International Opportunities- Can Canadians Compete?

Abstract

Abstract The theme of this issue is international operations and that raises three questions in my mind. First, are we competing effectively? Second, how is Canada perceived from the outside? Third, what is our strategic advantage? Bear with me while I weave together some random thoughts. Why are Canadians even bothering to look abroad? The answer is simply that we have long memories and the pains of the last North American downturn have not been forgotten. Diversification makes good business sense. Even though the western Canadian oilpatch is "buoyant," early indications from El Nino suggest potentially weaker natural gas prices this winter. A second reason for looking abroad is growth. Rising intermediate companies have realized that the Western Canadian Sedimentary Basin does not offer unlimited expansion for everyone. These firms are keenly aware that their performance is closely monitored by the investment community and that continued growth over the long term is difficult if exploration is geographically constrained. Hence, the need to look abroad. The key point is that this industry is now fueled by capital and that capital will flock to projects with the highest profit margins-whether that be in Cremona or the Crimea. What is surprising from my perspective as a consultant, is not that the larger companies are looking abroad, but that embryonic juniors are developing international plans long before they have reached critical mass at home. The long term outlook is laudable but is it plausible? Can they do it effectively? In Western Canada, I believe we have the single most competitive oil industry in the world. There are more bright, motivated, hard working entrepreneurs and technical people per square mile in downtown Calgary than anywhere else. There is no doubt we have the skills. The problem facing Canadian companies abroad is not technical ability but a lack of size and financial muscle. We have seen numerous international bidding situations where eager Canadian companies bid against one another for small concessions. The successful bidder may not be so pleased later when they find themselves renegotiating. They must then deal with governments or national oil companies who are much bigger and can leverage Canadian companies to change agreement terms after a deal is closed. We've all heard the stories out of Russia regarding pipeline problems. Conversely, when other nations go abroad, they do so as a single entity. One case in point is the Third Round of Bidding in Venezuela. The large concessions went to groups such as the Argentinean consortium or the Chinese National Petroleum Company (who blew everyone else out of the water). So, what is the solution? I'm suggesting that we need to have better coordination-either companies can team-up or perhaps their could be some type of organized information swap. I am however advocating economic nationalism-a concept that may soon be rendered obsolete anyway by virtue of the Multi-lateral Agreement on Investment (MAI). If Canadian oil and gas companies really want to win at the international game, we need to compete on equal terms and that means bigger consortia.