July 2013
Oil and Gas
Market-entry strategy
Playing by the local rules
State-owned enterprise success in Canada’s oil and gas industry
Canada’s oil and gas industry was anything but quiet in 2012. Transaction activity over
the last year alone has highlighted Canada’s reputation on the world stage and the strong
interest of Asian investors.
China National Offshore Oil Corporation Limited’s $15.1b takeover of Nexen Inc. and
Petronas’s $5.8b acquisition of Progress Energy Resources received considerable
attention from regulators, policymakers, media and the public, particularly given the
operator-controlled nature of these transactions. The debate about what qualifies as
“net benefit to Canada” took center stage across the country and is set to continue as
more foreign entities continue to try and succeed at setting up shop in an open market
with 180 billion barrels of reserves.
Though getting the green light to transact in Canada may seem like the biggest barrier
to both state-owned enterprises (SOEs) and private investors, it’s what comes after
the papers are signed that determines their success.
Whether a company is entering Canada in a complete-control capacity or pursuing
non-operating transactions or joint ventures, success in the Canadian oil and gas
market takes a lot more than just regulatory compliance, safety, production, projects
and profitability.
Smooth entry by SOEs into the country demands a broader approach. By developing
a market-entry strategy, foreign entities can better demonstrate that their interests are
aligned with the interests of the Canadian industry, the economy and society as a whole.
Most important is their ability to define and communicate their wider non-monetary
and monetary objectives.
Market-entry strategy framework
Six building blocks of an effective market-entry strategy
Success in Canada’s oil and gas industry relies on having a thorough knowledge
and understanding of the following six factors. Adopting a strategy that
considers and focuses on each of these factors is the key to making the most
of opportunities.
|1. Canadian workforce
development
Canada’s attractiveness to foreign
investors hinges on a number of
factors. Access to world-class
expertise is one of the most
important. Tapping into the Canadian
workforce and working with local
organizations to develop this
talent pool can create immense
opportunities for foreign companies.
Collaboration can also lead to new
environmental and technological
advancements.
|2. Government and IOC
relationships
Regulations are tight and well
controlled in Canada. For SOEs to
gain traction and smooth approvals
of capital projects, including
regulatory approvals, they need
strong relationships, mutual
understanding and trust — many
of which are not built overnight.
SOEs need to have specific
experts who focus on stakeholder
relationships and support. There’s
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also an opportunity for foreign
SOEs to collaborate with other
international oil companies (IOCs)
and governments on environmental
partnerships through Canada's Oil
Sands Innovation Alliance, Oil Sands
Leadership Initiative and Oil Sands
Tailings Consortium, among others.
SOEs cannot sit at the sidelines —
they need to play an active and
contributing role.
|3. Strategic business
objectives
Transparency is critical to success
for SOEs. It’s also key to helping the
public and government understand
their energy and non-energy strategy.
The challenge SOEs face is the
potential public perception that their
intentions are not positive for Canada.
To mitigate these hurdles, SOEs must
be able to clearly explain why they’ve
come here, their purpose and their
strategic business objectives.
Playing by the local rules
|4. Community and social
responsibility
Advancements and project proposals
in Canada’s oil and gas industry have
been met with strong opposition
from environmental and First Nations
groups. Maintaining a social license to
operate has quickly climbed the list of
risks facing the industry.
Companies must focus on
demonstrating their ability to meet
the highest environmental, safety
and sustainable business practices
to gain the necessary approval for
new infrastructure. It’s important
to remember that standards and
regulations differ from country to
country. Meeting and exceeding
the standards in the country in
which you are operating is crucial.
In Canada, that increasingly
means environmental and soclal
performance that exceeds minimum
standards.
Foreign entities will also have
to demonstrate that industry
development will be beneficial for all
Canadians, both economically and
socially. Investments in education,
First Nations relations and community
involvement are the new face of
corporate social responsibility.
It’s about giving back in more
ways than just jobs and revenue to
the government.
|5. Effective and transparent
communications
Reputation management is critical.
Building a strong public brand can
greatly influence the success of
any company, particularly foreign
companies with little familiarity to
Canadians. By better communicating
the strategic direction of their
operations and work they’re doing
in the community, SOEs can create
greater transparency, and thereby
strengthen government and
community relations, attract talent
and improve employee retention.
Companies that do not communicate
effectively can risk creating an
atmosphere of mystery and, as
a result, anxiety among multiple
stakeholders.
|6. Canadian supplier use
and development
The final building block to a
successful market-entry strategy
is building a relationship with local
suppliers. SOEs need to find the
careful balance between focusing
solely on the bottom line and
looking for the best supplier, giving
consideration to qualitative factors.
Building local supplier content and
capability may come at a higher
price point than using suppliers in
the SOE’s home country, but that’s
an investment that’s often worth
making in the long run. It’s not just
about running a business, it’s also
about managing public perception
and developing relationships and
trust. Leading SOEs might look
to support and co-develop local
suppliers who may wish to open
offices in Asia and develop a global
operating model, to enable them to
compete at a better price point rather
than always defaulting to the home
country option.
Playing by the local rules
3
Adapt the framework
Understand where you are and where you’re going
SOEs must identify where they fit on the maturity model now and where they
want to be in the future. The goals and, consequently, the strategies of short-,
mid- and long-term investments are not the same. Understanding where your
company fits on the continuum is the first step in planning and executing a
successful market-entry strategy.
1. Canadian workforce
development
2. Government and
IOC relations
3. Strategic business
objectives
4. Community and
social responsibility
5. Effective and
transparent
communications
6. Canadian
supplier use and
development
4
A. Basic (Short term)
B. Developing (Mid term)
Meet legal and fiscal obligations
Maximize public profile
C. Leading (Long term)
Work with government
for public benefits
Meet legislation and comply with
temporary foreign worker rules
and regulations
People capability development
Internationally competitive
workforce in Canada that can be
exported to other SOE locations
Transactional arm's-length
relationship
Joint relationship and
mutual trust
Detailed memorandum of
understanding and preferred
partner relations with local oil
and gas companies
Basic explanation of Canadian
business strategy
Explain full business strategy
in terms of value chain,
growth and investment plan
differentiators
Philanthropy
Self-sufficient sponsorship
Take a lead role addressing
local social issues
Basic communications externally
High-level communications
strategy and plan with
understanding of local
communications channel
Take a lead role in local social
issues and make investments
that have a lasting impact
Minimum use of Canadian
suppliers (remain compliant)
Supplier development including
partnerships with local
suppliers
Play a role in transforming and
shaping supply sector; create
opportunities for Canadian
suppliers in Canada and abroad
Playing by the local rules
Explain both energy and nonenergy business strategy
Ask the right questions
Identify and address gaps and opportunities in your strategy
• What is the
long-term vision
for Canada?
• What does the
end state within
Canada look like
for Canada?
• What does the
SOE want to be
known for?
• What does the
investment strategy
in Canada look like?
• What are the
specific strategic
objectives?
• What are the basics
to get right?
Key questions:
• What is our
project focus?
• What is our
corporate
responsibility
balance?
• Where do we
stand as it relates
to community
investment?
• What impact can
we make on the
community?
Playing by the local rules
Key questions:
Key questions:
• What is our
operating model
for each focus
area?
• What are the
risks and the
actions needed
to mitigate them?
• What is our
communications
strategy and plan?
• What are our
actions and
accountabilities?
Stewardship
• What is the
benefit of being
in Canada
for the SOE and
the country?
Operating model tactics
Key questions:
• How is the SOE
differentiating
in Canada?
Focus and differentiation
Key questions:
Strategy
Vision
Ensuring success in a new country requires identifying existing and potential
gaps, as well as opportunities, in your market-entry strategy. SOEs must
address a number of important questions around their vision, strategy, focus
and differentiation, operating model tactics and stewardship in order to meet
growth and profitability targets, and to create value through their Canadian
investment — measured by both themselves and the various stakeholders.
Answering these questions also helps ensure your company is aligned from top
to bottom in its investment objectives.
• How do we
measure and
monitor our
performance?
• How do we
organize to get
things done?
5
The EY approach to strategy and
operating model development
How we can help
We provide support in implementing an appropriate operating model strategy
that aligns with your business objectives. This involves analyzing your strategy
and specifications for your model assessment, analyzing your current business
model, supporting the design of your target model and helping you with your
Our approach
transition
plan.
1
2
3
Objective: Analyze the
corporate strategy and
determine criteria for
alternative operating
models assessment
Objective: Analyze
current operating model
and determine target
operating model
•
Analyze the corporate strategy
•
Assess current operating model
•
Conduct shareholder interviews
•
•
Design an enterprise-level process
map and define a list of key end-toend business processes
Perform benchmark analysis with
peer group
•
Define key performance indicators
•
Determine the operating model
assessment
•
Conduct strategic alignment
workshop
4
Objective: Design
target operating
model blueprint
Objective: Develop
transition plan
•
Describe target authority
allocation between head office,
branches and subsidiaries
•
List business processes and
functions to be outsourced or shared
Develop flowcharts and process
manuals for the target key end-toend business processes
Draft alternative operating models
•
Compare and evaluate the
alternative operating models
against the adopted criteria
•
Conduct strategic session to
build consensus over the target
operating model
•
Define key competencies within the
target operating model
•
Conduct workshop to build
consensus over the target operating
model blueprint
•
•
•
Define key activities for
the transition
•
Assign responsibility for the key
transition activities
•
Define key stakeholders and
develop communication plan
•
Conduct workshop to build
consensus over transition plan
•
Perform training
•
Conduct monthly status meetings
during six-month period after
project completion
Playing by the local rules
6
Understand cost
Anticipate cost
Manage cost
Set up for success
Build a foundation for long-term success
While state-owned oil and gas companies may boast the strength of immense
capital, international operations, streamlined value chains (including upstream,
midstream pipelines and downstream refining), and technical capabilities
(including deep water offshore, heavy oil and unconventional gas), there’s
always work to be done when entering a new market to achieve success and
a smooth transition. And, stepping into a sophisticated market where other
global companies operate raises the performance bar, ultimately making for
better business performance for the organization as a whole.
By adopting strategies, focus areas, differentiators and implementation
tactics to manage these issues, SOEs can improve brand and reputation in the
Canadian market, enhance opportunities for industry collaboration and better
attract top talent — all key elements for setting themselves up for long-term
sustained success.
Learn more
To find out how our Calgary Oil & Gas team can help
your organization through its journey to growth and high
performance, please visit ey.com/ca/oilandgas or contact
one of the following professionals:
Lance Mortlock
Partner, Advisory Services
[email protected]
+1 403 206 5277
Barry Munro
Canadian Oil & Gas Leader
[email protected]
+1 403 206 5017
EY | Assurance | Tax | Transactions | Advisory
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How EY’s Global Oil & Gas Center can help your business
The oil and gas sector is constantly changing. Increasingly uncertain
energy policies, geopolitical complexities, cost management and climate
change all present significant challenges. EY’s Global Oil & Gas Center
supports a global practice of more than 9,000 oil and gas professionals
with technical experience in providing assurance, tax, transaction and
advisory services across the upstream, midstream, downstream and
oilfield service sub-sectors. The Center works to anticipate market
trends, execute the mobility of our global resources and articulate
points of view on relevant key sector issues. With our deep sector
focus, we can help your organization drive down costs and compete
more effectively.
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