Alberta’s oilpatch feeling the ripple effect from low crude prices
CALGARY – If low oil prices stick around much longer, the operations manager at Lac La Biche Transport Ltd. says he may have to lay off workers.
Kevin Warawa says business is down by about a quarter compared with the same time a year ago and oilsands operators that hire his company to haul equipment in northeastern Alberta are pushing for rates to be cut by 20 to 25 per cent.
“Some of them cancelled projects completely. Some of the other customers said that they won’t be getting back to production until probably the third quarter at least,” he said from Lac La Biche, Alta., about 200 kilometres northeast of Edmonton.
So far, the company hasn’t had to let go of any of the roughly 130 workers it employs this time of year, usually the busiest for the oilpatch. But if things keep up, “there will be guys going home,” said Warawa.
These aren’t the massive truck-and-shovel mining operations north of Fort McMurray, Alta., that tend to come to mind when one thinks of the oilsands.
To the south of what is typically seen as the oilsands epicentre, communities are expecting some pain from sub-US$50-a-barrel oil, but they’re taking the challenges in stride.
In these parts, crude is extracted by pumping steam through wells. Projects are normally built in smaller, more bite-sized chunks compared with their mining counterparts. Workers live in communities like Lac La Biche, Bonnyville and Cold Lake — all within a five-hour driving distance of Fort McMurray.
Companies active in the area include Canadian Natural Resources Ltd., MEG Energy Corp., Cenovus Energy Inc. and Imperial Oil Ltd.
Canadian Natural said earlier this month it was deferring its $1.45-billion Kirby North project near Lac La Biche. MEG has chopped its 2015 budget by three quarters.
Meanwhile, Cenovus plans to spend up to $1.6 billion at its nearby Foster Creek and Christina Lake developments this year, but is holding off on developing longer-term projects elsewhere in northern Alberta. Imperial has massive oilsands operations near Cold Lake, with its 40,000-barrel-per-day Nabiye expansion in the process of ramping up.
Warawa has been in the business 30 years and even though “it hurts,” he knows the doldrums won’t last forever.
“It’ll always come back. The money they’ve spent is too great. They just can’t shut it down and walk away from it.”
Ron Briscoe, president of the Lac La Biche and District Chamber of Commerce, said he’s noticed a shift in mood.
“I think, up until the last couple of weeks, people were holding their breath,” he said. “It’s now kind of turned over to being worried.”
The area has a sizable “shadow population” — temporary residents who come to the region for work and live in hotels and camps. The 2013 municipal census found this group made up about 26 per cent of the county’s population of 12,000.
“They’re the same people eating at our local restaurants and shopping at our local clothing stores,” said Briscoe.
“If the price of oil stays low long enough for the oilpatch to slow down and those shadow population residents move away. That means fewer customers for local businesses, lower profits and then some hard decisions have to be made by our local retail business about cutting costs, streamlining staff or closing altogether.”
Teri Moghrabi manages a sporting goods store in Lac La Biche. Sales are OK so far, but he wouldn’t be surprised to see a slowdown if oilpatch jobs are cut.
“Once people start feeling that pinch, we’ll feel it,” he says. “When we come to that point, we’ll feel it, because everything we sell here, nothing’s a necessity. Everything we have here, the majority of it is luxury items.”
His uncle, Omer Moghrabi, is the mayor of Lac La Biche. Oil is by far the biggest game in town, but lumber and tourism are important, too.
“Every six or seven years there’s a correction in the industry,” said the mayor.
“What happens is the first people who feel the effects of it are the service providers and the contractors and that’s happening. They’re starting to lay people off.”
Even still, he said the mood is optimistic.
“We’re a hearty bunch here in this area,” he said. “We just hold steadfast. We’ll be fine.”
If anything, there’s a bit of silver lining: contracts to build new roads and other infrastructure will likely become more affordable as the oilpatch slowdown frees up labourers.
In Cold Lake, closer to the Alberta-Saskatchewan boundary, Mayor Craig Copeland also sees some benefits. The community of about 15,700 has an extremely young population and has been growing rapidly. Lower construction costs and some cooling in the rental market would be welcome developments.
The price of oil isn’t what keeps Copeland up at night. Delays in building new pipelines out of Alberta cause far more worry.
“If we don’t get a pipeline to the United States and get some straws touching the ocean, I think, for our area, that is more of an issue,” he said.
The mood in Bonnyville, a community between Lac La Biche and Cold Lake with about 7,000 people, is one of caution, said Mayor Gene Sobolewski.
“I’ve been around the block a few times and if I reacted every time the market dropped and I lost money on my mutual funds — well, I’d be a basket case.”
On a scale of one to ten, Sobolewski said his concern level about the oilpatch’s spending decisions is at about a one or a two.
But as for how the provincial government may react — especially when it comes to provincial funds and grants for municipalities — it’s more like a six or seven.
“That’s where I think the biggest worry is, because the province tends to be very, very reactive,” he said.
“There seems to be sort of a panic that’s evolving through the halls of the legislature.”