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The HC Commodities Podcast
Canadian Crude Production & Equities in Changing Times with Randy Ollenberger (Canadian Crude Oil Conference Live Event)
00:50:51
Recorded at the Canadian Crude Oil Conference in the wonderful Lake Louise in Canada on 17th September 2025, Randy Ollenberger of BMO Capital Markets, dives into global oil fundamentals, Canadian crude production in a changing world and what that means for oil and gas equities. Sanctions, tariffs, pipeline expansions and Canadian politicians (reacting to a very different relationship with the US meant) has led to profound changes and opportunities in this once quiet sector. Our sincere thanks to the Board of the CCOC (www.ccoconline.com) for the invitation. To view BMO Financial Disclosures visit: https://research.bmo.com/public/disclosure_statements
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- [00:00]
Paul Chapman
Foreign welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Last week, on September 19, I was invited by the Canadian Crude Oil Conference to moderate a discussion with Randy Ohlenberger on Canadian oil production in equities and how both are faring in these volatile times. The Canadian Crude Oil Conference itself is a significant forum for industry executives in the global commodities markets, and each year they hold this conference, which is exceptionally well attended by senior leaders, particularly in the North American crude oil space, and the conference is set in the stunning Fairmont Chateau on the banks of Lake Louise in Banffs National Park. You can find out more on ccoconline.com a special thanks again to the board of the conference, particularly to Arno Van Veldern and I'll let Schell's Dave Watson introduce the panel and I hope you enjoy the discussion. Relevant financial disclosures with regards to Randy's presentation can be found in the show Notes.
- [01:25]
Dave Watson
Okay, well, it's my pleasure to introduce our next session which is going to be groundbreaking. This is the first time at CCOC that we will record a live podcast. Now, a lot of people have asked what is a podcast? And it is apparently a series of spoken word audio episodes focused on a particular topic or theme. In our case. Today we're going to cover global oil fundamentals with a focus on Canadian energy equities in this volatile world. The host, Paul Chapman, is the Managing partner at HC Group, a global search firm dedicated to commodities. Paul also hosts the HC Commodities Podcast, a weekly podcast dedicated to trends and topics in energy and commodities. Paul's guest today is Randy Ollenberger, who is the Managing Director at BMO Capital Markets and leads the North American Oil and Gas Research team. Randy has been in the Oil and Gas Research analyst for almost 30 years and is ranked in the top three oil and gas analysts in Canada for more than 25 years, including ranking one for an unprecedented 15 years. He's a frequent contributor in the media with numerous appearances on bnn, ctv, cbc, cnn, msnbc, and once on Sesame Street. We're gonna go for about 45 minutes and then we'll take a bunch of questions if that works. And the question period will not be recorded.
- [02:51]
Randy Ollenberger
No.
- [02:52]
Dave Watson
So we have a little bit more comfort.
- [02:55]
Paul Chapman
Thanks, Dave. Randy, thanks for joining us.
- [02:57]
Randy Ollenberger
My pleasure.
- [02:59]
Paul Chapman
So I guess we just heard a pretty compelling session from Michael Cohen from BP and obviously the IEA data on if there's no new investment in production, what that would mean, it could cause significant disruption, price spikes. That investment needs to go on. We're going to talk about Canada, the fiscal group picture as well as the equities piece. But can you just orientate us to kick off with from a global perspective, where are we at in global. Global investment in oil and gas? Can you give us that picture?
- [03:33]
Randy Ollenberger
Sure. And I'm going to maybe speak to it from two perspectives. One is from the point of view of the companies and the level of investment they're making and how that compares to maybe where we were 10 years ago, but also from an investor perspective and where we are in that cycle. So if I went back to 2008 and remembered those fond days of $140 oil, in the summer of 2008, oil and gas as a percentage of the S and P in the United States was a little over 12%. In Canada, we were about 23% of the TSX. So sizable contributors to the overall market. Fast forward to today. Energy in the United States or oil and gas more particular in the United states is about 2.75% of the S and P. So significantly diminished relative to where that was in those holicon days. And in Canada here we're sitting somewhere around 13.5%. So again, a pretty significant fall off in investment levels less than the United States. But in Canada here we really only have banks and energy. So less investment opportunities. We don't have Nvidia from a capital investment perspective. Again, if we went back and looked at where capital investment levels are today, and this was touched on in the IEA report where they suggested, you know, we're seeing about $500 billion a year of investment right now and we need to sustain at least that to maintain production levels. I actually think it's a higher number than that. I think 500 is a bit light. But if you went back even 10 years ago, the industry was investing double the level it's investing today. And the reason it's important and the reason I think the 500 is low is because that massive level of investment that we saw into oil and gas between say 2005 and, and 2015 is really what gave us all of that resource that we're trying to manage right now. And a lot of that resource is now starting to decline, particularly US Shale. And so I think the level of investment that's going to be required is going to be more than $500 billion a year. So I think they're a bit light there.
- [05:37]
Paul Chapman
Yeah, yeah. And as we were talking offline as well, there's potentially a different demand picture as well with new technologies and so forth. Okay, so thanks for that. Where do we sit in the global picture from a physical production standpoint?
- [05:52]
Randy Ollenberger
So, you know, production has been rising, obviously. I mean, and that's one of the reasons we're seeing a little bit weaker oil prices here. Production has been keeping pace with oil demand, and oil demand has been, you know, tempered a little bit in terms of the rate of growth just because of the economic uncertainty. So, you know, supply is rising. And unfortunately, right now I think we have a wave of supply coming. So one of the things that I think investors are nervous about right now is this wave of non OPEC oil supply and OPEC oil supply that's coming into the market in the fourth quarter of this year and the first quarter next year. So that's things like Guyana, Brazil and Canada on the supply side, plus those incremental barrels coming out of Saudi Arabia, the uae, against demand that has really been uncertain. But also recognize we're moving into the shoulder season. So normally demand does decline over the coming months. And so that supply is kind of coming into the market at an inopportune time from that perspective. But, you know, supply has been doing a pretty good job keeping pace with a slower rate of oil demand growth. I mean, oil demand grew on average by about 1.4 million barrels a day over the last decade. Right now we're looking at probably more like 7 to 800,000 barrels a day of growth this year. So supply is keeping pace with that. But if we started to see demand recover a little bit, if we started to see better economic growth, I'm not sure we're investing enough to keep pace with that incremental demand growth.
- [07:14]
Paul Chapman
Yeah, and I want to come back to that. So just staying on the supply side, relevant to this audience, how does heavy crude figure in that picture?
- [07:25]
Randy Ollenberger
Yeah, so heavy crude, obviously, oil sands is a very important part of that mix. And I think this audience, you're going to be well aware of this, but a lot of the investors that I talk to around the world aren't. I mean, oil sands is one of the lowest cost sources of supply in the world. So when I go sit down with investors with us in Europe or New York and we talk about the oil sands, there's this misperception that oil sands is a high cost source of supply. It's high cost in the context of if you have to go build a new mine, if you have to go build Another in situ facility and maybe not even in that case, but in the case of where well Sands is baseload supply and I think it should be considered baseload supply. It is a very low cost source of supply. And so when we think about those mixes, if you want to think about sort of a stacked chart, you said, well you know, where does Canada fit into it? Well, Canada fits into it as part of the base load of supply in my opinion because we don't have those declines to worry about, but we have a very low cost structure.
- [08:22]
Paul Chapman
Yeah, it's being compared against US shale which has a different decline rate as you point out. And in terms of opec, non OPEC split, because you mentioned Guyana, new sources, that shift is changing as well.
- [08:34]
Randy Ollenberger
It is. I mean so you know, we do have some growth coming, some nice growth coming from Guyana obviously we'll see whether there's some follow on discoveries that support incremental growth there as well. Brazil is finally delivering some of that growth that was promised 15 years ago. But you know, beyond that, if we look at the pipeline of projects that have been sanctioned, we look at the pipeline of projects that are in pre fid, it's not that deep. And so that kind of gets you back into the idea of how much investment do we need? We need to be investing more in exploration, we need to be investing more in development. You know, if you look at reserve replacement trends among the majors, they're not replacing reserves with the drill bit, they're only replacing reserves through M and A.
- [09:15]
Paul Chapman
Yeah, we'll talk about that as when we get to valuations. How, how significant you talk about that 500 capex like how why is there a disconnect there or potential risk there's in underinvesting and how much could that be?
- [09:30]
Randy Ollenberger
Yeah, I mean I think it could be pretty material. I mean I would say that that 500 is probably more likely more $700 billion. I think that that's probably the order of magnitude that we need to be thinking about in terms of ongoing investment. I think part of that is, you know, various forecasting agencies, I think they're underestimating costs. We spend a lot of time looking at supply costs and we've published every year and have been for the last 20 years a 1000 page cost study looking at the actual cost structure of all oil and gas companies around the world. And what companies report in their financial statements and what they show in slideshows are two different worlds. And those slideshows show a very optimistic view of cost structures. And what they can deliver and what they can achieve and they don't. When we compare that to what they actually deliver, it's much less at a higher cost. And so part of my perception here that it's a higher level of investments required is we spend a lot of time looking at what the actual costs are.
- [10:28]
Paul Chapman
Okay, this audience is well aware of this question, but I guess listeners might not be from a Canadian perspective. Can you talk about Canadian production, how that lines up in terms of percentage of global production and what growth has been over the last year? Two years.
- [10:44]
Randy Ollenberger
Yeah. So Canada, obviously, we're blessed with this enormous resource base, the third largest established resource base in the world behind Venezuela, Saudi Arabia. We are one of the top five oil producers in the world. We could be much more than that. I mean, if you went back 10 years ago or 15 years ago, when there were more pipelines planned, I mean, I think the intention was that Canada would be producing, you know, 1 to 2 million barrels a day more oil today than we currently are. So the potential is still there. I mean, we have a reserve life index that, you know, is the envy of anyone in the world.
- [11:21]
Paul Chapman
It's 170 years.
- [11:22]
Randy Ollenberger
Yeah, I mean, it's massive. It's massive. So we could easily add more supply. I mean, you know, Canadian Natural resources alone could add a million barrels a day of incremental production. I mean, it's massive.
- [11:34]
Paul Chapman
And today production is full.
- [11:36]
Randy Ollenberger
Point. Yeah. So if you looked at Canadian production today, we're about five and a half million barrels a day. If you look just what's coming out of Western Canada, it's about, you know, 4 million barrels a day, plus or minus a little bit. 4.2 million barrels a day.
- [11:47]
Paul Chapman
And where is the demand for that Canadian crude?
- [11:50]
Randy Ollenberger
So the majority of what we produce does go to the United States. So if you look at the U.S. obviously, what we primarily export is oil. So, by the way, I mean, this is also an important point in the context of the Canadian economy. If you look at what we export and then deduct what we import, we only on a net basis export one thing in any material size, and that's energy. And so when you think about interest rate policies and exchange rates and all that kind of stuff, energy is everything. But the majority of what we export does go to the United States. You're 100% right. So we send about 2 million barrels a day of heavy oil down to the PADD 2 market, that US Midwest market. We're sending around 500,000 barrels a day down to the Gulf coast, that PADD 3 market, another couple hundred thousand barrels a day in the US Rockies. And increasingly now we're moving into the PADD 5 market, the West coast with TMX. So we're standing another 6, 700,000 barrels a day now off of, off of TMX. Majority of all of that is heavy oil. Right. So the US Refining system, as this audience very knows very, very well, I mean, is largely configured to process that Canadian heavy sour oil. And so we generally move that oil down to the United States.
- [12:59]
Paul Chapman
Yeah, yeah. That's going to be a bit of a recurrent theme when we get to the end of this because obviously there's lots going on in the world at the moment that puts Canada even in a stronger position to supply that heavy crude oil. And it's probably something that's not necessarily widely known, I guess, in the US Public about the need for the difference between heavy crude and the light crudes that are produced in the Permian and so forth. Can you just, on the how much of the moment is going to Asia? Can you just characterize that for us?
- [13:25]
Randy Ollenberger
So I mean, I would say, you know, it moves around a little bit. We're sending, we're actually sending oil to Asia from two different points. One is actually re exporting it out of the US Gulf coast and that's principally to go to India. And then we're sending off the west coast off of TMX to go over to China. And so it's actually shorter from a time perspective to send it down to the Gulf coast by pipeline and then send it over by tanker to India than it is to go off the West Coast. So right now, I mean, I would say we're probably sending to Asia somewhere in the range of 500,000 barrels a day of oil.
- [13:59]
Paul Chapman
And is the Canadian oil story actually one of the egress and access to other markets and really one of pipeline transportation. Can you sort of set the scene on that and I guess where the DMX has gotten us and then what other legislation as well as pipelines are in the work and what that might mean for production. Is that really the key that would unlock it?
- [14:21]
Randy Ollenberger
Yeah, absolutely. So, I mean, Canada has been constrained by export capacity of both the oil and gas side really for the last 15 years, but more significantly in the last 10 years. And I would say that, you know, there's again, I talked about the tremendous potential here for incremental production if we were to unlock that and add incremental pipeline capacity. So if we debottleneck tmx, if we debottleneck the Enbridge system down to the south. I mean, we could easily add another 500,000 barrels a day over and above our current projection, which, by the way, is to grow by another 3, 400,000 barrels a day between now and 2030. But we could add another 500,000 barrels a day on top of that. If we had another pipeline over and above that, say Northern Gateway 2.0 of whatever size, obviously we could easily fill that and we'd be moving more oil over to Asia by 2030. So pipelines are really the only governor on the rate of growth in Canada. Again, the resource base is there. It's just really getting that egress capacity in place. We all know that the current Canadian government is certainly talking about potentially supporting an expansion of pipeline capacity. I think in their mind, it goes hand in hand with the Pathways initiative. So that would be the initiative to invest in carbon capture and storage. And so I think, and I believe in talking to politicians and listening to some of the politicians, that if the industry agrees to pathway, they will agree to some incremental pipeline capacity and potentially even tweak the emissions cap, because it's hard to grow production if you have an emissions cap that constrains that.
- [15:57]
Paul Chapman
Yeah, and we'll come back onto that. Just obviously, the US is very much a narrative of the complexity around regulation and permitting. Federal, state, local, lots of issues there. How does Canada stack up against the US in terms of that? And how much is the challenge to building new pipelines one of regulation and permitting and so forth, versus underlying economics and people actually willing to invest in a narrative where production is meant to decline. Oh, sorry, demand is meant to decline, and et cetera, et cetera.
- [16:33]
Randy Ollenberger
Yeah, I mean, I think it's all the former. I mean, I think it is the regulatory and governmental hurdles that have been raised that have prevented these pipelines from getting built. I mean, I think it's interesting over the last 10 years how much incremental pipeline capacity and LNG capacity has been built in the United States, while in Canada, all of that effort has been stymied. So I think you'd have to conclude on the basis of that it's been more difficult to build those things in Canada than in the United States. The government has introduced a new bill here in Canada, C5, that is purporting to streamline this and remove all of those impediments. But at the end of the day, one of the other big things here is. And they're talking about how you might read in the financial press or the media. How no one has stepped forward to offer to build a pipeline. Well, no sane company is going to step forward to build a pipeline if they don't know what it's going to cost. So we need some cost certainty. And cost certainty goes hand in hand with regulatory certainty. And I think we need a better understanding of what that looks like. And it's not just, you know, approvals. It's the on the ground building it. Do you have to move anthills and bird nests and all those other sorts of things that add significantly to the cost of building these pipelines? The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the.
- [18:02]
Paul Chapman
Sector providing senior advisors and support subject matter experts to investment and infrastructure funds.
- [18:09]
Randy Ollenberger
Law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when.
- [18:20]
Paul Chapman
The stakes are high and insight matters. Learn more@encoinsight.com the world is quite different today than it was even a year ago. Are you more confident today in that capacity to build new pipelines than you were? What's shifted?
- [18:34]
Randy Ollenberger
I'm more optimistic. Confident might be a bit too much, but I'm certainly more optimistic that we're headed in the right direction. We'll see.
- [18:45]
Paul Chapman
Yeah. And more likely to go south or east and west.
- [18:48]
Randy Ollenberger
I suspect if we do add incremental pipeline capacity of a new pipeline, it's going to be to serve the Asian market rather than going south. I mean, we could certainly move more heavy oil in the United States. But if I look at the total amount of heavy oil that's imported in the United States today, There's only about 700,000 barrels a day, 800,000 barrels a day that doesn't come from Canada. So I mean, do you want to build a Keystone XL today and completely displace all of that? That may be a costly exercise.
- [19:17]
Paul Chapman
Yeah. Okay. Thanks for that. So moving on to sort of the, I guess, the investor view. I think everyone's pretty aware of the last decade in oil and gas stocks and various impacts that they've had and so forth. But where do we. Can you just, can you just set the scene a little bit in contrast to the U.S. you know, how Canadian oil and gas stocks have fared over the last decade or since sort of the nadir of 2014. And then let's talk a bit about sort of comparisons of relative valuations.
- [19:52]
Randy Ollenberger
Yeah. So you Know, if I went back to the, let's say 2010. So just coming out of the financial crisis through 20, call it, I would say Canadian oil and gas stocks were very much out of favor versus their US Peers. We couldn't grow. And investors typically like growth. And they invest in oil and gas companies based on their ability to grow. And we weren't able to do that because we couldn't expand pipeline capacity. While in the United States, despite professing to pursue these environmental standards, they were still able to invest in new pipeline capacity. I think that changed coming out of COVID And it changed because all of a sudden I think there was recognition that the cost structure for shale oil was increasing, that the decline rates weren't going down essentially at a corporate level, they were stabilizing. But I think it became increasingly clear that the inventory, the low cost inventory was getting depleted. And so what we saw was increased interest from U.S. investors over the last three years. And I think it's interesting, and I have this chart in my investor deck. What it shows is that if you went back to 2010, Canadian investors owned about 60% of the large cap oil and gas companies in Canada. If I look at that same group of companies today, Canadian investors. And by Canadian investors, I mean institutional investors, so not retail. Canadian investors only own 40% of those companies. The other 60% is held by non Canadian investors, principally US investors. So what we've seen is increased appetite by non Canadian investors for the Canadian oil and gas companies because of the inventory attributes, but also recognition of their very low cost structure. So they become this very ideal dividend share buyback sort of vehicle.
- [21:48]
Paul Chapman
Yeah. Can you just characterize these investors a little bit more and how that changing mix has that impacted how the companies are operated? And obviously there's been a narrative of capital discipline and so forth, but can you just. How has that changed focus and emphasis?
- [22:03]
Randy Ollenberger
Sure. I mean, overall, there's been a shift from investors away from growth, as you said, to capital discipline. And part of that capital discipline is a recognition that you're investing to develop shale oil plays at $65 oil or $80 oil, and they need an oil price higher than that to actually generate investment returns. And this goes back to the difference between slideshow presentations and actual results. So investors finally caught onto that, and so they said, no, no, no, start giving us our money back. And so that really forced companies now to really emphasize share buyback programs and dividend growth. And the advantage Canadian companies have is they have much lower levels of sustaining capital. And again, so that's been recognized. So what I mean by that is how much money do you have to reinvest every year to stand still, to hold production flat? And if you look at the large Canadian companies, the oil sands companies in particular, and we can talk about the Montney companies if you like, but the oil sands companies in particular, they only have to reinvest about 30% of their cash flow every year to hold product. That other 70% is available to either put on your balance sheet, fund some incremental projects or give it back to shareholders and increasingly back to shareholders. If I was to look at that number globally, it's around 50%. So the Canadian companies and industry have this inherent advantage when capital discipline is the focus, when a return to shareholders is the focus. And that certainly is the world we're in today. Oil and gas unfortunately is being viewed as a mature industry. Whether or not you believe peak demand is next year or 10 years out there is the idea that it isn't the same growth industry it was 10 years ago. It's a mature industry. And as a mature industry, investors are more focused on a return of capital rather than continuing to reinvest. And Canada is, I think, the best positioned jurisdiction for that in the world.
- [23:57]
Paul Chapman
Yeah. Might be a naive question, but in some senses is, are the oil sands being compared to shale? Whereas actually more rightfully, in terms of the investment profile should be compared to sort of near shore offshore type production.
- [24:12]
Randy Ollenberger
It is a much better comparison just given the plateau production levels that you can achieve. And even then it's not even a great comparison if you look at a five year plateau of an offshore platform, but a very slow decline thereafter versus say a 50 year plateau for a, a mining project or a 30 year plateau essentially for an in situ development.
- [24:31]
Paul Chapman
Yeah. And so in some senses has Canada been undervalued or has shale been overvalued?
- [24:39]
Randy Ollenberger
I think really it was more the latter. I think shale initially was overvalued, investors overpaid for growth without any consideration of returns. And so what you've seen now is that shift, and you said we were going to come back to valuations, so maybe I'll jump ahead and steal your question there. But I mean if we look at the valuations in the oil and gas sector today for the oil companies, for large cap oil companies, Canadian companies used to trade at a very material discount to their US peers because of that emphasis on growth that we didn't have. If I look at the sector today, Canadian companies versus the best US companies. So think of the Best US Companies. Think of Exxon, think of eog, Conoco. Canadian oil and gas companies trade at very similar valuations or sometimes even higher. So Kenya companies no longer trade at a discount to US Companies on the oil side. On the gas side, we still trade at a discount to our U.S. peers. And that again has to do with the logistical bottlenecks that are in the process of being resolved. But on the oil side that's been resolved.
- [25:43]
Paul Chapman
Yeah, it's a relatively small sample set, but obviously there has been a differential between the likes of CNQ that are unintegrated, just focus on the upstream and the more integrated models. Is there any sort of. Well, is there a valuation difference there? How are they viewed by investors?
- [26:02]
Randy Ollenberger
So, you know, it depends. So, you know, when we get in an oil price environment where investors feel oil prices are declining, they tend to want to be a little more defensive and they tend to prefer companies with integrated operations. So in that environment, you know, your Exxons, your Chevrons, your Imperial oils, your Suncors tend to receive a higher valuation or more interesting. If we're moving into an environment where investors believe oil prices are stable or potentially moving higher, then they look to the upstream peers. So it really depends where you are in that oil cycle in terms of preference. But if I were to look at Knetz Resources valuation today, Suncor, Synovus, and just use consensus valuation metrics, I would say there's very little to distinguish them today. Now, you might argue that that's probably not right because if you looked at returns on capital, CNQ has a very strong record of return on capital employed and so they probably warrant a higher valuation multiple. But what happened with CNQ is, well, really two things. One is oil prices started to come down. They're very highly correlated with the oil price. And the second thing is when the tariff issue first arose, CNQ is perceived to be much more dependent on the US market than its other Canadian peers.
- [27:16]
Paul Chapman
Yeah, we'll come back to tariffs and politics. I guess when you just compare Canada versus the rest of the investable world in terms of oil and gas production. So let's say the US companies, European companies, from a political standpoint, is this seen as a more stable, favorable environment and to some extent, by having more clarity over environmental policies, carbon pricing, etc. Does that give investors more confidence than say, where you're in based in Houston, where, you know, things might change every two years or four years?
- [27:53]
Randy Ollenberger
Yeah, I mean, I'd have kind of two observations on that. One is if you just looked at ESG rankings, and you actually included the S and the G in those rankings. Canada and Canadian oil and gas companies rank really high compared to their global and US peers. So we actually do a very good job across the board. Where we're perceived to fall a little bit short is obviously on the E part of that. But again, that's largely based on data that was accumulated and investigated between 2007 and 2010. It's very much dated. And the belief at that time was that the average barrel of oil coming out of Canada and out of the oil sands in particular was 15% higher emissions intensity than was being consumed by the refinery system in the United States. Today, we're very close to that average. And we have projects like Imperial Oil's Curl Lake, like some of Synovus projects, that are actually below the US average. So that has changed a lot. So I would say in the minds of investors, if energy companies were allowed to talk about these things, which they're not here in Canada, you would actually be able to tell a very good story on that front from a perspective of investors. I think the interesting thing is this. If I go over to Europe and talk to investors. So European continental investors stopped investing in Canadian oilsends companies a number of years ago because of these perceived environmental risks. But if I go talk to those investors, they really want to invest in Canadian Wesleyan's companies because they recognize the strong positive investment attributes, particularly the ability to return excess cash flow to shareholders. And what they say they need to satisfy their consultants and their management groups is what you highlighted, which is they need to say these companies are doing something about it. They're part of the solution, they're not part of the problem. And I think where we have an advantage here in Canada versus, say, the shale in the United States is, you know, if you wanted to capture the majority of oil sands emissions, you could do that by just going to five plants. If you wanted to capture all of the emissions coming out of the Permian, good luck.
- [30:02]
Paul Chapman
Yeah.
- [30:03]
Randy Ollenberger
Yeah.
- [30:05]
Paul Chapman
It is interesting. There's also sort of a. The last five years have been volatile. And then the title of our presentation discussion is volatility. It also does seem that there is a level of maturation coming in about not necessarily the urgency of needing to decarbonize, but actually the reality of it and the human toll, the impacts on development, et cetera, if it's not done in the right way. And obviously we started the conversation talking about that gap and that potential big decline in production and what the actual impacts that might have on stability and so forth. Putting it in the context of global investors, European investors feeling like, you know, Canada has made strides on the E bit of the ESG as well as on the S and G bit. But and that stability of regime in terms of expectations around accounting for carbon, do you think that that investment could be unlocked shortly? And I put that in the context of that. When you combine with the egress, expansion seems a pretty compelling story.
- [31:16]
Randy Ollenberger
I think it's good. I think you've hit on a very important point here. So if we actually were able to take this very good track record that we've developed over the last decade in improving the E part of that equation and then become part of that solution to satisfy not only incremental growth but replace decline, I think there's a good story to be told because then I think you'd be in a situation where the Canadian oil and gas companies could offer some growth as well as continue to have this very strong investment attribute which is allowing them to return incremental free cash flow back to investors. So I mean I am optimistic. I'm optimistic that some of these logjams will be broken, that we will see some incremental egress out of western Canada, that we will see the federal government more supportive of the development of oil and gas in Canada. And that will play. I mean US Investors pay attention to that. I get asked by US investors all the time whether any of this is real and whether it's going to improve.
- [32:21]
Paul Chapman
And there's also as well actually, I mean, who knows where sort of global relationships are in the next five years. But actually Canada is a one stop. I don't want to glaze Canada too much, get in trouble, but like a one stop shop for the commodities of the current energy economy and the future one. You can see certainly Europeans, Latin America coming here and feeling like it's a more, I don't know, a friendly regime to deal with.
- [32:48]
Randy Ollenberger
Yeah, I mean, absolutely. I mean, you know, I mean I often, you know, I guess risk is in the eye of beholder, put it that way. So I mean, you know, I've had conversations over the years with European investors and you make the case how Canada is a much friendlier, less risky jurisdiction. And then they say, well, how about the time you did this, this and this on taxes or royalty reviews or all these other things? And you go, yeah, no, you're kind of right. We are a risky regime from that perspective. So I think we sit here in Canada and think that we are a low risk Jurisdiction. But investors sitting outside of Canada, looking at all the permutations in government policy at the federal level. But even here in Alberta, again, we did this big royalty review in the mid-2000s that spooked investors. They see it a little bit differently.
- [33:39]
Paul Chapman
Yeah. Yeah. Okay. Moving beyond political and environmental, what are the big risks inherent in these oil and gas companies in Canada that investors are concerned about? I guess, beyond kind of your. What's the nuance here in terms of operational risk, financial risk, and so forth?
- [33:59]
Randy Ollenberger
Well, I mean, I think, again, we've moved away from this big environmental risk overhang. I mean, I keep hearing the idea of stranded asset risk, but if you're at the low end of the cost curve and you can sustain your production at a very low price, I think you've got very little stranded asset risk. But I suppose if oil prices go to $20, there's stranded asset risk in the oil sands, but I really don't envision that. But again, I think the biggest risk for the oil and gas industry here in Canada is the political risk. And so just the vacillations that we've seen in political policy here, that spooks investors, investors like stability. And so that is a big risk. Oil prices are less of a risk for us than they are for companies operating with higher cost structures. Apart from that, again, I think it's just the typical sorts of operating risks that every oil and gas operator in the world faces.
- [34:57]
Paul Chapman
Yeah, I guess just to nail that piece.
- [34:59]
Randy Ollenberger
Right.
- [34:59]
Paul Chapman
Because I guess my lens on the political risk piece is in some sense is that there's been a galvanization of the west of Canada, the need for energy security, of the realities of the energy transition, and of course, the current vagaries coming out of the Trump administration. But actually, even you've just gone through an election. You've elected the former bank of England governor of the bank of England, a pretty, you know, center individual. Has that demonstrated a pragmatism in Canadian politics that actually could be there to stay for a long period? In other words, it's hard to say, but are we coming out of a period of political volatility as it relates to oil and gas and Canada?
- [35:47]
Randy Ollenberger
I mean, that is definitely the hope. That's the hope, I think, of everyone in this room. That's the hope of investors that I talk to in the United States or European. That's the hope is we have some stability here. The hope is that we have policies that actually promote investment rather than discourage investment. And I mean, what we've heard out of the government, I'll say it's been positive, but proof will be in the actions and what they actually deliver. And if they start delivering on all of these promises, I think you will see investors respond to that.
- [36:17]
Paul Chapman
Let's talk about tariffs. Obviously they haven't been on energy itself, but there's, you know, a whole slew of supply chain impacts of on again, off again tariff policies or, you know, how is that impacting that cost structure and that profile that you mentioned? How concerned should investors be about that? How concerned are the exec committees of these companies?
- [36:40]
Randy Ollenberger
You know, from the cost structure of the industry specifically, they're not having a huge impact. I mean, there is obviously, you know, every time you have tariffs on steel and tubular goods and things like that, it does start to have a bit of an inflationary impact on the cost structure of the industry. Hello, I'm David Hunt, founder and managing director at Hyperion Search. Founded over a decade ago, Hyperion Search has helped organizations from major utilities to startups recruit their leadership teams and key individual contributors to accelerate both their growth and the energy transition. Our three main verticals are renewable power, energy storage and E mobility. The energy transition and the talent that delivers. It has been our passion since day one. To find out more, visit hyperionsearch.com or listen to my Leaders in Clean Tech podcast, available on all platforms. But I would say it's fairly modest at this point in time. So we're really not seeing a big negative cost headwind, capital cost inflation headwind from tariffs for the oil and gas sector. Things can change on, on a dime, as we know. But at this point in time, what the companies are saying is very modest, maybe 2%, and that maybe that can even be offset by additional efficiency gains within their operations.
- [37:56]
Paul Chapman
Yeah, and is there a comfort within those companies that actually there's a deep recognition by the Trump administration about how the US Refinery system is set up and the impacts of potentially disrupting those energy flows.
- [38:12]
Randy Ollenberger
I would hope the Trump administration is aware of that. I mean, Canada is the largest heavy oil producer in the world. The US Refining system, as I mentioned earlier, is uniquely configured to process that Canadian heavy oil. You know, Mexican heavy oil production is declining. I don't know if they'll ever get their new refinery working, but if they do, that will mean even less heavy oil at the U.S. gulf Coast. So, you know, the reality is the U.S. needs Canadian heavy oil. And that reminds me, I guess, of one risk that I didn't mention, which is Venezuela, the other supplier of heavy crude oil. Venezuela does have a massive supply potential of heavy oil. It would require massive investment, it would require time. It would require, I think, a massive change in the political structure of that country. But if we were thinking about tail risks to Canadian heavy oil, that's definitely one. Yeah.
- [39:08]
Paul Chapman
Regime change in Venezuela. But as you say, that probably that's not an immediate thing. That's quite like in Mexico. There's lots of investment that needs to go on. Right. Okay, let's talk about specific Canadian upstream thematics by company. Arnaud has encouraged us to mention some companies, but, you know, when it comes to production, growth, expected growth, what could those companies that best stand to be unlocked by new sources of new pipelines, new egress? Who do you think about there?
- [39:37]
Randy Ollenberger
So I think if you look at the large companies, probably the two companies with the deepest inventory, and I think this is well known by investors, is Canadian Natural Resources, which I mentioned earlier, and Synovus. They would be viewed by investors as having the deepest inventory of potential growth projects. Imperial Oil certainly does have some growth opportunities, but it would be at a much lower level. And Suncor, I mean, they certainly have undeveloped in situ resource, but they also have this base mine replacement issue that they're going to have to deal with in the post 2030 world. So I wouldn't really see them as a growth company. Once you move out of those four companies, you start moving down pretty small. And one of those players is in play, as I think everyone in this room knows right now, which would be Meg Energy. So we'll see where that ends up.
- [40:31]
Paul Chapman
And one thing that came up in our previous conversations was the level of innovation and technology that's gone on here with respect to the oil sands. And perhaps a story that hasn't quite made it down to Houston, but can you talk a little about that? What is going on in terms of innovation?
- [40:48]
Randy Ollenberger
Yeah, you know, a lot, actually. So, you know, part of it is, is having the benefit of reducing emissions, and that's largely through reduced energy consumption. And so, you know, when you think about in situ resource development, a lot of the resource development to date has relied on steam. So heating the reservoir to reduce the viscosity of the oil so it flows to the wellbore. And if you can reduce the amount of energy, you're reducing the cost, but you're also reducing emissions. You know, the industry has been playing around with solvents for a long time as a means of potentially lowering that energy intensity. But also that helps the cost, helps emissions, and we're finally seeing some commercial promise there Imperial Oils got a project on now up and running with good success. Synovus has one. But you know, Synovus held an investor day this past summer and I'm just going to talk about, just for the record, public information. As a firm, we're actually restricted on Synovus, but this is all public, public from Synovus itself and that is they talked about longer reach horizontal wells. So instead of going out a thousand meters, going out, you know, 2,000 meters or more and how that improved the economics and wells that normally. So if you look at the average Seg D well in Canada, it comes online and it produces 350 barrels a day per well pair. Good operators can get that between 500 and 1000. In their presentation they were talking about moving that up to 2,000 barrels a day. And if you look at the kind of how quick that ramp up was, then how it's sustained, that approach, and I believe it's probably fair to say it's a bit resource specific, but that approach and the returns on that would actually be superior to shale oil in.
- [42:39]
Paul Chapman
The U.S. well, with that I guess you put all that into context, right? That innovation piece, the cost structures you talked about, the lifespan on these reserves. We're starting to see some M and A activity. Obviously the story of what's going on in the US is consolidation, particularly in shale. What do you see? What do you forecast of M and A activity around Canadian oil equities and is that the US coming?
- [43:08]
Randy Ollenberger
So what we've seen is international players largely exit the oil sands over the last decade. I mean, Chevron just recently sold their last interest in the CNQ Athabascal oil sands project. Exxon's still there, but I mean total has left, BP's left. Really all the international players have largely left. I'd be surprised if they come back. I don't believe they're going to come back. Exxon's still there. Conoco is still there. Exxon and Conoco both still have resource potential they can develop within their existing portfolio. Could they add to that? Absolutely. But the reality is there's not a lot of companies left in the oil sand space to consolidate. So you're talking about just a handful of large players. And so when investors think about consolidation M and A opportunities in oil and gas here in Canada and it's largely thinking and talking about Montney and Duvernay players where there's still a smattering of smaller operators that could potentially be consolidated by some of the larger operators.
- [44:09]
Paul Chapman
Yeah. And then just final question on this segment. Then we'll just wrap it up. But we touched earlier on Canadian Natural Resources versus a Suncorn Synovus, a story that is going on globally and obviously very impactful for we talked about a lot on the podcast and obviously HC as a search firm is involved in it. But most majors or producers, refiners, most organizations with significant asset footprints have been building out trading and optimization capabilities to in part obviously manage the risk and the volatility out there as well as I think a response to the performance during COVID We obviously saw what BP and Shell produced and to some extent not leaving that optionality up to the trading houses. Two part question one is how do that used to be heavily discounted by investors for a variety of reasons, not repeatable income, et cetera. Is that discount still there? And then secondly we talk about the context in.
- [45:16]
Randy Ollenberger
Yeah, I mean I would say that's still largely viewed as. I don't know if non recurring is the right word, but less predictable revenue because investors don't understand it. I mean you can look at organizations like BP or Shell that seem to be able to deliver some pretty significant results from those operations quarter in, quarter out. And so maybe they get a bit more credit for that. But if you were to look, if an investor was to look at say Suncor's operations and try to disentangle that and say well how much of that's contributing, they'd be less inclined to think that that's kind of a repeatable result. So it'd be discounted a bit more for the Canadian companies.
- [45:54]
Paul Chapman
Yeah. And then these things are. Results are hidden. Right. And there's a cascading positive impact in terms of asset valuations and so forth. It does seem to me though that investor. You talked earlier on about the nature of institutional investors and it would seem to me that institutional investors are sort of wising up to the opportunity there. And we even see some activist investors calling for more, not necessarily outright trading, but certainly optimization and physical risk management within their systems.
- [46:23]
Randy Ollenberger
I do think that it is becoming more apparent. I mean if you went back 10 years ago in Canada, we've never had an independent refining sector. So the integrated companies in Canada, it's been much more opaque to investors and the integrated companies in Canada have tried to keep all their secrets. I would say the success of the independent refining model from an investor perspective over the last 15 years, I think has awoken investors to the idea that there are these opportunities available that companies should look at.
- [46:59]
Paul Chapman
Yeah. Final question then we'll move to the Q and A. I don't know, pick your time period. It's getting very hard to predict the world even a few months out. But in three years time, five years time, are you bullish this sector? And if you are, what are the key things that you would be saying as a potential investor to look out for that would really ramp up and change that scenario?
- [47:26]
Randy Ollenberger
Yeah, our view, we're a little bit cautious in the very near term. So let's think about that three month period of time. And again, it's because of that potential wave of supply versus a seasonal decline in demand. I mean, by the way, I think demand is outperforming expectations and will continue to outperform expectations. I love the EIA's trick of basically hiding demand growth by revising up their historical estimates. I think we'll continue to see that because demand is outperforming expectations. But I'm a bit nervous about moving into the seasonal downturn in demand as we get this wave of supply growth. But if you said, well, what about the next 12 to 18 months? I would say I have a much more constructive view. I think we'll be through that. And I think one of the things that you're starting to hear more about is how much spare capacity is there really? I'll use Saudi Arabia as an example. I mean, theoretically, Saudi Arabia has capacity of 12 million barrels a day. The highest we've ever seen them produce, which was in 2022, was 11.4. And at that time it was believed that they were producing about 500,000 barrels a day from inventories. So the highest they've ever produced is probably closer to 11 million barrels a day. So if they unwind all of these cuts, by the middle of next year, they'll be producing ten and a half million barrels a day. How much spare capacity do they really have? How much is really in the world? And I think we could be staring at a situation where demand has continue to outperform that wave of non OPEC supply growth. And OPEC supply growth is behind us and there's not a heck of a lot of spare capacity in front of us. And that's when I think the market investors will become more focused on is it $500 billion we need to spend or $700 billion we need to spend?
- [49:12]
Paul Chapman
Yeah. And then I don't want to sound facetious, but there's a sense that between President Trump and President Putin, they've kind of made Canadian oil great again.
- [49:20]
Randy Ollenberger
Right.
- [49:20]
Paul Chapman
I mean, it does seem that actually the shift in global oil flows. That resilient need for heavy crudes by the US Refining system that we're seeing globally. Right. We've seen a level of deglobalization but it's certainly sort of friend shoring and trying to look for countries blocks that you can have a. There's more stability in that long term in many long term agreements. Seems to me that set Canada up pretty well on the macro scale. Whether you're taking that five year view.
- [49:50]
Randy Ollenberger
Yeah, I agree with you. I mean if you think about Trump pushing Canada to think about its need to diversify markets, that's ultimately positive for Canadian oil and gas companies. The war in the Ukraine, as sad as that is, I mean it certainly has reminded the world about security of supply as being an important consideration. So that's also been positive for the oil and gas sector. You know, at a, you know, not a, not a great reason, but I mean they've ultimately been positive for the sector.
- [50:20]
Paul Chapman
Yeah. Well, Randy, thank you very much.
- [50:23]
Randy Ollenberger
My pleasure.
- [50:23]
Paul Chapman
Invite questions thank you. Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.hcgroup.global.