Editor’s note: Last year, when assembling the 2020 Top Operators Report, the COVID-19 pandemic had shuttered the global economy. Oil demand had been reduced by over 20 million bbls/d and prices were at lows not seen in decades.
The mood of the Canadian industry was grim. After five years of being rocked by wild price volatility the pandemic hit like a knockout punch.
The 2021 Top Operators Report looks back at how Canada’s oil and gas leaders pivoted to meet the challenges of 2020, and how they are positioning their organizations for future success.
Once again, we have tapped into the experience of professional services firm KPMG in Canada to provide insight into what strategies operators could pursue to thrive in the current environment.
The report also features a broad swath of the insights and opinions from industry leaders gleaned from Daily Oil Bulletin coverage, along with commentary from data providers Evaluate Energy and CanOils.
Pledging to get to net zero emissions by 2050 has become table stakes in today’s oil and gas industry.
But how companies meet that pledge is what matters, said KPMG in Canada’s national energy leader Michael McKerracher. Oil and gas is going to be needed for decades to come. Companies that can manage cash flow while cutting emissions will be sustainable in the long run.
“Successful companies will build transition plans into their business strategy. They will also build meaningful emissions reductions into their operations,” said McKerracher.
While some companies may find it advantageous to invest in wind or solar, overall he said moving further away from the core business of producing oil and gas may not be the best way forward. “Buying credits is a short-term strategy. Investing in new technology for the core business to make meaningful change and then moving into wind and solar is more sustainable.”
While global energy giants are going all-in on renewables, large Canadian operators tend to agree with McKerracher’s strategy.
For Canadian Natural Resources Limited, producing renewable energy through wind farms, for example, would require a substantial shift for a company already adept at producing oil, and one that can achieve goals within the environmental realm based on its current abilities, president Tim McKay told the 2021 Scotiabank-Canadian Association of Petroleum Producers (CAPP) Energy Symposium.
“The preference is to stick with what we know and what we’re good at,” he said. “Obviously, if you look at the carbon capture infrastructure we have here in Canada, then to me it’s just a huge opportunity to leverage our knowledge, our expertise in that, to drive our GHG intensity down.”
He added, “There is going to be a need for oil in the long-term. And so, to me, it’s what you can do in terms of your operating costs, your operating efficiency, and in terms of driving your CO2 down. We are very good at those three items, and I just look at it as one of those.”
Cenovus Energy’s aspirations with renewable energy will not see the company become a large independent power producer of such alternatives on its own but are much more about finding opportunities to partner with third parties through power purchase agreements, according to president and CEO Alex Pourbaix.
“For one example of that, we could potentially offset our scope two emissions and potentially further strengthen relationships with Indigenous groups that are very interested in the renewable power area, or we could do PPAs with developers to decarbonize our scope one and scope two emissions.”
While his company is more likely to become a “late-entrant renewable power developer,” Pourbaix said Cenovus may have some potential diversifications into complementary businesses, particularly ones that could drive improved greenhouse gas (GHG) and environmental, social and governance (ESG) performance. “That, for example, could include renewable power options.”
There are alternative energy opportunities for Imperial Oil such as biofuel blending, but renewables such as wind farms and solar farms simply are not in the company’s current proverbial wheelhouse, noted Dan Lyons, senior vice-president, finance, and administration at Imperial.
Imperial is certainly committed to reducing its GHG intensity and making other ESG improvements, such as via SA-SAGD at Grand Rapids, which has environmental and economic benefit. As well, the Canadian firm could potentially leverage parent company Exxon Mobil Corp.’s technology and expertise in the carbon capture, utilization and storage (CCUS) space.
Lyons said: “We believe there are investments that reduce [GHG] intensity. You could even call them ‘alternative’ in some sense that could be economic for us. That’s an important aspect of this. We want to both reduce greenhouse-gas intensity and provide economic returns.”
“Renewables are a pretty low ROI business, and so I don’t think we’re big enough to participate in that space,” said Mike Rose, president and chief executive officer, Tourmaline Oil Corp. Rose noted that his company already strives to reduce emissions in the field, doing so in five-year increments with a technology plan to achieve its targets.
“We think that’s the best way for us to contribute as an industry. We’ll let the super majors kind of do what they want, but to some extent I don’t know if that actually reduces emissions. It kind of just moves them around. We’re more dialled in on reducing emissions right now.
As the sector moves forward with its various emissions initiatives, it will be important for it to monitor and report on progress in a way that allows people outside the industry to grasp the totality of the effort, noted Bill Whitelaw, managing director of strategy and sustainability at geoLOGIC systems ltd. and JWN Energy.
“We’re seeing an amazing and diverse variety of efforts in the reduction space ... but for the sector as a whole to benefit, someone has to be keeping score, cataloguing and reporting on what’s happening. Individual corporate stories matter, of course, but for the sector’s overall benefit, there has to be a creative form of collective storytelling...that’s what will give the sector credibility and create trust with external stakeholders.”
While individual companies are busy building ESG narratives, there’s a larger opportunity to build a broader sectoral ESG narrative as well, added Whitelaw.