The COVID-19 Crisis’ Impacts on Canada’s Oil and Gas Industry

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How is the COVID-19 Crisis Impacting Canada’s Energy Industry?

In a lot of ways. I think the first thing we’re thinking about is, of course, care for people and care for our employees.

We have separated our company into business-critical folks, our frontlines and our assets, stretching from oil and gas production through to our chemical plants, refinery operators, distribution network and right to our frontline and retail. How do we keep people safe? How do we make sure they can practice social distancing as they do their work? And how can we serve our customers through this?

That leads into the second piece for us, which is business continuity and how to keep those essential services that we provide for Canadians going during this time. We also have to deal with what has been a huge destruction of demand in our business. Shell is an integrated player, and we have a lot of products that we sell, but obviously jet fuel is not in demand and gasoline has dramatically dropped off in demand. We are managing to balance our operations around that new reality, while keeping people safe.

The third piece for us is cash conversion, which is a pretty common one for anybody in the sector. The drop in prices has been dramatic and unprecedented—and how do you cope with that? Retool your capital programs and look at immediate costs. We are a company that takes a long-term view, so we are not jumping to lay off people—that is a last resort for us. We have to look at our supply chains, we have to look at other costs in our business and do everything we can in the near-term to get those under control.

How can they get enough liquidity? How can they get enough credit to ride through this, maintain jobs, and be there for a recovery? That’s the ultimate issue for the upstream part of the business.

For the small upstream players in our sector, it is a terrible situation for them, and liquidity is a key concern. How can they get enough liquidity? How can they get enough credit to ride through this, maintain jobs, and be there for a recovery? That’s the ultimate issue for the upstream part of the business. It is a bit unique to them, because we have the benefit of being an integrated business with other revenue streams.

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How Are the Crisis and Low Oil Price Affecting the Oil Industry’s Different Segments?

The oil players in the shale business are extremely exposed because they do not have the cost structure that can manage it. The oil sands players—of which we used to be a big one, and we are a small part of that venture now—they have a big manufacturing base. They will definitely be suffering as well, but they have the scale and some of the integration on crude and on upgrading that will help them cope. And, as I’ve mentioned, there are small players who are so exposed and are just struggling to survive. It is that whole gamut and at the far end are the integrated players.

What is needed now is more investment and more opportunity to help those smaller companies bridge. I have been in the industry a long time, and it really is an ecosystem that needs small, nimble producers that are on the edge of innovation, and larger scale companies that can bring that technology to bear and who can support and build on those smaller companies’ developments. We need a healthy ecosystem from end to end, and that is something that the current crisis is threatening.

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The Government and Industry’s Response to the Crisis Actions Going Forward

What I see is a huge amount of communication. There is a real deliberate attempt to make sure there are connections happening on a weekly basis with all key levels of government—and that is deeply appreciated by the industry.

You can see groups like the Canadian Association for Petroleum Producers and the Canadian Fuels Association who are trying to play a convening role and are helping government connect with industry in a really efficient way. Obviously, you cannot have 200 companies calling the government and trying to fulfil their own agenda. It is really helpful if there is aligned prioritization and then the associations can engage. That is what Shell has been trying to support with our key linkages.

I am really encouraged by the swift action by both the provincial and the federal governments to deal with the crisis and get some relief out immediately to workers who have been displaced, to families, to a whole variety of sectors in society who have had to cope with these dramatic surges in unemployment.

For our sector, I will come back to liquidity and the need to help with some of that. Yes, the wage subsidies that have been offered across society will be helpful—and there is more help coming for individuals—but for the sector, there are opportunities for the government to help. Like orphan wells, for example. This does not really apply to Shell—because we have kept up with our backlog and have very few wells to manage—but others have hundreds. If you are a small company that has hundreds of wells to look after, combined with the liquidity crunch—that creates an opportune time for the government to step in and give a hand. To say, look, here are some funds, we can manage these liabilities, we can make sure the environment is protected, and we can keep people working.

There is also opportunity to think more long-term as well. How can infrastructure investment support the sector and our long-term goals to continue to reduce emissions? We are very committed to an energy transition at Shell. We are deeply investing in that area—but how can we create the right infrastructure opportunities? For example, electrification or reducing methane emissions—those types of endeavours and innovations are going to help us drive our emissions down and make oil and gas more sustainable.

There is also opportunity to think more long-term as well. How can infrastructure investment support the sector and our long-term goals to continue to reduce emissions?

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Should Government Financial Support Be Used to Transition the Energy Sector Away from Fossil Fuels?

Shell is very focused on our part of the energy and climate change challenge. We have made a huge commitment in terms of reducing our emission profile, but we have also invested billions of dollars in new energies—renewable fuels, renewable power and other technology—to help get us there, all while cutting back on our own emissions. The heightened awareness on climate change for Shell is a good thing. At the same time, the energy transition is a decades-long challenge and we need oil and gas in the near-term—we need it in Canada, and we need it globally. It is important that we keep driving down the carbon footprint of that production as we go along.

The heightened awareness on climate change for Shell is a good thing. At the same time, the energy transition is a decades-long challenge and we need oil and gas in the near-term—we need it in Canada, and we need it globally.

Coming out of this, there is an opportunity to continue to invest in innovation which helps the sector be more responsible—but I think it is already highly responsible, and accountable, around climate change. It has a great track record of reducing emissions, and this is an opportunity, perhaps, to accelerate that. At the same time, for Shell and our portfolio, it is an opportune time to keep investing in clean energy infrastructure—helping to create the right conditions for more investment in biofuels, in renewable power, in hydrogen and in other areas that Shell has taken some dramatic steps into.

But broadly, Canada must play a key role in global climate change—and it could do so by being the lowest carbon footprint in hydrocarbons on the planet. We know we have that for gas already, and on the oil side that is continuing to improve for the big oil sands players.

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What Do the Canadian Economy and World of Business Look Like Post-Crisis?

Thinking about how this might change the business fabric of the country, at the moment it could be overwhelming. But like any crisis, there will be opportunities for innovation, and for players that have a long-term view.

You can see the potential for nationalization of the supply chains, you can see the strength of the public healthcare system in responding to a crisis like this, and you can see the innovation that is happening daily.

On that basis, you can see the potential for nationalization of the supply chains, you can see the strength of the public healthcare system in responding to a crisis like this, and you can see the innovation that is happening daily. I saw this morning that there was a new COVID-19 test that was developed in Canada. We have some fantastic capabilities to develop vaccines and be part of the global response to this challenge.

Within other parts of the economy, the ways of working are certainly being challenged. We found with Shell—thanks to our great IT team—we have been able to work very effectively from home. I do think there is benefit in being face-to-face overall—there is collaboration, it is informal, it creates creativity, and it creates overall value—but I think some companies may be reflecting on: do we need a bricks and mortar structure to do our business? Or can we continue on this mode of connectivity?

I think socially we are all maybe better connected than we might have been. I have caught myself connecting with friends I haven’t talked to in quite a while. It is sort of helpful in that respect—it’s pushing you out to be a bit more outward-looking and to reflect on your relationships. That is a really is a good thing.

What comes out of those relationships for businesses could be really interesting, as we reflect on different ways of being together and engaging each other—and thinking about the innovation that that catalyses. How do we connect business in a different way? How do we work in a different way? We thought we had to have complex meetings and fly around the world to do it—actually, we can figure out how to do it on Skype and Zoom. I think that that is the germ in this. It is probably around collaboration and using it as a way to generate new business opportunities.

Another thing I would reflect on is the notion of continuous learning. Rather than try to predict where we might be, I think it is a bit more about building a different muscle—and that muscle is going to be around continuous learning and adaptation. Actually, we have been fairly slow in Canada to do that. Some sectors have been great, but others have not been as good. The oil and gas sector has been pretty good, but we can accelerate our need to innovate, our need for new business models to lower costs, and our need to manage our business in a way that is more nimble.  

Across Canadian businesses as a whole, there is likely a need to adapt faster, evolve faster, learn faster, and to retrain our workforce more quickly as well, as technology advances and dislocation plays out. To be able to adapt and to have resilience in our economy, we are going to have to move a lot quicker than we have.

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On Building on the Current Unprecedented Levels of Collaboration and National Unity

To see the level of unity, the working together, the non-partisanship, and the focus on care for each other has been remarkable and really encouraging. I think back to what I was saying earlier—this is the best of Canadians: when we are in the situation where we need to help one another we just do.

This is the best of Canadians: when we are in the situation where we need to help one another we just do.

There is this real coming together that builds so much resilience—and people feel that support. They feel it from government, they feel it from friends and family, but it is clear that people are not trying to play games for personal or political gain or corporate gain—this is about us working together to do what we can as companies, as people, as communities, as governments—to do the right thing and get through it.

If we can bottle some of that level of collaboration, then we can move much more quickly to make Canada strong, more sustainable, and more renewable in the future. It is a great opportunity not to fall back into the old ways, if you will, after this is over—to build on the momentum of collaboration and be able to take Canada forward into what is going to be a very challenging next decade in managing the fallout from this crisis.

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How has the Industry Stepped Up to Support in the COVID-19 Fight?

We are seeing a real intent to collaborate—how can we work together?

One example of that is Shell has donated 125,000 litres of isopropyl alcohol, which is a key ingredient for hand sanitizer, to the Canadian government to support its priorities in making sure frontline health workers get the supplies they need. We are delighted to do that, and that comes out of our facility in Southern Ontario near Sarnia.

Many other companies are stepping up as well. In our supply chain, there are other chemical businesses, which make medical supplies, disinfectants, and cleaners and those items have become very important. Because they are connected to value chains that run through refineries to get the feedstock, it creates an interesting challenge to make sure you have enough load in those refineries to make sure those essential products are being produced. There is really strong collaboration and open discussion to make sure that that happens.

The last thing is the investment in community —which has been wonderful to watch.

We are seeing everything from food banks to United Way. Shell has a 3D printer at our refinery, which we’ve repurposed into making shields for frontline medical staff. There have been all kinds of innovations, and people are really stepping up with a Canadian spirit and in a Canadian way to help out each other. 

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On Adjusting to #WFH

For me it has been pretty easy—I am not business critical. We moved really early to get our staff working from home, which we did in March, and took a few other measures to take the risk away from a safety standpoint. But what I am always humbled by is the professionalism of our frontline people that work in our assets. If you are having to go into work—if you are a retail frontline worker, a service station attendee, a maintenance operator or distribution person—these people are doing amazing things to keep each other safe and keep our supply chains going. We try to make sure that we are supporting them. Actually, when you are helping other people, it helps you feel good and work through it.

I am always humbled by is the professionalism of our frontline people that work in our assets

I have a fantastic crisis management team around me with a good structure, and these people are managing a myriad of challenges and doing an amazing job. That is where I draw a lot of strength and inspiration, in the way they are doing their work.

Personally, it has been a pretty easy adaptation. We have an office part of the house, so I can go in there and close the door. I make it like a journey—when I walk into the room its office time. I try to be disciplined and stop working at the end of the day, otherwise I would be on my laptop at all hours. But I try to stop before dinner and change my clothes—it sounds weird, but I wear a dress shirt during the day because it feels more formal. After I stop my work, the casual clothes go on—the jeans, the sweatpants—which helps me to mentally switch off. I then spend some time with my wife.

Our kids are grown up and out of the house, so what is helping us stay connected is social media, Skype and Zoom. Staying in contact, that has been fantastic. I miss them and wish I could give the kids a hug and see them, but it is not the right thing to do right now. We are taking lots of walks in the neighbourhood, trying to get outside and get exercise. I miss going to the gym—like all of us do—but it is time to adapt. I started doing yoga this last weekend. I went on YouTube and figured it out and I’m starting to try it. I am not really good at all the moves, but I am doing some beginner yoga and I find it good. It’s challenging and therapeutic, and its stretching new muscles.

I think that part of what we all need to do is be adaptable. You have to stay connected to people and try to keep up with your exercise. That is really the core of mental health. If you can do those things, it will really help you to get through this. We are doing that, staying connected to our friends and family, and it has really helped a lot.