Total employment impact of 500,000 coast to coast; Provides $27 billion in payments to governments; Will invest over $40 billion in 2006 as Canada’s largest private-sector investor
CANADA'S UPSTREAM OIL AND GAS INDUSTRY
by Randall Anthony Mang
Sometimes it can be hard to see the forest for the trees. In few industries is that adage more appropriate than Canada’s upstream oil and gas sector – companies that explore for and produce Canada’s oil and gas resources.
In this case, on the strength of massive oil and gas resources, Alberta has emerged as a Canadian economic superpower. It’s easy to see how a little “Alberta envy” might exist.
The reality is not only does Alberta’s energy wealth spill beyond its borders, Alberta is not Canada’s sole energy-rich terrain. From Newfoundland and Labrador to Saskatchewan and British Columbia, oil and gas is propelling provincial economies to new heights. In the process, oil and gas is redefining Canada’s global role.
Newfoundland Premier Danny Williams recently announced his government’s 24-month turnaround of a $500-million-plus budget deficit into a modest surplus – accomplished largely through economic activity from offshore oil and gas.
In B.C., Premier Gordon Campbell has cited his government’s efforts to stimulate resource development as a primary reason for the 82 per cent increase in drilling from five years ago and the fact industry’s investment in B.C. has increased by almost 50 per cent since 2001.
“We’ve made a real effort to work with the industry to introduce sound, effective policy changes,” said Mr. Campbell, adding that lower taxes, competitive royalty structures, expanded summer drilling and resource road development “are helping B.C. maximize its oil and gas potential.”
Pierre Alvarez, president of the Canadian Association of PetroleumProducers, says such policies have allowed industry to flourish and
multi-year, high-capital cost projects to go forward, bringing broad economic benefits.
“Sound public policy is critical when you’re investing billions of dollars in these regions. It’s given confidence to the investor community,” he says.
The sector’s economic impact in Canada dwarfs most other industries. While manufacturers, for example, invested $22 billion in capital expenditures last year, Canada’s oil and gas producers invested more than $37 billion.
Today, roughly 30 per cent of the value of the S&P/TSX is in oil and gas companies. Last year, the industry paid governments across Canada more than $27 billion in direct revenue.
A recent University of Calgary study showed that through purchases of goods and services alone, 15 to 20 per cent of the total impact associated with a typical energy investment in Alberta flows to the Ontario and Quebec economies.
Further, a study by the Canadian Energy Research Institute revealed that over the next 20 years, the largest percentage of government revenues from oil sands (taxes and royalties) will accrue to the federal government, not Alberta. Indeed, 44 per cent of employment generated by oil sands investment is outside Alberta, including 16 per cent in Ontario in areas such as manufacturing and finance.
“Canada’s reserves rank second only to those of Saudi Arabia,” says Colleen Killingsworth, president of the non-profit Canadian Centre for Energy Information.
Canada’s vast oil reserves include approximately 179 billion barrels – 4.3 billion barrels of conventional oil and 175 billion barrels from oil sands. Ms. Killingsworth notes only 28 per cent of Canada’s potential for conventional natural gas, estimated at 517 trillion cubic feet, has been produced.
“Technical advances and market conditions are spurring industry to develop petroleum resources not only in the oil sands, but also in Canada’s North and the Atlantic offshore,” she says. The industry is also facing growing pains.
Industry expert Michael Laffin of Blake, Cassels & Graydon LLP notes, for example, there are some flags to watch, including increased finding and development costs and availability of skilled labour.
While companies address such concerns through increasing nvestment, research and development and the employment of new technologies, Mr. Laffin also expects to see some consolidation in the sector including “trusts with trusts, juniors to trusts and juniors into seniors.”
He also believes, “Companies over the next year will be looking inward, and harvesting internally generated opportunities.”
A rising labour shortage reflecting industry’s growing need for thousands of skilled individuals – from pipefitters and electricians to engineers – is presenting opportunities.
Calvin Helin, a Tsimshian lawyer and president of the Native Investment Trade Association, says oil and gas is providing Aboriginal people, in particular, with “an opportunity to capitalize on the greatest wealth creation in our history and to move themselves forward.
“They can apply the revenues earned to education and skills that are transferable, so they can build their own economies to generate long-term self-reliance for their communities.”
Aboriginal corporations in Fort McMurray, he notes, generated more than a half billion dollars last year alone and are building capacity and leading by example.
The bottom line, says Ian Wild, senior vice-president, Corporate Financial Services at ATB Financial, “This sector is robust going forward. There is more demand than supply, and security of supply has taken on a much more serious view. “I suspect we’ll see more investment coming across the border from the U.S., China, Japan and India... Europeans are increasingly looking to Canada, too.”
And all that means big benefits for all of Canada.
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