The oil and gas industry in Canada has experienced tough, competitive environment over the last decade andcontinues to do so, The issues affecting the industry are complex, and it becomes very difficult to be able to plan and reactappropriately to the changes.
To survive and grow in this tough environment an oil and gas producer must have a good understanding of the key components of the business in which it is operating and how one area influences the other components of the system. Being good at one or two components of the system may not be enough to survive in the industry.
This paper uses the system thinking model to highlight the relationships between key components of the business. Current trends in the industry in Canada are identified and how they are affecting the producer today. Companies may want to adopt different measures of performance and strategies to be able to survive and grow in the business.
The oil and gas industry in Canada is now experiencing the same tough, highly competitive environment that many other industries experienced earlier. This "environment" has the following characteristics.
Continuing low growth requires a company operate with a low margin of error or it may suffer the painful consequences for any mistakes made.
The share of the market (in this case the energy market) becomes fixed and it becomes very difficult and expensive to Increase the market share,
There is an uneven distribution of resources (people, material, technology, and money.) Resources are always scarce and thus must be carefully allocated to where they will do the most good.
The industry is taking on an ever increasing international flavor and as a result is becoming increasing more complex to understand and plan for,
The industry is experiencing irreversible inflation (particularly on the cost side) which continues to eat at the margins. (ref. I)
The complexity of this operating "environment" makes selection of an appropriate strategy for an Canadian oil and gas producer very difficult.
The oil and gas business In Canada has had some relief from the tough conditions. This relief has come about because Canada is part of the North American energy market. Even though the conditions are true for Canada, we have seen some relief as exports to the United States has provided an expanding market for our oil and gas products. (Figures 1 and 2) These additional exports have been welcome relief to the producers.
At the same time the prospects available Lo the oil and gas producer in Canada are changing. The old "theory of business" (ref. 2) of chasing large reserve additions requiring significant capital expenditures and significant risk is no longer appropriate. The reserve addition targets are now much smaller requiring moderate capital and moderate risk. Capital requirements are now within the capabilityof a mid-sized company. All companies - big, medium, and small are now competing on a more even plain on the development and production side of the business.