McKercher Leaderboard March 2021
Features

Adversity is Nothing New: Saskatchewan’s Oil and Gas Industry Takes Another Tough Year in Stride

The negative impacts of the COVID-19 pandemic on global transportation, the resulting low oil prices, and an uncertain regulatory environment, amongst other factors, made for another challenging year for Saskatchewan’s oil and gas industry. Still, thanks to mergers, prudent planning, and technological innovations, there are growth opportunities and optimism from key players.

“If this year has taught us anything, it is to plan for the worst and hope for the best,” says David Gowland, director of ESG & Stakeholder Engagement at Crescent Point Energy. “Over the past year, we came to realize just how resilient our assets and our company can be in the face of adversity.”

Facing adversity, and working in challenging environments, is nothing new to Saskatchewan’s oil industry.

Back in the Day

Many young farm kids across the prairies got a taste of being “on the oil” in the 1950s and 60s precisely because they could work hard and handle some adversity.

Stan Johnston and his brothers were among the farm kids who left the family homestead to earn the high wages being paid by exploration companies at the time. With a wife and three young kids all under the ages of seven in tow, Stan and his family lived in an eight-by-thirty foot trailer they pulled from town to town, often moving every two weeks or so.

His wife, Gwen Johnston, recalls how they would wash clothes in tubs outside and cook on small gas stoves, essentially camping year-round. “We were oil people. That’s what we were,” says Johnston.

The story of oil in Saskatchewan took a back seat to Alberta after the 60s, and it wasn’t until the invention of directional drilling in the late 80s, achieved with the help of the Saskatchewan Research Council (SRC), that the resource truly began to be developed in the province.1

According to the SRC, the Viking formation in the province’s southwest and the Bakken formation in the southeast could not have been developed “without advancements in horizontal drilling.”2

Today, and the Future

The amount of change in the oil and gas industry over the past few decades and the impact technological advances, skilled workforce, and market access have had on the province plays a significant role in the Saskatchewan oil and gas industry’s continued viability.

“The combination of high-netback assets, market access, and a highly skilled and innovative workforce form the basis of our competitive advantage,” says Gowland.

Hope and Optimism

With no shortage of extractable oil and gas resources in Saskatchewan, and many analysts predicting an increase in demand for oil and gas products for the foreseeable future, optimism is again overcoming adversity.

“There is no doubt at all that the impact of the energy sector will continue to be very, very important to the province,” says Brad Wall, former Premier of Saskatchewan and special advisor to Osler, Hoskin & Harcourt LLP. Wall notes the industry’s importance to Saskatchewan is not necessarily direct revenues for government coffers but the employment and investment created, and this is increasing.

“The companies that are really active in Saskatchewan, and have a strong track record in Saskatchewan, are getting stronger,” Wall says. “And that’s good for us.”

Wall also notes that, while exploration and enhanced oil recovery are “price-sensitive,” Saskatchewan has shown leadership in sustainable oil recovery, and, with improved outlooks for both price and demand, there is reason to be optimistic. Crescent Point Energy seems to feel the same.

“We believe Saskatchewan has a tremendous resource base, and we are excited to be in a position to help realize the province’s full resource potential,” says Gowland.

Mergers and staying competitive

Mergers and investments in technology continue to play a role in how the industry moves forward. In December, Whitecap Resources announced a “strategic combination’ with TORC Oil & Gas Ltd. The combined entity expects to save $15 million in year one from cost savings and inventory efficiencies alone and reduce net debt by $200 million in 2021.3

Like Whitecap, Crescent Point Energy has taken steps to remain competitive. Besides trimming capital costs and an impressive $1.5 billion debt reduction, investments in digital and automated technologies have contributed to their continued success.

“In the field, we have implemented prioritized workflows which, combined with remote well monitoring and digitization, have helped us reduce our operating costs significantly,” says Gowland.

Downstream opportunities and Indigenous ownership

Polar Oils.

Polar Oils.

Beyond exploration and production, there is optimism downstream as well. Polar Oils, one of Canada’s oldest independent petroleum marketers, is owned by nine First Nations in Saskatchewan’s northern regions.

Created in 1982, the company began by reducing heating fuel costs for its First Nation shareholders through group purchasing. It has since expanded into servicing retail and large corporate entities throughout the north.

With sparsely populated communities nestled within dense forests and tucked alongside pristine rivers and lakes, the primary industries in Saskatchewan’s north are forestry, fishing, and mining. Because of this remoteness, the cost of goods is often high, but co-operation between communities helps increase purchasing power. Polar Oils, formed by the Meadow Lake Tribal Council, known as the Meadow Lake District Chiefs Joint Venture at the time, is one example of this type of co-operation.

“We’re trying to build on a lot of cooperative values in a private business context that’s unique to First Nations economic inclusion,” says Dylon Gould, General Manager at Polar Oils.

As Polar Oils grew, it leveraged synergies in local industries, especially the fuel-intensive forestry industry. The company expanded its product and service offerings to support various ventures created by the Tribal Council and capitalized on service opportunities with firms operating in the area.

“We can share the purchasing power, employ our people, and service those industrial economies directly adjacent to [us],” says Gould. One example of this is Polar Oils 2021 fuel contract with Orano, a global mining firm operating in Saskatchewan’s north.

The Orano contract is a significant development for Polar Oils. “It proves that not only can we build this kind of cooperative framework of Polar Oils, but also be able to service the wider industrial economy,” says Gould.

Gould also says Polar Oils can grow both large service contracts, like the one with Orano, and their retail business.

The 70 First Nations in Saskatchewan each have at least one gas station on reserve land, and there are 235 similar stations throughout Western Canada. “It’s kind of the last portfolio of unbranded stations in Canada,” he says. Polar aims to supply each, and being an Indigenous-owned, independent service provider is a significant advantage.

“If you’re a retail station looking for a supplier in Saskatchewan, you may have half a dozen suppliers available, but we’re the only one that’s going to give you ownership,” says Gould. “With that comes the preferred savings, [and] our ability to build a brand that equates Indigenous economic participation at a grassroots level.”

Beyond supplying heating oil and petroleum products, coupled with ownership in the company, is the exposure for Polar Oils’ shareholders to the broader industrial economy.

“If you look at the breakdown of the economy in Saskatchewan – manufacturing, oil and gas drilling, agriculture, logging, fishing – the common synergy here very much is fuel,” says Gould.

References

1,2Drilling Through Advancements in Oil Production, Saskatchewan Research Council, https://www.src.sk.ca/blog/drilling-through-advancements-oil-production
3Whitecap and TORC announce Strategic Combination Creating a Leading Sustainable Light Oil Focused Company with a Significantly Enhanced Free Funds Flow Profile Supporting a 6% Dividend, Whitecap Resources Inc., https://www.wcap.ca/investors/news-releases/details/whitecap-and-torc-announce-strategic-combination-creating-a-leading-sustainable-light-oil-focused-company-with-a-significantly-enhanced-free-funds-flow-profile-supporting-a-6-dividend-increase/239