South America: The saviour for some Calgary oil and gas firms
Exploration and production companies turn to South America as a way to survive
When oil prices started to tank in 2014, a local seismic data processing firm picked up its first contract in Colombia — and Divestco Inc. hasn't looked back.
More than two-thirds of the company's revenue now comes from South America. Along with those rewards, there are risks.
Divestco's CEO says, for him, the move may have saved the company from financial ruin.
"We were in survival mode," said Steve Popadynetz.
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Popadynetz says many service companies in Calgary are just a fraction of what they used to be since the downturn — but thanks to the work his company is doing in Colombia, he's been able to hang onto his 110 employees, he says.
"It's not so much that we're hiring people; it's that we're not laying off people."
"So you can you lay off 75 per cent of your staff, or you can find other work for them," he said.
He's seen a dramatic shift in where the company makes most of its money.
"In 2014, 70 per cent of the revenue would have been probably coming from domestic. Today, probably 10 per cent is domestic and 70 per cent is Colombian."
It's a remarkable shift. And Divestco Inc. is not alone.
"I personally know of probably half a dozen companies on the exploration and production side that are actively looking for new ventures [in South America] that haven't had international ventures before," said Curtis Evert, vice-president of the Canadian Global Exploration Forum.
Evert co-founded the organization a decade ago to help companies expand abroad.
The pace has picked up in the past few years, he says.
"There's no question that, over the last two to three years, service companies in Alberta have expanded their search internationally," said Evert.
He says the region is a great fit for some companies.
Evert says the geology throughout South America is quite similar to what Alberta explorers and producers are familiar with. He says Alberta has the expertise to help extract resources from mature oil fields — and he says some of that technology was developed here. He says similar time zones also help.
International price for oil
The biggest benefit perhaps is that producers can get an international price for their oil instead of the discounted Western Canadian Select.
"The internal rate of return that you can gain in some of these international ventures is higher than what we can do in Western Canada. So in order for a company to survive and to thrive, they should have a diversified portfolio," said Evert.
"Alberta has about 60,000 engineers, 4,000 geologists, 1,300 geophysicists all very well trained. We have the intellectual capital to go into these countries and do good, and to make money in these mature fields," he said.
Curtis Evert says companies considering doing business in Central and South America must do their research and due diligence. They need to realize that it will take time before any deals are signed, he said.
"This doesn't happen overnight," said Evert. He says negotiations can take months or even a year.
And companies must understand the risks brought on by political factors.
"You have to know what the political risk is. You have to know what a geological risk is. And those are the two big things to understand first," he said.
"When you decide to invest, look at the two-, three-, four-year time span in order to make this investment. If you go in with the idea that you're going to come out ahead within six months, you're probably not going to be successful."
Current opportunities exist in a number of Central and South American countries, including Uruguay, Paraguay, Ecuador, Colombia, Brazil, Argentina and Peru.
Brazil now allows private companies to help extract resources from existing fields, and the country been welcoming international firms.
Brazil's oil production hit an all-time high in 2017 at 2.7 million barrels a day — up almost 50 per cent in a decade, according to the International Association of Oil and Gas Producers.
The group says Brazil overtook Venezuela as the region's top producer in 2016.
Beyond exploration and production, the president of the Canadian Global Exploration Forum says there are more opportunities for service companies as well.
"I think it would be a value to a lot of these companies to get a little bit more for their product and pay a little bit less for the services — or even to bring Canadian services down there to keep the service companies from Alberta here healthy to be able to work in other countries," said Terry Strang.
No corruption, no graft
Popadynetz says the language barrier was probably the biggest challenge, which was overcome by hiring interpreters.
He says Colombians have been straightforward to deal with.
"They have a lot of anti-corruption laws in place, and most of the oil companies govern themselves much like a large oil and gas company would. So it's not subject to any kind of graft, or any kind of extra payment systems or any thing like that. It's all above board," he said.
"As a result of that, you're dealing with professionals who are just evaluating your products and your services based upon the quality of the output and the quality of what you can provide them," he said.
Upcoming trade mission
Provincial and federal officials are putting the finishing touches on a trade mission to Colombia and Ecuador next month.
A spokesperson with Alberta Economic Development and Trade says officials from Global Affairs Canada and Export Development Canada will join the mission, which will focus on showcasing Canada's mature fields technology and expertise.
It's described as a department-led mission without elected officials. Part of the discussions will include an overview of how the provincial and federal governments can support Canadian companies.
Meetings will also be held with Colombian business leaders.
Steve Popadynetz says it was key for his company to meet with Colombian officials face to face.
"They don't award contracts over the phone. They don't award contracts over Skype," he said.
"They need to see the whites of your eyes, and they need to meet you in person and understand what you're about. They're very much a relationship-based society," he said.
"You win the bid and you win the contract, but you need to have the right people in place to provide that comfort and service level to your clients in these jurisdictions to make sure they're happy with these products," said Popadynetz.
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Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at email@example.com or on Twitter at @CBCBryan.