Fiscal check-up on Canada's oil and gas industry reveals opportunities and challenges over next five years

April 07, 2011 - Calgary, Alberta

For Immediate Release
Outwardly, the financial health of the Canadian oil and gas industry looks positive over the next five years, says Peter Tertzakian, Chief Energy Economist of ARC Financial Corp. (ARC) and best-selling author of A Thousand Barrels a Second and The End of Energy Obesity.

"But aches, pains and vulnerabilities are still to be found beneath the collective veneer of multi-billion dollar financial statements - on the natural gas side of the industry, for example," Tertzakian said. "And the potential for economic trauma always looms large in this acutely capital-intense, competitive business."

ARC's research focused on analysis of the major trends and changes in capital flow in Canada's largest industry over the past five years, with implications projected to 2015.

After 150 years of growth, the scale of what's going on in the Canadian oil and gas industry is impressive by any world standard. From British Columbia to Newfoundland, the upstream oil and gas industry will generate an estimated $115 billion in annual revenue, $20 billion in royalties, land sales and taxes, and $50 billion of investment into infrastructure and jobs in 2011.

ARC's detailed analysis and findings are published in a new report titled, Turmoil and Renewal: The Fiscal Pulse of the Canadian Upstream Oil and Gas Industry - A Five-Year Review and Outlook.

"All Canadians are stakeholders in the future of this business," said Tertzakian, "And whether you are a corporate leader, policy maker, investor or interested citizen, it is important to develop a broad understanding of the forces affecting Canada's oil and gas industry."

Some of the many findings of the report include:

  • Oil and gas companies are expected to generate more than $600 billion in sales over the next five years. The multiplicative effect of these dollars circulating in Canada's economy means the stakes for ensuring a healthy oil and gas industry are high for all Canadians.
  • For the benefit of all stakeholders, maintaining financial health amid the many challenges will require industry and government to work doubly hard on key issues that cannot be addressed by each independently. Important matters include accessing skilled labour, preserving the environment and reaching out to new global markets for both oil and natural gas.
  • The industry's revenue stream is becoming "oilier and oilier," on a path to be 80 per cent reliant on oil by 2015. Only five years ago the oil/gas percentage mix was a more balanced 55/45.
  • Embracing new technologies, processes and strategies will be paramount for companies seeking insulation from rising costs, environmental pressures and competitive threats.
  • Canada's oil and gas industry continues to grow. Profits are likely to increase but not always profitability. How well the industry copes with many internal and external challenges to profitability, including volatile commodity prices, will determine whether value will be created and whether an expected $55 billion a year will continue to be invested back into Canada over the course of the decade.

The work was commissioned in part by the Canadian Association of Petroleum Producers (CAPP).

"The report provides a broad context for CAPP's ongoing focus on education, communication and 3E policy advocacy - economic growth, energy security and environmental protection. It recognises industry will continue to generate significant revenue and jobs, and highlights the ongoing importance of the industry's contribution to the Canadian economy," said CAPP President Dave Collyer.

The report assesses the diversity of businesses - including conventional oil, oil sands, and natural gas - that comprise the overall upstream oil and gas sector. At any given time, some segments of the industry may be more robust and while others may be facing challenges.

"Though the ARC projections suggest a generally positive outlook for the Canadian oil and gas industry, continued success is not assured throughout the forecast period or beyond," said Collyer. "A strong focus on technology and innovation, a competitive fiscal and regulatory regime, diversification of markets and continuous improvement in environmental and social performance are among the key success factors for our industry. Continued growth in the oil and gas sector benefits all Canadians."

ARC Financial Corp. (ARC) is an energy-focused private equity firm based in Calgary, Canada, with $2.7 billion of capital across six ARC Energy Funds. Leveraging off the experience, expertise and industry relationships of more than 20 investment professionals, ARC invests in upstream oil and gas, oilfield services, energy infrastructure and renewable energy. Employing best practices in corporate governance and business processes, ARC fosters the building of successful companies by offering macroeconomic research, strategic planning, transactional advice, deal-sourcing and evaluation support.

The Canadian Association of Petroleum Producers (CAPP) represents companies, large and small, that explore for, develop and produce natural gas and crude oil throughout Canada. CAPP's member companies produce more than 90 per cent of Canada's natural gas and crude oil. CAPP's associate members provide a wide range of services that support the upstream crude oil and natural gas industry. Together CAPP's members and associate members are an important part of a national industry with revenues of about $100 billion-a-year. CAPP's mission is to enhance the economic sustainability of the Canadian upstream petroleum industry in a safe and environmentally and socially responsible manner, through constructive engagement and communication with governments, the public and stakeholders in the communities in which we operate.

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Tony McCallum
Media Relations, Canadian Association of Petroleum Producers
Phone: 403-267-1142
Email: [email protected]

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