business resilience - ey

Business resilience: weathering the next storm

Canadian oil and gas market study

Respondents

Industry current state

What is business resilience?

Summary of survey results

Dimension details

Conclusion

How EY can help

Contacts

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Business resilience: weathering the next storm Canadian oil and gas market study

Business resilience: weathering the next storm – Canadian oil and gas market study | 1

What are the resilience components of successful oil and gas organizations?In the first quarter of 2018, EY, in association with the University of Calgary’s Haskayne School of Business, conducted a survey of 70 executives from organizations in Canada’s oil and gas industry to gain insight into how those organizations achieved resilience during the past three years of continued low commodity prices.

Since 2014, Canada’s energy sector has been faced with many challenges, including barriers to accessing national and international markets, an evolving regulatory environment that favors clean energy, job loss amid recession, and two major natural disasters that shook Alberta. As prices begin to recover, the time is right to look at how organizations have responded to those challenges.

With the boom and bust cycles of Canada’s oil and gas patch, organizations and leaders consistently faced increasingly complex environments that are more dynamic, interconnected and less predictable. To achieve resilience, a company’s strategies must ensure that each element works in concert with other elements to help it adapt better to disruptive risks.

Our survey respondents, whose organizations represent a wide range of sizes and sectors within the oil and gas industry, ranked their organization’s ability to survive and thrive across six key resilience dimensions: portfolio, financial, operational, market, stakeholder and talent management. In terms of survival outcomes, the split was even among respondents ranking themselves as thriving, adapting or managing during the recent downturn.

Regardless of survival level, organizations rated their highest priority as reallocating capital to optimize returns. Perhaps unsurprising given downward pricing pressures and other market indicators, this tells us that organizations were focused on cash flow above all else. When asked if they were well positioned for the next upturn, most organizations said they were, or would be by the end of Q4 2018. Whether oil prices continue to recover or downward pressure on oil prices prevails, the lessons learned can help form a foundation for any future changes organizations will have to make.

We’re excited to build upon our previous work with the Haskayne School of Business in the innovation and reorganization spaces, leveraging the advanced insights our collaboration can provide. In this report, we’ve summarized the findings from our survey responses and identified trends by breaking responses down by company size, type and industry sector, based on comprehensive self-assessment across 6 dimensions and 25 subdimensions.

We believe the findings provide insights into how companies achieved resilience during the past downturn and how they aim to position themselves in the next upturn.

Lance Mortlock National Sector Leader, Oil & Gas Ernst & Young LLP

Peter Sherer Associate Professor, Strategy and Organizations, University of Calgary, Haskayne School of Business

2 | Business resilience: weathering the next storm – Canadian oil and gas market study

Breakdown by sectorWe received a total of 70 responses from executives in Canada’s oil and gas organizations, representing a broad cross-section of Canada’s energy industry.

respondents70

Participants held

executive-levelpositions in their organization.

Respondents

Mark Little, COO Suncor Energy

Continued investment in our people and technology through the downturn has been critical in allowing us to continue to drive improvements in our cash generation as well as being foundational for our future.”

<100 employees

100–500 employees

500– 1,000 employees

>5,000 employees

1,000 – 5000 employees

Organization breakdown

by size

Organization breakdown by sector

Upstream

50%

Other

4%EPC

4%Integrated

17%

Midstream

9%

Oilfield services

16%

Organization breakdown by sector


MethodsOur survey was structured around seven areas, with six core dimensions evaluating an organization’s level of resilience over the last three years:

Size of company: <100; 100–500; 500–1,000; 1,000–5,000; 5,000+ employees

Ownership structure: publicly traded or private

Company type: upstream, midstream, downstream, integrated, oilfield service, exploration, procurement and construction (EPC)

Company name: optional

Which of the following is the organization focused on today?

Thriving: operational, portfolio, stakeholder, market and financial excellence

Adapting: operational, portfolio, stakeholder, market and financial management

Managing: cost containment, cash flow management and monetization of redundant assets

1

2

3

45

Dimensions of resilience

Do you feel set up for resilience during the next upturn?

Rate the level of importance of the dimensions, in terms of actions you have taken, during the last three years of the economic downturn in Canada’s oil and gas industry:

6

7

Portfolio resilience: opportunities to capitalize on transactions and maximize returns

Capital and financial resilience: long- term financing strategies, minimizing bad debt and pivotal efficiency gains

$

Operational resilience: adaptive and proactive approaches to operating risks and costs

Market resilience: revenue or sales risk management through customer, product, market, competition and pricing analysis

Stakeholder resilience: active engagement and alignment with stakeholder equity groups

Talent management resilience: culture, leadership, capability development, succession planning and retention strategies



The energy sector contributes greatly to Canada’s gross domestic product (GDP) and has historically been a strong driver of the nation’s economy. However, the abrupt drop in oil prices that began in late 2014 pushed the nation into a recession, with a decline in GDP for two consecutive quarters in 2015.1

Amid the downturn, 56 Canadian oil and gas companies filed for bankruptcy in the period from 2015 to 2017.2 In the province of Alberta alone, 45,200 jobs were terminated from 2014 to 2017.3 Although the nation and the province of Alberta have emerged from the recession, the loss of confidence among Canadians, coupled with the volatility in oil prices set by global market trends, has left the energy outlook for the future of the nation in a state of uncertainty.

Amid the downturn,

Canadian oil and gas companies56

filed for bankruptcy in the period from 2015 to 2017.

In light of the changes that have characterized Canada’s energy sector in the last four years, EY, in collaboration with the University of Calgary’s Haskayne School of Business, surveyed 70 Canadian oil and gas companies to gain insight into how these organizations attained resilience during the economic downturn and how they plan to overcome the challenges that lie ahead. This report provides insight into the organizational resilience of Canada’s energy sector and an outlook on the current challenges facing the industry, including barriers to accessing national and international energy markets, decreasing demand for Canadian exports in the United States and an evolving regulatory environment that favors clean energy.

were terminated from 2014 to 2017.

45,200 jobs

In the province of Alberta alone,


Currently, a major challenge that the Canadian energy sector faces is the lack of pipeline infrastructure required to get its oil and gas resources to tidewater.4 The crude oil and gas reserves produced in Western Canada (Western Canadian Select (WCS)) are currently landlocked and are largely inaccessible to global markets outside of the US.5

In addition, the heavy crude variety produced in Western Canada requires further modification in refineries, which restricts the usability and reach of WCS.6 As a result, WCS is sold for less than its counterparts, including Texas sweet light crude oil (West Texas Intermediate (WTI)) and Brent crude sweet light crude oil from the North Sea (see Figure 1).7 Thus, mobilizing Canadian oil to global markets has the potential to expand the amount of resource that can be sold, and the price at which it can be sold. This is perceived as especially critical for the livelihood of the industry, since North American demand for Canadian oil is expected to flatten as the local US tight oil production continues to grow.8

Markets such as Asia have been considered for export of Canadian oil because of their close proximity to Western Canada and their increasing demand for transportation fuel and petroleum products, which is expected to grow with their rising populations.9

To overcome the current global market access limitations associated with Canada’s crude oil resources, several pipeline projects — including the Northern Gateway, Trans Mountain Expansion, Energy East and Keystone XL — have been proposed.10 However, despite the promising benefit of expanding Canada’s oil export capacity, the proposed pipeline development and expansion initiatives have faced legal and regulatory barriers and opposition from environmental, First Nations and political interest groups.11

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Monthly Average Oil Prices from 2012 to 2018 for Brent, WTI, and WCS (US$/bbl)

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Figure 1: Monthly average oil prices from January 2012 to February 2018 for Brent, WTI and WCS.


Some of the major challenges facing today’s energy industry are regulatory pressures imposed by provincial and federal governments. Currently, the Government of Canada is undertaking measures to reduce methane emissions from Canada’s oil and gas sector by 40% to 45% by 2025.12 Although the environmental case for these initiatives is strong, the new policies stand to place an increasing pressure on the energy sector and reduce its revenue even further, which could ultimately mean more jobs lost.

Despite these challenges, the changing regulatory environment is encouraging companies to explore innovative technology solutions that will help Canadians achieve a cleaner economy. In addition, the Government of Canada is committing CA$200 million to support the development and adoption of clean technology in Canada’s natural resource sectors.13

Despite the impending obstacles, several large and small conventional, oil sands and natural gas producers continue to thrive and are forging the path ahead. Even the two major natural disasters that rocked Alberta — the floods in 2013 and the Fort McMurray fires in 2016 — did not significantly dampen organizations’ optimism and determination.

In this report, we provide insight into the perspectives of 70 oil and gas organizations that have navigated through the financial, regulatory and political pressures of the last few years, and who continue to redefine the industry as it evolves. The insights gained from these organizations shed light on how companies can strategize to withstand bust cycles, and how Canada’s nonrenewable resource sector can continue to contribute to the nation’s economic growth and prosperity.


Nina Birgitte Koch, President

Statoil Canada

We have faced tremendous challenges in the business environment in the last years and have worked continuously to improve performance — by new ways of working, reducing cost, utilizing new technology — and drive standardization. Statoil’s perspective is that we want to be part of shaping the future of energy. The sharpened strategy includes developing the company into a broad energy company fit for the future — resilience to changes — and competitive at all times.”


Why look at this now?Companies and leadership are consistently faced with disruption and challenged by complexity. The world is moving faster due to digitalization and shrinking due to globalization. In this environment, leaders must navigate three perpetual challenges:

Velocity of innovation and information that is coming at leaders and organizations in this digital age

Visibility into everything that organizations and leaders do

Volatility of the economic, demographic and political environment

This report provides insight into the organizational resilience of Canada’s energy sector and an outlook on the current challenges facing the industry, including:

• Barriers to accessing national and international energy markets

• Decreasing demand for Canadian exports in the US

• An evolving regulatory environment that favors clean energy

Overall, Canada’s oil and gas industry have weathered a challenging storm since oil prices began their aggressive fall more than three years ago. As prices recover, the time is right to look at how leading organizations responded.

Key questions

Do highly resilient companies take specific actions within our identified six parameters?

How do a company’s position in the market, size, ownership structure and other potential characteristics impact its strategic outcomes?

How are companies identifying and mitigating risks, and adapting to disruptive environments?

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?

In our 40-year history, we’ve been through various challenging times. Cutting cost and focusing on priority activities were all important. At the same time, belief in the future of this industry and passion to realize the value of the resources was maintained by our employees and investors. This was among the most important factors to bounce back quickly and capture the benefit of a recovering market when it came.”

Satoshi Abe, President Japan Canada Oil Sands Limited


Resilience is the strategic organizational capability to mitigate and adapt to disruptive and destructive threats, reshape environments, and survive both foreseen and unforeseen risks. To achieve resilience and demonstrate its ability to thrive, a company’s strategies must be fit for purpose, be based on sound analysis and ensure each element works in concert with other elements. Any resilience capability must be built to continually adapt to changes in the business and external context.

What is the intent?Our intent is to determine whether highly resilient companies take specific actions across six key parameters: portfolio, financial, operational, market, stakeholder and talent management. These parameters are also affected by performance, upstream or downstream position in the market, size, ownership structure, and short- and long-term vision.

Why should companies read this?This report provides a better understanding of how organizations in the oil and gas industry responded during times of disruption and upheaval in the economy. The timeliness of this research positions us to initiate conversation-starters about how organizations are preparing for the coming upturn.

Our business resilience model is broken down into six dimensions, each contributing to an organization’s ability to identify, mitigate and adapt to emerging changes and risks.

What is business resilience?

1. Portfolio resilience 6. Talent

management resilience

5. Stakeholder resilience

4. Market resilience

3. Operational resilience

2. Capital and financial resilience

Ada

pt

Identify

$

Mitigate

An important and distinguishing characteristic for any business is its ability to respond and adapt to changing dynamics within the industry in which it conducts its business.”

James Riddell, President & CEO,

Paramount Resources Ltd.


Case study

Sanjel Energy ServicesSanjel Energy Services started out during the rut of the current industry cycle. Despite the complexity and obstacles facing many players, Sanjel continued to forge the path ahead and thrive, seeing an increase in operational efficiency and material resources. Instead of short sprints, it centered itself on a long-term vision in market fundamentals and its guiding principle. Its success throughout the downturn has been attributed to the foundational knowledge and experience of its management.

The six dimensions of business resilience are strategic to players in an industry that has undergone multigenerational downturns and upturns. The integration of these dimensions into the strategic plan, coupled with the discipline to focus on that plan throughout the noise, is a driver of success for many organizations. Sanjel is a prime example of how best to leverage these tactics.

During their integration, leadership made savvy financial management decisions and aligned itself with a strong private equity partner focused on long-term value creation and collaboration in the sharing of data. This was a building block to Sanjel’s disciplined financial approach to invest in long-term growth opportunities or process changes that set it up for robust capital gains.

Sanjel’s culture of continuous improvement speaks to operational resilience. It is a customer-intimate organization that must produce solutions tailored to that of a multidimensional customer base. Ever-changing improvement to drive efficiency, better product application and lower costs are expectations among its client base. To remain competitive, this area requires continual evaluation, solution generation and follow through.

As a service company, Sanjel prides itself on the resilience of its people. It has grown by 60% year on year in an industry that has been forced to cut tens of thousands of skilled employees over the past three years. Several of these highly qualified workers left the industry and moved on to other opportunities in other markets or industries. Among its growth strategies, Sanjel targeted talent with great attitudes and coupled this with training programs to accelerate growth. This resulted in improved retention, foundational competencies in the industry and leading service quality. Continued investment in talent and skill development through the downturn resulted in an optimistic and high-performing culture that is embedded across the organization.

Shane Hooker, President & CEO, Sanjel Energy Services

Resilience as an overarching theme is fitting, as all areas have required, and continue to require, discipline and determination in today’s ever-changing competitive landscape. Challenges create opportunity, and those able to pivot in the most favorable direction to capitalize while remaining mindful of their fundamentals will continue to succeed.”

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Respondents rated 6 dimensions and 25 subdimensions on a five-point scale from very unimportant (1) to very important (5), with the highest-rated dimension being operational resilience and the least important being market resilience. Scores ranging from 2.5 to 5 have been included below.

1 Portfolio resiliencei Reallocation of capital to optimize returns

ii Divesting of underperforming or noncore assets

iii Opportunistic transactions

iv Partnerships to share capital and costs (such as JVs)

2 Capital and financial resiliencei Flexible long-term financing

ii Achievable debt covenants supported by robust cash flows

iii Strong working capital performance

iv Robust management of legacy liabilities

3 Operational resiliencei Greater management of operating costs

ii Optimization of supply chain management

iii Management of operational risks

iv Innovation of operating models

v Proactive investment in technology

Summary of survey results

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Portfolio Talent management Stakeholder Market Operational Capital and

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6 Talent management resiliencei Increased investment in employee skills

and capabilities

ii Active cultivation of an organizational culture

iii Stable and accountable leadership

iv Active headcount management

v Salary and bonus adjustments

5 Stakeholder resiliencei A clear vision for the business supported by

market trends and organizational capabilities

ii Active engagement and alignment with equity, financial, regulatory, supplier and other stakeholder groups

4 Market resiliencei Management of revenue, product, pricing and

sales risk

ii Management of customer, market and competition

iii Management of product and pricing

iv Regular use of market and tracing data to align customer-facing activity

v Investment in disruptive technology


Portfolio resilience

ObservationsCompanies rated the importance of portfolio resilience, and the following data was collected:

• The highest-rated subdimension was to “reallocate capital to optimize returns.”

• Companies that identified themselves as “managing” placed a higher importance on divestitures and partnerships.

• Thriving companies were focused more on opportunistic transactions.

• Companies with more than 5,000 employees put the most focus on this parameter.

Dimension details

Divest underperforming or noncore assets

Reallocate capital to optimize returns

InsightsThriving companies may be more likely to make transactions or acquire (e.g., through investment in disruptive technology or opportunistic transactions) because they are well positioned in the market and have hedged effectively.

Managing companies may have focused more on divesting business processes that were not part of their core operations or sharing the burden through limited partnerships, to target their primary business streams or to free up funds to cover operating costs.

Regardless of survival level, the highest-rated response among all organizations was reallocating capital to optimize returns.

Rate how important portfolio resilience has been to your organization during the last three years

Enter opportunistic transactions

Regardless of survival level, reallocating capital to optimize returns was the highest rated among all organizations.

Enter partnerships to share capital costs

(e.g., JVs)

Thriving Adapting Managing


Capital and financial resilience

Observations• The majority of respondents rated each subdimension

within capital and financial resilience as “very important.”

• Managing companies placed the highest emphasis on “achievable debt covenants supported by robust cash flows” and “strong working capital performance.”

• Adapting companies rated “flexible long-term financing” as the most important subdimension.

• Publicly traded organizations put the highest importance on capital and financial resilience.

InsightsCompanies that are managing through the downturn are focused on regaining their capital performance and managing their debt, given their restricted cash flow.

Without adequate working capital, companies will find it difficult to maintain day-to-day operations and cover their current liabilities, let alone grow their business.

A drop in oil prices impacted current revenues for many organizations and put them at risk to meet obligations; this is made evident by companies at the adapting level.

Being financially resilient can help open opportunities for organizations to improve in other dimensions.

Robust management of legacy liabilities

Strong working capital performance

Achievable debt covenants supported by robust cash flows

Flexible long-term financing


Very unimportant Somewhat unimportant NeutralSomewhat important Very important

$

Rate how important capital and financial resilience has been to your organization during the last three years

100%

50%

10%

Flexible long- term financing

Achievable debt covenants supported by robust cash flows

Strong working capital

performance

Robust management of legacy liabilities

ThrivingAdaptingManaging





Operational resilience

Observations• The majority of respondents rated “greater management

of operating costs” as the most important subdimension; companies of all sizes valued operational resilience at the highest level.

• Companies that identified themselves as “managing” ranked highest in the “innovation of operating models” subdimension.

• Thriving companies engaged in “proactive investment in technology.”

InsightsOperating model diversity is a route for competitive advantage in this industry. Engineering is very technical and requires operational expertise in this heavy oil environment.

Thriving companies may be more likely to invest in technology because they are looking to the future.

Managing companies are looking for new ways to manage and deliver their business. This is a key area to protect their margins and remain competitive.

Respondent companies at all sizes valued operational resilience at the highest level.

Respondent companies at all sizes valued operational resilience at the highest level.

Very unimportant Somewhat unimportant Neutral Somewhat important Very important

Dimension details

Rate how important operational resilience has been to your organization during the last three years

100%

50%

10%Optimization of supply chain management

Innovation of operating models

Management of operational risks

Greater management of operating costs

Proactive investment in technology


Market resilience

Observations• The overall highest-rated subdimension was

“management of revenue, product, pricing and sales risk.”

• Companies that identified themselves as “managing” placed a higher importance on operating-related subdimensions.

• Thriving companies were most likely to “invest in disruptive technology.”

InsightsCompanies may be more likely to invest in disruptive technology because they are already in a successful market position.

“Management of core market activities (revenue, product, price and sales risk)” was equally important to thriving, adapting and managing companies. Companies have different reasons to emphasize this, but it’s largely a minimum requirement.


Rate how important market resilience has been to your organization during the last three years

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Management of revenue, product,

pricing and sales risk

Management of customer, market and competition

Investment in disruptive technology

Regular use of market and trading

data to align customer- facing activity

Management of product and pricing


Stakeholder resilience

Observations• Both subdimensions were widely regarded as

important, with only three respondents indicating “somewhat unimportant.”

• Respondents identifying themselves as “thriving” were most likely to push active stakeholder engagement and were also most likely to have a market trend-based business vision.

• Service companies rated both subdimensions higher than any other company type.

InsightsCompanies that are thriving tend to be more focused on meeting the needs of their broad stakeholders.

Service companies have an imperative to focus on stakeholders, and they don’t necessarily have a captive market, as their business is entirely reliant on stakeholders.

Stakeholder relations are becoming increasingly complex, so are likely to become increasingly important.

Active engagement and alignment with equity,

financial, regulatory, supplier and other

stakeholder groups

A clear vision for the business supported

by market trends and organizational

capabilities

Very unimportant Somewhat unimportant or neutralSomewhat important Very important

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Dimension details

Rate how important stakeholder resilience has been to your organization during the last three years

Active engagement and alignment with equity, financial, regulatory, supplier and other stakeholder groups

A clear vision for the business supported by market trends

and organizational capabilities


Talent management resilience

Observations• Thriving companies were most likely to be focused

on subdimensions related to spending on skills and fostering culture.

• Companies identified as “managing” were focused on cost containment subdimensions.

• Eighty-five percent of all respondents indicated that “active headcount management” was either important or very important.

InsightsCompanies were focused on managing heavily weighted salary and bonus adjustments, as these organizations have a critical imperative to save capital.

Thriving companies have the foresight to understand the need to attract and retain their best talent, and do this through investing in employees and focusing on culture.

Stable and accountable leadership is critical in shaping strategic focus and resilience.

Thriving companies have the foresight to invest in their talent and culture.

Rate how important talent management resilience has been to your organization during the last three years


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Increased investment in employee skills and capabilities

Active cultivation of an organizational culture

Stable and accountable leadership

Active headcount management

Salary and bonus adjustments


Reflecting on the findings of our report, there are a number of key takeaways:

1 Respondents are set up for success during the next upturn.

The large majority (90%) of respondents indicated that they were set up well for the next upturn, with others saying they will be by the end of 2018.

2 Management of operating activities is important for everyone.

Managing operating activities is critical for companies managing or adapting, but it remains important for companies that are thriving. For them, these types of activities are a minimum requirement.

3 Reacting appropriately to risks is critical to success. Organizations that are thriving excel at identifying,

mitigating and quickly adapting to risks and challenges as they emerge.

4 Larger organizations can maintain a broader focus. Smaller organizations should prioritize the factors most

important to their business due to constraints imposed by available capital, while larger organizations should take advantage of their scale to focus on all elements of business resilience.

Conclusion

Key takeaways Deeper insightsOn deeper analysis, a trend emerged. Company responses break out into two categories: investment and management. These form the basis for two distinct groupings of respondents.

Investment• Companies in this group have a focus on the future.

• These respondents were more likely to indicate that they were thriving.

• These organizations placed a high degree of importance on disruptive technology and investment.

• Respondents in this group placed high importance on leveraging market trends in the development of business vision.

• Actively developing an organizational culture was highly important to this group.

Management• Companies in this group focus on the present.

• These respondents were less likely to indicate that they were thriving.

• The focus of these organizations is on subdimensions related to management and day-to-day operations.

• The respondents in this group were more likely to focus on managing operating costs and also more likely to place a high degree of importance on market risk.

The effects of this trend become even more pronounced if you remove integrated energy companies from the results, as these companies tend to need to maintain a broader focus.


As the market trends upward, organizations need to remember the lessons learned:

1 Don’t make the mistakes of the past. Companies need to resist the urge to expect high oil

prices and comfortable business environments to endure in the long term. Falling into these old habits will cause organizations to miss the opportunities identified in this report.

2 Investing in culture and talent can be a differentiator. Proactive investment in organizational culture and

the skills and capabilities of a talent base is strongly associated with companies that thrive in these challenging conditions and sets them up to take advantage of future upturns.

3 Prepare to operate in a tumultuous world. Oil price stability is potentially a thing of the past in an

increasingly uncertain market. Organizations should work toward a better understanding of the changing realities of the market.

Deeper insights Lessons learned

Business resiliency depends on the proactive management of key risks that may adversely impact our organization. At Nexen, we use an enterprise risk management (ERM) framework to help govern our core business activity and processes relating to exploration, development, production, marketing and abandonment. This framework helps us identify, quantify and determine the likelihood and consequences of numerous risks, so we can develop mitigation strategies that take into account the six dimensions for business resilience. Through this work, we ensure the ongoing safety, compliance and success of our business.”

Quinn Wilson, Senior Vice

President, Global Support Services

& US Shale CNOOC Nexen


Conclusion

Critical success factorsThe majority of our respondents (90%) believe they are set up for success. EY has identified the following top eight critical factors to help enable this success, as well as examples companies can learn from.

1 Stabilize baseline factors: financial stability should be reached before making larger changes.

2 Invest in people: organizations need to look for ways to improve culture and capability. This will help attract and retain talent.

3 Control headcount: when times are good, hiring increases. Focus on a rational, purposeful headcount.

4 Focus on the future: the most resilient companies are those that balance the needs of the present and the future.

5 Shock absorb: organizations need to be able to absorb moments in time when business is tough. Absorbers include a strong balance sheet, access to debt financing, a diversified portfolio, a mix of products and a mix of customers.

6 Stay connected: oil and gas companies need to remain connected to external threats, opportunities, stakeholders and emerging technologies all the time. The moment they are not connected will be the moment they miss something important that could impact their business.

7 Learning organization: an organization’s ability to learn and adapt is an important aspect of overcoming challenges. Leaders should build a business operating model that fosters continual learning — specifically, a deep curiosity to understand what’s going on in the industry, emerging technology and talent management.

8 Manage opportunities: organizations should explore and exploit opportunities through the pursuit of innovation. It can take practice to identify areas that are fruitful, but developing this skill will set organizations apart from competitors.

Michael Lindsay, Senior Vice President,

Gibson Energy

What strikes me is the fact that you need to pay attention to all of the business resilience dimensions if you are going to navigate economic cycles successfully. While we chose to make significant changes to our overall corporate strategy, specifically the businesses that we are engaged in, doing so without proactively managing the other areas would have been a mistake.”


We didn’t wait for the world to happen to us. We pushed for action. We purposefully built a culture that drives our teams to innovate and question everything we do, with the goal of delivering higher performance and greater efficiency across the business. These qualities are deeply engrained in our culture, and that’s how we’ve prospered through one of the deepest downturns ever seen in the oil and gas industry.”

Mike Williams, Executive Vice President, Encana Corporation

ChallengesThere will always be challenges across organizations and industries alike. The top three barriers or traps that can set back resilience are complacency, short-term thinking and losing faith. Organizations should never get too comfortable in their current standing and should often be chasing their next incentive.

The boom and bust trends of Canada’s oil and gas industry are an easy trap to fall into for these challenges. Organizations get too comfortable with the status quo and lose sight of the greater purpose. This leads to complacency and short-term focus, instead of a long-term view of how the organization is positioned strategically. This type of focus requires strong leaders who do not lose faith and remain positive drivers within the organization.

Many companies are taking advantage of this moment and responding with new ideas and initiatives.

Innovation

Robot process automation

Autonomous trucking

Strategic acquisitions

Integrated operations


Portfolio managementFacing the new oil price reality, active business and portfolio management is critical. Frequent reviews can help organizations identify problems early and correct them before they become greater challenges.

EY leverages a five-step approach to help oil and gas companies manage their portfolio.

Future of workThe way work is done is changing. Companies need to adapt to these changes to survive. EY’s integrated future of work approach helps companies pull the right levers to respond.

Our approach looks at a set of seven key levers to measure the current state of work in an organization.

We evaluate the current state and the target state to identify the changes needed to get there.

How EY can help

Regular decision to divest, invest or retain

Evaluate portfolio decisions in both absolute and relative terms, and on a stand-alone and aggregated level

Retain decision-making flexibility while taking major decisions

Ensure speedy and flexible decision-making

Be prepared to take tough decisions

For each asset, project and business unit (individually or at a group level), make a regular decision whether to divest, invest or retain. In this, “retain” should be a conscious, and not convenient, decision. Doing nothing is often a higher-risk strategy.

Evaluate portfolio decisions in both absolute and relative terms: for example, against specific criteria (hurdles) and against each other (ranking). Similarly, consider these decisions on a stand-alone and aggregated level.

Focus on retaining optionality when making major decisions, to limit the possibility of a suboptimal outcome.

To ensure speedy and flexible decision-making, companies should have options or alternative strategies in place, or at least a fast process for developing and approving them, when required.

Be prepared to take the necessary actions while keeping the wider portfolio in mind. For instance, be ready to shut down or significantly amend a project or business unit that does not meet portfolio objectives, even if it has substantial sunk costs.

1 2 3 4 5

Mind clarity

Technology experience

Performance and rewards

Teaming ability

Global digital leadership

Collective purpose

Physical environment

You can find more details on this approach in our full methodology:ey.com/gl/en/industries/oil---gas/ey-portfolio-management-in-oil-and-gas.

You can find more details on this approach in our full methodology:ey.com/gl/en/services/people-advisory-services/ey-future-work-now.


Enterprise risk managementEY has a well-defined and pragmatic risk management methodology. We will tailor our approach to meet your desire to have a single comprehensive risk management framework.

ERM

Monitor

Sources of performance uncertainty (operations, initiatives and external forces)

enter the risk framework

AssessReport

Identify

Respond

Provide boardand senior leadership

with regular line of sightinto critical risks to

support decision-making

Define material risks to achieving business objectives

Evaluate potential impacts of risks using consistent criteria

Execute risk mitigation and controls to limit the potential for intolerable outcomes

Systematically track exposures, emerging threats and risk mitigation (controls) effectiveness

Operational excellenceEY offers oil and gas companies support in meeting their operational excellence goals in five key areas spanning the health, safety, environment and quality dimensions.

You can find more details on our Risk practice:ey.com/ca/en/services/advisory/risk.

The most common areas where oil and gas companies seek operational excellence

Expansive asset reliability | Expansive production efficiency Management of HSE risk | Operating cost reduction

Focus on culture | Employee retention

Operatingmodel Supplier and

contractors

Integratedplanning

Costefficiency

Assetreliability and

integrity

Operationalexcellence

You can find more details on this approach in our full methodology:ey.com/gl/en/industries/oil---gas/ey-operational-excellence-in-oil-and-gas.


Lance Mortlock Partner, Oil & Gas Sector Leader Ernst & Young LLP [email protected]

Kelly Francia Associate Partner Ernst & Young LLP [email protected]

Peter Sherer Associate Professor, Strategy and Organizations University of Calgary, Haskayne School of Business [email protected]

Chris Palmer Senior Consultant Ernst & Young LLP [email protected]

Irina Bojinescu Senior Consultant Ernst & Young LLP [email protected]

Annie Murphy Senior Manager, Strategy Advisory Services Ernst & Young LLP [email protected]

Jarod Thomson Senior Manager, Strategy Advisory Services Ernst & Young LLP [email protected]

Contacts

Mark Anderson Associate Professor, Accounting University of Calgary, Haskayne School of Business [email protected]

Authors

Contacts

ContributorsZahra Damji Consultant, Oil & Gas Ernst & Young LLP [email protected]

Vicky Ma PhD Candidate University of Calgary [email protected]

Alyson House PhD Candidate University of Calgary [email protected]

Raj Mashruwala Associate Professor, Accounting University of Calgary, Haskayne School of Business [email protected]

Matt Mura Partner, National Risk Leader Ernst & Young LLP [email protected]

Jason Clifton Partner Ernst & Young LLP [email protected]

1 “How Canada’s economy went from boom to recession so fast,” Macleans, http://www.macleans.ca/economy/economicanalysis/how-canadas-economy-went-from-boom-to-recession-so-fast, accessed 28 February 2018.

2 “AER Insolvency Snapshot May 2018,” Alberta Energy Regulator.3 “Labour Market Analysis and Insights,” PetroLMI, https://careers-oil-gas.s3.amazonaws.com/publications/28/en/LFS_Q4_2017_FINAL2.pdf?1517941448, accessed 27

February 2018.4 “Why Canada Needs New Pipeline Capacity to Tidewater,“ Veracity Plus Consulting, https://www.cepa.com/wp-content/uploads/2016/11/Why-Canada-Still-Needs-New-

Pipeline-Capacity-to-Tidewaterr.pdf, accessed 28 February 2018.5 “Western Canadian Select Explained,” Oil Sands Magazine, www.oilsandsmagazine.com/technical/western-canadian-select-wcs, accessed 26 February 2018.6 “Western Canadian Select Explained,” Oil Sands Magazine, www.oilsandsmagazine.com/technical/western-canadian-select-wcs, accessed 26 February 2018.7 “Real-Time Prices & Stock Quotes,” Oil Sands Magazine, www.oilsandsmagazine.com/energy-statistics/real-time-oil-prices-wti-brent-wcs-energy-stocks, accessed 26

February 20188 “Annual Energy Outlook 2018 with projections to 2050,” U.S. Energy Information Administration, https://www.eia.gov/outlooks/aeo/pdf/AEO2018.pdf, accessed 26

February 2018.9 “Why Canada Needs New Pipeline Capacity to Tidewater,“ Veracity Plus Consulting, https://www.cepa.com/wp-content/uploads/2016/11/Why-Canada-Still-Needs-New-

Pipeline-Capacity-to-Tidewaterr.pdf, accessed 28 February 2018.10 “Why Canada Needs New Pipeline Capacity to Tidewater,“ Veracity Plus Consulting, https://www.cepa.com/wp-content/uploads/2016/11/Why-Canada-Still-Needs-New-

Pipeline-Capacity-to-Tidewaterr.pdf, accessed 28 February 2018.11 “Market Access Task Force,” Government of Alberta, www.alberta.ca/market-access-task-force.aspx, accessed 27 February 2018.12 “Canada to reduce emissions from oil and gas industry,” Government of Canada, https://www.canada.ca/en/environment-climate-change/news/2017/05/canada_to_

reduceemissionsfromoilandgasindustry.html.13 “Canada to reduce emissions from oil and gas industry,” Government of Canada, https://www.canada.ca/en/environment-climate-change/news/2017/05/canada_to_

reduceemissionsfromoilandgasindustry.html.

Endnotes

Alister Cowan, Executive Vice President and CFO, Suncor Energy

Sustained business resilience is underpinned by a continual focus on operational excellence: reliability, operating costs and capital efficiency of your assets; financial discipline: maintaining a strong balance sheet and financial liquidity and rigorous capital allocation; and ongoing stakeholder engagement: open and transparent regular communication.”

About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

How EY’s Global Oil & Gas Sector can help your businessThe oil and gas sector is constantly changing. Increasingly uncertain energy policies, geopolitical complexities, cost management and climate change all present significant challenges. EY’s Global Oil & Gas Sector supports a global network of more than 10,000 oil and gas professionals with extensive experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oil field subsectors. The Sector team works to anticipate market trends, execute the mobility of our global resources and articulate points of view on relevant sector issues. With our deep sector focus, we can help your organization drive down costs and compete more effectively.

© 2018 EYGM Limited. All Rights Reserved.

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ED NoneThis material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice.

The views of the third parties set out in this publication are not necessarily the views of the global EY organization or its member firms. Moreover, they should be seen in the context of the time they were made.

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