Canada’s Oilfield Services Sector Cashes In Its Political Capital

When Prime Minister Justin Trudeau visited Calgary earlier this year, he met with the board of only one oil and gas organization: the Petroleum Services Assocation of Canada

April 25, 2016

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Mark Salkeld, CEO of the Petroleum Services Association of Canada
Mark Salkeld, CEO of the Petroleum Services Association of Canada
Photograph Chris Wedman

When Prime Minister Justin Trudeau visited Calgary earlier this year to listen to the oil industry, he met with the board of only one oil and gas organization, the Petroleum Services Association of Canada (PSAC). It’s been a tumultuous 12 months for the sector, with crashing oil prices, carbon and corporate tax hikes, and a royalty review that aims to incent more efficient production. For the services sector, it’s been a year of pivoting as producers prioritize lower costs and higher efficiency over speed of delivery. But it’s also provided opportunities, such as going overseas to earn stronger U.S. dollars in new markets, including India, Iran, Mexico and Colombia. The drive to reduce environmental impacts and slash production costs is both an opportunity and a challenge. Building pipelines to tidewater means building confidence in the industry’s technology, regulators and environmental performance during a time of unprecedented pushback by provinces and municipalities both east and west. As the CEO of PSAC, Mark Salkeld is at the forefront of those challenges during these turbulent times.

You’ve just met for the first time with the new Prime Minister. What did he have to say?
He definitely understands the financial impact of the oilfield services sector and is supportive of it and knows its value. But he knows there is a big job to be done by regulators and governments to build up confidence in it with the Canadian public. We haven’t done a good job. We’ve typically just gone about our business. We didn’t defend and we didn’t brag—we just did our job.

In what areas do you need to build public confidence?
In regulatory areas, in the system, environmentally and in our ability to do the job. It’s one of those frustrating points… the world has the utmost respect for Canada in how we responsibly develop our energy resources. The whole world knows it except for right here in our own backyard. Oil and gas companies and governments from other countries are banging on our doors asking for us to help them develop their petroleum resources, because our association members are on the leading edge of that technology and have a great safety track record.

How will the federal and provincial governments advance energy projects?
We’ve got an indication that there’s going to be support at a number of different levels. From an industry perspective we said we don’t want handouts. If they’re going to spend money on infrastructure then build pipelines. They should communicate with the public about how the quality of our lives comes from oil and gas. So let’s build pipelines to market and break the stranglehold of our only customer.

The fact that the Prime Minister came out here and met with the Premier, that’s part of the alignment, the understanding. He came to see what the province needs and how he can support it. They both recognized what this industry needs, and Canada can do a lot better in getting our product to tidewater. They’re getting past the political rhetoric.

One of the sector’s strengths is ongoing innovation. What are the trends in innovation you are seeing?
If you look at surface footprint in 2005, we drilled 25,000 wells, each with its own location. We were knocking down trees and clearing land to drill one vertical well. Now you look at today—multi-well pads, real-time downhole data. We have micro seismicity that supplements that downhole data. The ability to steer the drill bit with precision that allows us to go from 30 wells in 30 square miles to 30 wells from one location, that’s one road versus 30. So the environmental impact is reduced. You get a rig on there that’s a state-of-the-art walking rig, that’s less trucks going out there. From the services perspective we know we’re going to only one site for 30 wells, so we get all the fluid and frack sand to one site so there’s all of the economies of scale that come into play.

For the next step the drilling companies are starting to apply the lean manufacturing theory—what can we take out of this process to make it faster and that’s where we’re at today. In the last five to seven years the producers are farming out more and more work to the service companies. That’s the good thing about Canada we’ve got a robust regulatory regime, a good relationship with the producers—for the most part, it gets contentious over prices for instance because everyone’s fighting to survive. The producers came back to us and said shave your invoices 30 percent otherwise we go somewhere else. They shut down their drilling programs half way through. They cut a 30-well program to 15 wells but still want the 30-well discount. It’s rough out there. But the producers are fighting to survive—plenty of them are going under just like the service companies are going under. But at the end of the day we do work together.

We honestly believe the royalty review is the intention of the government to support innovation and technology development. It’s not the intent to take it off the backs of the service companies and that’s where we’re going through a real rough patch. There’s a certain aspect that’s dog eat dog.

How does PSAC bring value to its members?
A lot of our focus is on government relations. We’ve developed a very good relationship with the energy innovation and diversification ministries of the province. Anything that can help our members—deals with insurance companies, getting subject matter experts. They look to us to be their voice. We’re out there on the front line of politics. Taking that voice to the Prime Minister and saying who we are and what the industry is—that’s huge. The Premier has indicated through her energy minster she wants to meet with us again.

There’s a certain win to selling overseas in U.S. dollars. PSAC’s been to India, met different ministries and the industry. We’re going to Mexico and Colombia. PSAC is identifying opportunities for our members through introductions in India, Mexico and Colombia. Some PSAC-member companies have agents on the ground in Tehran waiting for sanctions to be lifted to get first opportunities there, and in North Africa. We did a survey of 42 companies [that showed] $42 billion in export revenue that this sector has raised.

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