Challenges may arise as foreign companies transition from investors to
CALGARY, Feb. 3 /CNW/ - Heightened foreign investment in Canada's
unconventional oil and gas industry will be driven primarily by Asian
markets, according to Ernst & Young. And as foreign companies shift
from investors to operators, national oil companies and their local
partners will need to decentralize business models, integrate and
streamline processes quickly, and embrace a more international
"There are a host of reasons why Canada is such an attractive
destination and why foreign companies are investing here," said Lance
Mortlock, Senior Manager in Ernst & Young's Canadian Oil & Gas
practice. "Rising oil prices, high debt levels of the junior players, a
stable financial and regulatory environment, huge reserves, proximity
to the United States, vast expertise and a well-established
infrastructure are just a few of them. But to make the most of these
transactions, Canadian and foreign companies need robust due diligence
and careful integration planning."
In 2010, the number of inbound oilsands-focused transactions from Asia
tripled, as countries like China, Japan, Thailand and South Korea
actively sought to secure natural resources around the world and
completed several major deals in Western Canada.
The last 12 months have seen several notable transactions in the sector,
including Sinopec International Petroleum Exploration and Production
Company's acquisition of ConocoPhillips' 9.03% interest in the Syncrude
Canada Ltd.'s oilsands operation for US$4.65 billion. Thailand made its
first foray into the Canadian oilsands with PTT Exploration and
Production's purchase of 40% of the Kai Kos Dehseh oilsands project
from Statoil ASA for US$2.28 billion. In all, Asian investment
accounted for US$9.2 billion during 2010 (compared to US$5.9 billion in
2009 and virtually nil in 2008).
"Foreign interest in the oilsands is expected to continue in 2011," said
Mortlock, "and this investment activity significantly increases the
likelihood of integration challenges and complexities, which often
occur in the form of cultural and business differences. To date, most
investments have been in a non-operated capacity, but as foreign
companies begin to take on operator roles, like in Korea National Oil
Corporation's acquisition of Harvest Energy in early 2010, various
issues could surface."
Some of these challenges could include the need for foreign investors to
hang on to local talent to ensure the right skills are in place when
transitioning to an operator role. A supplier challenge could also
arise, with foreign companies wanting to use their own trusted
suppliers instead of sourcing local resources. In addition, local
companies may have difficulty adapting to new systems and processes,
while foreign acquirers may be unfamiliar with local laws, regulations,
as well as environmental and security guidelines.
"Companies need to recognize cultural differences, embrace innovations
that enable growth - wherever they come from - and integrate systems
globally as quickly as possible," said Mortlock. "A big part of
determining success will come from their ability to establish effective
knowledge exchange processes and programs to the benefit of all parties
The 2010 trend that saw Canadian and foreign entities partnering through
strategic alliances and joint ventures is also expected to continue.
This enables risk sharing and the pooling of Canadian technology with
foreign financial strength and resources. Technology will also play a
strategic role in transactions with foreign buyers looking to reap the
benefits from advancements being made by Canadian oil and gas players.
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