Jim Stott
Special Correspondent-Calgary
A new crop of start-up companies is bringing fresh ideas to the Canadian oil and gas sector, says the chairman of the Small Explorers &d Producers Association of Canada (SEPAC).
David Wolf, president of Stone Petroleums Ltd., notes that new oil and gas companies are being formed at a record pace in Canada. Many of the new firms, he says, are being organized as private companies by teams of managers who previously worked for larger firms that were targets of merger and acquisition activity. He says they are well-funded and connected to the market and are going to make a big splash collectively when they gather momentum.
Wolf says the companies will pursue Canadian exploration and development ideas, emerge as industry leaders, and create a lot of excitement for investors over the next few years. He notes that US firms were involved in extensive merger and acquisition activity in Canada and, because of their worldwide operations, Canada was sometimes put on the back burner. Now, he says, people locally are pursuing these opportunities.
"I think they will drive the business forward and create a competitive market in which we will see things happen," Wolf said.
Bringing new ideas to the business from a different standpoint is nothing new for Wolf, who has a background different from most industry executives, who often come from engineering or geology disciplines. Prior to joining the family oil business in 1979, he taught geography and social studies for 3 years at the junior high and high school levels.
"The company has been active since 1931, and I've spent my whole life around the oil and gas business," he noted.
SEPAC's mission
SEPAC represents 400 smaller companies in the Canadian oil and gas industry population of about 2,500 companies. Wolf said small companies did not have a voice until the association was formed in 1986.
"Historically, we did not have representation to speak up and say we are here, the elephants are moving, and don't step on us. We now have people who can identify our problems and go after them so that we can be heard," he said.
"Now we have an aggregate voice for small producers and we can be heard by regulators and governments. The role of the association is to make sure the little guys don't get stepped on. We think we are important and significant, but we don't pretend to be the major drivers of the industry. We can point to companies that were our members and went on to become billion-dollar entities. We find that both the public and government generally have a positive view of smaller companies and little desire to stomp on them."
Wolf ticked off his list of current issues of top concern: land access for operators, federal taxation levels, and increasing costs of regulatory compliance. He contends the land access issue is probably the biggest single ongoing challenge and that it is being exacerbated because high commodity prices are intensifying industry activity.
Wolf says each access issue is very individual to particular companies and to the regions in which they are operating. While there remains a lot of frustration over the issue, the industry is especially focused on trying to resolve problems with land access, he noted. He cited the Alberta Energy and Utilities Board's initiatives on land access, and said the industry is supportive of these actions.
Ottawa foot-dragging
However, Wolf says companies are disappointed with the slow pace of changes by Ottawa on federal taxation to harmonize tax levels for the resource sector with other industries.
Petroleum and mining companies in Canada are taxed at a rate of 28%, while other industries are taxed at 21%. Ottawa says the oil and gas sector already enjoys other tax benefits. The federal government introduced a budget earlier this year in which it said the lower tax rate for resource companies would be phased in over 5 years. SEPAC has had good access and has been given a fair hearing by the federal tax department in ongoing discussions, Wolf pointed out.
"The industry and SEPAC has lobbied hard, and it has been one of our major efforts to see this come about. We are moving in the right direction, but the 5-year transition period has muted industry's enthusiasm," he said. "We will get there, but it takes 5 years, and that is very disappointing."
Wolf says the series of blows in recent years to investor confidence involving energy and "dot-com" companies has resulted in an increased regulatory burden for the industry.
The SEPAC chair says there are complaints from small producers that the regulatory burden has increased dramatically, to the point where it discourages the formation of new small producers.
"A lot of the companies forming now are going the private route in the early stages as a way to reduce the regulatory burden," Wolf said. "The cost of compliance is a pain that is passed on to entry-level companies."
David L. Wolf serves as chairman and director of the Small Explorers & Producers Association of Canada (SEPAC). He also is president of Calgary-based Stone Petroleums Ltd., a privately held, family-owned resources company. Wolf also is a member of the board and secretary-treasurer of Alberta Oil & Gas Orphan Abandonment & Reclamation Association (formerly the Orphan Well Committee).
Previous positions
Wolf had previous stints in leadership positions at SEPAC. He served once before as the association's chairman, during 1991-93, and twice before as its secretary-treasurer, during 1986-91 and 1995-2002. In addition, he was chairman of the Orphan Facilities, Pipelines, and Reclamation Subcommittee of the former Orphan Well Committee.
Education
Wolf has a bachelor's in education from the University of Calgary.