Download - PPT - Rahman Khanani - CNBA
Rahman Khanani
The Canadian and the Norwegian Oil Clusters: A Comparative Study
2
AGENDA
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
3
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Cluster Theory
4
“geographic concentrations of interconnected companies, specialized suppliers, service providers, firms in related industries, and associated institutions in a particular field that
compete but also cooperate”
Definition
• Critical mass of actors along the value chain
• Knowledge spillovers and rapid learning process
• Strong innovation pressure and • Rapid commercialization process• Local customers, competitive
suppliers, and intensive rivalry
Cluster Characteristics
5
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Consistent Policies
Norway’s Success StoryFocus on value creation
6
Step wise opening
Licensing method
Goodwill agreement
R & D
Globally Competitive OFS Industry
Access to Capital
Collaborative environment between companies
7
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Canadian Industry
8
Factor conditions
Natural ResourcesSoundness of banks
x Availability of venture capitalx Labour shortagex Low number of PhD students
Demand conditions
Large North American market
x Strong export and import dependency on the U.S
Strategy, structure & rivalry
Efficient markets
x Company spending on R&D and innovationx Low capacity of innovationx Provincial trade barriers
Related and supporting
industries
Quality of local suppliers
x Local supplier quantity
Canadian Oil Industry
9
172.4
3.6
Location of Oil Reserves
Alberta
Rest of Canada
4.14
169.3
Type of Oil Reserves
Conventional
Unconventional
Unconventional production in 2013: 2250 kbbl/d
Source: Rystad Energy UCubeFree, version 04/07/2014
Production (kbbl/d)
Countr
y0
500
1,0
00
1,5
00
2,0
00
2,5
00
3,0
00
3,5
00
United States
Canada
Venezuela
Colombia
Mexico
China
Brazil
Cuba
Albania
Ecuador
Argentina
Turkey
Egypt
Italy
India
Russia
Peru
Estonia
Trinidad and Toba..
Ukraine
Nigeria
Australia
Guatemala
United Kingdom
Syria
Poland
Netherlands
Source: Rystad Energy UCubeFree, version 04/07/2014
Production (kbbl/d)
Countr
y0
500
1,0
00
1,5
00
2,0
00
2,5
00
3,0
00
3,5
00
United States
Canada
Venezuela
Colombia
Mexico
China
Brazil
Cuba
Albania
Ecuador
Argentina
Turkey
Egypt
Italy
India
Russia
Peru
Estonia
Trinidad and Toba..
Ukraine
Nigeria
Australia
Guatemala
United Kingdom
Syria
Poland
Netherlands
Source: Rystad Energy UCubeFree, version 04/07/2014
Production (kbbl/d)
Co
untr
y0
1,0
00
2,0
00
3,0
00
4,0
00
5,0
00
6,0
00
7,0
00
8,0
00
United StatesCanada
VenezuelaMexico
ColombiaBrazil
United KingdomArgentina
ChinaEcuador
IranJordanBrunei
PeruRussia
IndonesiaAlbaniaOman
IndiaSaudi Arabia
UkraineIraq
AustraliaEgypt
TurkeyFrance
GermanyEstonia
New ZealandPoland
Source: Rystad Energy UCubeFree, version 04/07/2014
Production (kbbl/d)
Co
un
try
01
,00
02
,00
03
,00
04
,00
05
,00
06
,00
07
,00
08
,00
0
United StatesCanada
VenezuelaMexico
ColombiaBrazil
United KingdomArgentina
ChinaEcuador
IranJordanBrunei
PeruRussia
IndonesiaAlbaniaOman
IndiaSaudi Arabia
UkraineIraq
AustraliaEgypt
TurkeyFrance
GermanyEstonia
New ZealandPoland
Forecasted unconventional production in 2025: 4500 kbbl/d
10
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Porter’s Diamond, Onshore Cluster- Factor Conditions
11
High Production Costs
Oil• 20% of the oil is extracted via
mining• 80% of the oil is extracted via
drilling• Heavy oil → requires investment in
upgrading and refining + diluents when being transported via pipeline
Inputs• Shortage of labour expected to
increase due to baby boomers retiring
• High unemployment in Ontario and Quebec → Tighter restrictions for foreign workers
• Average wage at McDonalds is north of $15 an hour in Alberta
Lack of Market Access
Porter’s Diamond, Onshore Cluster- Factor Conditions
12
Keystone XL Pipeline
Production expected to double
Pipeline capacity expected to stay stable
Over supply to the Midwest
Northern Gateway Pipeline
Rail
99% of Canadian oil being sold at discounted rates – differential b/w WTI
and WCS was 21% in 2014
Porter’s Diamond, Onshore Cluster- Factor Conditions
13
RAIL
Faster delivery
Increased market access
Weight limits
2 x higher cost
Backhaul productsincome
Negative effect at other industries
The infrastructure has recently grown at record rates with increased EPS among rail transportation companies.
Porter’s Diamond, Onshore Cluster – Demand Conditions
14
Sluggish US Demand
• The Keystone XL pipeline linking Alberta to the Gulf Coast is under debate
• The US could be an energy exporter by 2020 – 2025
US Shale Revolution
• Likely to make the US a leading oil & gas producer → oil resources in Canada could be obsolete, unless Canada can provide access to the Asian markets
Porter’s Diamond, Onshore Cluster – Firm Strategy, Structure and Rivalry
15
Future global competiton – Onshore production
• 2025: US was expected to be the largest player → a cause of concern for Canada as the US is its largest customer
CondensateCrude Oil
Source: Rystad Energy UCube, version 2015-02-11
Production(kbbl/d)
Coun
try
02
000
4 00
06
000
8 00
010
000
12 0
0014
000
United States
Russia
Saudi Arabia
Canada
Iraq
Brazil
Iran
UAE
China
Nigeria
Venezuela
Norway
Kuwait
Angola
Mexico
Kazakhstan
Qatar
United Kingdom
Libya
Algeria
Porter’s Diamond, Onshore Cluster – Demand Conditions
16
Productionin Alberta
Technological Enhancement: Radio Seismic Technology allows producers to drill deeper into the oil sands → better understanding of the geology
Success Rate:Current rate around 70 - 80 % compared to a global 10 – 20 %
Cost of Drilling:Time frame required
from decision to drilling to market is
short – Making small fields more attractive
Low start-up costs, improved technology and well explored geology is enhancing oil production.
Porter’s Diamond, Onshore Cluster - Firm Strategy, Structure and Rivalry
17
Local Content and Ownership
Foreign Ownership
Requirement
25 % Foreign Branch Tax
Provincial Trade barriers
National Security Requirement
Canadian Director Requirements
Canadians Prioritized for
Labour
Canadian Onshore Diamond
18
Factor conditions
Significant reserves and production Private investment Enhancements in rail infrastructure
x High production costx Labour shortagex Access to markets
Demand conditions
Sophisticated customers
xSluggish U.S demand, and increasing U.Sproduction
Strategy, structure & rivalry
High number of producers, which illustrates critical massIncreasing investment
x High breakeven costsx Significant local content requirements
Related & supporting
industries
Strong OFS industry
19
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Atlantic Accord
Porter’s Diamond, Offshore Cluster – Firm Strategy and Rivalry
20
Required to conduct R&D in the province
Provincial tax on offshore resources Preference given to regional content
Prevented collaboration between the NS Shipyards and NL oil industry
Porter’s Diamond, Offshore Cluster - Firm Strategy and Rivalry
Cyclical Offshore Oil Industry
• Number of construction phase peaks and valleys
Lack of Critical Mass
• Six operators: Huskey Energy, Statoil, Shell, BP, Suncor, ExxonMobil
Lack of Skilled Labour, Minimal Knowledge Retention
Porter’s Diamond, Offshore Cluster - Demand Conditions
22
Harshest operating climate in the world
High costs
Access to Markets
Shell, BP have invested $ billion in exploration
Expecting a massive find in Atlantic Canada
«Most promising market in North America»
Norwegian OFS Firms: Invest in Atlantic Canada
Canadian Offshore Diamond
23
Factor conditions
Expecting large finds
x Low productionx Labour shortagex Availability of capitalx Expensive operating environment x High production cost
Demand conditions
Demanding operating conditions
Strategy, structure & rivalry
Significant recent investment in exploration
x Lack of critical mass of firmsx Cyclical industryx High local content requirement
Related and supporting
industries
Deep ocean technology cluster
x Lack of subsea expertise in OFS
24
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Canadian OFS Firms
25
$852,5%
$12689, 77%
$1018, 6%
Revenue Distribution of Canadian OFS Companies by Regions
2013 (MUSD)
Australia Asia
Middle East Africa
America S America N
Europe Russia
Unknown N/A
Revenue of Canadian OFS by region
• Revenue of Canadian OFS firms: $16.5 billion
$0
$500
$1,000
$1,500
$2,000
$2,500
Tri
can
Wel
lser
vic
e
En
sig
n E
ner
gy
Pre
cisi
on
Dri
llin
g
Cal
frac
Wel
l S
erv
ices
CH
C H
elic
opte
r
Sec
ure
En
erg
y S
erv
ices
Sav
ann
a E
ner
gy
Ser
vic
es
Mu
llen
Gro
up
Can
adia
n E
ner
gy
Ser
vic
es
En
erfl
ex
PH
X E
ner
gy S
erv
ices
Wes
tern
En
erg
y S
ervic
es
Tu
scan
y I
nte
rnat
ion
al D
rill
ing
Bir
d C
onst
ruct
ion
Ess
enti
al E
ner
gy
Ser
vic
es
Can
yo
n S
ervic
es G
rou
p
Xtr
eme
Dri
llin
g a
nd
Coil
Ser
vic
es
SN
C-L
aval
in
Mac
ro E
nte
rpri
ses
Cat
hed
ral
En
erg
y S
erv
ices
Str
ad E
ner
gy S
erv
ices
Fin
nin
g
Sh
awC
or In
du
stri
es
Gas
frac
En
erg
y S
ervic
es
Bo
nnet
s E
ner
gy C
orp
ora
tion
Cal
men
a E
ner
gy
Ser
vic
es
Hyd
uke
En
ergy
Ser
vic
es
En
seco
Ener
gy S
erv
ices
Wen
zel
Dow
nho
le T
oo
ls
Pas
on S
yst
ems
Co
mpu
ter
Mo
del
lin
g G
rou
p
Eag
le W
ell
Ser
vic
ing
McC
oy
Ori
on
Pu
lse
Sei
smic
Bla
ck D
iam
ond
Win
alta
Rid
gel
ine
En
erg
y S
erv
ices
NX
T E
ner
gy S
olu
tio
ns
Dis
cov
ery
Air
Canadian OFS Companies Abroad2013 (MUSD)
Porter’s Diamond, OFS - Demand Conditions
26
International Sales – Canadian OFS Firms
• Large 4 Canadian OFS firms earn most of the industry revenue abroad• 10 firms earn in excess of $500 million in revenue from international operations
Canadian OFS firms struggle in the commercialization phase and are acquired
27
Labour Shortage
Strong & Profitable North American
Market
Lack of Operational Scale
Risk Averse Canadian Culture
Lack of Access to Capital
Short Term Outlook (Revenue
Squeeze)
Comfortable in North America
Unsuccessful prior ventures
Lack of globally competitive Canadian Oil
Field Service Firms
Low spending on R&D
Declining funding for research
programs
Porter’s Diamond, OFS- Related and Supporting Industries
Offshore Cluster
Strengths• Project development and operations
Weaknesses• Small labour pool, shortage of skilled
labour• Lack of Subsea companies → work
is outsourced to foreign firms• Local OFS firms lack the capital and
machinery required for most capital intensive projects → most of the machinery in Atlantic Canada is from overseas
• Not a comprehensive value chain
Onshore Cluster
Strengths• Comprehensive value chain • Onshore drilling equipment and
technology• Multistage fracturing and horizontal
drilling
Weaknesses• Spill response• Technology in metal fabrication –
especially leakage detection in pipelines
Canadian OFS
29
Factor conditions
Increase in patents from 2003 to 2013
x Availability of capitalx Lack of investment in innovation x Labour shortagex Lack of upper management talent
Demand conditions
Harsh operating conditions Significant onshore demandAccess to large U.S market
x Lack of demand in offshore oil & gas
Strategy, structure & rivalry
High profitabilityMany SMBs Large players within drilling and tubing Competencies in hydraulic fracturing and horizontal drilling
x Conservative firms with a lack of international revenues or operations
Related and supporting
industries
Comprehensive value chainwithin onshore OFS
x Lack of subsea expertise x Lack of companies with capital equipment for offshore production
30
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
Comparative Analysis
Fiscal Environment
Licensing
Canada
Offshorecluster
Onshore cluster
Norway
Offshorecluster
Alberta has the most favourable fiscal environment, while Norway has a higher tax on net profit, and offers lucrative R&D tax credits, which drive innovation
Norway awards licenses to the most suitable operators, onshore Canada solely focuses on the bid.
Canada has protectionist policies, while Norway was deregulated in -94 resulting in leading local OFS firms
Onshore Canada requires no R&D investments, offshore Canada requires a percentage of revenue and exploration expenditures. Norway has an R&D agreement with operators
Protectionist Policies
R&D Requirement
Industry Promotion
Industry Sexiness
Canada has no specific organization which promotes the industry internationally, while Norway has INTSOK
The Norwegian cluster is perceived as «very sexy» due to its’ impact on the country. The onshore cluster is perceived as the least «sexy» due to its’ environmental impact
Government
Comparative Analysis
Capital Markets
Access to Markets
Canada
Offshorecluster
Onshore cluster
Norway
Offshorecluster
Calgary referred to as the hub of energy finance. TSX and TSXV referred to as the “Junior Mining Boards”. Weak capital market for oil technology firms. No local stock exchange in Atlantic Canada. Significant access to capital in Norway.
Alberta is landlocked. Atlantic Canada has access to the U.S East Coast and Europe. Norway has access to Europe
Reduction in grants and R&D spending in onshore Canada. Low industry investment in innovation in offshore Canada. Significant innovation in Norway – the state, operators, education and research institutions drive innovation
Innovation
Factor & Demand Conditions
Comparative Analysis
Collaboration
Supporting Industries
Canada
Offshorecluster
Onshore cluster
Norway
Offshorecluster
77% of revenue comes from the North American market, while revenue of the big four outside NA is 15%. Norwegian firms are market leaders in multiple segments of the value chain, and earn 40% of their revenue internationally, while international revenue of the big four is 68%
Firm Strategy, Structure & Rivalry
International OFS Firms
Shipping industry in NS does not have significant access to the OFS industry in NL – Atlantic Accord. Strong supporting shipping industry in Norway.
Minimal collaboration in Onshore Canada. Some collaboration within offshore Canada (Joint projects/RFPs) but not much interaction with the government. Significant collaboration in Norway
34
1. Introduction and Theory
2. Norwegian Oil Industry
3. Canadian Oil Industry
Canadian Onshore Industry
Canadian Offshore Industry
Canadian Oil Field Services
4. Comparative Analysis
5. Moving Forward
The oil industry was very profitable
35
Industry focused on growth, not efficiency
Entered into costly projects
Rushed to get projects completed
Accepted less productive inputs
Unclear how the oil price sustained itself over $100 for two years
Short Term
Balance sheets under pressure
Greater focus on smaller fields
Focus on conventional oil
Reduction in investments in the oil sands
ImpactA reduction in the oil price is
beneficial
Investments in Tech Innovation
Reduce price of inputs and cost
drivers
Understand importance of the oil industry
Focus on operational efficiency
Lower inflation
Will drive the competitiveness of smaller firms
The oil price will stay stable Reduction in production costs for
unconventionals Access to markets for onshore oil Eventual discovery in offshore
Canada Supply of offshore oil outside of NA
Canada will be come a major player in the oil industry Canadian oil will be available outside
NA Will ensure the oil price does not
skyrocket Will ensure there is minimal or no
differential b/w the WCS and WTI
WRAP-UP
37
Increasing production, but lack of markets – pipeline access to Asia is key
Expecting a discovery in Atlantic Canada – has access to markets
Increase in innovation spending is required
Collaboration between industry, academia and government is essential
Local content requirements are not beneficial for the industry as it hinders competition
Oil companies – Offshore Canada is a Gold Mine! Especially for Norwegian firms
Rahman Khanani: [email protected]
Thank You – Questions?