Strategy

Alberta recession: Taking a breather

Fort Mac is playing catch-up until the oilpatch revs up again.

Rod Hutchings’ company moves earth and muskeg for some of the largest players in the northern Alberta oilsands. Despite the low price of oil, Cow Harbour Construction Ltd. is booming enough that it just hired 100 more people and now has more than 600 employees. Having lived in Fort McMurray since 1981, Hutchings, the company’s vice-president, has witnessed the area weather three decades of dramatic economic ups and downs. “It certainly has slowed down,” he says. “Ten years ago we prayed for work, and we got lots of work. Then we prayed for a slowdown, and we got both wishes.”

Ask a local what the biggest sign of the current downturn is and the unanimous answer is traffic. “I used to pull my hair out, because there was so much traffic,” says Clayton Kuncio, a team leader with oilsands giant Syncrude Canada Ltd. “There were so many people travelling the highway north to the plants that it used to take me an hour and a half to get to work, and now it takes half that.” Fewer people are also making their way through Peter Pond mall, and the mythical hotel vacancy is now a reality. That’s the upside of having much of the construction contractor workforce laid off because massive building projects in the oilsands are now being delayed. “When you take a population that has doubled and is on its way to tripling, every piece of infrastructure you can think of is still in a catch-up phase,” says Mayor Melissa Blake. “This is a golden opportunity to get caught up to some of those needs and be better prepared.”

Given the cycles of the oil industry, layoffs were inevitable. Many people who left Fort McMurray to go home for Christmas weren’t called back to work in January. “All sorts of workers were laid off: welders, electricians and other people on the front lines who were doing much of the work,” says Kuncio. “We’re basically down to a skeleton crew of contractors on site now.” But while there are fewer contractors around, many locals don’t seem all that worried about losing their own jobs. “Anyone who’s been working for the major companies, like Syncrude, Suncor or Albian, is not going anywhere,” says Curtis Russell, a longtime resident. “It’s the specialty workers who come up for a six-month job who are getting laid off, not the people that have been here for 10 to 15 years.”

The construction slowdown doesn’t give an accurate picture of activity in the oilsands. On the operations side, companies are still scrambling to fill permanent jobs. From 2008 to 2010, operating costs are projected to drop just $1 billion to $48 billion, according to the Oil Sands Developers Group (OSDG), an organization that represents more than 20 developers in the area. That compares very favourably to a forecasted $46-billion drop, to $33 billion, in construction projects. “These mines run 24/7, 365 days a year,” says Jacob Irving, executive director of the OSDG. “One executive recently told me that when oil is at a really high price, we produce like crazy; when oil is at a low price, we produce like crazy.”

But the long-term outlook isn’t exactly rosy, according to a report released in February by the Canadian Energy Research Institute (CERI). It anticipates that oil needs to reach an average of about $80 for the industry to grow and expand, but even when that happens it will take at least two years for most mining and in situ projects to start producing after the construction phase. What’s more, CERI’s report says that as projects are deferred to 2015, those that were originally slated for that year will be pushed beyond 2020.

Although the oilpatch’s ambitions have been curtailed for the moment, local businesses see the slowdown as an opportunity to gain lucrative contracts with the oil giants. “Now is an opportunity for us to be more competitive,” says Nicole Bourque-Bouchier, president of the Northeastern Alberta Aboriginal Business Association. “Because we are local, we don’t carry the living-out allowances, we don’t have the high costs of travel expenses. Our people come from the community.” She adds that many major companies are increasingly working with smaller local ones.

Hutchings, on the other hand, is looking forward to the day he can be more picky about whom he hires. The general sentiment around town is that employers will be looking to hire the right people from the community rather than the first person to walk through their door.

And the local government is hoping that laid-off skilled workers will stick around long enough to be hired for its own infrastructure projects. “We have been hitting 9% growth over the past six years, and there has been a lot of stress on the municipality,” says Sheldon Germain, a resident since 1974 and a councillor since 1998. Germain says the area has always had trouble finding labour for its own projects. “We are building the largest recreation centre in Western Canada, and we had 50 workers on the floor when we were supposed to have 250,” he says. “Now that these projects have softened up a bit, we have 100.”

Behind on almost every aspect of community infrastructure, Fort Mac officials need to move very quickly to get badly needed projects, such as ring roads, bridges and an airport expansion, on board while things have slowed down. Another pressing need is land for housing. “When I came here in 1981, there were people living in tents, and there are people living in tents now,” says Hutchings. “We weren’t ready in 1981, and 20-odd years later, it’s still about catching up.”

The problem is that all the land around Fort McMurray is owned by the province, and while housing is still scarce and therents almost prohibitive, Alberta has reacted at a snail’s pace. The municipality is still waiting for the province to release enough land by the airport to house 20,000 people, but the community wants enough land to house another 120,000.

Despite that desire, Marian Barry, a real estate broker with Royal LePage, says the local housing market is finally slowing down to a normal pace. Higher-end houses selling for $1 million and up have seen dramatic price cuts of $100,000 or more, while the average single-family home in the $500,000-to-$600,000 range has dropped about $20,000 since last November. “Buyers have huge choices. They don’t need to buy the first house that they look at,” says Barry. “A year ago, we would have been in multiple offers, sometimes four offers on the same property. Now that’s not happening as the norm. Buyers can look at 20 houses that could be an option for them.”

Despite a larger inventory of houses — there are more than 1,000 properties on the market, compared to the normal 500 or so — Royal LePage’s realtors were out of the office, busy showing houses even in the frigid February temperatures. Kuncio’s home is not one of them. The 30-year-old has put off selling his home for two years, hoping the price of oil will go back up.

While the current economic climate may not have as many Canadians lining up Highway 63 to get to Fort McMurray, the people here are optimistic that its heydays will return. “I don’t think the growth will be anywhere as intense as it has been, but I don’t think it will subside,” says Mayor Blake. “It’s a matter of keeping in mind what is going on around the world and what that means in our own back yard.”