Infrastructure Quarterly

Issue Q3 2017

Russell Ketter

Russell Ketter

Senior Vice President
Western Region,
Wells Fargo Equipment Finance Canada

Western Canada Outlook

Although oil prices are currently below $50 per barrel, positive trends continue in the energy industry. Most notably, the Canadian Association of Oilwell Drilling Contractors increased their drilling forecast in 2017 by 2,177 wells drilled1. According to Statistics Canada, the investment in nonresidential structures has been growing in 2017 and is anticipated to jump by 5.3% by the end of the year2. In addition, the Conference Board of Canada?s leading indicator of industry profitability in the oil and gas extraction increased 3% in June as compared to the same time last year. Moreover, in June, natural gas Henry Hub prices were 13.7% above last year and according to the Energy Information Administration (EIA), Henry Hub gas price is expected to rise from an average of $3.1MMBtu in 2017 to $3.4MMBtu in 20183.

However, the service rates and prices of energy companies and more specifically, energy service companies in Western Canada are not yet back to pre-recession levels. Such companies are telling us that this is causing margin compression, which is leading to the continued ?transformation? of these businesses.

Additionally, while in the first quarter of 2017 there was the first year-over-year increase in capital expenditures for the oil and gas extraction industries since the end of 2014, these companies are telling us that the recent rise in the Canadian dollar might force them to be more selective in their short-term capital expenditure plans.

Finally, innovation is becoming a more significant key to success and energy service companies must be prepared for the ?phone call? that requires them to ramp up their work program. We have heard from our customers that one of the main reasons that they will struggle to address an increase in work is their current low levels of staffing and equipment to execute on their work program. To solve this challenge, we have been told that some companies have already begun to review their early retirement incentives in an effort to retain their older workers and in effect ?delaying? the issue.

Energy service companies could navigate thru these ?minefield? of issues if they continue to transform their companies and adapt to the new reality of $50 per barrel oil prices to thrive in the near future. Wells Fargo Equipment Finance can structure multiple financing solutions that fit this ever-changing energy environment. Our equipment financing team members want to make financing equipment as simple as possible. We understand the industry, and can provide guidance on how best to structure your equipment financing needs.

As senior vice president of sales, Russell Ketter has led an asset-based sales team in Western Canada for more than 17 years. He has been successful in driving year-over-year growth in new business volume and profitability within the region. Russell?s practical approach and smart business philosophy have given him the ability to lead business growth by simultaneously focusing on his customers and team.