Energy sector volatility may be too tough for some
If the energy sector is too volatile for your entrepreneurial taste, you might want to sling hamburgers instead.
Dave Yager illustrated this point during a presentation in Red Deer on Tuesday. One of three panelists taking part in an energy services breakfast organized by Alberta Oil magazine, the 43-year veteran of the oilpatch produced a graph that plotted hamburger sales against drilling rig activity.
The line representing the burger business ran straight and level, while the record for the drilling industry spiked up and down erratically.
Yager, who is currently the national leader of oilfield services with national accounting and consulting firm MNP LLP, emphasized the unpredictable nature of the oil and gas sector.
He got no arguments from his fellow panelists: Shane Walper, president and CEO of Red Deer-based Predator Drilling Inc.; and Travis Robertson, president and CEO of Jewel Energy Services Inc., also headquartered in Red Deer.
Walper recalled the rollercoaster ride he and his partners experienced after they founded Predator in 2008.
“That was absolutely one of the worst times a guy could have started a business,” he said, reflecting how oil prices tumbled with the onset of the recession.
Walper contrasted that period with the preceding decade, which was characterized by steady growth and prosperity in the energy sector.
“There was no down side. It was all just straight up.”
Robertson listed some of the technological advancements that have shaken up the industry in recent years: longer and deeper horizontal wells, and increasingly complex fracking operations.
There’s also been a massive shift to oil wells away from gas plays.
“The market,” he added, “volatile like nothing else on earth.”
Yager reflected on how the total value of oil and gas produced in Canada grew from $26.5 billion in 1998 to $145 billion in 2008 — a 550 per cent increase. Revenues then tumbled by some $40 billion in 2009, but are on track this year to hit a record $157 billion.
Natural gas went from $8 billion in 1999 to $52 billion in 2005, and then back down to $12 billion in 2012.
“Complete asset classes were rendered useless,” he said of natural gas production.
Meanwhile, revenue from the oilsands has gone from $2 billion 15 years ago to a projected $60 billion this year.
“The oilsands boom is just absolutely phenomenal,” said Yager.
Even on an annual basis, the oil and gas sector fluctuates wildly, pointed out Walper.
“If you look at the drilling side of the business, we go from 400 rigs kind of working in the off season to 800, 850 rigs working come December. That is an incredible draw on resources, manpower, finances, you name it.
“No two cycles are probably identical,” added Walper, stressing that companies must be agile and learn quickly.
When it comes to coping with the ups and downs, Robertson said diversification seems to help. He also suggested “putting a steering wheel on your business” by strategically choosing equipment, location, people and products. You can also prepare for adversity through such measures as developing in-house skills and working as a team.
Walper agreed that skilled personnel and teamwork are keys, as are having a commitment to learn, and processes and procedures to organize and streamline your operation.
Yager stressed the importance of maintaining a healthy balance sheet, noting that debt is a killer during bad times.
He added that there are a minefield of potential problems that oilfield service companies can’t do anything about: commodity prices, currency exchange rates, interest rates, investor enthusiasm, government policy, weather, worker demographics, technological change and global events.