Canadian Industrial Outlook  Summer 2010

Canada’s Oil Extraction Industry

Short-Term Risk Index
KEY ISSUES
(percentage change)
Forecast Trend Prices—Prices have come up significantly over the past 12 months,
2.0 providing the impetus for increased development of the oil sands.
Production 1.0
0 Costs—Material and labour shortages in Western Canada will not ease
Rising −1.0
−2.0 any time soon, and keeping costs under control will once again be a
Prices 6 mos. 3 mos.Current priority for Canadian companies.
Higher
Trade—U.S. demand for increased crude supplies from non-Middle
Cyclicality Eastern sources can be met with increased Canadian production. Work
Profits –0.01
Rising P is already being done on both sides of the border to expand pipeline and
refinery infrastructure.
−1 0 1

KEY INDICATORS

2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f

Real GDP (2002 $ millions) 19,644 20,840 20,226 20,310 21,040 22,382 23,077 24,325 25,487
5.3 6.1 –2.9 0.4 3.6 6.4 3.1 5.4 4.8
Employment (000s) 48.4 51.6 54.4 56.7 60.1 62.8 64.5 68.0 71.5
18.6 6.6 5.5 4.2 6.0 4.5 2.8 5.4 5.1
Price index (2002 = 100) 175.1 186.9 259.0 171.7 198.6 206.1 227.8 263.6 291.3
9.0 6.7 38.5 –33.7 15.7 3.8 10.5 15.7 10.5
Revenues ($ millions) 71,331 80,535 102,813 69,196 84,517 93,276 106,351 130,455 152,526
22 12.9 27.7 –32.7 22.1 10.4 14.0 22.7 16.9
Costs ($ millions) 59,515 71,428 84,638 67,512 76,157 83,592 94,208 113,747 131,255
18.4 20.0 18.5 –20.2 12.8 9.8 12.7 20.7 15.4
Profits before taxes ($ millions) 11,816 9,106 18,175 1,684 8,361 9,685 12,143 16,708 21,272
44.5 –22.9 99.6 –90.7 396.5 15.8 25.4 37.6 27.3
Profit margin (per cent) 16.5 11.3 17.0 2.3 9.9 10.4 11.4 12.8 13.9

f = forecast
Italics indicate percentage change.

Economic performance and trends

 CURRENT ENVIRONMENT

T
he rapid drop in prices last year dramatic- the conventional extraction industry production, climbing to $84.5 bil-
ally altered the profitability of the industry; will help, but future capacity increases lion. Furthermore, because costs will
profits dropped from $18.2 billion to are expected to be solely the result readjust more slowly exiting the reces-
$1.7 billion. Still, the industry fared better than of increased investment in non- sion, higher revenues will immediately
many other sectors of the Canadian economy conventional production. The eco- translate to the bottom line, pushing
because of its ability to rapidly curtail costs. nomics of these megaprojects has pre-tax profits to $8.4 billion. But,
improved greatly with the higher as activity picks back up, and oil
However, the industry now looks ahead to another prices, and as of last year accounts companies are forced to compete for
period of significant profitability. Prices have nearly for the majority of Canadian crude the necessary materials and labour,
doubled from their most recent trough, but uncer- production. Strong investment is costs will once again begin expand-
tainty over the pace of the global recovery and still- expected in this sector throughout the ing at a rate more in line with recent
high inventories will limit further price increases forecast, and the non-conventional years and hamper further increases in
this year. As a result, the West Texas Intermediate industry will drive up its share to profitability. Despite that fact, with
(WTI) price of oil is forecast to average $79.50 per account for two-thirds of the 3.2 mmbd prices climbing to US$117 per barrel
barrel this year. produced in 2014. by the end of the forecast, revenue
growth will be sufficiently strong to
After dropping in each of the last two years, produc- Accordingly, revenues will benefit push profits to $21.3 billion in 2014.
tion will reverse course in 2010 and climb to 2.7 mil- from higher prices and increased
lion barrels per day (mmbd). Increased drilling in

MACROECONOMIC DRIVERS

The recession appears to have had little long-term effect on global oil
1
demand. Consumption is expected to rebound to pre-recession levels, as
Recession Has Little Effect on Oil Demand
early as the end of this year. Going forward, strong demand from non-
(mmbd)
Organisation for Economic Co-operation and Development (OECD) countries
Demand Non−OPEC supply OPEC supply
is expected to push global consumption ever higher. On the other hand,
90
80 non-Organization of the Petroleum Exporting Countries (OPEC) supply will
70 post lacklustre growth over the next few years, setting up a gradual rise in
60
50 price that will be tempered by still-high inventory levels.
40
30 Supply and Demand
2009 2010f 2011f With the global recession giving way to economic recovery, demand for
f = forecast crude is expected to resume a long-term upward trend. The forecast remains
Source: International Energy Agency. relatively unchanged since our last Outlook—the International Energy Agency
(IEA) expects global crude consumption to increase 2.1 per cent to 86.5 mmbd
in 2010.1 (See Chart 1.) If that forecast proves true, then the recession will have
had little effect on the longer-term outlook for oil consumption. At 86.5 mmbd,
global oil demand will already be higher than it was before the recession.
Developing nations continue to be the main source of growth as consumption
in non-OECD nations has already risen 1.6 mmbd through the first half of the
year. Meanwhile, supply has mostly kept pace with rising demand, leaving

1 International Energy Agency, Oil Market Report, July 2010 (Paris: IEA, 20I0), 59.

2  |  Canada’s Oil Extraction Industry—Summer 2010 Find this report and other Conference Board research at www.e-library.ca
 inventories above historical norms. In April, the EIA estimated that crude oil
2 stocks in OECD countries stood at 4.3 billion barrels, about 4.7 per cent above
OECD Stocks Remain High their five-year average for this time of the year. (See Chart 2.) That means that
(barrels, billions) if global oil production stopped, there would still be enough oil stockpiled to
cover global demand for 50 days. Stock levels are a key determinant of the
Monthly average 5−year average
future path of crude prices—and thus, a key determinant of the near-term
4.4
4.3 profitability of the Canadian oil industry.
4.2
4.1
4.0 Next year, the IEA estimates that crude consumption in OECD countries will
3.9
3.8 fall to 45.3 mmbd. This will mean that oil demand in developed countries
3.7 will be nearly 10 per cent below its five-year-ago level. However, non-OECD
Jan. Jan. Jan. Jan. Jan. Jan. Jan. nations will once again pick up the slack, increasing their consumption by
2004 05 06 07 08 09 10
1.5 mmbd and pushing global demand up to 87.8 mmbd. At the current rate
Source: U.S. Energy Information Administration (EIA). of increase, developing nations will account for the majority of global oil
demand by 2014. To accommodate this increase, the world will be forced to
3 rely on more OPEC production. The cartel’s capacity is expected to decrease
OPEC Spare Capacity Versus June Supply somewhat in 2011, as capacity additions from new projects are offset by natural
(spare capacity, mmbd) declines at mature fields, particularly in Iran and Venezuela. Nevertheless,
OPEC still maintains sufficient spare capacity (mostly in Saudi Arabia) to
4.0
balance the market and remains on track to add 1.9 mmbd of net capacity
3.5
by 2015. (See Chart 3.)
3.0
1.0
Oil Prices
0.5
The rise in crude prices through the first quarter reflected a stronger demand
0
outlook. However, concerns over the European Union sovereign debt crisis
Ira r

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resulted in an appreciation of the U.S. dollar, which invariably pushes down

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the price of oil. These concerns proved to be largely temporary as the EU

took several steps to ensure that no country will default on any debt. With the
Source: The International Energy Agency.
threat of a default crisis waning, the U.S. dollar stabilized and oil prices quickly
moved back above US$75 per barrel. Thus, with adequate supply to balance
the market and higher-than-average inventory levels, oil prices should post
little or modest growth through to the end of the year.

The longer-term outlook will be defined by the fundamentals of supply and

demand. At the end of 2009, the global reserves-to-production (R/P) ratio
stood at 45.7 years, up from 42 in the previous year.2 Oil companies continue
to replace every barrel of oil produced with at least one barrel of new reserves.
However, outside of the Middle East, new sources of light and sweet crude
are proving less prevalent, and more costly to extract. As a result, the world
will rely increasingly on heavier brands of crude, such as Canadian oil sands
crude or extra heavy oil from Venezuela. It is also likely that the world will
have to rely heavily on OPEC to balance the market through the end of the
forecast. These factors, along with the fact that global demand should rise
steadily over the forecast, will push prices higher, which is also consistent
with price theory of a non-renewable resource. The Conference Board esti-
mates that crude prices will reach US$117 in 2014. (See Chart 4.)

2 British Petroleum, BP Statistical Review of World Energy June 2010 (London: BP, 2010).

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 INDUSTRY TRENDS

Declining conventional production continues to hamper the outlook for the

4
entire industry. Despite a recent uptick in drilling, production in Western
Prices Back on the Rise
Canada is expected to fall again this year as well productivity falls, and new
(West Texas Intermediate, US$ per barrel)
wells drilled will not offset declining production at existing fields. On the
130
120 other hand, the non-conventional side of the industry continues to shine—
110
100 production this year is expected to climb to 1.5 mmbd. And the potential for
90
80 further expansion is great—more than 2 mmbd of incremental capacity has
70
60 been announced for the forecast period. To take full advantage of rising
50
40 production, further pipeline capacity is required to transport Canadian oil
30
2004 05 06 07 08 09 10f 11f 12f 13f 14f
to net-importing nations.

f = forecast Non-Conventional Production

Sources: U.S. EIA; The Conference Board of Canada.
Crude from the oil sands will be the dominant type of crude produced in
Canada going forward. The resource base is estimated at 170 billion barrels,
5
of which only a fraction has been produced or is under development. The
Oil Sands Output Doubles in 10 Years exact timing of individual projects remains uncertain; however, with oil
(barrels per day, 000s; per cent of total production)
prices remaining elevated and several projects already announced, there
Output (left) Per cent (right) should be no shortage of new capacity coming online over the forecast.
2,500 70
2,000 60 For example, construction of Imperial Oil’s Kearl Mine—which will add
1,500 50 100,000 barrels per day (b/d) to capacity—has already begun. Canadian Natural
1,000 40 Resources Limited could add another 60,000 b/d through its Primrose and
500 30 Wolf Lake facilities. Cenovus Energy has tendered application for expansions
0 20 at the Borealis site, and plans to develop the Christina Lake and Foster Creek
2005 06 07 08 09 10f 11f 12f 13f 14f sites have been announced. Finally, the expansion of the Muskeg River and
f = forecast
development of the Jackpine Mine could add more than 100,000 b/d over the
Sources: Statistics Canada; The Conference Board of Canada. forecast. A fire at Suncor’s operations kept production weak through the first
quarter, but with that problem resolved, there remains enough strength on this
side of the industry to push non-conventional production up 9.9 per cent to
1.5 mmbd in 2010.

According to the Oilsands Review, there are as many as 28 new in-situ projects
that could add to unconventional capacity over the forecast, as new projects
and expansions to existing operations come online.3 Furthermore, two new
surface mines (Jackpine and Kearl) are both already under construction, and
they alone will increase production by 210,000 b/d. Because oil prices are
projected to remain high over the forecast, it is reasonable to assume that the
majority of these announced projects will indeed move forward to the producing
stage before the end of our forecast, pushing total non-conventional production
in Canada to 2.1 mmbd by 2014. (See Chart 5.)

3 Oilsands Review, “Project Status,” 5, 9 (September 2010).

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 Conventional Production
6 The recession was particularly difficult for conventional producers. This side
Total Crude Production and Wells Completed, of the industry already faced a long and steady declining production profile—
Western Canada then the recession struck and production fell by 11.7 per cent. As well, drilling
(wells completed, 000s; conventional production,
fell to near-record lows and put future production at risk. (See Chart 6.) Only
barrels per day, 000s)
a more favourable outlook for offshore production will save the conventional
Wells completed (left) industry from another big decline this year.
Conventional production (right)
10 1,000 The Petroleum Services Association of Canada (PSAC) concludes that oil
8 800 prices have reached sufficient levels to provide a reasonable rate of return on
6 600 investment, and that oil well completions will increase significantly in 2010.4
4 400 But, according to the Energy Resources Conservation Board (ECRB), produc-
2 200 tion from existing wells will drop by 15.5 per cent per year in Alberta, more
0 0 than enough to offset the uptick in drilling.5 Moreover, having already exploited
1990 92 94 96 98 00 02 04 06 08
the best fields, oil companies must now turn to marginal discoveries, or use
Sources: Canadian Association of Oilwell Contractors; enhanced recovery techniques. Still, the rate of decline for Western Canadian
Statistics Canada.
production will slow to 2.4 per cent this year, because of the more favourable
economics.

Offshore production increased through the first six months of the year. The
Hibernia and Terra Nova fields have bounced back from poor performances
in 2009, and the North Amethyst field is up and running. Even though we
expect production to fall at all three main fields through the rest of the year,
gains to date have been sufficiently strong so that the offshore production
will finish this year 3.3 per cent higher than last year.

Conventional oil production is expected to fall through the remaining years

of the forecast. However, several factors will help to slow the rate of decline
relative to the recent past. The Alberta government has made changes to its
royalty plan that are positive for the conventional operators in the province,
and we expect drilling to trend higher over the next few years as a result. There
are also three additional offshore fields that could add to production. Currently,
only the South White Rose Extension field is included in our forecast, adding
a little more than 15 million barrels between 2012 and 2014. However, earlier
this year, the provincial government worked out a 10 per cent equity stake in
the Hibernia South expansion, and this could lead to increased production as
early as 2012 if the remaining regulatory hurdles are cleared.

The Bakken field may also add to production in a meaningful way near the
end of the forecast. Land acquisition has picked up appreciably in Saskatchewan,
with the price per acre in the last auction generating a higher price than pre-
recession levels. A good portion of this interest has been concentrated in the
Bakken Formation, an indication that production from that region may rise
significantly in the near to medium term. Unfortunately, even with these positive
developments, conventional production will still drop to 700,000 b/d by 2014.

4 Petroleum Services Association of Canada, “PSAC’s 2010 Drilling Forecast Remains

at 11,250 Wells.” News release. (Calgary: PSAC, August 3, 2010).
www.psac.ca/media-centre/media-releases (accessed August 18, 2010).

5 Energy Resources and Conservation Board, Supply and Demand Outlook 2010–2019
(Calgary: ERCB, 2010).

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 Trade
7 The Canadian oil industry plays an important role in the energy security of
Canada’s Share of U.S. Market on the Rise North America. It is the single largest supplier of imported oil to the United
(source of U.S. oil imports, per cent) States. Even during a year of depressed demand in 2009, Canada accounted
Canada OPEC for 21 per cent of the estimated 11.7 mmbd the U.S. imported, a share that
70 has been steadily climbing for years. (See Chart 7.)
60
50
40
Despite the expressed desire by U.S. politicians to develop U.S. sources of
30 energy supply, the U.S. will continue to import significant amounts of oil for
20 many years. The recent oil spill in the Gulf of Mexico may result in the U.S.
10
curtailing further offshore production over the next few years. If Canadian
0
companies hope to take advantage of this situation and boost their share of the
1980 82 84 86 88 90 92 94 96 98 00 02 04 06 08
U.S. market, more pipeline capacity is needed. Eyeing this potential advantage,
Source: U.S. Energy Information Administration.
several companies have stepped up to serve this need. TransCanada’s Keystone
Pipeline recently boosted capacity to 590,000 b/d, and continues with plans to
expand to 1.1 mmbd before the end of this forecast. Enbridge has plans to reach
Texas with 445,000 b/d of capacity by 2014, and Kinder Morgan’s TMX2
loop will increase capacity by 100,000 b/d. The expansion of Saskatchewan’s
system will yield 125,000 b/d of capacity and eventually connect with the North
Dakota transportation system. Several other projects are proposed over the
forecast, and should provide ample capacity for increased production. Exports
will expand just 2 per cent this year, as industrial activity in the U.S. will be
slow to recover. But, starting next year, the U.S. should be capable of accomo-
dating as much crude as Canadian companies can ship. As such, exports will
expand 5.2 per cent anually on average between 2011 and 2014.

FINANCIAL PERFORMANCE

The industry’s financial situation is expected to return to normal over the

next few quarters, as profit margins recover and return to historical norms.
Rising prices will combine with higher production to push revenues above
$150 billion by 2014. Unfortunately, the cost structure of the economy is
also expected to settle back into its familiar pattern of double-digit annual
increases. Costs will grow particularly strong in Alberta, where labour and
material shortages caused significant inflation pre-recession. Nevertheless,
profits will rise to $21 billion in 2014, slightly higher than they were in 2008.

Revenues
The financial outlook for the industry has improved significantly over the
past six months. Spurred on by strong price gains, revenues are up almost
30 per cent from their trough in the third quarter of last year. Further increases
this year will depend mostly on rising production, as prices are not projected
to rise much more through the end of 2010. Even without much in the way of
gains expected over the second half of the year, revenues will still rise 22 per
cent by the end of 2010. However, at $84.5 billion, revenues will still be well
below their peak of 2008.

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 Revenues will increase steadily in the coming years, as the industry benefits
8 from increased production and higher prices. However, the changing production
Revenues to Eclipse Previous Highs by 2012 mix in Canada will hamper revenue growth. Heavier brands of crude sell at a
(revenues, billions; price, US$) discount to the often-quoted WTI price. And because non-conventional crude
will prove to be the greatest source of growth over the forecast, Canadian
Price (left) Revenues (right)
production is expected to trend toward heavier oil. This effectively results
160 140 in a lower average price paid to producers.
140 120
120 100
100 80 Two factors will help assuage this situation over time. First, the oil industry is
80 60 expected to undertake significant investment in upgrading capacity over the
60 40 next 10 years. Synthetic crude oil is suitable feedstock for current refinery
40 20
specifications and garners a higher price than bitumen. Moreover, refineries
2005 06 07 08 09 10f 11f 12f 13f 14f
all over North America, understanding that global production is trending heavy,
f = forecast are retooling to allow for the use of heavier crudes. This will eventually narrow
Sources: Statistics Canada; The Conference Board of
Canada. the spread between the Canadian bitumen and lighter, sweeter varieties of oil.

Surging bitumen production will more than outweigh the weak outlook for
conventional oil—total crude production will climb to 3.2 mmbd by the end of
the forecast. This will combine with strong price increases and push revenues
to 16 per cent annual growth between 2011 and 2014. (See Chart 8.)

Costs
Last year, total costs in the oil industry dropped 20 per cent to $67.5 billion.
Driven by weaker drilling and production activity, material costs were the main
contributor to the decline as they dropped by 31 per cent, and they account for
the majority of total costs. Weaker prices that led to lower royalty payments
also played a factor. Costs would have fallen even more quickly had the oil
companies not held on to their workforce through the recession, unlike the
majority of Canadian industries.

Costs will bounce back this year. With so many projects on the horizon, oil
companies will add 3,400 more jobs to their payrolls. And, even though wage
growth will slow, it will remain above the national average at 3.9 per cent.
Combined, this will drive labour costs up 10.3 per cent this year.

Oil-related investment is usually a costly endeavour, particularly non-

conventional-related investment where an in situ project or new mine routinely
costs billions of dollars. This alone will drive capital costs higher, but higher
interest rates will also play a factor. As central banks unwind the stimulus
they provided last year to boost the global economy out of recession, higher
interest rates are expected to provide a defence against rampant inflation.
Capital costs will expand 13.1 per cent this year, and then by an average of
17 per cent per year, reaching $27 billion by 2014.

Material costs are most closely linked to the immediate activity in the industry.
As activity is predicted to increase drastically over the forecast, so too will
material costs. The quantity of material inputs used will rise as production
picks back up. Moreover, the price of these inputs will also rise—indeed, it

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 was the rising costs of projects as much as the drop in prices that forced so
9 many companies to delay investment last year. Material costs will average
Job Creation, Wage Growth Drive Up Labour Costs 15.2 per cent growth over the forecast, topping $81 billion in 2014.
(wage growth, percentage change; new jobs, 000s;
labour costs, $ billions) The labour shortage in the Western provinces will not resolve itself any time
Wage growth (left) Net jobs (right) soon. Firms must expect to compete for skilled workers, which will drive wage
Labour costs (left) growth up 4.5 per cent per year between 2011 and 2014. Furthermore, the
industry’s labour force will balloon over the forecast as nearly 15,000 jobs are
25 10
20 8 created. This will drive labour costs to $23 billion by the end of the forecast.
15 6 (See Chart 9.) Total costs will therefore expand incredibly quickly, virtually
10 4 doubling over the forecast to reach $131 billion in 2014.
5 2
0 0
Profits
2005 06 07 08 09 10f 11f 12f 13f 14f
The large drop in prices translated directly to the industry’s bottom line last
f = forecast year. Pre-tax profits fell to $1.7 billion last year, a drop of 90 per cent! But
Sources: Statistics Canada; The Conference Board of Canada.
the industry’s profitability will return to normal in a hurry, and oil companies
can breathe easier going forward. Production gains, accentuated by a dramatic
10
rise in prices, will push the industry’s profits up to $8.4 billion this year. (See
Margins Rebound as Profits Return to Normal Chart 10.)
(profits, $ billions; margin, per cent)

Profits (left) Margin (right) The industry’s profitability will not surpass the record levels of 2008 until the
30 20 end of the forecast. However, the interim years will be marked by significant
25 15 gains in profits, as revenues, spurred by greater production and higher prices,
20 10
15 5 outweigh soaring costs to push profits to $21.3 billion in 2014. And while
10 0 profit margins bounced around through the recession, over the forecast they
5 −5 will converge to their long-term average, eventually settling at 13.9 per cent
0 −10
−5 −15 in 2014.
1997 99 01 03 05 07 09 11f 13f

f = forecast
Sources: Statistics Canada; The Conference Board of Canada.

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 AT A GLANCE

Top Companies, 2009 Stock Price Index Average Annual Output Growth

Revenues (Jan. 2000 = 100) (percentage change)

($ millions) Oil S&P/TSX Composite Index
Oil industry
Petro-Canada 27,585
800
Suncor Energy 25,036 Goods-producing industries
600
Imperial Oil 21,292 Canada
400
Husky Energy 15,074 5.0
200 4.5
Canadian Natural 4.0
0 3.5
Resources 10,142 3.0

01
02
03
04
05
06
07
08
09
10
2000
Talisman Energy 6,373 2.5
2.0
Nexen 5,587 1.5
Sources: Yahoo! Finance; The Conference 1.0
Canadian Oil Sands Trust 2,551 Board of Canada. 0.5
0
Penn West Energy Trust 2,154
1999−03 2004−08 2009−14f
Provident Energy Trust 1,711
Pricing Power f = forecast
Source: Financial Post 500. Sources: Statistics Canada; The Conference
(price index, 2002 = 100) Board of Canada.

Oil CPI
Oil Production Breakdown 350
300 Large Users, 2006
(millions of cubic metres) 250
200
150 Industry Per cent
Bitumen 100
50 Petroleum and
Light offshore crude oil 0 coal products 50.8
11f
13f
1997
99
01
03
05
07
09

Synthetic crude oil Exports 44.6

Light and medium conventional crude oil Oil and gas extraction 4.1
f = forecast
Heavy conventional crude oil Sources: Statistics Canada; The Conference Sources: Statistics Canada; The Conference
Board of Canada. Board of Canada.
200
180
160 Capital Intensity, 2009 Labour Intensity, 2009
140
(2002 $ 000s, capital stock per employee) (workers per $1 million of real output)
120
100
80 Oil industry Oil industry
60
Goods−producing Goods−producing
40
industries industries
20
0 All industries All industries
02 04 06 08 10f 12f 14f
0 500 1,000 1,500 2,000 0 2 4 6 8 10 12 14 16
f = forecast
Sources: Statistics Canada; The Conference Sources: Statistics Canada; The Conference Sources: Statistics Canada; The Conference
Board of Canada. Board of Canada. Board of Canada.

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 USER GUIDE

Risk Index Cyclicality

This risk index is a leading indicator cre- The cyclicality indicator is calculated by
ated by The Conference Board of Canada. The Conference Board of Canada as the
It provides an early indication of turning correlation between GDP growth in the
points in the industry’s performance. industry and the economy as a whole.
In the case of the oil extraction industry, The number is bound between −1 and 1.
components of the index include the A value close to one indicates that move-
industry’s stock price index, the average ments in the industry’s output are strongly
weekly hours worked by the industry’s correlated with movements in the national
employees, the price per barrel for economy and are thus cyclical. A value
West Texas Intermediate oil, the C$/US$ close to zero indicates no relationship
exchange rate, and total Canadian pro- between the national economy and the
duction of crude oil. The reported number industry, while a negative value implies
is the six-month moving average of the that growth in the industry is inversely
month-to-month growth in the index. related to the economy’s performance.
Thus, the higher (lower) the number is,
the stronger (weaker) the industry’s profit
prospects are. The chart provides the
current growth rate and what it was
three months ago and six months ago,
to give the reader an idea of how the
industry’s risks are changing over time.

Key Indicators
Real GDP Revenues
Real gross domestic product (GDP) is a standard measure of industry Revenues are the total receipts that an industry accumulates. They are
output and is equal to the total value that an industry creates. As such, a product of pricing and of production (which is equivalent to sales in
it is a measure of the industry’s contribution to economic growth. It is 2002 dollars). The data are reported by Statistics Canada as part of
stated in millions of 2002 dollars and is reported by Statistics Canada. its Quarterly Financial Statistics for Enterprises and stated in millions
of dollars.
Employment
Employment is the total number of full-time and part-time employees Costs
in a given industry. As part of its Labour Force Survey, Statistics Canada Costs are the sum of labour, material, and capital costs for each industry,
reports employment data monthly, in thousands. where capital costs include both interest expense and depreciation expense.
The data are reported by Statistics Canada as part of its Quarterly Financial
Price Index Statistics for Enterprises and stated in millions of dollars.
This indicator is a composite measure of the output prices for all
the industry’s products. In the case of the oil extraction industry, an Profits
output price index was created as a weighted average of the Canadian Profits are equal to revenues less costs and are stated before taxes or
par at Edmonton, Canadian heavy at Hardisty, and North Sea Brent at extraordinary items. The data are reported by Statistics Canada as part
Montréal, where the weights are determined by production of the dif- of its Quarterly Financial Statistics for Enterprises and stated in millions
ferent types of oil. All price indexes are standardized in the form of an of dollars.
index where 2002 = 100.
Profit Margin
The profit margin is the ratio of profits to revenues.

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 USER GUIDE (cont’d)

Top Companies Stock Price Index

This table lists the largest companies in The stock price index is created by
the industry, sorted by revenues. Both The Conference Board of Canada and
public and private companies are listed, includes the industry’s largest publicly
and the data are reported in millions of traded companies. In the case of the
dollars. In the case of the oil extraction oil extraction industry, the companies
industry, total worldwide revenues are included are Imperial Oil, Petro-Canada,
listed. These may include revenues from Husky Energy, Suncor Energy, Canadian
sources other than oil extraction. Natural Resources, Talisman Energy,
Nexen, Canadian Oil Sands Trust, Penn
Oil Production Breakdown West Energy Trust, and Provident Energy
This chart displays the breakdown Trust. Companies in the index are weighted
of Canadian oil production by grade. by their market capitalization. The S&P/
It shows how the makeup of Canada’s TSX composite index is also included for
oil extraction industry is changing over comparison purposes. Both stock price
time. The historical data in this chart are indexes are benchmarked so that January
derived from Statistic Canada’s Crude 2000 is equal to 100.
Oil and Natural Gas survey.
Average Annual Output Growth
Capital Intensity This chart compares the average annual
Capital intensity is a measure of how much GDP growth of the industry with that of
capital stock—which takes the form of all goods-producing industries and of all
machinery, equipment, and non-residential Pricing Power industries in Canada. The comparison
structures—there is per employee in the This chart compares the industry’s output price is provided over three different time
industry. High capital intensity can be a index with the Consumer Price Index. It indicates periods: two historical and one forecast.
barrier to entry, limiting competition in whether prices in the industry are rising faster This provides an indication of how the
an industry. Industries with higher capital or more slowly than average overall prices over industry has performed and will perform
intensity also generally have higher levels time. Industries with above-average price appre- relative to the rest of the economy at dif-
of output per employee. For comparison ciation are able to consistently raise prices faster ferent periods in time.
purposes, the chart displays the capital than the rate of broad inflation and generally have
intensity of the oil extraction industry, of pricing power. Industries with weak price appre- Large Users
all goods-producing industries, and of all ciation generally have poor pricing power. Both The large users table lists the major
industries in Canada. price indexes are benchmarked so that 2002 is customers for the industry’s products.
equal to 100. These could include export markets,
specific industries within Canada, or
Labour Intensity consumers. This information is based
Labour intensity is a measure of how much labour on the input–output tables produced
it takes to produce a unit of output. Labour costs annually by Statistics Canada. It is
constitute a higher portion of overall costs for reported in the table as a share of
industries with higher labour intensity. Industries the total value of industry output.
with higher labour intensity that produce tradable
goods or services are also generally more sus-
ceptible to competition from low-wage countries.
For comparison purposes, the chart displays the
labour intensity of the oil extraction industry, of all
goods-producing industries, and of all industries
in Canada.

Find this report and other Conference Board research at www.e-library.ca The Conference Board of Canada  |  11
 The Canadian Industrial Outlook Service includes detailed five- and international factors such as interest rates, exchange rates, and
year forecasts in 16 key Canadian industries. The report examines the tax policy. The Conference Board’s Canadian Outlook Executive
short- and medium-term economic and profitability outlooks for the Summary is presented in a separate publication to set the stage for
following industries: oil extraction, gas extraction, residential con- the Canadian economy.
struction, non-residential construction, food products, paper products,
motor vehicles, motor vehicle parts, aerospace products, air transpor- The Canadian Industrial Outlook is updated twice a year using the
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systems design, computer and electronic products, and wood prod- can be accessed online at www.e-library.ca and, for clients subscribing
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production, revenues, expenditures, profits, gross domestic product, and tion, please contact our information specialist at 613-526-3280 or
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Canada’s Oil Extraction Industry

by Todd A. Crawford

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