Opex in Oil and Gas

Oil Industry in Canada

The oil industry in Canada is an important sector in light of the fact that the country is a major oil exporter and producer and holds some of the largest reserves worldwide. In fact, only Venezuela and Saudi Arabia have larger oil reserves than Canada. Experts predict that the country’s proven oil reserves will increase in volume with technological advancements. Canada is also one of the countries with the largest shale oil resources together with Libya, Argentina, China, the United States, and Russia.

Canada’s Government and Provincial Authorities

The provincial and territorial authorities and the federal government receive revenue from the oil sector and other energy sectors. Revenue is in the form of crown land sales, crown loyalties, indirect taxes, including payroll and sales taxes, and corporate income tax. The gas and oil industry is the largest tax payer in Canada. The government receives revenue from businesses engaged in gas and oil extraction, coal and petroleum manufacturing, utilities, pipelines, and support activities.

The Petroleum Businesses

Petroleum companies are different from other businesses in that they require less labor compared to heavy equipment and machinery. This makes them capital intensive. Another difference is that petroleum businesses face higher financial risks. Profits vary to a high degree, and this can be explained with competition and supply and demand. Due to weak oil prices during the past years, more and more companies consider mergers and acquisitions. The good news is that the petroleum sector shows signs of recovery and some businesses began to redeploy equipment. Raising capital is a major problem for many businesses, however.

Some 97 percent of oil exports go the United States. Imports to Canada come from a large number of states, among which Norway (11 percent), Iraq (12 percent), Algeria (13 percent), and the U.S. (20 percent).

Operations

Petroleum businesses in Canada mainly focus on upstream operations such as gas and oil production, drilling, and exploration. Some companies also have downstream operations such as the sale, distribution, promotion, and refining of gas and oil products. The provinces with the largest number of operations include Alberta (76 percent), Saskatchewan (15 percent), Newfoundland and Labrador (7 percent), Manitoba (1.5 percent), and British Columbia (0.6 percent).

Two methods are used for petroleum extraction and namely, the in-situ and mining method. Mining involves a wide variety of activities such as pump tailings, separating sand and oil, ore extraction, and overburden removal, among others. There are several large projects in Alberta - the Imperial's Kearl Mine, Athabasca Oil Sands Project, CNRL Horizon Mine, Suncor Base Mine, and Syncrude Mining Project.

The in-situ method also involves a number of activities, including injecting steam, drilling horizontal and vertical wells, and others. The largest projects using the in-situ method are the Firebag and Cold Lake projects in Alberta. The in-situ method is used in more than twenty projects in Alberta.

Petroleum refineries in Canada are used for product blending, additional processing, and crude oil distillation. A variety of products are manufactured, among which heavy fuel oil, heating oil, diesel fuel, motor gasoline, and aviation fuels. Heavy fuel oils are mainly manufactured for electricity production and marine transportation. Petroleum refineries also produce petrochemical products and liquid petroleum gases as well as products such as asphalt, petroleum coke, waxes, greases, lubricating oils, kerosene, and others.

There are companies engaged in bitumen upgrading to make bitumen lighter. The main companies in this sector include Husky and Nexen-CNOOC, Canadian Natural Resources, Shell, Suncor, Syncrude, and more.

Associations in Canada

Major associations include the Canadian Energy Pipeline Association, Explorers and Producers Association of Canada, Canadian Association of Petroleum Producers, and more.

Other Energy Industries in Canada

Canada also produces biofuels, hydroelectricity, renewable energy, electricity, and uranium, coal, and natural gas products. Natural gas accounts for 57 percent of production and 100 percent of exports to the United States. Coal accounts for 57 percent of production and 3 percent of exports to the U.S.

Financial Trouble in Alberta Due to the Oil Crisis

Many Albertians are in a precarious financial situation because of the oil crisis that hit the province. The local economy is heavily dependent on the oil industry, and low prices resulted in a serious job crisis, layoffs, and financial problems for hundreds of thousands of people: https://www.creditavenue.ca/canadian-guide-to-credit-cards-for-bad-credit/. Many lost their jobs and were left on the brink of financial ruin. In 2015 alone 40,000 lost their jobs, resulting in unpayable debt, bad credit, and mortgage delinquencies: https://www.creditavenue.ca/debt-consolidation-loans-in-canada-your-way-out-of-debt/.

The Root of the Problem

While Alberta’s economy is dependent on the oil sector, there is more to it. Oil production is expensive in Canada and when price levels are low, local economies are simply in turmoil. Furthermore, the job market experienced a sluggish growth in Canada compared to the U.S. The market added less than 1 percent new jobs compared to 2 percent in the U.S. The fact that the energy sector is the key driver of Alberta’s economy makes matters worse when it comes to employment levels. The unemployment level in the province is high (8.1 percent) compared to the national average – 6.2 percent. Three out of ten provinces have higher unemployment levels - Newfoundland and Labrador, Prince Edward Island, and Nova Scotia.

Consequences: High Unemployment Levels and Delinquency Rates

High unemployment levels result in serious financial problems for many residents, including auto loan and credit card delinquencies: https://www.creditavenue.ca. In 2016, auto loan delinquency rates were particularly high in Saskatchewan and Alberta mainly due to low oil prices and high unemployment levels. The same goes for late and missed credit card payments. A study by TransUnion shows a delinquency rate of 4.6 percent in 2016. At the same time, credit card delinquency rates fell in provinces like British Columbia and Ontario. Equifax reported a delinquency rate of 1.4 percent in Alberta, an increase of more than 40 percent compared to 2015. Delinquency rates in Quebec and Ontario fell down by 3.3 percent and 3.9 percent respectively. Household debt load in Alberta is also higher than the national average. Household debt totaled $57,000 in 2015 while average debt was $44,000 nationwide. Thanks to high income levels and low unemployment rates, debt repayment was not a serious problem for the majority of Albertians until the oil sector collapse. Coupled with high unemployment rates, high debt levels resulted in foreclosures, and many people were forced to resort to bad credit lenders. Bad credit loans, however, make things worse because the interest rates are significantly higher compared to credit unions and banks.

In 2017, the local economy is on its way to economic recovery. Stable oil prices can partly be explained by an agreement between the non-OPEC and OPEC states on a significant drop in oil production. Higher oil prices mean more jobs in Alberta, resulting in an increase in consumer spending, which is good news for businesses and all sectors of the economy. Lower unemployment rates also mean lower delinquency rates and higher standard of living for Albertians. At the same time, it will take time for the energy sector to recover and grow at a steady pace. This is the way to a strong and stable labor market in Alberta, which was a magnet for internal migration before the oil sector collapse.

OpexinOilandGas