TORONTO, ON — Despite reports that more and more energy companies believe it is critical to integrate financial, social and environmental programs, under the umbrella of corporate social responsibility (CSR), to ensure future growth, a recent survey conducted by PricewaterhouseCoopers (PwC) and JuneWarren-Nickle's Energy Group found just the opposite.

• Only 12% of survey respondents believe the strength of CSR programs is critical to sustain their future growth and 28% feel that it is not important at all, according to Natural selection: evolution of sustainable companies, a 2009 Canadian Energy Survey Q1 Update.
• Attracting and retaining key talent was viewed by 68% survey respondents as critical for sustaining growth; access to capital and credit was picked by 67% of respondents as critical for long-term growth (multiple answers allowed).
• 26% of respondents said scarcity of natural resources will have a significant impact on their businesses in the next three years.

"During the economic downturn, improving financial and operational performance clearly trumps CSR initiatives," says Christine Schuh, Associate Partner and Leader of PwC's Climate Change Services group in Canada. "However, climate change is the single largest issue within the broader topic of sustainability. With increasing demand for water and other natural resources, operations will invariably be affected. It is now more important than ever that energy companies develop strategic and integrated CSR programs, and increase fact-based communication with all stakeholders, including local communities, to achieve sustainable growth."

Corporate social responsibility
While CSR does not have a universal definition, many describe it as the integration of economic, social and environmental policies within business operations. The interests of all stakeholders — including investors, customers, employees and the community — are reflected in a company's values and actions.

The 2009 Canadian Energy Survey Q1 Update looks in more detail at issues affecting companies' ability to sustain their operations in the broadest sense. From harder-to-access natural resources to increasing costs for their development to a growing legion of influencing stakeholders, Canada's oil and gas companies face several significant challenges.

Availability of natural resources
In the PwC survey, 26% of respondents said scarcity of natural resources will have a significant impact on their businesses in the next three years.

• Canadian oil production (including oilsands) was down two per cent to 3.24 million barrels per day in 2008 from 3.32 million barrels a day the prior year, while annual gas output fell 5.1% to 175.2 billion cubic metres from 184.1 billion cubic metres in 2007, according to BP's Statistical Review of World Energy 2009.
• At the same time the International Energy Agency (IEA) predicts crude oil consumption will rise 1.4 million barrels per day in 2010, reversing about half of the demand lost in 2008 (0.3 million barrels a day) and 2009 (2.4 million barrels a day), but still leaving consumption far below the 2007 peak (86.5 million barrels a day).
• On the supply side, the IEA says production from existing fields around the world is falling at seven per cent a year. Producers need to bring on almost six million barrels a day of new capacity each year just to ensure output remains stable.

As conventional petroleum reserves are depleted around the world, new production is coming from smaller fields in difficult geological settings or expensive wells in the deepwater offshore.

"Producers have also turned to the world's unconventional oil and gas resources — including extra heavy bitumen in Canada, tight gas and shale gas — that require increasing technological proficiency," says Stephen Marsters, Editorial Director at JuneWarren-Nickle's Energy Group. "These plays are capital and energy intensive."

Costs to access natural resources
Nearly the majority of survey respondents, 49%, said they believe their operating costs will decrease somewhat over the next year, with eight per cent saying they expect costs to decrease substantially. In addition, 14% of respondents said costs will remain the same over the next 12 months, while 26% believe prices will increase somewhat.

Costs and expenditures associated with accessing oil and gas in Canada's petroleum sector have risen this decade. While the recession has put a temporary brake to that trend, national and global demand for these resources will continue to increase and impact oil and gas operations.

Most respondents (35%) also believe their land acquisition costs will decrease somewhat over the next year, although 27% expect costs to stay the same and 22% said prices will increase somewhat. About 40% of survey respondents believe energy input costs will have a significant impact on their operations within the next three years.

The adoption of new technologies will help mitigate operating costs for conventional and unconventional producers. What is unknown, however, are the long-term costs attached to cutting greenhouse gas emissions or a cap-and-trade system. When asked when producers anticipated deploying new technologies in response to the issue of climate change, 30% did not anticipate making any changes in the next year. Fifty per cent expected to deploy new technologies within the next 24 months.

Role of stakeholders
John Williamson, Partner and Leader of PwC Canada's Energy Group adds, "The industry should be prepared to see changes from the Canadian government on how natural resources are managed going forward. Companies that are able to foresee, understand and adapt to these trends will be better equipped to sustain their operations over the long term."

Most respondents feel shareholders and investors, along with domestic governments and regulators have the most influence on decisions made at their companies.

About 40% of survey respondents said domestic governments/regulators play a very influential role on decisions made in their companies, with 53% characterizing their role as somewhat influential. Close to 30% of respondents also believe regulatory compliance will have a significant impact on their business within the next three years.

Survey results also indicated that stakeholder engagement has not been woven into the fabric of CSR programs at most energy companies. When respondents were asked to select from a list of 15 strategic areas their company will focus on in the next three years, public education and engagement was ranked lowest (asset management and optimization ranked No.1, followed by operational performance).

For more information on the study, visit www.pwc.com/ca/energyvisions.

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