The good news and bad news for employees in a recession

Oilsands Review — In human resources news, until fall of 2008 it seemed all one could talk about was labour shortage in the province of Alberta, especially in its booming oilsands industry. But that has changed sharply, as layoffs followed project setbacks and delays. Some, however, say the situation is healthier, and worker productivity has improved—they are now able to access higher-quality staff rather than “warm bodies.” But others—especially those with exposure to the continued low price of natural gas—say the past year has been brutal, and are not expecting the coming return of work that those in the oilsands are anticipating. Here are some of their stories.

Flint: the good news and the bad news

Despite the economic downturn, Calgary-based Flint Energy Services is having trouble finding workers in certain skilled trades—but that doesn’t mean it hasn’t been impacted by the recession.

“In December of last year, recognizing it was going to be a tough year, we introduced an across-the-board wage rollback for salaried and hourly employees of five per cent,” says Guy Cocquyt, director of investor relations for the company. “Some of our peer group implemented a 20 per cent salary cut, so that [relatively small decrease] was well received.”

Company president Bill Lingard, speaking recently at the Petroleum Services Association of Canada annual investor conference, held in Calgary, said relatively robust capital spending in the heavy oil and bitumen-related sectors, from where the company gets about half of its revenue, has allowed Flint to minimize its downsizing.

He said oilsands industry capital spending in 2009 will be down by about half from last year’s pace, which was about $20 billion.

“And that $10 billion or $11 billion is a much healthier pace.”

The downturn has hit Flint’s bottom line, but the company is weathering the downturn well, compared to some others in the industry.

Aside from the pay rollbacks, it eliminated some perks.

Skilled workers still have their food and accommodation covered (by Flint’s clients), but the living-away-from-home allowance, which usually amounted to $150 a day, is no longer being paid, Cocquyt says.

He notes that there have also been savings because Flint has been able to take advantage of the downturn by being able to hire the most skilled and experienced workers.

“In the last few years, we’ve needed every skilled worker we could get,” he said. “When you’re taking the last of 100 welders available, you’re not getting the best workers. When you only need 50, you’re able to hire the best.”

Despite the growing availability of skilled tradespeople, Cocquyt said there are still shortages in certain areas.

“It’s still difficult to find pipefitters and ironworkers…. That’s not just the case in Alberta, but across North America. We’re recruiting from across Canada and we’re having problems finding those workers.”

The company also was having problems finding insulators, but the recession has led to those skilled workers being available.

Flint also had difficulty finding welders in recent years.

“We were having problems, in particular, getting welders up to Fort McMurray,” he said. “But that has changed.”

Its two biggest worksites now are at Shell’s expansion of the Athabasca Oil Sands Project, and at StatoilHydro’s Leismer steam assisted gravity drainage (SAGD) project, both near Fort McMurray.

Osum: junior player sees staffing benefits from recession

For emerging player Osum, the recession has actually helped it access something it needs more of: people.

“We’re looking for the best and the brightest from the oilsands industry,” says Heather Screaton, director of human resources for Osum. “The economic downturn has been very helpful in helping us do that. A year and a half ago, people were hiring warm bodies. Warm bodies aren’t good enough for us.”

Osum is progressing its 25,000 barrel per day Taiga in situ project in the Cold Lake region of Alberta.

Alberta Environment recently issued the final terms of reference for an environmental impact assessment (EIA), and Osum plans to submit its EIA by the end of this year. Pending regulatory approval, the company plans to start construction on the project in the third quarter of 2011, with start-up expected in late 2013 and first bitumen production in early 2014.

Screaton says the recession and the impact that has had on the oilsands sector, with billions of dollars worth of projects having been delayed or scrapped, means Osum has been able to find employees of a far higher calibre than would have been the place otherwise.

The company has 27 employees now, and by the end of this year it aims to have 33.

She says the company is now searching for senior people, including a vice-president with project experience, an engineering manager, and a project planner.

Screaton, who has 30 years of experience in human resources, said she anticipates she will still be able to find top-notch new employees as the project proceeds.

When the Taiga project is fully staffed, Osum will have about 50 to 60 people on site and 40 to 50 in its Calgary head office.

Devon: timing is everything

In the energy industry, as in most things in life, success is often all about timing—and Devon Canada’s timing in moving ahead with the expansion of its heavy oil business in Alberta probably couldn’t have been better.

“We’ve definitely seen some softening in input costs, with the slowdown in the [oil and gas] industry,” said Will Yakymyshyn, vice-president of thermal heavy oil. “We’re seeing better individual tradespeople available as well.”

In addition, he said the prices of steel and other materials have either dropped or stabilized.

For Devon, now developing the second phase of its Jackfish SAGD project, located about 140 kilometres south of Fort McMurray, the timing of the recession and the resultant downturn in oilsands expansion has proved advantageous.

It spent about $730 million on the first phase of Jackfish, on which construction started in 2004 and completion was in 2007. It will be producing about 35,000 barrels per day there.

Devon is now developing Jackfish 2, which will produce 35,000 barrels per day as well. It will have spent about $1 billion when that project, which Yakymyshyn calls a clone of Jackfish 1, goes into production in 2011. Construction started on it last year.

Devon is in the planning stages now for Jackfish 3, which will take production up to a little over 100,000 barrels per day.

“We’re hoping to apply [for government approvals] by mid next year.”

It’s a measure of how the economic downturn is benefiting companies able to expand now—and the flattening of oilsands development costs that were rising by 10 to 15 per cent per year at one point—that Yakymyshyn thinks its possible Jackfish 3 can be built for the same cost as Jackfish 2.

“The costs to build Jackfish 3 may potentially come in it at about the same as for Jackfish 2,” he said “However, we haven’t yet done full scoping for the project.”

As for finding permanent staff for the Jackfish projects, Yakymyshyn says the company is delighted with the quality of the applicants it has received for the jobs that open up there.

“We’ve been fortunate,” he said. “With the slowdown we’ve been able to find some excellent individuals.”

Each phase of the project will require about 90 to 100 employees, with about 70 to 75 in the field and another 20 to 25 at head office in Calgary. Once all the phases are complete, total staffing would be at about 300.

Nabors: going where the work is

As natural gas prices sink perilously close to $2 per gigajoule, which would be the lowest level in more than a decade, Duane Mather has to make some of the toughest business decisions he’s made in a career spanning more than 30 years.

“This has been brutal,” said Mather, president and chief executive officer of Nabors Canada, the largest land-based oil and gas driller in the world and the third largest in Canada. “You pare back and pare back [on staff], and the next step may permanently harm the company. This is already a completely different company than it was a year ago or two years ago.”

Nabors employed 4,000 people four or five years ago and now is down to fewer than 800.

Unconventional gas plays in the Horn River and Montney basins in northeastern British Columbia have sustained the company, but low prices may even threaten that activity, said Mather.

In addition, the company has rigs that have been kept busy in heavy oil and bitumen-prone areas in Alberta and Saskatchewan.

“The equipment and manpower will go where the money is,” he said, adding that nowadays that’s in the oilsands and heavy oil plays, in unconventional gas plays, and internationally.

Nabors is also reconfiguring crews to accomplish more with fewer people.

Talk of higher gas prices next year provides little comfort to Mather. At any rate, that’s a forecast he doubts would have any impact this upcoming winter, when as much as half of the drilling in western Canada occurs.

“We built a [drilling] fleet for 22,000 to 25,000 wells a year, and we’ll be lucky to drill 8,000 in 2009,” said Mather. “I don’t see 2010 being much better. I’ve been in this business and with this company for 30 years and I’ve never found it this difficult to forecast.”

Some equipment has been shifted to the U.S. and increasingly to Mexico, where activity in the oil-prone Chicontepec and the gas-prone Burgos basins is accelerating, with state-owned Pemex budgeting billions of dollars to ramp up production.