SUMMER 201 4
2014 Drilling Activity Forecast Update Recapping the Spring Conference 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
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CONTENTS SUMMER 2014
Departments MESSAGE FROM THE CHAIR IN THE FIELD
7 10
Industry news, notes and events
2014 DRILLING ACTIVITY FORECAST UPDATE BUSINESS MATTERS
13 23
The mergers and acquisitions market heats up
PSAC IN ACTION
16
Features 14
MEMBER PROFILE
26 28
Lessons on manufacturing and competitive pricing from Tenaris
A LOOK AT LEADERSHIP
30
Getting to know PSAC board members Andy Brooks and Deborah Close
SPRING FLING
16
THROUGH THE AGES A look at PSAC’s 32-year evolution
COVER
Highlights from the 2014 PSAC Spring Conference
23
30 WWW.PSAC.CA
10
26
14 5
PETROLEUM SERVICES NEWS
MESSAGE FROM THE CHAIR After Three Decades of Success, PSAC Looks to the Future
T
HIS IS A PIVOTAL TIME FOR PSAC. Over the
past 30 years, PSAC has been advocating on behalf of our service sector members and vying for the attention of elected officials and bureaucrats. Now, government representatives come to us. Our sector is capturing the attention of elected officials and senior bureaucrats for a couple of reasons. First, with a winter that never seemed to quit and a sector striving to meet demand, activity levels remain robust and energy continues to drive the Canadian economy. You can read about the latest Canadian Drilling Activity Forecast update on page 13 of this publication. Second, increased use of multistage hydraulic fracturing and directional drilling technologies has led to an expansion of our workforce – and jobs are always important to government representatives. John Gorman, PSAC Board Chair In its dealings with elected officials, PSAC shares the tremendous impact these technologies have had on the service sector workforce, but until recently we needed hard facts to support our advocacy efforts. So we commissioned a study entitled Horizontal Drilling Workforce. The study, conducted by MNP LLP, is the first of its type to consider direct field employment on the drilling and completion side of new generation resource plays that use horizontal drilling and multistage hydraulic fracturing. The study included the four main supplier groups – location, drilling, completion, and logistics – required by typical wells completed in northeast British Columbia, central Alberta and southern Saskatchewan in 2013. The data revealed that of the 5,790 wells examined, the equivalent of 60,863 jobs were created, based on a typical 40-hour work week, 52 weeks of the year. This is an impressive level of skilled employment, with a dramatic and positive impact on the Canadian economy. Quite simply, it’s hard data to ignore, and PSAC is riding the momentum of this report by bolstering our government relations efforts at all levels. The technologies that are growing our business here in Canada are also being marketed and used internationally. This point was brought home at PSAC’s second annual Canada’s Energy Blueprint Forum, held in Calgary in April. Participants at this event not only discovered the latest innovations in our sector, but also learned about how these technologies are heading overseas. This international recognition is another impressive aspect of our sector’s activity, and presents an interesting talking point when addressing PSAC member needs with government officials. For more than three decades, PSAC’s number one role has been to advocate on behalf of our members. That will never change. What has changed, and will continue to change, is how PSAC fulfills that role, because that depends on you, our members. To help us continually strengthen our efforts, we ask you to continue to stay in touch and provide us with your input and ideas will help ensure PSAC’s advocacy work remain relevant and timely. Sincerely,
John Gorman PSAC Board Chair
WWW.PSAC.CA
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(h)
You Gotta See thiS FrackinG thinG!
SUMMER 2014 VOL 14 • 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 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 COMMUNICATIONS COORDINATOR: LINDA ALDRIDGE
PETROLEUM SERVICES NEWS IS PUBLISHED FOR PSAC BY
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PETROLEUM SERVICES NEWS
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IN THE FIELD
News, events and activities in the industry
Petroleum Competency Start Your Bidding! Program Continues to Build THE PSAC 2014 EDUCATION FUND a Competent Workforce PSAC IS PROUD TO SUPPORT the Petroleum Competency Program (PCP), a program designed to build a national skilled workforce with standardized, identifiable skills by using competency standards to assess and certify workers, and managed by the Petroleum Human Resources Council of Canada, now part of Enform. Congratulations to those individuals who received their PCP in 2013 and 2014, to date.
2013/2014 PCP Certificate Assessors & Holders KEITH A. TETACHUK, Assessor Certification MIKE CLEVELAND, Candidate Certification, Well Testing Supervisor Level 3 NICK DUFFY, Candidate Certification, Well Testing Supervisor Level 2 LYLE SAUNDERS, Candidate Certification,Well Testing Supervisor Level 3 JASON LAROCHE, Candidate Certification, Supervisor Level 2 STEPHEN SHEPPARD, Candidate Certification, Supervisor Level 2 For more, visit www.petrohrsc.ca
online auction is now open, with better prizes than ever before. The 2014 lineup includes tickets to Calgary Flames and Calgary Stampeders games, and passes to the Shaw Charity Golf Classic taking place in Calgary this August. Don’t miss the opportunity to win a set of Nokian passenger or light truck tires, or a dream getaway to the Kokanee Springs Golf Resort. To bid now, visit www.psac.ca
PSAC Member Named One of Canada’s Best Managed Companies Bringing Solutions to Surface AFTER UNDERGOING A RIGOROUS
and independent process that evaluates the calibre of their management abilities and practices, KUDU Industries Inc. has been recognized as one of Canada’s best managed companies by Deloitte. Congratulations to KUDU Industries Inc. for this prestigious recognition.
COMING EVENTS PSAC EDUCATION FUND GOLF CLASSIC July 17, 2014 Calgary Elks Lodge and Golf Club Calgary, Alberta PSAC PRE-DRILLING SEASON MEETING September 10, 2014 Pomeroy Hotel Fort St. John, British Columbia PSAC ANNUAL GENERAL MEETING October 29, 2014 TELUS Convention Centre Calgary, Alberta
10 SUMMER 2014
NEW MEMBERS 2015 CANADIAN DRILLING ACTIVITY FORECAST SESSION October 29, 2014 TELUS Convention Centre Calgary, Alberta
REGULAR MEMBERS CanGas Solutions Inc. Flint Transfield Services Ltd. NCS Oilfield Services Canada Inc. Specialized Desanders Inc.
2014 INDUSTRY INSIGHTS DINNER October 29, 2014 TELUS Convention Centre Calgary, Alberta Featuring keynote speaker Rex Murphy
ASSOCIATE MEMBERS FLS Transportation Services Inc.
For more information about PSAC events, visit www.psac.ca/events
PETROLEUM SERVICES NEWS
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DRILLING ACTIVITY FORECAST UPDATE
Steady Activity Across the West PSAC’S Q2 UPDATE PREDICTS INCREASE IN DRILLING ACTIVITY 2014 CANADIAN DRILLING ACTIVITY FORECAST (NUMBER OF WELLS)
ALBERTA: 6,530
SASKATCHEWAN: 3,562
BRITISH COLUMBIA: 623
MANITOBA: 435
TOTAL IN CANADA: 11,170 Note: Total includes activity in Northern and Eastern Canada.
I
N ITS SECOND UPDATE
to the 2014 Canadian Drilling Activity Forecast, the Petroleum Services Association of Canada (PSAC) forecasts a slight increase in Canadian drilling activity for the year. The updated forecast for 2014 is 11,170 wells (rig releases), which represents an increase of 370 wells from PSAC’s original 2014 forecast released in late October 2013. The revised forecast represents an approximate one per cent increase over 2013 drilling levels. The updated forecast is based on average natural gas prices of $4.00 CDN/mcf (AECO) and crude oil prices of US$95/barrel (WTI), and the CAD-USD exchange rate averaging $0.90. “With a longer winter than normal across Canada this year, and a breakup with continued activity in Q2, drilling activity is keeping on par with our original forecast in October,” said Mark Salkeld, president and CEO of PSAC. “Activity remains steady for our member
WWW.PSAC.CA
companies, and many companies have been facing challenges with meeting demand as the shortage of skilled labour continues.” On a provincial basis for 2014, PSAC now estimates 6,530 wells to be drilled in Alberta, representing a less than one per cent decrease from the original forecast. British Columbia is expected to experience an increase in drilling levels from 550 to 623 wells, a 13 per cent increase. Saskatchewan’s projected 2014 well count has been increased by 11 per cent from 3,196 to 3,562 wells. Manitoba is now forecasted to drill 45 fewer wells, at 435 for the year, representing a nine per cent decrease. PSAC presents updates to its Canadian Drilling Activity Forecast quarterly, with the next update scheduled to be released in July. The forecast can be used in conjunction 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.
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DEVELOPING
LEADERS
The 2014 PSAC spring conference promised to develop leaders and drive results in transportation management
A
N UNOFFICIAL THEME EMERGED
throughout PSAC’s 2014 Spring Conference held this April in Red Deer, Alberta: the importance of putting people first. The conference featured two education streams: leadership development and transportation management, two areas of focus for the petroleum services sector that, at first glance, cover vastly different subject areas. But most sessions, if not all, placed an emphasis on the importance of people, including attracting and retaining employees, managing workers from different generations and putting people first when communicating during change or crisis. With more than 26 per cent of truck drivers over the age of 55, it’s clear why the trucking industry needs to focus on attracting and retaining employees. Angela Splinter, CEO of Trucking HR Canada, shared the results of a study that explored the attitudes youth hold toward trucking careers. The study revealed that younger workers are looking for flexibility and work-life balance, in addition to personal connections in the workplace. It also revealed a curious fact – that fewer younger people have their driver’s licence today than in previous generations. Splinter also highlighted the vastly different attitudes towards work between the four generations currently in the workforce, noting how these differences are posing recruitment and retention challenges for the male, baby boomer-dominated industry, which has been labelled the “workaholic” generation. Speaking of working long hours, Lorraine Card, director of Carrier Services at Alberta Transportation, introduced delegates to the North American Fatigue Management Program (NAFMP). The voluntary program, launched last year, was initiated through a partnership between Alberta Transportation and the Alberta Motor Transport Association to assist companies with developing their own fatigue management programs, with the ultimate goal of increasing road safety for all road users. The dangers of driver fatigue are becoming well known, and a 2010 Canadian Council of Motor Transport Association study found 20 per cent of accidents linked to fatigue. The program offers organizations a cost-effective way to address the impact of fatigue on their employees and their bottom line.
14 SUMMER 2014
LAUGH A LITTLE: Zandra Bell brought comic relief with her well-researched performance as Dr. Shirley Best during the spring conference dinner. Another factor dramatically impacting bottom lines in the services sector is a high rate of staff turnover. Delegates attending the Improving Staff Retention Through Supervision session reported turnover rates from 12 to 100 per cent in the last year at their respective companies. With so many costs associated with hiring employees, like on board training, drug testing, PPE and recruiting, strategies to increase employee engagement should be a strategic priority. Nancy Boman, a staff engagement consultant and the session’s leader, advised that “If employees truly are a company’s best asset, then their care should be a number one priority.” With vivid examples including the September 11, 2001, attacks in the United States and the recent Malaysia Airlines Flight MH370 disappearance, Tom Donoghue demonstrated in his Crisis Communications: Doing it Right session that communication planning is critical to a company’s reputation, and even its ability to survive a crisis. Donoghue described the differences in how companies handled the Exxon Valdez oil spill, which occurred in Prince William Sound, Alaska, in March 1989, as opposed to the January 1988 Ashland oil spill near the town of Floreffe, Pennsylvania. Donoghue says the difference is the result of planning, training and practice. He said the Exxon Valdez stands out today because company representatives lied about, denied and minimized what happened and how the company was responding. Donoghue noted that to handle the communications aspect of a crisis
PETROLEUM SERVICES NEWS
effectively, companies need to show concern about people first, then the environment and finally the associated costs. He also pointed out that companies should carefully choose and train their spokespeople, and have alternates, because critical events don’t typically happen when everyone is at work. Glyn Jones also highlighted the importance of training and putting people first in his Competency – The Keys to a World Class Safety Management System session. He noted that while there is no easy “Staples button” to create competent employees, a combination of training, education, mentoring and ongoing worker assessment pays off in the long run. Jones pointed out that frontline supervisors are the most important employees in an organization, because they are connected to employees and can demonstrate they care about employee development. With much applause and laughter, Zandra Bell appeared as Dr. Shirley Best to entertain delegates at the dinner, bringing home the importance of putting people first and having a good laugh. “The body’s response to repetitive laughter is similar to the effect of repetitive exercise,” she said. “We should work to put a humorous perspective on the frustrating inanities and insanities that go on around us, so we don’t end up with one of those dreaded wellness breakdowns…you know what I’m saying? The wheel’s still turning but the hamster is dead!”
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THANK YOU TO OUR SPONSORS MAJOR SPONSORS Baker Hughes Canada Company Capilano Truck Driver Training Institute Cenovus Energy Inc Enterprise Commercial Trucks Geotrac International Inc. June Warren-Nickles Energy Group KalTire Volvo Trucks Canada CONFERENCE SPONSORS Abadata Arresting You Ltd. Assetworks Ditch Hitch Driving Force Enform Fp iMarketing HSE Integrated Ltd.
Intercon Messaging Jim Pattison Lease Nexus Exhibits Ltd. Northstar Fleet Solutions Inc. OBP Promotions and Awards Ltd. Partners in Compliance PwC Red Deer Family and Community Support Services Roadata Services Ltd. Rogers Insurance Ltd. SAIT Polytechnic TELUS University of New Brunswick CONFERENCE SUPPORTERS Government of Alberta WorkSafeBC Workers’ Compensation Board - Alberta
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16 SUMMER 2014
PETROLEUM SERVICES NEWS
A
VOICE FOR
CHANGE BY RYAN VAN HORNE
In its 32 years, PSAC has charted growth within the petroleum services industry
I
N THE EARLY-1980S,
while many westerners were sporting bumper stickers imploring each other to “Let the eastern bastards freeze in the dark,” the petroleum services industry took a more level-headed approach: They organized and started to lobby politicians. It started with a trip to Ottawa. The connections this ragtag group of services executives made while there eventually inspired the creation of the Petroleum Services Association of Canada (PSAC) in November 1981. At the time, there were 143 companies who signed on – membership has since climbed to 260. “In the early stages, we did a lot of government liaison work,” says Al Schreiner, who served as chairman of the board of directors in PSAC’s second year of operation. “We had just come
WWW.PSAC.CA
through the National Energy Program, and we were pretty beat up. We didn’t really have any voice with governments – provincial or federal.” From its inception until 1984, when the Mulroney government came to power, PSAC faced a brick wall in trying to influence the National Energy Program. At first, the main goal in the early stages was to try to raise the profile of the petroleum service sector within government. “The focus was on the oil and gas producers, and less on the service and supply industry, so we thought it was necessary to get some frontline representation,” says Schreiner, who at the time worked for Dominion Oilfields Supply Company Ltd. and later moved to StreamFlo Industries Ltd. The National Energy Program sought to soften the blow of rising oil prices for Canadians, but its critics say it did so largely at the expense of Alberta. Although it helped foster a lucrative offshore oil industry in Newfoundland, it forced domestic oil producers to sell their product below world market prices, and that had an adverse effect on the economy because it hurt the service companies more than it did the big producers. “Oil and gas companies had some people in the communities, but that’s where most of our people were,” Schreiner says. “The impact was felt directly in the small communities.” PSAC’s first accomplishment was leading the petroleum industry’s battle to change – or dismantle – the National Energy Program, which the Trudeau government developed.
17
companies. “We’re the association that represents the people that are working on the ground,” he says. “I’ve had good feedback from my peers in industry that we’re doing a good job.” When Salkeld took over the reigns at PSAC, he decided that advocacy efforts would benefit from strengthening and driving awareness of PSAC at the upper ranks of government. “It wasn’t dynamic enough in my mind,” he says. “There might have even been a sense of us vs them. Now, it’s not them-against-us. They know who we are and they’re calling us when they’re talking policy.
The Ottawa delegation that spurred the creation of PSAC.
In March 2014, PSAC President and CEO Mark Salkeld represented Canadian petroleum services capabilities during the Government of Canada’s historic trip to the Ukraine.
Over the next three decades, they scored numerous other victories, becoming a power player in the industry and undertaking various initiatives that followed the evolving expectations of their membership. Schreiner, who is retired, says PSAC has consistently broadened its influence – and not just as a lobby group. Its industry reporting and forecasting are well-respected, as are PSAC’s cost estimates. “They’ve done a great job promoting safety and communicating the impact that the service sector has on rural areas,” he says. Once a year, PSAC hosts a sell-out dinner with a featured speaker that attracts decision-makers from the financial world as well as the natural gas industry. It’s a gathering that showcases PSAC’s credibility across sectors, which Schreiner says they’ve been able to cultivate by becoming a “voice of reason, rather than using a biased, beat-the-drum approach.” Mark Salkeld, the current president and CEO of PSAC, says the association’s most notable milestones are raising awareness of the association in the industry, and raising the participation level of those
18 SUMMER 2014
“WE CAN’T STRAY TOO FAR FROM WHAT WE’VE BEEN DOING, BUT WE NEED TO INCREASE THE ADVOCACY SIDE,” PSAC’S RAY MILLS SAYS. “Ten years ago, we felt we were on the downside of peak oil, but some of our member companies in North America have been leaders in applying these new technologies,” Salkeld adds. “They’re extremely good at what they do. It’s not a bunch of good ol’ boys blowing up rock; they’re drilling with accuracy.” Now, PSAC members are driving innovation and technological advancement not just within government, but across various sectors, helping transform how the industry operates. It’s part of PSAC’s job to promote and encourage those advancements. In that way, Salkeld says PSAC’s “number one reason for being is advocacy.” But advocacy is a much broader concept today than it was decades ago. The association now has many stakeholders that require constant outreach. “There was a shift with my coming on board,” he says. Ray Mills joined the PSAC board of directors five years ago, at the beginning of the global recession, and immediately noticed inconsistencies in public perception and association. “[Someone] at the association was saying the recession was good for the industry and it would come out stronger, but everyone that I spoke to was suffering; and if companies are suffering, their employees are suffering.” Mills thought it was important to take the association back to its roots, focusing on why it got started “during the dark days of the National Energy Program” – advocacy. “The association has done a great job in engaging government, the public and other key groups with limited resources,” Mills says. The focus on advocacy and showcasing these efforts across PSAC membership remains a top priority. “We can’t stray too far from what we’ve been doing, but we need to increase the advocacy side,” Mills says. “It’s not revolution, it’s evolution.” Some 30 years ago, PSAC had to charter a plane to get to the steps of Parliament to fight for the sector, but today they’re invited by the prime minister on trips overseas. “Our profile is growing, our credibility is growing and our contributions to this industry and the national economy are being recognized at the highest ranks of government and within the sector,” Salkeld says. “There is work to be done as new issues arise every day, but there is no doubt that we continue to look at ways to strengthen our efforts and ensure we are at the table on key policy decisions, and to continue to deliver value to our membership.”
PETROLEUM SERVICES NEWS
A HISTORY IN LOGOS From wells to “working energy,” PSAC’s logos through the ages echo a changing organization:
WWW.PSAC.CA
1981-1990
1990-2005
2006-2009
2009-2011
2011-2012
2012-PRESENT
19
A
BLUEPRINT FOR THE
FUTURE Canada’s Energy Blueprint Forum showcases petroleum services technologies to shine a light on industry operations
C
ELL PHONE AND
tablet technologies evolve quickly for sure, but if you want to see some real innovation, you need to check out the petroleum services industry. Participants at PSAC’s 2014 Canada’s Energy Blueprint Forum, held in Calgary on April 30, 2014, did just that, seeing some of the most recent – and amazing – technologies coming out of the Canadian oilpatch. Now in its second year, the Forum gives attendees an overview of key technologies, in a bid to demystify industry operations. The event drew new hires, students getting ready to enter the workforce and many others who work in or in support of the industry. Targeting reserves in such diverse locations as the Arctic, off the shores of Newfoundland and in the Duvernay formation in west central Alberta, Canadian companies face a wide range of challenges not found anywhere else. Rather than throwing up their hands in despair,
20 SUMMER 2014
these companies devote time and resources to developing innovative ways to produce Canada’s resources efficiently and safely. Petroleum services sector companies are developing hundreds of technologies every year, according to Art Robinson, partner at 32 Degrees Capital. Robinson, a Robert Johnston, CEO and member of the Energy Blueprint’s director of Global Energy & morning panel, pointed out Natural Resources, Eurasia that between 2002 and 2012, the Group delivered a compelling talk annual patents granted to Schlumdiscussing the international oil berger, Halliburton and Baker and natural gas industry from a Hughes increased from 433 to a geopolitical perspective. whopping 1,257. So what were some of the innovations showcased at the event? Sessions touched on technologies related to enhanced oil recovery, compressed natural gas, coiled tubing and microseismicity, to name a few. Even better, the sessions were presented by the people who use the innovations and who know them best.
PETROLEUM SERVICES NEWS
PSAC brought together an esteemed panel, including Gerry Protti, chair, Alberta Energy Regulator (podium) and from left to right Greg D’Avignon, president and CEO, Business Council of British Columbia, Art Robinson, partner, 32 Degrees Capital, and Bruce Edgelow, vice president, Energy Group, ATB Corporate Financial Services. PSAC President and CEO, Mark Salkeld delivered the mid-year update, which anticipates a continued level of steady activity for Canada’s oilpatch. One of the day’s many highlights included a demonstration by Element Technical Services Inc. Participants got to watch non-potable water and chemicals found in common household products, such as shampoo, ketchup and laundry detergent mix together to create fracturing fluid. Attendees were surprised to find out that 95 per cent of hydraulic fracturing fluid is made up of water. The event capped off with Robert Johnston, CEO and director of Global Energy & Natural Resources, Eurasia Group, who discussed factors influencing oil and natural gas activity around the world, including energy production in the U.S. and the need for Asian markets to tap into North American energy supplies.
WWW.PSAC.CA
SERVED FOR LUNCH: GREAT INFORMATION Energy Blueprint participants got a bonus this year – a lunchtime presentation of the 2014 Canadian Drilling Activity Forecast mid-year update. Mark Salkeld, PSAC president and CEO delivered the presentation, which you can also see in this issue. Andrew Bradford, head of energy research at Raymond James provided an industry outlook. Lunchtime session moderator David Yager, national leader of the oilfield services group at MNP LLP, shared the results of the new Horizontal Drilling Workforce Study. The study, commissioned by PSAC, calculated the direct and indirect employment needs of drilling and completion operations for resource plays that use horizontal and multistage fracturing. Read highlights of the study in this publication’s Message from the Chair, or go to psac.ca for the full report.
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THE OFFICIAL VOICE OF THE PETROLEUM SERVICES ASSOCIATION OF CANADA
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22 SUMMER 2014
SERVICES 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 more than 75,000 people and contracting almost exclusively to oil and gas exploration and production companies.
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PETROLEUM SERVICES NEWS
BUSINESS MATTERS
Smooth Transitions 2014 PROMISES A SWIFT M&A MARKET FOR THE SERVICE SECTOR BY ROBIN BRUNET
T
HE MOOD OF THE
investment community can be as important as actual investment numbers, and so far in 2014, the mood surrounding mergers and acquisitions is positive. “There’s been a noticeable change over the past six months, marked by a distinct improvement in both investor and producer sentiment,” says Richard Matthews, managing director, acquisitions and divestitures, for FirstEnergy Capital Corp. “We’re seeing more confidence in oil and natural gas prices and in producers’ abilities to generate strong returns. Investors have started to take notice and have been returning to the sector.” Matthews’ optimism is shared by many colleagues, including Dan Barclay, head of the BMO Capital Markets Canadian Mergers & Acquisitions group. On April 3, he told Reuters that “I think it’s going to be very busy in energy over the next few quarters for sure. Some of it is just changing commodity prices, some of it is pent-up demand, part of it is availability of capital.” Adam Waterous, head of global investment banking at Scotiabank, agrees that activity will be brisk, with the oil and gas recovery about three months ahead of the mining recovery. Upward trends that may affect M&As include available capital and a favourable corporate finance market, larger cap independent energy companies looking to grow positions and shareholder activism. And because larger companies can provide the structure and balance sheets to more easily sustain and fund growth, consolidation is likely to continue. Calgary’s Stikeman Elliott LLP predicts more consolidation and M&A activity involving dividend-paying exploration and development companies. The business law firm also theorizes that the push to develop LNG export projects on the West Coast may drive investment in natural gas assets in northeastern
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“WITH IMPROVING COMMODITY PRICES AND STRONGER EQUITY MARKETS, MORE COMPANIES HAVE THE CAPACITY TO BE ACQUIRERS.” British Columbia in 2014, as the participants in those projects build reserves and consolidate landholdings. For oil and gas services companies affected by this activity – whether you’re looking to merge or be acquired – analysts generally agree that you should: • Understand all the assets affected in the transaction. • Pinpoint senior management involved and note any professional and cultural differences that can influence career development in the new organization. • Examine relocation considerations if you get an offer from an acquiring company in another location, as it could be a deal-breaker for many key players. • Consider encouraging employees with more than 15 years’ experience to take an exit offer and reentering the workforce as a well-paid, knowledge-based consultant. Streamlining the workforce is an inevitable part of any merger or acquisition. >> CONTINUES ON PAGE 24
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BUSINESS MATTERS Those same analysts have noted that increased confidence in the market drives the increase of M&A activity, as opposed to companies struggling and needing to sell. With producers improving their expectations surrounding commodity prices, this could have a direct impact on PSAC members if oil field activity increases. Matthews points out that many oil and gas transactions over the past six months “have been well-received by investors. Companies are again being rewarded for doing smart deals.” The significance of these transactions, he says, is “that in all cases, the acquirer’s share price climbed – precisely because they were good, strategic deals. When companies know they can do the right deal, and be rewarded for it in the public markets, more transactions will get done going forward. And with improving commodity prices and stronger equity markets, more companies have the capacity to be acquirers.” Over the past six months, FirstEnergy has acted as financial advisor in 12 transactions totaling $2.2 billion, ranging from upstream oil and gas deals to service company transactions like the recent CWC Well Service Corp. acquisition of Ironhand Drilling Inc. “The market is much more supportive of transactions, and there’s momentum building. No one is declaring this a raging bull market, but it feels very constructive,” says Matthews. “For the rest of 2014 we expect continued elevated M&A levels in the upstream sector. Commodity prices should remain strong, companies are making money. People are optimistic and excited about their prospects.”
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24 SUMMER 2014
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PETROLEUM SERVICES NEWS
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25
PSAC IN ACTION THE PETROLEUM SERVICES ASSOCIATION OF CANADA (PSAC) CONTINUES TO KEEP THE SERVICES SECTOR FRONT AND CENTRE THROUGH ADVOCACY AND OUTREACH PSAC AT HOME AND ABROAD EDMONTON: Earlier this year, PSAC participated in the federal pre-budget roundtable with the Honourable Rona Ambrose, Minister of Health, to put forward recommendations related to access to markets, taxable benefit policy review to facilitate cross-country labour mobility, incentives to encourage innovation and automation in manufacturing, and ensuring a level playing field for Canadian companies competing against foreign companies. CALGARY: Recently, PSAC attended a manufacturing roundtable, hosted by the Canadian Manufacturers & Exporters, with Assistant Deputy Minister Justin Reimer. Participants discussed the importance of educating Albertans on the oil and gas industry’s role in diversifying the province’s economy, as well as welding certifications, apprenticeships models, procurement issues and global competition. PSAC represented members at the 2014 Unconventional Gas Conference in Calgary, and had the opportunity to meet the Honourable Greg Rickford, the new Minister of Natural Resources, introducing him to the challenges facing association members. This spring Alberta’s Premier David Hancock and Alberta Energy Minister Diana McQueen invited PSAC and other associations to meet with them to discuss key policy and issues their respective members face. In addition to industry-wide challenges like increasing market access, PSAC spoke to labour issues, skills development, regulatory harmonization, PSAC’s Working Energy Commitment program and the Hydraulic Fracturing Code of Conduct. OTTAWA: PSAC met with Ian Shugart, Deputy Minister of Employment and Social Development, to introduce the Association and discuss the sector’s labour situation. While in the capital, PSAC met with Alan Ross, the Government of Alberta’s representative in Ottawa, to report on the progress and results of the Working Energy Commitment initiative. UKRAINE: PSAC joined Prime Minister Harper on a trip to Ukraine. In March, PSAC joined the Government of Canada on its trip to the Ukraine to meet the country’s interim prime minister. The trip offered the opportunity to discuss the future potential for Canadian petroleum services companies to do business in the Ukraine, as that country looks to develop their energy resources to loosen their dependence on foreign supplies. CHINA: PSAC hosted a Business Opportunities in China Breakfast seminar. In February, PSAC held a breakfast session to inform members of its participation on a recent trade mission to China with the Government of Alberta. Attendees heard about intellectual property protection
26 SUMMER 2014
Justin Davidson, Partner, Norton Rose Fulbright, shared his legal expertise regarding intellectual property issues at PSAC’s Business Opportunities in China Breakfast in Calgary this February.
in China, opportunities for petroleum service companies in the area of natural gas development and investment opportunities with the Chinese government and companies. PSAC LEADS HEALTH AND SAFETY INITIATIVES REVIEW OF PART 33 – OIL AND GAS – ALBERTA OH&S CODE: PSAC cooperated with the upstream petroleum industry trade associations to make a joint submission to the Alberta government review of Part 33 of the Alberta OH&S Code. Part 33 deals exclusively with oil and gas operations, and the PSAC Health and Safety Committee worked diligently to ensure that the interests of the service sector were well represented in the joint submission. INDUSTRY RECOMMENDED PRACTICE (IRP) #8 – PUMPING OF FLAMMABLE FLUIDS: Since industry first sanctioned this IRP in 2003, the size and scope of fracturing operations has increased significantly. PSAC members that provide fracturing services and fire and rescue services have been working together on a proposal that the IRP for industry review to ensure that it is reflective of current practices.
PETROLEUM SERVICES NEWS
INSURANCE EXPERTS for the oil & gas sector
Providing insurance solutions to oil & gas companies locally Mike Dawson, President, Dawson Energy Advisors Ltd., at PSAC’s Business Opportunities in China Breakfast in Calgary this February.
and around the world
HARMONIZATION OF OH&S REGULATIONS IN WESTERN CANADA: PSAC is working with industry trade associations on an initiative designed to harmonize the occupational health and safety regulations governing oil and gas operations in Western Canada. PSAC has held several meetings with OH&S regulators across the region to discuss the proposals and to identify opportunities for harmonization. CRYSTALLINE SILICA: PSAC members and staff have been monitoring and providing input into discussions with regulators dealing with worker exposure to crystalline silica in the workplace. More details on these discussions, and scientific studies into worker exposure to crystalline silica, can be found on the PSAC website under “Health and Safety.” FOR MORE INFORMATION: Find out more on PSAC health and safety initiatives, please contact Patrick Delaney, Vice President, Health and Safety at pdelaney@psac.ca 403.781.7384. For all other inquiries, contact info@psac.ca or 403.264.4195.
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Austen Lillies alillies@rogersinsurance.ca 1.403.296.2411
Lee Rogers lrogers@rogersinsurance.ca 1.403.296.2471
Toll free: 1.800.565.8132 600 - 1000 Centre Street N. Calgary, Alberta T2E 7W6
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MEMBER PROFILE
The Pillars of Differentiation THROUGH LONG-TERM VISION AND MANUFACTURING COMMITMENT, TENARIS GAINS A SPECIALIZED UNDERSTANDING OF THE CANADIAN ENERGY INDUSTRY BY CALEB CASWELL
T
HE SHALE GAS BOOM
throughout North American calls for oil country tubular goods, also known as OCTG, which can withstand high tension and compression, all while stretching the length of the Empire State Building in New York. Pipelines are to the oil and natural gas industry what roads are to a city. And just like roads need to be expertly maintained, upgraded and properly planned and built, so does the transportation infrastructure of Canada’s oil and natural gas industry. Canada’s vast pipeline network carries the majority of oil and natural gas being produced today, and excess capacity will be required to meet future needs to transport product to market. Tenaris creates high-quality pipe—specifically, casing and tubing for use in oil and gas wells and line pipe for use in energy pipelines, process facilities and refineries—and manufactures its product for a global market. With manufacturing locations in Canada, the United States, Mexico and in most of the world’s oil and gas regions, 27,000 employees and a network of service and distribution in 30 countries, it distributes over 100,000 pipe products on a global scale. While some might guess that its ability to compete boils down to pricing, David McHattie, the institutional relations director for Tenaris in Canada, explains that differentiation is achieved through the company’s service orientation. “The most important thing that we do is focus on solutions,” he says. “It enables us to deeply understand what is most important to our client and respond with tailor-made innovation.” So how does Tenaris differentiate itself within the industry? “We prefer to work with our partners long term, to provide stability
28 SUMMER 2014
and focus on improving products and processes, looking to minimize operational risk and optimize cost efficiencies for our customers,” says McHattie Tenaris routinely measures processes and efficiency with their clients to make sure there is continual improvement. By building relationships with both—working with clients to identify their needs and find improvements, and sourcing materials from local industries—Tenaris has a better perspective on what the company can improve on from both the office and the field. This also allows the company to discover ways to identify and solve needs it wouldn’t have otherwise considered. “We are a manufacturer who can uniquely provide the combined strength of industrial excellence and service to the customer,” says McHattie. “In Canada, for example, we manufacture the most complete product range in the market. “Our local manufacturing network is an important part of the economic value Canadians expect as a return for developing our oil and gas,” he adds. Also, instead of importing steel, Tenaris partners with steel companies in Quebec and Ontario. This helps Tenaris be efficient and flexible with supply demands, while also contributing to the national economy. Tenaris has become a global leader by becoming an essential part of the energy industry’s workflow. They are an important element in their clients’ success through application of metallurgical knowledge and premium connection design, with a focus on innovation. Key to differentiation in a country like Canada is a manufacturer’s ability to know the market inside and out.
PETROLEUM SERVICES NEWS
To clear up any confusion about frac sleeves:
GripShift Sleeves vs Ball-Drop Sleeves with cement
with packers
For a long time, the big frac debate was about whether plug-and-perf or ball-drop sleeves-and-packers are better for multistage completions—shots versus sleeves. Now there is a third choice that has quickly changed the debate: the Multistage Unlimited coiled tubing frac system. This system also uses sleeves, which has led to some confusion, even though Multistage Unlimited GripShift casing sleeves don’t even use balls. To help clear things up, here’s a quick comparison: TM
TM
GripShift casing sleeves
Ball-drop sleeves
Cemented annulus for stage isolation
Open-hole packers for stage isolation
Recorded pressure data verifies stage isolation
Unverifiable stage isolation, known failures
Each sleeve positively located for frac
No way to positively identify active sleeve
Sleeve shifting verified three ways
No verification of sleeve shift
Single-point injection, precise frac location
Unknown where fracs initiate
Verified frac spacing
No control over frac spacing
Verified propped volume in each frac
Unpredictable propped volume in each frac
Identical sleeves can be installed in any order
Sleeves must be installed in exact order
All sleeves have full-drift ID at all times
Ball seats restrict ID until drilled out or retrieved
Closable version is available
No closable option unless retrieved
Real-time frac-zone pressure data
No real-time frac-zone pressure data
Screenouts easily and quickly removed
Screenouts are costly
Sleeves easily located and isolated for restimulation
Well segments difficult to isolate for restimulation
The Multistage Unlimited GripShift casing sleeve is not a ball-drop sleeve.
ncsfrac.com +1 403.969.6474 info@ncsfrac.com Leave nothing behind. ©2014, NCS Energy Services, LLC. All rights reserved. Multistage Unlimited, GripShift, and “Leave nothing behind.” are trademarks of NCS Energy Services, LLC. Patents pending.
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
ANDY BROOKS President and CEO Flint Transfield Services Ltd. DEBORAH CLOSE President Production Services, Tervita Corporation
ANDY BROOKS IF YOU COULD DO ANY OTHER JOB, WHAT WOULD THAT BE? AB: Owner of a major sports team. That, or a gardener. DC: Psychologist. I particularly enjoy the study of personality types, how people process information and communicate with each other.
DEBORAH CLOSE
WHAT IS YOUR FAVOURITE BOOK OF ALL TIME? AB: Papillon DC: The Bible
WHAT MOTTO OR PHRASE DO YOU LIVE BY? AB: Stand for something or you stand for nothing. DC: If it was easy, everyone would do it.
WHAT ABOUT MOVIE? AB: The Shawshank Redemption, and In Bruges. DC: The Sound of Music. Corny, I know, but I love the story and the music.
WHAT TALENT WOULD YOU MOST LIKE TO HAVE? AB: To be able to learn other languages quickly and easily. DC: To be able to play the piano by ear.
IF YOU COULD INVITE THREE FAMOUS PEOPLE (DEAD OR ALIVE) TO DINNER, WHO WOULD THEY BE AND WHAT WOULD YOU SERVE? AB: I would invite Jesus, Winston Churchill and Alexander the Great, and serve whatever Jesus wants. DC: Jesus Christ, Winston Churchill and Helen Keller. I’d probably order in pizza. I doubt I could prepare anything that would impress them, and I wouldn’t want to waste a minute in the kitchen when I could be talking with them. WHAT DO YOU THINK IS THE BIGGEST CHALLENGE FACING CANADA’S ENERGY INDUSTRY AT THIS TIME? AB: Access to world markets. DC: A sense of urgency with respect to market diversification. We must find a way to collaborate politically to get our products to market, otherwise, those markets will find alternate ways to supply their needs. WHAT WOULD YOU SAY IS YOUR BIGGEST ACCOMPLISHMENT TO DATE? AB: Getting married and raising children. DC: Staying happily married for 37 years.
30 SUMMER 2014
IF YOU COULD CHANGE ONE THING ABOUT YOURSELF, WHAT WOULD IT BE? AB: Don’t worry as much. DC: I’d be more patient. WHAT IS YOUR MOST TREASURED POSSESSION? AB: My family. DC: A music box that belonged to my mother. IF YOU COULD TRAVEL TO ANYWHERE IN THE WORLD, WHERE WOULD YOU GO? AB: To the Seychelles, an island off the east coast of Africa. DC: To Egypt. I’d like to go to Luxor and also see the pyramids. WHO ARE YOUR HEROES IN REAL LIFE? AB: Jesus, Terry Fox. DC: My father – he’s 87, still walking several miles a day and has a delightful sense of humour. IN 10 WORDS OR LESS, WHAT WOULD YOU SAY ABOUT HOW 2014 IS GOING TO TURN OUT? AB: Very optimistic that 2014 will be a transition year. DC: A good year with slightly higher activity than 2013.
PETROLEUM SERVICES NEWS
Passing the baton Managing succession You’re proud – and rightly so - of what you’ve achieved. You’ve led the way. Now it’s time for others. Whether it’s the handover to the next generation, or a sale to new owners, you want a smooth transition and you want to maximize value. KPMG’s Corporate Finance network is the global leader in mid-market M&A transactions.* Together with KPMG’s powerful network of tax, transaction and accounting advisors, we will help you close the deal and secure the future.
kpmg.ca
Rhys Renouf Managing Director, KPMG Corporate Finance 403-691-8426 rrenouf@kpmg.ca
Deb MacPherson Partner, KPMG Enterprise, Tax 403-691-8567 dmacpherson@kpmg.ca
Alex Henderson Partner, Transaction Services 403-691-8140 alexanderhenderson@kpmg.ca
*Source: Thomson Reuters SDC; mid-market transactions (under $1 billion - USD) © 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.
READY-MADE PIPELINE SYSTEM
Flexpipe Systems’ corrosion-resistant composite linepipe products are ideal for use in Canada. Operating temperatures of up to 82°C, flexibility and minimal equipment requirements make Flexpipe Systems the answer to your next pipeline project.
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