Oil sands layoffs coming down pipeline; The impact of reduced captial spending budgets is beginning to make itself felt in service providers

CALGARY -- The big retreat from plans to expand oil sands projects has begun to show up in job losses and declines in expected corporate revenue.

Flint Energy Services Ltd. slashed between $100-million and $150-million from its 2009 revenue outlook yesterday and announced a spate of immediate layoffs, adding its name to a rapidly growing list of oil field service companies that are cutting staff and gearing down.

On Wednesday, international steel maker Evraz Group SA announced 400 layoffs across Western Canada, following industry giants Schlumberger Ltd. and Halliburton Co., which are letting go more than 2,000 people as the air rushes out of energy spending plans.

Fully $200-billion in planned developments have been deferred, delayed or cancelled in the past six months, according to a recent tally compiled by the Canadian Energy Research Institute (CERI).

While the prospect of reduced activity in the oil sands is now hitting home in the energy sector, the effects are expected to soon wash across the wider provincial and national economies.

The latest deferral came from western giant Suncor Energy Inc., which on Tuesday iced work on its two major projects - an upgrader and oil sands expansion - and cut its 2009 capital budget in half to $3-billion.

In the oil sands alone, capital spending plans for this year have now declined to about $13-billion from an expected $20-billion, the Canadian Association of Petroleum Producers said yesterday. Across the industry, capital projections in 2009 have dropped by $10-billion to $40-billion as companies race to hoard cash in the face of basement oil prices.

The impact on the economy is, however, likely to be far greater than those numbers would suggest. In 2005, CERI calculated that every dollar spent on big oil projects stokes nearly $2.50 in further spending in Alberta, plus another roughly $2.50 in the rest of Canada. In other words, a $10-billion decrease in energy spending translates into about $60-billion in lost economic activity across the country.

"If this trend continues of lower oil prices and the costs of these projects do not come down proportionately, we will be seeing more and more of these cancellations and more and more of these ripples affecting the rest of the economy," said CERI president and chief executive officer Marwan Masri.

That prospect has prompted a round of gloomy reflection across the country, as the companies that supply big energy producers attempt to grasp how the sudden changes will affect them.

"It's something that we are giving a lot of thought to," said Gary Love, the chief financial officer at Toronto-based ShawCor Ltd., whose subsidiaries include the world's largest applicator of pipeline coatings.

Although the company's main focus is on supplying services for major pipelines such as TransCanada's Keystone and Enbridge's Alberta Clipper, Mr. Love is now considering what to do if oil sands cuts hurt other parts of his business in coming months.

"We can reduce shifts - these are the sorts of things that one would consider should the need be there," he said. "But we haven't seen that yet and we don't know if we will or when we will."

Those who track Alberta's needs are, however, worried. The Construction Owners Association of Alberta maintains a graph showing how many workers will be required based on plans to build projects worth $100-million or more. Last October, more than 70 projects fit that description, and the association forecast a rise in demand to about 43,000 people by the second quarter of 2010. The recent round of spending cuts has prompted it to halve that number.

"It's very sobering for us, and it certainly should be a warning flag for industry and government when it comes to planning for the future," said association spokesman Lloyd Dick. "If these projects aren't running, there's going to be significantly less demand for heavy industrial labour for the future."

Yet if there is indeed a greater storm coming, it is only beginning to make itself felt. As recently as the first week of January, a spokesman for Calgary- based Flint told reporters that his company was still feeling the pinch of 1, 000 empty positions, and the volume of existing work has kept the industry busy enough to avoid many layoffs.

"Right now there are a lot of projects still on the go, but the big question is what happens after those projects are complete, and at this point there is absolutely nothing on the horizon to replace what's currently under construction," said Gil McGowan, president of the Alberta Federation of Labour.

"We're currently in what I would describe as the afterglow of the boom. The boom itself is over, but the day of reckoning hasn't arrived yet."

The Globe and Mail, Fri Jan 23 2009
Byline: Nathan Vanderklippe

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