Keeping people in place, but costs down, in the face of recession

Oilsands Review — There’s no doubt about it—people in the oilsands industry have been losing their jobs as production projects slated to come down the pipeline have been stalled and even shelved. As oil prices seem to steady at fairly robust levels the clouds could be lifting for those looking for work and those who are about to as Suncor and Petro-Canada merge, but producers and their suppliers maintain a strong focus on keeping costs down. Here are some of the ways the industry is doing that, while retaining staff for the upturn.

EnCana: employee ideas and a phased construction approach

In February 2009, Canada’s largest by capacity steam assisted gravity drainage (SAGD) producer announced the launch of its 10% Challenge. The objective is to engage employees to find ways to reduce EnCana’s spending by 10 per cent from its 2009 budget. The target was to save about $900 million.

“Alongside the 10% Challenge, EnCana launched the 10% Challenge Idea Forum for employees to share their ideas to reduce costs and become more efficient,” says EnCana spokeswoman Carol Howes. “To date, there has been more than 1,000 ideas and comments posted. The idea ranged from saving bubble plastic sleeves to much larger cost-savings initiatives.”

As of July, Howes says the 10% Challenge had exceeded its savings target for the year.

Some of the thrifty initiatives include reducing employee travel by doing more conference calls rather than visits with the investment community.

“We’re also taking advantage of the cost deflation and reduced industry activity by renegotiating supply and services contracts,” Howes says.

At the Christina Lake and Foster Creek SAGD projects, EnCana has taken a phased approach to further development to help to manage costs. Besides slowing the pace of spending, this allows EnCana use the same teams from engineering through to construction on each subsequent phase. Greater familiarity with the work as well as learnings from previous phases is rolled forward to improve efficiencies and minimize costs. A phased approach also allows EnCana to contract work to smaller, local companies that are able to dedicate their teams to the project. Many workers can now live at home rather than in camps, which makes for a happier and potential more productive workforce.

“Recently, we also set up a module yard at Nisku, just outside of Edmonton,” Howes adds. “We own it. It’s dedicated solely to construction of pipe modules. We have all of the components built and assembled at the site. What this does is it allows us to improve the quality of the pipe modules, minimize rework and cost overruns, and enhances safety.”

North American Construction Group: increasing service rather than cutting back

At North American Construction Group (NACG), one of the largest construction and mining contractors in the oilsands sector, president and chief executive officer Rod Ruston has the organization focused on the importance of efficiency and productivity, not just cost cutting.

Ruston believes that organizations like NACG can demonstrate superior value and further enhance their competitive position by increasing service levels during tough times, rather than by cutting back. For example, the company has become more closely involved in its clients’ upfront project planning and design, enabling them to leverage the service company’s 35-plus years of expertise to reduce costs and increase productivity. He says this focus on improved planning and project design also benefits NACG by contributing to improved resource planning and project execution.

While NACG has also implemented cost control and efficiency measures in all areas of its business, the focus remains on maintaining and enhancing customer service levels.

Says Ruston, “The best strategy in these market conditions is to focus on your customer relationships and enhance those relationships by becoming [a] cost-reduction solution provider.”

Nexen: we’re hiring

Like other producers, Nexen is working to reduce costs and improve efficiencies where it can; however, Nexen investor relations analyst Tim Chatten prefers to focus on the opportunities presented by the recession.

“Nexen is actively recruiting talent right now while it is available for areas that will benefit the company down the road,” he says. “[Our] view has always been as a long-term company…. We have legacy assets. We don’t tend to focus just on quarter-by-quarter growth. It’s why we also have lots of liquidity. We don’t want to be put into a pinch situation in a downturn.”

Chatten continues, “Now is the time for us to find the right people—at the end of the cycle when they’re available rather than at peak oil prices when you want to be moving ahead on your projects.”

RPS Group: tough choices make for good forward position

The Canadian subsidiary of Abingdon, U.K.-based RPS Group, which specializes in situ production techniques for heavy oil and bitumen, has taken various approaches to cost containment during the recession, noting a successful reduction in the number of layoffs that might otherwise have been required.

For example, its Business Services team chose to take two unpaid days in the months of June, July, August, and September, resulting in significant savings over the period. Decisions were made not to replace expiring contracts or employees who resigned; rather, the team is relying on the initiative and flexibility of existing employees to cover critical tasks.

RPS chose to cancel underutilized employee benefits after polling staff to determine their support, resulting in additional savings. Further savings were realized through the cancellation of underutilized software licences, and the deferral of a costly annual training program to the winter months. Additionally, corporate sponsorships were re-evaluated and modifications were made.

The company’s Consulting Business Unit delivered on requests for unpaid leaves of absences for staff members that did not have ongoing business commitments, while the Well and Seismic Operations teams opted to reduce their workweek to correspond with the reduced business cycle.

Peggy Smigarowski, human resources and recruitment manager for RPS Energy, says the company is “well positioned to meet the demands of a market turnaround with the same highly skilled, professional team of individuals that have been loyal to the company through this economic downturn.”

Royal Dutch Shell: watching contractor costs

While Royal Dutch Shell continues the 100,000 barrel per day expansion of its operated Athabasca Oil Sands Project—currently employing about 12,000 people at the mine site and the upgrader—it remains focused on reducing costs.

Corporate communications advisor Laurieanne Lynne says Shell is undertaking numerous initiatives to support this goal in Canada and around the world. “We are…undertaking a number of company-wide cost reduction initiatives like better contract management in response to the economic recession as we strive to reduce costs across the board. To that end, we have asked contractors to find ways to reduce their costs by the end of 2009. We are and will continue to evaluate contracts, because contract management is an important part of our business as we work to maximize value,” she says. “In addition, we are asking employees to critically engage with their spending habits on things like travel, catering, and cellphone use.”

Imperial Oil: the long-term, conservative approach

Imperial Oil spokesman Pius Rolheiser says that through the global economic downturn, the company—which just sanctioned the $8-billion Kearl oilsands mine, the largest project in its history, and continues substantial in situ production—continues to focus on the business performance elements it can control: safety, reliability, cost discipline, and growing its resource base.

Imperial maintains a long-term, conservative approach to its business and to its spending and cost management. Rolheiser says this provides the ability to continue to invest in growth projects, even in times of economic restraint. For example, as of the end of the first quarter of 2009, Imperial had effectively stopped buying back shares and diverted these funds back into growth projects such as Kearl.

“We have had a company-wide continuous improvement program in place for over a decade. This means that every business unit and staff function in our organization on a combined basis identifies literally hundreds of projects every year to improve the effectiveness and efficiency in all aspects of our business. We are also working with our suppliers to identify the best prices for material and the most productive labour practices as we continue our large projects in this economic environment,” says Rolheiser, adding there is also an emphasis on research and development. “We continue to research and implement new technologies to improve the efficiency of our operations and increase the productivity of our workforce.”

Stay tuned to Oilsands Review for more lessons from the office and the field on how companies are saving money and keeping people in their jobs.