In the midst of the price swoon, many executives and workers remain confident the oil-sands industry will pull through. Photo / Thinkstock
The pain of crude's collapse is beginning to bite in Alberta, from the oil-sands boomtown of Fort McMurray to the corporate boardrooms of Calgary.
As the C$340-billion petro-economy confronts an oil market meltdown, a decade-long investment spree is being reversed, layoffs and spending cuts are in full swing at companies such as Suncor Energy, and everyone from oil drillers to real estate agents is feeling the pinch.
In Fort McMurray, where the oil is so near the surface it oozes out of the ground in places and coats people's boots, the mayor is reconsidering city projects. In Calgary, which boasted Canada's biggest concentration of millionaires and one of the hottest real-estate markets, realtors just had their worst two months on record. The Bank of Canada has cut interest rates in an effort to limit the damage from spreading to the rest of economy.
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Yet, even in the midst of the price swoon, many executives and workers remain confident the oil-sands industry - which has endured deep cyclical downturns before and was built on long- term investments to operate at high costs - will pull through. Here are their stories.
Terence Stewart sits at home as the rain falls in Nanaimo, British Columbia, waiting for the phone to ring. A month ago, the engineering designer was making blueprints for holding tanks and scaffolding at Cenovus Energy's oil-sands project in Narrows Lake, 1,700 kilometres away.
With the 54 per cent drop in the price of oil since June, Cenovus scaled back plans to develop the 130,000 barrel-a-day project - and with it Stewart's job. Last week, the producer announced the first layoff in its history, dismissing 800 people and freezing wages.
With a decade of work experience in the oil sands, Stewart, 59, is looking a job closer to home to "tide him over" until the petroleum industry improves. He hopes liquefied natural gas projects being proposed by companies like Royal Dutch Shell Plc along the Pacific coast will get the green light and provide him with a job in the coming year. So far, none of the proponents has committed to any investment.
"It is a very volatile industry," he said.
For now, he's counting on finding work locally at one of the small manufacturers in Nanaimo or Vancouver, though he won't be immune to the lure of oil-sands jobs that pay as much as C$100 an hour when times are good.
"You do get paid very well in the oil and gas field," he says. "But you do have to plan for a rainy day."
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Sam Corea sips an espresso at the Phil & Sebastian café in Calgary's upscale Marda Loop neighbourhood, describing the lifestyle magazine he's planning to help boost declining home sales.
Corea was the No. 4 Re/Max Holdings realtor in Canada by commissions in 2013, and 14th globally, selling about C$100 million worth of properties as oil riches helped fuel a luxury housing boom.
That market is now rapidly reversing. Home sales plummeted 44 per cent in the last two months, making them the worst 60-day period for the city's realtors since at least 1988, according to the Canadian Real Estate Association. A 2.5 per cent drop in home prices in January was the largest one-month decline in three years.
Corea is planning to spend about C$200,000 on the magazine project in an effort to win more buyers. He's also appearing on local television to talk about the ups and downs of buying and selling homes.
"You've got to be more creative in this kind of market," said Corea, who has sold about 3,000 houses in Calgary since the early 1990s. "I haven't seen this much inventory ever. There are so many more people who want to sell. They feel the market is dropping."
The two-story home his interior-designer wife outfitted with four sub-zero refrigerators and electronics to control security cameras and media in swank Altadore, a 10-minute drive from downtown, sold for C$2 million last summer. If he sold it now, he'd be lucky to get C$1.75 million, he says.
"Now we're seeing a decrease in sales and prices," he said. "Homes are going to take longer to sell."
It's 8:30 p.m. and Mike Marchand, a crane operator from Quebec, is taking the dog for a walk outside his Fort McMurray home after a work day at Suncor's oil-sands mine.
He used to work longer, but the lucrative overtime hours that helped him buy a home have become scarce. Still, it's better than losing his job, as 200 of his colleagues did, Marchand, 59, says.
The broad-shouldered French Canadian drove down a gravel road into town in 1976 looking for what he couldn't find in Montreal: steady work. He started out earning C$4 an hour delivering mail around the plant and eventually worked his way up to crane operator.
Oil-sands money allowed him to raise a family, build a pension and acquire a home in Edmonton, where he was planning to retire in a couple of years. Now he says he may put off retirement and stick around longer. The impact of the oil price collapse can be felt all around him.
"There are less people, less traffic," he said. "It's not nice. A lot of people are going to suffer."
In 1986, Marchand was out of work for six and a half months after oil plunged to about $10 a barrel from $32 in four months, and a labour dispute broke out between workers and the company. He remembers walking down streets with empty houses and people "just leaving."
"It was a really difficult time for a lot of people," he said. "I don't foresee that quite as much this time but I see it happening for sure."
Strad Energy Services Chief Executive Officer Andrew Pernal knew his industry was in for a rough ride in November when OPEC announced it would maintain production levels.
Soon after, Pernal froze spending and cut investments at the company, which sells and rents equipment like mats used to support heavy equipment on muddy drilling fields. Weeks later, he dismissed 8 per cent of the 315-person workforce.
Saudi Arabia's decision not to curtail production while US oil output rose to the highest in more than three decades meant the company had to act fast, said Pernal, a chartered accountant with a crest of white hair.
"You need to have a fair bit of intestinal fortitude to be in this business," said Pernal from his office a couple of blocks from the frozen Bow River that crosses downtown Calgary. "We know what we've got to do, so we've just got to do it."
The company's shares surged about 72 per cent between March 2013 and early September after rising oil prices boosted demand for its products and services. They've since slumped about 45 per cent.
In 2009, after oil prices tumbled from almost $150 a barrel to less than $40 in about six months, Strad slashed its workforce by 30 per cent. If the oil price remains low, more job cuts will come, says Pernal.
"We went through this in 2008 and 2009, so certainly that difficult experience was helpful to map out a strategy."
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Melissa Blake, 45, sits at a conference table in her office that provides a sweeping view of downtown Fort McMurray, a city whose population more than doubled in thirty years as oil-sands jobs drew floods of workers from around the world.
The four-term mayor of the Regional Municipality of Wood Buffalo, a northern Alberta area twice the size of Belgium that encompasses Fort Mac, is reconsidering city projects.
A multibillion-dollar investment boom to tap the world's third-largest proved oil reserves made the town Canada's wealthiest city per capita and fueled a public-spending surge.
MacDonald Island, complete with water park, Olympic-sized pool, curling courts, a gym and art studio, is one facility the oil bounty has provided. Another is a shiny new international airport that opened last year. Bigger ambitions were ahead, including the redevelopment of the city centre, another sport and rec centre, a 7,000-person stadium downtown and a waterfront promenade.
"Certainly when we have a rosy economic circumstance, you are more inclined to think it will happen sooner," Mayor Blake said. "Right now, it's one of those plans that could sit on the shelf until the economy turns around."
Declining oil prices haven't hurt Dirtt Environmental Solutions which manufactures modular office walls at a factory in Calgary. In fact, they may help.
The company is expanding in the Middle East and across the US and benefiting from lower transportation costs. And, unusual for a Calgary-based company, oil and gas clients account for less than 15 per cent of revenue, said Scott Jenkins, the company president.
"What we're seeing in our business is health care, international and other clients that are positively affected" by lower oil prices, said Jenkins, as he strolls past workers cutting and painting panels. The company recently had to expand the factory underneath the ground floor of its headquarters on the southern edge of the city to accommodate rising orders.
Still, the company's Calgary roots make it hard for Jenkins and his staff to watch an economic downturn among local clients and neighbours.
"Calgary is home to us," he said. The city and the province will get through the current crisis, Jenkins said. "This is an entrepreneurial city."
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