Yedlin: Energy sector transition in full swing

Yedlin: Energy sector transition in full swing

Northern Beaches News -
HOUSTON — The cataclysmic impact of the oil price crash that began in 2014 caused many to all but write the energy sector's obituary.

Attendance at this year’s CERAWeek conference suggests the industry is anything but dead. That’s remarkable on many levels, considering hundreds of thousands lost their jobs in the global oilpatch as a result of the downturn. And yet, the industry has not only survived, it’s thriving.

For example, oilfield services giant Schlumberger laid off 70,000 people. Not many companies and industries have experienced a setback of that magnitude and come back stronger, better capitalized and positioned for growth.

Schlumberger’s layoffs highlight what happened, and what’s happening now.

The only way for industry to remain competitive in a low-price environment has been to cut costs — including massive layoffs — and become more efficient.

The good news is the industry — which has been in survival mode — is winning the battle.

Companies are investing in new projects, some have re-instituted or increased dividends and/or initiated share buyback programs.

There are concerns the lack of investment, pegged at having fallen off by US$1 trillion since the oil price collapsed, will pose challenges in terms of meeting future oil demand.

Much has been made of capital not coming to Alberta — if not leaving the province — but the reality is investment in the energy sector has dropped around the globe.

Alberta and its energy players have much to be proud of.

The CERAWeek theme this year is about the importance of technology changing how the sector functions; helping to increase efficiency while decreasing costs and greenhouse gas emissions.

While some say innovation is in the DNA of the oilpatch, that is doubly true when it comes to the oilsands. In fact, it’s not hard to make the case the oilsands have been ahead of the innovation curve.

“Many people look at the oilsands as the application of brute force, but the story of the oilsands is one of innovation, the development of SAGD technology,” said Cenovus chief executive Alex Pourbaix during a panel discussion Tuesday.

“The fact that our sustaining capital today is 50 per cent of what it was a few years ago goes back to innovation and optimization.”

Pourbaix and Suncor’s chief operating officer, Mark Little, at a different session involving Permian basin players, proved complacency is not on the radar.

Little highlighted Suncor’s approach to its operations, including changes made at the recently operational Fort Hills operation to decrease the footprint of barrels produced.

The Fort Hills project sees the asphaltenes extracted from the barrel using a solvent, and remixed with the sand from which it was extracted. The process has dramatically decreased the carbon footprint of oil produced at Fort Hills, to the point where it’s in line with the average U.S.-produced barrel, he said.

Consider the global energy sector will need to invest about $20 trillion in the next 25 years to meet future demand growth and offset declines and it’s hard to deny the oilsands being an important component in that investment matrix.

Nor is it constructive to focus on the exodus of super majors from the oilsands, as has occurred in the past 12 to 18 months. They have chosen to allocate capital elsewhere, either in areas where their expertise is stronger or projects that have shorter cycles times and therefore are deemed to be carrying less risk.

And, in that context, it’s time to dispel another oilsands myth.

Whether it’s through automation, as in the use of autonomous trucks at the mining site, to exploring applications for artificial intelligence to optimize plant operations, tracking employee work flows or monitoring equipment, Suncor — like other oilsands players — is looking at all avenues to manage costs, manage risk and reduce its carbon footprint.

And it is paying off, even in this market.

Little made the point — and produced a chart to illustrate it — that while the upfront cost of the oilsands is steep, once the projects reach payout, it’s a matter of managing variable costs to generate returns.

It’s true the cycle times of shale plays is shorter — and companies do not have to commit to decades-long projects — the capital efficiency of the oilsands is receiving the Rodney Dangerfield treatment.

Suncor’s returns, for example, have been better than those generated by the shale players, a fact underscored during CERAWeek panel discussions that acknowledged increasing production by the shale companies can’t occur in the absence of better balance sheet oversight.

All this should cast a different light on Canada’s position as a global energy player.

While the vexing issue of pipelines and market access need to be solved — Pourbaix called it the most important issue facing the Canadian energy sector — a key take-away Tuesday was that too much capital has been directed at short-cycle projects.

And that could put Canada’s oilsands in the sweet spot for future investment.

Deborah Yedlin is a Calgary Herald columnist

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