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February 2016
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Coll’s Corner Contents
FEBRUARY Volume 17, Number 1
Publication Mail Agreement No.: 40039458 Publisher John Robertsen Deputy Editor Donna Gray Editorial Associates David Coll Seema Dhawan Joni Evans Elizabeth Hak Joe Perraton Editorial Submissions, Design & Layout donna@oilgas.net
5 Coll’s Corner: What’s Wrong With Resources? 7 PSAC Lowers Its 2016 Forecast:
No Improvement to Sector Activity or Market Access
7 Hard-Hit Energy Services Sector Continues to Champion STARS: More Than Half a Million Dollars Raised at PSAC’s 22nd Annual STARS & SPURS Gala
8 NEB Leader Discusses Field Research - Changes Coming to Build Public Trust and Confidence
9 Policy Paper Spells Out Need for a True Energy Strategy: Eight Structural Initiatives That Could Make a Big Difference
Have you read the new GPS Magazine?
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By David Coll Justin Trudeau (fiddling in Davos, Switzerland recently while Rome continued to burn), had this to say: “My predecessor wanted you to know Canada for our resources. I want you to know Canada for our resourcefulness.” Despite the petty, insecure and most unstatesmanlike swipe at Stephen Harper, this is a brilliant soundbyte, just the kind of quote that journalists will latch onto. But what does it really mean? Our new PM may pat us on the back for our dogged determination, our integrity and our work ethic, but can anyone demonstrate that these qualities constitute any advantage whatsoever for Canada over other jurisdictions as a place to invest in and do business?
Canada is, and always has been, a high-cost environment for setting up shop just as long as we’ve dreamed to be something more than just a resource-driven economy. The long distances between major centres and our relative isolation geographically don’t help either. Why do you think so much of the country lives so close to the U.S. border?
jim@oilgas.net
Phone: 403.800.1226
It’s more important to just be resourceful, according to our PM
Can Canada compete with the likes of Taiwan, China, India and Mexico for cheap labour? The best we can do is import TFWs to do the jobs all of the overqualified Canadian liberal arts and poli-sci grads won’t touch with a 10-foot pole (after all, many are too busy smoking pot and listening to Pink Floyd in their parents’ basements, waiting for their next pogey cheque to arrive).
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What’s Wrong With Resources?
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Resourcefulness aside, in recent years it’s become increasingly prohibitive to do business in the land of the less free than we used to be – capricious regulation and taxation, political instability, growing aboriginal discontent, disintegrating federal authority, impotent courts and internecine fighting among the provinces. It’s a bloody mess. If I were Trudeau (admittedly, the hair needs work), I’d rather hang my hat on something tangible and defensible like resources, which not only account for about 20 per cent of our gross domestic product annually and some 1.8 million jobs but also make our modern lifestyle possible. What’s wrong with resources? Isn’t that our brand? What Canada’s always been known for and for good reason? Apparently, resources are not in vogue anymore. Speaking of which, can you imagine any other past national leader making it one of their first priorities upon election to pose for Vogue magazine with, in one photo, his hand on his wife’s derriere?
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The scandal that ensued would have brought down the government. Now, no one much cares or is surprised – some even think such an overt expression of vanity is kind of cool.
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The bottom line – this country is in deep, deep trouble. Transit lines and civic infrastructure are not really priorities when the industry that underpins just about everything we do is on the ropes.
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Focus instead on the things that matter – like getting oil and gas to tidewater. What will it take and how far are we going to sink until the federal government steps up and reclaims its role as the true leader of this country instead of provinces like Alberta and Manitoba making side deals over climate change.
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“Canada’s back,” Trudeau said in another classic but equally vacuous soundbyte.
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Prove it, I say.
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Pierre Trudeau needed the National Energy Program to bring Alberta to its knees. At a time when Alberta could use a little support, if not a kind word or two, Justin only needs to open his mouth.
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PSAC Lowers Its 2016 Drilling Activity Forecast:
RUBBER TRACK CONVERSIONS
No Improvement to Sector Activity or Market Access
In its first update to the 2016 Canadian Drilling Activity Forecast, the Petroleum Services Association of Canada (PSAC) has revised its forecasted number of wells drilled (rig releases) across Canada for 2016 to 4,900 wells. This represents a decrease of 250 wells and an approximate five per cent decline from PSAC’s original 2016 drilling forecast released in early November 2015. PSAC is basing its updated 2016 forecast on average natural gas prices of $2.50 CDN/mcf (AECO), crude oil prices of US$38/barrel (WTI) and the Canada-US exchange rate averaging $0.72. “Factors including oversupply, North American reserves near capacity and low cash flows continue to support the ‘lower for longer’ outlook being echoed around the province and industry,” said Mark Salkeld, president and CEO of PSAC. “These challenging circumstances are taking their toll on the oilfield services sector just like all other sectors of the energy industry and the effects ripple across all the supporting industries. I’m afraid we are not out of the woods yet.” On a provincial basis for 2016, PSAC now estimates 2,718 wells to be drilled in Alberta, down from 2,733 wells in the original forecast. Approximately four per cent fewer wells are also expected to be drilled in British Columbia, with PSAC’s revised forecast now at 330 wells for the province down from 344 in the original forecast. The revised forecast for Saskatchewan now sits at 1,643 wells compared to 1,789 wells in the original forecast, and Manitoba is forecasted to see 205 wells or a decline of 75 in well count for 2016. “The lack of progress on nation-building projects, such as pipelines to tidewater, is counterproductive to Canadian energy resource development,” Salkeld stated. “In turn, this is hindering Canada from being a country that can help other countries in need of oil and gas resources.” He adds that Canada has the third largest oil reserves in the world, but we have less than four per cent of the global market share. “We’re resilient and we’re extremely good at what we do in the energy sector. We’ll come out of this slump, but we’re getting in the way of our own success. Not moving forward on infrastructure projects, even though we have a solid track record of responsible energy and resource development, is hurting us and areas of the world that would benefit from what we have to share.”
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Hard-Hit Energy Services Sector Continues to Champion STARS Air Ambulance More than Half a Million Dollars Raised at PSAC’s 22nd Annual STARS & SPURS Gala
STARS GETS MUCH NEEDED SUPPORT (left to right) Dave Kelly, MC, STARS & SPURS Gala , Doug McNeill, Co-Chair, STARS & SPURS Gala Committee / Chief Strategic Officer, Stream-Flo Industries Ltd., Mark Salkeld, President & CEO, Petroleum Services Association of Canada, Andrea Robertson, President & CEO, STARS & STARS Foundation, Trevor Haynes, Co-Chair, STARS & SPURS Gala Committee / President & CEO, Black Diamond Group Limited.
The Petroleum Services Association of Canada (PSAC) announced today it has helped raise more than $12 million for the Shock Trauma Air Rescue Society (STARS) over 22 years of presenting the annual STARS & SPURS Gala. The longest-standing, largest fundraiser in Alberta, this year’s gala raised more than half a million dollars. “The partnership between PSAC and STARS has been built on perseverance, teamwork and generosity of spirit,” said Andrea Robertson, President and CEO of STARS. “We are so thankful and humbled by the support we have received from the petroleum industry during these difficult economic times. When you see a red helicopter in the sky, know that your support has helped STARS continue to fly the emergency room to critically ill and injured people and provide care for workers in the oil and gas industry across Alberta.” Canada’s oil and natural gas industry opened their wallets and their hearts to make the STARS & SPURS Gala a huge success, commented President and CEO of PSAC, Mark Salkeld. “Once again, the generosity of the oilfield services sector and their customers, the producers, shines through in 2016. Even when the energy industry is experiencing tough times, everyone comes out for a great night of western fun, entertainment and generosity.”
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NEB Leader Discusses Field Research Changes coming to build public trust and confidence hopefully--more trust and confidence in the NEB,” Watson said.
Oral Aboriginal Traditional Evidence
Building public trust and confidence in the National Energy Board (NEB) is a key goal of its Chair and CEO Peter Watson, who toured the country to collect input from Canadians in 2015. In mid-December, he spoke about the engagement effort in an address to the Fraser Institute. Watson highlighted some of the approaches the NEB is taking to increase public confidence, beginning with transparency. “The public’s appetite for energy information has never been greater than today,” Watson said. “I heard that over and over while I was travelling across Canada earlier this year as part of the NEB’s National Engagement Initiative.” Watson travelled an estimated 40,000 km and held 80 meetings in 34 towns and cities with mayors, Indigenous peoples and Canadians from every walk of life. “What they consistently told me was they wanted to know if their water and land was protected from energy infrastructure,” he explained. “And they wanted to know how the NEB, industry, and other levels of government were ready if an incident occurred.”
Emergency Response Planning
Although robust and comprehensive response plans are in place in the event of an emergency, established practice with NEB-regulated pipelines was to not make those plans available to the public. That practice, Watson said, has become a roadblock to building public trust in the NEB and in industry. “I heard that opinion from Mayors in virtually every region of Canada during my tour,” he said. In June, the NEB began asking the public what they thought about the transparency of pipeline emergency response plans, And what aspects of emergency response plans could be publicly available. The results on that consultation will be released early in 2016. “The end result of that consultation will be more openness--and
The NEB recognizes that Aboriginal peoples have an oral tradition for sharing stories, lessons, and knowledge from generation to generation. This information cannot always be shared adequately in writing yet it makes up an important component of the evidence an NEB panel considers in the assessment of the project. For that reason, the Board began a practice several years ago of holding ‘Oral Aboriginal Traditional Evidence’ sessions as part of its hearing process. However, Watson said. an Indigenous community has expressed concern that this process forbid them from presenting scientific evidence during their oral Aboriginal traditional evidence session. “The Board listens to the public and Indigenous peoples and is willing to adapt its Oral Traditional Evidence processes, if necessary,” Watson remarked. “So the board is going to consider this matter over the next while and discuss how a modern NEB can turn this process into something that is even more open and transparent than it is now.”
Engaging With Canadians
“Much, much more engagement” with Canadians will be another signpost to look for in a revamped NEB process, Watson said. Having spent the first five months of 2015 listening to community leaders across the country and reflecting, the NEB will be releasing a report on how it plans to respond to the input received. Watson provided a taste of what the NEB response will be: 1. A more prominent presence for the NEB outside of its Calgary head office (the NEB has recently opened offices in Montreal and Vancouver in addition to its regional office in Yellowknife). “We opened offices in those locations because we see those regions as being on the front lines of the debate about pipelines and the role of the NEB,” Watson said. 2. An improved understanding of regional interests and perspectives. 3. A robust engagement program with Indigenous peoples
that live near existing pipeline projects. 4. A much more vigorous social media strategy and information program. “Quite frankly, my plan is to make the NEB the ‘go to place for pipeline safety and energy information in Canada.’ So we can engage with Canadians - and experts around the world - and do a better job of getting information into the hands of people that want it.”
Change is Never Easy
Watson praised the caring nature, professionalism and technical expertise of the NEB staff. But to stay relevant, he explained, change is needed. “I have introduced a departure from ‘business as usual’ at the NEB, and I am encouraging a similar departure in the culture of the industry we regulate,” he said. “If we expect industry to be at the top of its game, than we have to look in the mirror and ensure that we are also that good. “The changes that the NEB is implementing are of critical importance to fulfilling a vision of sustainable energy systems in Canada, and we are focused on success.” Indeed, the NEB has brought in an internationally recognized organizational management and change consultant (Ernst & Young) to work with NEB leaders in implementing changes to its operating model and management systems. Watson concluded by saying that none of these activities are of the ‘one and done’ variety. “To modernize and build public confidence requires a concerted effort,” he emphasized. “And it needs to happen in the face of whatever changes -- be it governments, industry, technology, or economic conditions. “Ultimately, building public confidence and trust in energy infrastructure is a task that we share with fellow regulators, with industry, and with other levels of government. Working in concert, with mutual goals and a shared understanding of the positive outcomes we are working towards, is essential.”
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Policy Paper Spells Out Need for a True Energy Strategy Eight structural initiatives that could make a big difference In 2007, Canada’s premiers began to consider an Energy Strategy for Canada. Since then, conditions in the world energy market have changed dramatically, yet the approach to dealing with the problem has not, writes Michal Moore, Area Director, Energy and Environment at The University of Calgary’s School of Public Policy. In July 2015, the premiers released Canadian Energy Strategy, a document which Moore says “is not a strategy but an agreement to work together on issues that may or may not affect all provinces or their native interests. This is compounded by the actions of individual provinces enacting programs or investing in facilities that would normally be coordinated by a central authority. The obvious actor missing at the table is a proactive federal government.” In October 2015, Moore released his own document, simply titled An Energy Strategy for Canada, which offers the rationale for a comprehensive energy strategy, a vision where Canada can lead and not follow opportunities in energy markets. “This strategy is a fundamental rail on which plans, tactics and policies can be built,” Moore says. “This vision identifies how the provinces can work together using all the tools available to them, maximizing long-term resource development while minimizing environmental damage.”
Moore’s strategy assumes there can be a broad commitment and effort by the federal government to help build the necessary tools, providing guidance and assistance “without obstructing or denying the fundaments of the Canadian Constitution, First Nations people, and the role of provinces in managing the resources within their borders.” “The strategy highlights the need to look ahead, understand these changes, and create adaptive, unifying processes that will provide long-term economic and geopolitical stability using energy as the common denominator for Canada’s future.” Here are eight proposed structural initiatives in a National Energy Strategy, as proposed by Moore:
Create a Canadian Energy Information Organization
No energy strategy can succeed without a consistent and reliable source of data and information. While important to this effort, industry-supplied sources of data are simply not independent and imply a bias that has to be vetted in order to be useful over the long term. Similarly, such an organization must be perceived to serve the role and needs of the provinces as unique clients, and must be separated from the federal party in power enough to be relied upon for
financing and investment purposes. Linkages with research capacity at the EIA in Washington or the U.S. national energy research laboratories can greatly extend and enhance Canadian capacity in this area.
Create a Carbon and GHG Credits Exchange
Anticipate the arrival of international greenhouse gas and carbon emissions targets and embedded taxes for energy shipments. This inevitable issue may take decades to resolve, but in the interim will present a global opportunity to monetize, track and administer the credits involved as every nation looks forward to a workable and cohesive standard. Canada is in a position to design, administer and underwrite the development of a truly global carbon trading exchange and, in doing so, can exhibit leadership and simultaneously create a long-term revenue generating vehicle that will guide all energy development in the future.
Create a National Infrastructure Investment Bank
Canada has relied on outside capital investment to support the development of critical infrastructure in the energy industry.
Continues on page 10
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Policy Paper Spells Out Need for a True Energy Strategy Continued from page 9 The creation of a National Infrastructure Investment Bank can support cross-provincial systems in electricity, carbon storage and new technology development in oil and gas development. With increasing interest in mitigating environmental externalities, and the advent of higher standards for emissions and monitoring, the presence of an institution established to support and fund the highest quality energy system investments can improve the timing, design and location of future improvements and development across the country.
A National Rights of Way and Infrastructure Corridor
Similar to the heroic efforts that established the trans-Canadian railroad and highway systems, this step requires sacrifice and commitment from all, but clearly highlights the role of energy infrastructure in the national future. Once adopted, these corridors can serve simultaneously as a definition of access and a guarantee of a buffer for lands to be set aside for public purpose or to codify the role, and responsibility, of First Nations land stewards. Included in this powerful step would be to identify at least one additional port of entry for Canadian goods and serve as a planning goal for employment, housing and finance opportunities for investors.
National Energy Technologies Insurance Fund
New technologies with no recent market experience or share face difficulties in market entry and competition. For the next generation of low-carbon energy technologies, a category that could include geothermal electric generation, bridge and transition gas technologies or next generation nuclear facilities, insuring initial efforts in market entry can be invaluable. Not only financing but initial production can benefit from risk sharing for new technologies. The federal government in collaboration with larger risk-bearing insurance companies has the opportunity to encourage and support new and promising technology development by creating a National Energy Technologies and Insurance Fund.
A National Transportation Plan
The energy strategy needs a key plank such as this to enable thoughtful integration of road, rail, marine facilities, storage for natural gas and CO2 and inter-provincial and international electrical facilities. The National Transportation Plan can serve as the basis for federal cross-province investments in infrastructure and for safety and enforcement of safety standards throughout the nation, including marine safety and offshore resources. A support role for
this function could consider a national energy insurance program to indemnify new technologies and exploration that would be in the national interest, such as the continental shelf in the Northwest Passage.
Centre for Energy Research
The federal government can take a unique leadership role in establishing a Centre for Energy Research, with a laboratory structure that supports science, engineering and economic research specifically targeted to energy markets. Similar to the National Energy Laboratories in the United States, the research centre can work collaboratively with other countries where the specific mandate is to conduct focused research and technology adaptation for industry as well as participating government agencies.
Ensure the Independence of the Regulatory Boards
Insist on consistent and independent regulatory oversight from the federal government. Changing standards that transparently reveal shifting political rather than stable regulatory roles will destabilize and limit the ability of Canadian energy companies to interpret the law and invest or develop resources responsibly. Failure to engage in this step will only result in deep and continuous market discounts for Canadian energy products. In this area, the provinces can adopt common standards of energy extraction, processing and transportation. Best practices are the foundation that assures public safety and minimizes future challenges that may exploit inconsistency, and will demonstrate competence and commitment to international markets and the investment community. Canada is struggling to fully develop, sell and move its energy resources. This is a dramatic change from the recent past where the U.S. has provided stable growth in demand for energy supplied by the provinces, from hydrocarbons to electricity. Current circumstances now challenge this relationship, adding environmental, policy and economic hurdles that exacerbate the impact of fluctuations in world demand and pricing. In addition, competitive interaction between provinces, aboriginal land owners and special interest groups complicate and compound the issues of royalty returns, regulatory authority and direction, land-use management and long-term market opportunities for Canadian companies. There is no strategic document guiding the country’s energy future. As the steward of one of the largest, most diverse and valuable
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energy “banks” in the world, Canada has a unique opportunity to exploit a critical and valuable economic niche in the world economy. Given the lack of federal leadership and the tendency for each province to undercut each other in the same marketplace, there is also the distinct possibility the nation will squander the opportunity.
Conclusion
Conditions in the world energy market have changed dramatically since this topic was considered by the premiers beginning in 2007. The approach to dealing with the problem or issue hasn’t changed in the meantime, including the recently released Canadian Energy Strategy (July 2015) from the premiers, a document that in fact is not a strategy but an agreement to work together on issues that may or may not affect all provinces or their native interests. This is compounded by the actions of individual provinces enacting programs or investing in facilities that would normally be coordinated by a central authority. The obvious actor missing at the table is a proactive federal government. The issue of developing a stable and responsible energy industry that can deal with future external markets is critical. It demands leadership and commitment. A loose agreement driven from the provincial level cannot hope to succeed, if only for the fact that implementing key elements such as a role for aboriginal peoples, or the need for common rights of way, port development and realistic environmental standards demands central authority and design to be effective. Anything short of this will simply be another agreement that Canada’s energy industry is important, but leaving the real initiative to private investors and companies, rather than developing cohesive and coordinated public policy that highlights public preferences, expectations and standards. Lack of port access, rights of way and international disagreements have the potential to freeze out effective Canadian participation in energy markets for decades to come. Failure to address this now will have long-lasting and deleterious effects on the entire Canadian economy. Old arrangements of independent and autonomous provincial roles may have to be re-examined in order to maximize gains for all. This will involve thoughtful and timely policies, including a clear re-evaluation of roles for not only the public actors, but also for First Nations communities, in addressing in a coordinated and mutually beneficial way a serious threat to the entire nation. An energy strategy is not a plan, although it will depend on robust and timely planning to be successful. To succeed in the new world energy market, Canada must provide incentives for the provinces to collaborate with the federal government. Ultimately, all levels of government in Canada must take a step back and see how a failure to provide appropriate public investments and unifying policies results in following rather than anticipating or leading world markets. This is not a market where other countries, collaborators or even investors will wait for Canada to catch up. However, with the right strategy and public commitment, Canada can break the mold and lead the world market(s) to a new and more sustainable future.
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Unlocking Value by Putting Documents and Data in the Cloud Don Greaves, Capital Projects Executive, IBM Natural Resources Solution Centre
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12 Oil & Gas Network, February 2016
THE OIL AND GAS INDUSTRY is characterized by large, costly to build, difficult to reach facilities and sites that depend on reams of paper-based technical data covering everything from engineering specs to maintenance procedures. This information typically goes into file drawers or big boxes until it is needed – perhaps by staff working on a new project or a regulator to confirm compliance. Unfortunately, over time that paper is often lost or degraded to the point that documentation cannot be produced. The result can be catastrophic: A pipeline company that dug up a section of its pipe to add a coating was unable to provide regulators with the applicable documentation. It was fined $1 million. The lack of change control documentation for an engineering design project resulted in the incorrect class of pipe being installed and led to a $1 billion fire. And in a similar case where a lack of documentation led to incorrect pipe being installed, the pipe burst causing death and extensive damage. The company fine and damages totaled over $1.4 billion. More recently, one energy producer saw its entire operation shut down as a result of lack of documentation, costing it billions. This difficulty in managing documents and data is pervasive throughout the industry and has many operational aspects when it comes to complex projects involving multiple vendors. In response, IBM has worked with a large multinational energy industry supplier to prove the benefits of a cloud-based, document management solution specifically designed for industrial and energy companies. It is pre-configured with the leading processes necessary to achieve successful document and data management – all with a consistent set of standards. The solution, known as Engineering Information Managed Service or EIMS, allows for all documents and data to be stored on a secure, private cloud with access through special portals for all stakeholders – from owners to engineers; to constructors and vendors. EIMS operates much like a bank does where your money is securely held so you can access it when needed. Similarly, this solution manages documents and data in one secure place – the cloud, with one set of procedures developed specifically for the energy, mining and industrial industries. It includes complete engineering document management capabilities like workflow, revision lifecycle, concurrent engineering, business process management as well as document and record management. In addition it has the ability to collate, contextualize, crossreference and visualize all data and documents – including those in 3D format. And it operates on IBM SoftLayer, the highest performing cloud infrastructure available that is used for the most sensitive financial and government data in Canada. Levels of user access are determined by the owner and include complete document control functionality. As well, management is able to see data inconsistency reports and missing document reports. Further, all documents and data go through an automatic quality assessment prior to acceptance into the solution so that data integrity is maintained. The EIMS solution has the potential to cut the costs associated with document handling on a typical engineering project in half. Most companies spend about 8% of the total cost of a project on documentation and handling, which would mean that on a typical billion dollar capital project the cost of managing documents and data could run around $80 million. Saving $40 million would be a significant cost reduction. More specifically the benefits of implementing an EIMS solution