Calgary– Fresh off the completion of his “cooling off period” from being a former Saskatchewan minister of Energy and Resources, Canadian Association of Petroleum Producers president and CEO Tim McMillan is now able to talk about Saskatchewan issues to the media. Pipeline News spoke to him on Oct. 7.
Asked if producers are in the black or in the red, McMillan responded, “I think there are companies that have vastly different cost structures and are doing different things. Some are more active than others. They’re taking different outlooks on what the short- and medium-term future is. There isn’t one answer, but I can tell you it is a very challenging time for our industry. (With) current prices and cost structures, it is very difficult time to make the economics work.”
Saskatchewan was down to 17-18 active drilling rigs for part of September, compared to closer to 80 rigs for that time of year in recent years. McMillan commented, “We are seeing the capital investment that drives drilling, pulled back substantially this year. Even in June, when we put out our June annual forecast, we were predicting a 40 per cent annual pullback in spending in our industry. We now see that number starting to creep up towards 45 per cent. The effects are higher on the conventional side than they are on the oilsands.
“That’s just the nature (of the industry). The oilsands projects are multi-year in length, and we’re only seeing about a 25 per cent reduction in oilsands spending, where on the conventional side, the pullback has been quicker and deeper.”
As for what it will take for drilling to pick up again, McMillan said, “I think a few things. We don’t control the world price of oil. That has a large effect on the economics of projects.
“I think we are seeing companies that are realigning their cost structures. They are looking at how they operate, how they can operate more efficiently, then if we are in a world where there’s going to be lower prices into the future than we may have seen a year ago. Companies are not sitting on their hands, waiting for the price to rebound to as high as a year ago. They’re trying to make sure their company will be successful, that they’ll be productive at lower prices into the future. There’s a lot of work internal to the companies, but I think there’s a lot of work as Canadians.
“We need to look at market access; at some of these big cost drivers. We’re losing substantially on the differential. That has a cooling effect on our industry specific to Canada. We want to and can compete with anyone in the world. We’re doing the heavy lifting to get our costs in line, but we also have to look at those big pieces as well.”
With vendors having seen numerous rounds of price concessions, how much can producers expect them to go, as a lot have cut to the bone already?
McMillan responded, “On that one, we are seeing industry looking really at every aspect of their operations – internal, external, the partners they have, the type of resources they have, land positions they have and those they want to take. It is through looking at everything with an objective eye I think we’re going to be successful into the future. I know that many of the producers have long-standing relationships with the suppliers that they use. There’s no one portion of our industry which is immune to the environment we’re in. Everyone is in this, and everyone is looking to find solutions together.”
The term “lower-for-longer” is seeing a lot more play these days, meaning the price of oil is expected to stay low for a longer period of time than it has in the past. McMillan said, “I think it means the same for CAPP as it does our members, our provinces and our country. We are competitive. We have advanced technology. We have a sophisticated workforce. We have a myriad of geology in our country. We are in a time where it is very challenging and we need to ensure we are operating efficiently and effectively to be successful in a new environment.
“The influx of tight oil in North America as well as growth in the oilsands has really changed the world dynamics, and we’re working our way through that right now. While our productivity in North America has changed the world dynamics, we need to continue to ensure we are the competitive barrel, that we are attracting the investment.”
McMillan’s reference to “market access” includes both pipelines and crude-by-rail. He said, “We’ve found efficiencies in rail we may not have expected a decade ago because constraints in one area, the entrepreneurial spirit has found a solution in another. That, I think, is something we should be conscious of as well. But the big driver is going to be the pipelines, to get the differentials back to competing on a level playing field.”
