Better controls, better business: Gary Brennan, CMA, FCMA, has spent the past 12 years helping Syncrude develop and enhance its business management and controls systems. While these innovations help control costs, they also create a more strategic finance function.

The Athabasca oil sands represent a world scale investment prospect for many decades to come, but it has only been in the past 40 years that the extraction of oil from those sands has been commercially viable. During the 1960s, it was Suncor and in the 1970s, Syncrude, that began to exploit the rich possibilities of the oil sands in Alberta. Both companies continue to operate there today, but the landscape has changed in the past 10 years, as investors have taken a keener interest in the opportunities available.

Syncrude continues to focus on enhancing shareholder value by investing in new technology and expanding its operations. At the same time, it has been concentrating on the efficiency of its operations by implementing new business management systems and control systems--systems, like the oil sands themselves, that have only become feasible with the development of new technologies and more sophisticated management techniques. Gary Brennan, CMA, FCMA, has been an important part of this evolution since 1995, helping to make the business more efficient and effective.

Growth opportunities

Syncrude Canada Ltd. was originally incorporated in 1964, and its sole mandate is to operate the Syncrude Project. The Syncrude Joint Venture is controlled today by eight oil companies--Imperial Oil, ConocoPhilips, Murphy Oil, Mocal Energy, Petro-Canada, Canadian Oil Sands, Canadian Oil Sands Partnership and Nexen. The joint venture has allowed each company a stake in this vast resource, without having to carry the cost burdens alone. It wasn't until 1978 that commercial operations actually began.

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A couple of years before this, Gary Brennan first joined the industry, working for Imperial. "In some ways, my working life has gone full circle--I started in Edmonton working for Imperial, and now I'm in Fort McMurray working for Syncrude," he notes. In between, Brennan had worked for Imperial and Exxon for 19 years in Edmonton, Calgary, Toronto and New Jersey.

Brennan first landed at Syncrude on secondment from Imperial.

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"Syncrude had a major early retirement program that came into effect in the mid-'90s," he notes. "One of the people who chose to retire was the controller. At the time, Syncrude and the owners suggested that I step in until someone within the organization was ready to take his place."

It was a four-year loan assignment that came at the right time. His two oldest children were going into university in Calgary and a third was just about to enter high school, so moving to Fort McMurray would be a comparatively easy move for his family.

"It was also a very interesting time to be involved with the oil sands," says Brennan. "Major fundamental changes were occurring. Both Syncrude and Suncor were evaluating very significant multi-phase expansion plans at the time, and considerable interest was also being expressed by new investors."

Up to that point, Suncor and Syncrude were still the only players in the oil sands, with fiscal terms drawn up specifically for them.

"The oil sands offer a tremendous resource potential but had traditionally been seen as a high risk, high cost undertaking," says Brennan. "So, in the mid-1990s, a multi-stakeholder group that included oil sands developers, all levels of government and many other related parties formed a national oil sands task force to sort out how to make investment there commercially viable, and to level the playing field for new entrants. They knew that there would be tremendous economic spinoffs, so they set to work determining the fiscal terms for taxes and royalties."

By 1998, Brennan had become engrossed in his work with Syncrude. He and his wife, Margot, decided that they wanted to stay--not only for the work, but also because they'd grown to appreciate and become a part of their community.

"There was opportunity for growth, and Fort McMurray was a great place to be," he recalls. "Imperial was also supportive of seeing me in the role of controller there as well." And so, Brennan became controller for Syncrude.

Cost crunching

Syncrude, as a company, carries on operations in the oil sands on behalf of its owners. "It's a tremendous cash engine," says Brennan. "We spend between $250-300 million a month to operate and sustain our business. It's been as high as $400-500 million during the expansion that was completed in the last few months.

"Because of this, it's very important to understand and monitor costs--it's the only thing we can control. Ours is a tough business, and there are tremendous cost pressures in areas such as purchased materials, contracted services, and imported energy. You have to ask yourself, what is it that you can control? In our case, we have to have an affordable and predictable cost structure that can withstand volatile oil prices thereby ensuring a reasonable return for our investors."

Prior to the mid-'90s, Syncrude was using more traditional batch systems to collect and report costs. Under Brennan, the company implemented the Syncrude business management system (SBMS), and several other key systems to capture costs at source.

"We started developing this by going through a business process re-engineering exercise, to better understand our key cost drivers," he recalls. "Then, we looked at what IT would help to enhance our financial processes. The overall plan was developed and then gradually implemented."

Through this process, a new organizational blueprint was created. "In the late '90s, we took the finance function here from one that was very transaction-based, to one that put a greater focus on performance and operations analysis," explains Brennan. "Similarly, we restructured the organization to focus on analytical skills and less so on data capture and input skills."

Head count in the finance function went from 165 to about 100, and as Brennan recalls, with it came a dramatic change in skill sets. "We said we really wanted to get out of the data input business, and we did so. By 2001, we'd finished implementing SBMS, and most of our work to enhance our source systems to keep track of daily costs to understand if we're on track or not."

This same business management system, built and implemented to capture cost information, has since been expanded to other business functions, such as production, workforce, and loss management. "For cost reporting, we have the ability to drill down to the team level and monitor daily cost performance so there are no surprises at month end. If we are off track, it provides timely feedback such that corrective measures can be taken."

Sophisticated data capture

In 2003, Brennan took on additional responsibilities as treasurer for the company. "This small team of treasury professionals are primarily focused on property and construction insurance, banking, and managing the pension plan for Syncrude employees," he notes. "We have large defined benefit and defined contribution pension plans. There is more than $1 billion in assets in those plans, and they are managed through rigorous stewardship and a high quality governance process."

Meanwhile, the Syncrude owners continued to invest to significantly expand the Syncrude operation. By 1998, 1 billion barrels of oil had been produced by Syncrude alone since it started operations two decades before. Through a series of staged developments, Syncrude had added 100,000 barrels a day capacity to its current level of 350,000 barrels a day. This growth has required investment in new employees, infrastructure and equipment.

The expansion of the business and the regulatory requirements of Bill 198 in Canada and Sarbanes-Oxley (SOX) in the U.S. caused Syncrude and its owners to revisit its business controls processes. There was clearly a need and opportunity to improve business controls at Syncrude, and Syncrude knew there was someone on hand who could manage the project. In May 2005, Brennan was given the title of business controls project executive and was asked to head the initiative.

Instead of developing a business controls framework from the grass roots up, Syncrude was able to access a system that Imperial Oil and Exxon were using worldwide.

"It was a very mature and well-established business controls framework. In addition, Imperial and Exxon's external auditor had also been through this system and was able to confirm it met all requirements for SOX and auditor attestation requirements. So, we embarked on a project to implement the framework at Syncrude," explains Brennan.

The sustainability challenge

An aggressive 18 month schedule was set to implement the business controls framework across Syncrude. It involved dedicating more than 20 people to the project, including several from Imperial, as well as Nexen and ConocoPhillips.

"The implementation impacts several business processes, including finance, HR, procurement, measurement and maintenance," says Brennan. "We wanted to make sure we did this right. As much as possible, we have implemented the Imperial system as is, and have minimized any changes to it.'"

Brennan notes, "the process started with the development of corporate-wide control standards and expectations to be followed, and then more detailed control catalogues to govern the functioning of several management and business processes. After the implementation of these control processes, site-wide control assessments have recently been conducted and actions are underway to address any control gaps identified. Throughout the project, we have worked closely with our external auditor to ensure their understanding of the business controls framework that is being implemented so that there are no surprises as the audit is being conducted."

Despite all the work accomplished during the 18-month project, Brennan insists this is just the beginning.

"We have a very good foundation now, but the biggest challenge is yet to come," he explains. "It will take a tremendous effort to sustain this, to not let it slip. It's going to take a lot of dedication. Projects often do fine during the implementation phase but lose focus during sustainment. We can't afford that to happen. We're currently implementing the Syncrude action management system (SAMS). This will assign and monitor the completion of control activities that need to be done weekly, monthly, quarterly and annually. It will provide timely feedback that all control activities are being performed as scheduled."

Brennan sees this as a great opportunity to enhance business results through continuous improvement.

"We'll be able to see where we can reduce costs and further enhance the reliability and predictability of our operating performance," he notes.

Brennan isn't solely consumed by his day job, of course. He has served on Fort McMurray's Keyano College Foundation as Chair of the finance committee and member of the board of directors. He has also served on the board of directors of CMA Alberta. In 2001, he received the FCMA designation.

But the oil industry demands most of his time. And after more than 30 years in the industry, Brennan continues to be enthusiastic about the work that he does. "The intensity of what I'm doing right now is very exciting," he says. "We're seeing fairly dramatic changes in how we do things, and it's exciting to be a part of that."

Robert Colman is editor-in-chief of CMA Management.