Exports A Key Piece Of Canadian Oilfield Service Companies’ Survival Strategy

With upstream capital investment and field activity in Canada expected to remain flat, oilfield service companies need to look to export markets to soak up excess capacity and grow their businesses.

That was the message delivered by industry experts Wednesday during a webinar launching the third phase of the Going Global initiative aimed at helping Canadian oilfield service companies build exporting strategies.

Tom Whalen, president and chief executive officer of the Petroleum Services Association of Canada (PSAC) said service companies are facing a barrage of roadblocks in the Canadian market, including regulatory hurdles and market access issues, that are freezing investment in exploration and development.

“Never before in the industry have there been so many barriers,” Whalen said. “Flat is kind of the new up. We think the next three years are going to look a lot like the last two years.”

PSAC surveys its membership regularly and Whalen said many are losing confidence in the domestic market, with 14 per cent of its members looking to completely exit the Canadian market.

“That’s quite a difference from in the past,” he added. “There is an appetite to look elsewhere for opportunity.”

Whalen said oilfield service companies have limited choices in how to respond to the freeze in activity in the Canadian oilpatch.

“They can adapt to the new reality, succumb and die, move geographically, or diversify geographically,” he explained, adding that he believes the best option is to maintain their Canadian operations while looking for growth opportunities internationally.

Matthew Machielse, assistant deputy minister, trade and investment, Alberta Economic Development and Trade, said the Alberta government recognizes the need to help oilfield service companies expand their markets.

“The government recognizes with the downturn and excess capacity the industry has a tremendous opportunity to expand into the international space,” he said. “But going international requires companies to take on risk.”

He added: “The majority of Alberta companies have focused on the domestic industry. The strength of the Alberta economy and having fast energy industry growth didn’t provide an opportunity for Alberta companies to go global,” he added. “With the slowdown and technology they have there is now an opportunity to go global.”

Machielse said the Alberta government initiated an export expansion package three years ago to help companies grow outside the province’s borders. As part of that effort companies can access grants up to $10,000 to work with consultants to develop go-to-market strategies for exporting. The Alberta effort aligns with a federal program offering $20,000 to $50,000 to help companies get export ready.

“We encourage people to look at these various programs,” he said.

Alberta also has dedicated staff in 12 international offices including the U.S. and throughout Asia to help potential exporters.

“So we have locally engaged staff that can provide in-country expertise,” said Machielse.

The province also is supporting 75 trade missions over the course of 2018-2019.

“These missions are a great entry point for industry to get connected and become aware of the opportunities,” said Machielse.

Robert Hodges, sector advisor, oil & gas global trade group for Export Development Canada (EDC), said many Canadian oil and gas companies are already successful exporters. In 2017 EDC served 434 exporters in the industry, facilitating $10.4 billion in exports. It also provided $5.7 billion in financing, insured $3.8 billion in export receivables, provided bonding services worth $827 million, and provided $149 million in political risk insurance.

Hodges said Canada needs to expand exports if it expects to continue to prosper in the future. He added there are opportunities to export in the Canadian oil and gas supply chain, but there are also challenges.

“We’re located near the U.S. and that is a huge advantage,” he explained. “But the U.S. is very competitive. We do well but that business is hard won. Geographically, we are isolated from other markets.”

Because of this isolation, Canadian companies have more of a challenge in accessing international markets. Hodges said the EDC has a variety of products and services available to help exporters expand their reach. It provides insurance solutions to lessen risk, bonding and guarantees, financing—including guarantees, direct lending, and buyer financing, and advisory services.

“Our website is a one-stop shop for trade information to help you do your homework,” he added. “We also do direct introductions.”

Bemal Mehta, senior vice-president, energy intelligence for JWN Energy, said a good place for oilfield service companies to start on the road to exporting is the third phase of the Going Global initiative, a new report that identifies opportunities in heavy oil, enhanced oil recovery, and unconventional resource development in 16 markets.

Sponsored by the Government of Alberta, PSAC, EDC, and the Canadian Global Exploration Forum, the Going Global initiative builds on the first two phases completed last year and examines the opportunities and risks of in each of the 16 countries and provides a starting point for companies to create their own export strategies.

“The purpose of the report is to help oilfield services identify opportunities. The focus is on small to medium sized companies with a short to medium term timeframe,” explained Mehta. “It’s a place to get started and then to move on to other sources.”

Going Global Phase 3 identifies a number of geopolitical risks in export markets such as Iran, Saudi Arabia, and Russia, said Mehta. It also identifies market risks, such as concerns over intellectual property rights in China.

As for lowest risk and highest reward markets, the U.S. leads the pack, he said. Because of the this, the new Going Global report provides an in-depth focus on the major U.S. unconventional resource plays. 

“The U.S. market is by far the single biggest opportunity for Canadian oil and gas suppliers and manufacturers,” he explained. “It has everything going from demand, NAFTA is still real, and you can drive your truck down there. Mexico, despite political changes, is also a favourable market.”

Mehta said while much of the current focus in the U.S. is on the Permian Basin in Texas, there are opportunities in other major basins for Canadian companies. He points to the Appalachian Basin in the northeast, and the Bakken and Niobrara plays as other potential export targets.

“They’re easily reachable from Alberta. The Bakken should be on the radar. The Niobrara, there’s growing development in that area and its very accessible for Alberta companies and it may not be as competitive as the Permian.”

Resources for exporting oilfield services visit:

https://www.jwnenergy.com/reports/global-exports/

https://canadianenergyexportguide.com/

https://investalberta.ca/

https://www.edc.ca/