Five energy sector trends to watch

by Nicolas Heffernan

If advisors thought last year was a year of change in the energy sector, 2016 promises more of the same.

"We've moved from an era of resource scarcity to abundance," says Barry Munro, EY's Canadian Oil & Gas Leader. "Last year was a difficult and turbulent time as traditional energy business models have been forced to transform. But, in many ways, transformation is really just starting. Every dimension of the sector is changing – from field operations to the c-suite. To survive companies must transform, and do so quickly."

Looking ahead, EY identified five trends to watch in the energy industry:

1. Challenging market conditions
   2015 quickly became a difficult and turbulent time as traditional energy business models have been forced to transform to survive in a new 'resource abundant' world.
2. Cost reduction
   With challenging market conditions, some companies will not survive. For those that do, investor discussions will involve difficult choices around availability, allocation and cost of capital. Operational excellence, integrated operations and shared services are among key success factors to achieve structural cost savings.
3. Increase M&A activity
   In what will be a sharp increase from 2015, 73% of Canadian business leaders have M&A plans in the next year.
4. Evolving domestic policy framework
   A survey of Canadian financial executives shows two-thirds expect a national strategy around carbon pricing in the next one to three years. For the energy business operating in Alberta, this is already a reality given the Alberta government's new climate policy framework.
5. Innovation
   This will occur at every level of an organization. From technology to business processes and capital funding models, companies that develop new viable offerings that create value for their business will be better positioned for future success.

"Canada has world class oil and gas assets that are underdeveloped," said Munro. "Our nation's prosperity depends on our ability to find a way to responsibly develop those reserves. As we learn how to operate in a lower-priced commodity world – there will be opportunities. Those who thrive will embrace new models and structures and let innovation lead the way to that part of the transformation."