From Bloomberg

Amid the worst crude-price environment in its history, the Canadian oil industry is being hamstrung by internal divisions that are making it harder to rally around potential solutions.

That draws a stark contrast to the U.S., where a less divided industry wields more clout. Most notable is the split between Canada’s pure producers, who are being devastated by plummeting local prices, and the large, integrated energy companies that have been mostly unscathed. There’s also a rift between oil-sands producers — a target of climate-change activists around the world — and the frackers and conventional drillers that have been suffering from the pipeline bottlenecks brought on by those environmental opponents.

Reflecting these divisions is the industry’s two main lobbying groups: the Canadian Association of Petroleum Producers, the larger organization, which is dominated by the giant oil-sands producers; and the Explorers & Producers Association of Canada, consisting mainly of smaller firms. That split is hampering the sector’s ability to lobby the government with a consistent message.

“There is definitely a lot of concern around whether it’s really appropriate that one body is representing what has become a very complex industry with varied products and interests,” said Rafi Tahmazian, who helps manage about C$1 billion ($760 million) in investments at Canoe Financial in Calgary.

The Canadian divisions bubbled to a head late last month, when top executives from 15 of the nation’s top oil producers met with Alberta Premier Rachel Notley and, instead of presenting a unified front and a list of demands, they were said to have sparred with each other in front of her. At issue was whether to press her government to mandate industry-wide production cuts that might help clear the province’s glut of oil.

Companies that focus mostly or solely on production, including Cenovus Energy Inc.Canadian Natural Resources Ltd. and Nexen Energy ULC, favor a mandated cut spread among the country’s producers that would bring supply down below pipeline shipping capacity. They argue that could clear the glut within weeks and bring prices back into a more normal range, helping their income statements as well as government coffers.

But companies who have refineries that are benefiting from the cheaper crude prices — such as Suncor Energy Inc.Imperial Oil Ltd. and Husky Energy Inc. — opposed the push, saying the market is working to clear the glut and that companies have to live with the investment decisions they’ve made.

On the Fence

The internal industry split has allowed the government to remain noncomittal on solutions. Notley has yet to take a position on the idea, saying that both sides “raise very good points.” CAPP — which counts both integrated and non-integrated producers among its largest members — hasn’t taken a position on the proposal either.

CAPP lists about 60 members, including the nation’s largest producers like Suncor, Canadian Natural and Imperial. EPAC lists about 150, however many are smaller, often non-public entities.

In the U.S., the American Petroleum Institute dominates the landscape with more than 600 members. While there are a number of other groups like the Independent Petroleum Association of America and the National Stripper Well Association, they are mainly for smaller producers.

Carbon Tax

In Canada, there’s a widening division even within the industry’s biggest organization. The larger oil-sands companies that dominate CAPP supported Notley’s implementation of a carbon tax as a way to improve the industry’s image after years of being portrayed as “dirty oil” and the worst contributor to global climate change. Yet many smaller drillers opposed that policy, and some vented their frustration with CAPP’s support by defecting to the Explorers & Producers Association of Canada.

Whitecap Resources Inc., which produces light oil across western Canada, left CAPP primarily because it didn’t focus enough on the concerns of conventional oil and gas producers, Chief Executive Officer Grant Fagerheim said in an interview. While he generally supports CAPP’s efforts, his “energy and enthusiasm” are more with EPAC, Fagerheim said.

“EPAC will do a better job for conventional oil and gas producers than CAPP will do in supporting our plight going forward because we have a true voice that’s allowed in there,” Fagerheim said. He also said he wished the two groups worked more closely together.

‘Part of Life’

CAPP President Tim McMillan said that some dissent within his organization’s ranks is just “part of life” and noted that the group represents a wide spectrum of companies. He also said that the group’s members largely agree on the big-picture solutions to the industry’s problems, such as building more pipelines and getting access to markets in Asia.

“Longer-term, everyone is looking at the challenges relatively similarly,” he said in an interview.

EPAC President Tristan Goodman echoed the sentiment that producers in both groups agree on the main issues, while differing on some of the narrower topics. On the most pressing matter, the idea of government-mandated production cuts, his organization doesn’t have a formal position but is looking at the issue and that he could understand if the government felt it needed to do that.

“I don’t hold out a lot of hope that there is going to be a comprehensive, united approach from the industry,” Goodman said in the interview.

Still, in a country famous for its polite manners, there are hopes that the industry can band together better to relieve itself of its short-term plight.

“When people’s paychecks are on the line and the stock-options packages aren’t working and everyone is starting to feel the pain, then they’ll mobilize,” said Tim Gramatovich, chief investment officer with Peritus Asset Management. “They’ll come together.”

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