Is the new market potential enough to justify new costs for additional infrastructure and staff? Be absolutely certain before committing; now is not the time for unproven risks. Although it’s tempting to grab every opportunity, assess what new clients bring to a company to determine whether the time and resource investment are feasible. Avoid random growth which could fragment a company’s focus beyond its capabilities and jeopardize the ability to serve key existing clients. 4. Never underestimate the power of relationships “In this business, it’s all about relationships,” says Edgelow. “Build them, preserve them and know when they’re at risk.” For example, never assume that expansion into a new line, say adding drilling to pumping services, means clients will automatically start using those new services. They might have an existing relationship with another supplier that they might not want to walk away from. It’s rarely a case of build it and they will come.
Petroleum services news
2013-05-17 3:01 PM
Also, listen to the grapevine to know when business relationships could be at risk. Rumours that a company may be bought or change hands often means new owners will have different supplier relationships. Suddenly it becomes about their relationships, not yours. Have a back-up plan on standby. 5. Keeping finances flexible The ability to grow a company and grab opportunities is inevitably constrained by access to capital—from either the company or from shareholders. Always keep some working capital available and don’t max out lines of credit or overburden the balance sheet. The foundation should be laid now for future capital to support a growth spurt. Communicate frequently with shareholders (or management) about the goal and give progress updates. Lastminute surprises rarely end well. 6. Plan for changes to variable expenses When times are tight, a sudden change in one item on a balance sheet can be dramatic. Be aware of all variables, such as electricity rates, the cost of diesel, the price of crude and interest rates. “It’s been a long time since we had double-digit interest rates so many people have stopped paying attention. But it could happen again,” Edgelow says. “Protect yourself with locked-in rates and negotiate forward contracts wherever possible.”
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2013-05-17 3:01 PM
MEMBER PROFILE
New Start for New Technology Pentagon Optimization Services looks to continue developing new technology under new corporate ownership by Eric Astley
W
hen five services sector veterans
decided to start a company that would help producers get the most out of their wells, they decided on a fairly straightforward name – Pentagon Optimization Services. Although only four of them ended up partnering to open the doors of the Red Deer-based company, Square Optimization Services didn’t quite have the same ring to it. Besides, the optimization part of the company’s approach still applied as the company planned to put the interests of the customer first, employ quality personnel and pay them well, and wouldn’t be afraid to charge for quality work. “We weren’t always the cheapest, there’s no doubt about that,” says Rob Jackson, Pentagon’s head of business development. “We didn’t bottom-feed. We had a good product, and we sold it for a fair price.” One of the services that Pentagon developed was offset hydraulic fracture monitoring. With a series of solar-powered monitors and some elegant data engineering, Pentagon could provide real-time data to a hydraulic fracturing crew about how the fluid in the formation was interacting with adjacent wells. The downhole monitoring allowed crews to make sure the tremendous pressure involved in hydraulic fracturing didn’t cause fractures where they weren’t needed, as well as provide greater accountability and safety in the atmosphere of increased scrutiny that now surrounds hydraulic fracturing. Pentagon was one of the first companies to provide the service, but Jackson admits the rest of the industry has since caught up. Pentagon’s next move will be to roll out more downhole monitoring technology, using acoustics to measure fluid behaviour at the bottom of a well and combining data with the pressure at surface provided by the offset monitoring. It will be an engineering challenge, Jackson says, but he’s confident his company and its new owners will be up for it. Pentagon grew from a small company with no revenue to a 30employee shop with millions in annual revenue from its operations stretching from northeast British Columbia to the deepest depths of Saskatchewan. The company grew in what Jackson calls “the oldfashioned way” – purely through cash flow. There were no private placements and no acquisitions. “We could have raised the money if we wanted to,” says Jackson, “but to do an acquisition just to do an acquisition wasn’t in our cards.” The company spurned a few acquisitions of its own before getting purchased by Texas-based Lufkin Industries Inc. in 2011. Lufkin was
WWW.PSAC.CA
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subsequently picked up by GE in April for $3.3 billion. Jackson doesn’t think the acquisition will hinder Pentagon’s ability to develop new technology. “GE is not some old, stuffy company that’s done the same thing for 50 years,” he says. “They want to be innovative.” The international conglomerate purchased Lufkin to expand its growth in the oil and gas industry, specifically in artificial lift applications. Pentagon plans to continue operating as a distinct company within the myriad of businesses under the General Electric umbrella, just like it had with Lufkin. “It’s like they [GE] build the car and sell the car, but they don’t service the car,” says Kori Muir, sales manager with Pentagon. “Pentagon does a lot of things that will let us service and maintain their equipment longterm.”
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2013-05-17 4:07 PM
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 Quinn Holtby President & CEO Katch Kan Ltd. Years in Services Sector: 19 Doug McNeill Executive Vice President, Business Development Stream-Flo Industries Ltd. Years in Services Sector: 30 Quinn Holtby
If you could do any other job/occupation, what would that be? QH: Just be a visionary for my organization. DM: I have always wanted to be in the agriculture business, farming or ranching. I like large machinery, I like the outdoors, I like rural/small community life. My first assignment out of engineering school was a year in Vegreville – a town of 5,000 – with all my mail coming to “General Delivery Vegreville.” Second choice would be a commercial pilot. What is your favourite book of all time? QH: Think & Grow Rich by Napoleon Hill (riches are not all monetary). DM: The Day of the Jackal. Favourite Series: Wilbur Smith collection. What about movie? QH: Slumdog Millionaire. My definition of luck: “opportunity meeting preparation and preparation meeting opportunity!” DM: Gone in 60 Seconds, for an action movie, for the cars and the cast of [Nicolas] Cage, [Angelina] Jolie and [Robert] Duvall. Reaching back for a comedy would be Blazing Saddles. If you could invite three famous people (dead or alive) to dinner, who would they be and what would you serve? QH: Abraham Lincoln, Winston Churchill and Peter Lougheed. I would serve Oban scotch, 2006 Quails’ Gate merlot, surf and turf of AAA Alberta beef and halibut with light roasted asparagus. DM: A young Howard Hughes, Sir John A. Macdonald, and Orville and Wilbur Wright, as they all pursued their passion. My wife will tell me what she would be serving, as cooking is her passion, but it would be flavourful, interesting, comfort food, paired thoughtfully with some wine. What do you think is the biggest challenge facing Canada’s energy industry at this time? QH: Having one customer and not refining all of our own oil. DM: Communication of what we are doing well, what advances we have made in our efforts to be more protective of our resources and our environment, and what we are doing to give back to the communities that we are working in.
26 Summer 2013
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Doug McNeill
What would you say is your biggest accomplishment to date? QH: Helping protect lives and the environment. DM: Family, close and extended, that like each other’s company and friendship. What motto or phrase do you live by? QH: When you can conceive it and believe it, you will achieve it (perseverance). DM: Don’t tell me all the reasons it cannot be done, tell me how we are going to do it. What talent would you most like to have? QH: Inspire people so they can move to the next level in their lives. DM: I would like to have an aptitude for learning languages. If you could change one thing about yourself, what would it be? QH: More patience with people. DM: I would like to be as fit and active as I was in my mid-twenties. What is your most treasured possession? QH: My family. DM: Family time at the lake where we are off grid and have no cell coverage. If you could travel to anywhere in the world, where would you go? QH: Famous museums around the world. DM: Antarctica or Turtle Island in Fiji. Who are your heroes in real life? QH: Teams that work on a drilling rig, my wife Debra, my uncle Stan who volunteered in World War II, my grandfather who volunteered in World War I, and my stepfather who volunteered in World War II. DM: Those who have overcome challenges in their lives to then contribute and achieve so much. In 10 words or less, what would you say about how 2013 is going to turn out? QH: A lot better than the predictions of the end of the world in December 2012. DM: Politically turbulent, oil and gas industry steady, Indian summer.
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Petroleum services news
2013-05-17 4:09 PM
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Is your oilfield services operation ready for serious competition? Focus on finance fundamentals to grow profits in tough markets. When you’re wrapped up in managing day-to-day business operations, it can be hard to step back and see the big picture. Over the last fifteen years, the Canadian oil and gas industry has enjoyed enormous growth. In 1998 the value of all the oil and gas produced was $27 billion. By 2008 it had risen to $145 billion. Last year it was $110 billion. From 1998 to 2012, annual capital spending on oilsands development alone increased fifteen fold – from $1.5 billion to $23 billion. This spending has helped the Oilfield Services (OFS) sector expand significantly. But can these companies remain competitive when the growth stops?
These volatile market conditions require OFS companies to explore internal efficiencies in order to remain competitive, or in some cases, afloat.
The end of overall growth is complicated by ever-changing customer requirements. The collapse of gas prices has shifted drilling and development dramatically, leaving equipment and services that were profitable for years sidelined. The switch to oil and horizontal drilling has created demand for other products and services and solutions to new technical challenges. Market dynamics have caused demand for some equipment and services to explode while others have collapsed. As a result, OFS companies have had to constantly adjust their products, equipment and services just to stay in the game.
“Finding cost efficiencies in your own operations is essential,” says Yager. “MNP’s Oilfield Services specialists know where to find opportunities to improve financial performance, through key activities like job costing and margins, field ticket flow, collections, cash management, and inventory control. Good financial management is always a sound investment. In this market it is imperative”.
“When the industry was in a period of steady expansion, it was easy for OFS companies to grow profits,” says David Yager, National Leader of MNP’s Oilfield Services practice. “High demand drove growth, but now, with capacity up and demand flat or falling, securing a profitable piece of a shrinking and ever-changing pie has become more challenging.”
To find out more about how MNP’s Oilfield Services team can benefit you, contact David Yager, Oilfield Services National Leader, at 403.648.4188 or david.yager@mnp.ca.
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“Going forward, profit growth will come more from internal operations, not the overall marketplace,” explains Yager. “When the industry landscape has changed this dramatically, companies must course correct or risk financial challenges.” MNP’s Oilfield Services team has the financial management tools to help make the most on whatever business comes in the door.
David Yager, Oilfield Services National Leader
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