How to survive the oil slump—from the people who lived it before

The oilpatch is struggling through a two-year slump, but times have been tough before. Here’s what these vets learned the hard way

 
Oil worker with a black eye

(Portrait by Erik Putz)

Most people working in the oilpatch in the summer of 2014 had never known a prolonged downturn. But in the 1980s and ’90s, it was the norm. We asked battle-tested industry veterans how they survived past oil price crashes—and how today ’s leaders can persevere:


IAN MACGREGOR

President, CEO and chairman, North West Upgrading

Ian MacGregor entered the oil and gas industry in 1969, splitting his time between studying mechanical engineering at the University of Calgary and doing shifts as a night watchman at the machine shop where his father worked. Following graduation, MacGregor bought a truck and a set of tools, and turned his attention to fixing things; mechanics was more lucrative than engineering, he says.

MacGregor started his first business, oil-field engineering and construction firm Abax Energy Services, in 1972. Entrepreneurship was a good fit, and MacGregor has been at the helm of various ventures since, including building and operating small gas plants, starting a private investment company, and his current role: president, CEO and chairman of North West Upgrading, a Calgary-based company partnering to build a bitumen refinery near Redwater, Alta.

Successes aside, MacGregor, 66, says the worst day of his life took place in 1987, when he had to tell 250 Abax employees that the business was closing. The firm had borrowed too much money to buy too much equipment, MacGregor says, on the presumption that the good times would last. Instead, oil prices plunged in 1986.

“I pretty well lost everything I had. I lost my car and had to ride the bus home from my final meeting with the bank,” MacGregor recalls. He remembers seeing people he knew cross to the other side of the street when they saw him, so as to avoid making conversation. “It was ugly,” he says.

From that experience came a lesson MacGregor has held close ever since. “What I learned when I went broke was no matter how good things look, make sure your capitalization is such that you can tolerate some kind of violent swing,” he says. “You don’t know when it will happen, so just assume it will, and you’ll be OK.”


ERIC NEWELL

Chair, Careers: The Next Generation

For Eric Newell, leading during challenging times has often been easier than during the good ones. Just try convincing employees to keep costs down when oil is selling at US$100 a barrel, he says—it’s a losing battle. Newell, 71, would know. He’s seen his share of booms and busts during a career that started in 1969. After studying chemical engineering and then management, he joined Imperial Oil. He later held various positions with Syncrude Canada Ltd., including CEO from 1989 to 2003.

When Newell started at Syncrude in 1986, the atmosphere, in his words, was “panicville.” The slump exposed many inefficiencies at the oilsands miner, and much of Newell’s time at the helm was devoted to redesigning the way work was done. “We needed to get our cost structure back in shape,” he says. That couldn’t be accomplished just by increasing production; the workforce had to be reduced too.

Syncrude shrank from 4,700 employees to 3,250 over a five-year period, Newell says, without any layoffs. Workers left through attrition, including an early retirement program, and many switched roles. Women who had spent their entire careers in administration, for example, retrained to become heavy truck drivers.

Throughout the changes, Newell tried to make employees think and act like owners of the business. “First we made sure they understood clearly what the economic situation was, so that every employee knew what their contribution was per cost of a barrel,” he says. The plan had the advantage of time, a luxury Newell knows struggling businesses don’t have right now. Still, he used tactics that can be applied today, such as being open with employees.

“You need to be out talking all the time, making sure you’re listening to people and their concerns, and responding,” he says. “In that situation, where you know you don’t have all the answers, the tendency is to go squirrel yourself away in the corner office. But that’s the worst thing to do.”


STELLA THOMPSON

Chair, Alberta WaterSmart

After studying economics at the University of Calgary and the University of Alberta, Stella Thompson headed to Melbourne, Australia, in 1970. She was hired by BHP on the basis of her master’s thesis on “pro-rationing”—limiting production to meet market demand—becoming the only woman working in a professional staff of 8,000.

Thompson returned to Calgary and worked in managerial positions, first for PanCanadian Petroleum, a predecessor to Encana Corp., and next for Pacific Petroleum, which was bought by Petro-Canada in 1979. She held various senior positions at Petro-Canada until she left the company in 1991, going on to serve on numerous corporate boards and start a governance consulting firm.

In 1986, while in charge of crude oil supply and strategic planning in the refining and marketing division at Petro-Canada, Thompson saw the worst downturn of her career. The waves of layoffs created an atmosphere wherein everyone thought they might be next, including Thompson. Her solution was to diversify: “I always made a point of keeping the networking up, volunteering and staying involved in the community, beyond my job,” she says. Those efforts paid off when she left the company on her own terms in 1991, with ample support and access to new opportunities.

In the 1980s, companies learned the hard way how to handle layoffs properly. At first, Thompson remembers, businesses would “frogmarch” employees out of the office, with not so much as a chance for goodbyes. “The companies that did that were so shamed by the others, and they had a terrible reputation for rehiring,” Thompson recalls. “After the initial crass way of doing it, people learned. They softened it. They said, ‘You’ll have time to clean out your desk and say goodbye.’”

Those are lessons she hopes today’s executives heed. “How you let people go makes a world of difference in how fast they can get back on their feet,” she says.


STAN GRAD

Owner, Soderglen Ranches Ltd.

Reflecting on his more than 40 years in the energy sector, Stan Grad thinks today’s leaders may be facing something worse than he ever did. “We are for sure in uncharted territory,” he says, citing a supply-driven slump resulting from new extraction technologies and geopolitical one-upmanship, coupled with fresh leadership in the federal and provincial governments.

Grad, 71, studied petroleum engineering and entered the oil industry in 1971, labouring on drilling rigs. He worked his way up in various firms, eventually co-founding a Calgary-based exploration and production company, Grad & Walker, in 1986. It was sold to Crestar Energy in 1997, and Grad went on to start other businesses, including well-servicing company Canyon Technical Services and Soderglen Ranches, a seedstock cattle operation.

When he started Grad & Walker, the oilpatch was ailing. In the face of low crude oil prices, the company focused on natural gas, which had stronger rates. Another strategy was to take advantage of the slump to buy aggressively at Crown land sales. “If you had a strong track record of finding and developing oil and gas at the right price, you could always raise capital,” Grad says. But he fears the business environment is different today. Even when oil prices rebound, he believes Alberta’s NDP government will be a “huge wet blanket” to foreign investment in the province. Grad is still party to a private land fund, but he says business has pretty much halted.

“Between the takeovers and the significant downturn, the land we’re buying probably will never get drilled. I’ve never seen that before,” he says. “Previous Progressive Conservative governments always wanted to help and offered significant tax breaks in the early life of the wells,” Grad says. “We just do not have that today.”

As a result, Grad says, the province’s energy industry will look completely different in four to five years, with far fewer companies operating. To survive, businesses have to cut back. “I think managers are going to have to be very, very frugal moving forward, much more frugal than we had to be. We just don’t know how long this will last.”


JIM GRAY

Honorary chair, Canada West Foundation

Geologist Jim Gray used uncertainty in the oilpatch as a springboard for his company. He launched Canadian Hunter Exploration in 1973, a year characterized by an oil crisis abroad that led to shortages at gasoline pumps in the U.S. Closer to home, confrontations intensified between the federal and provincial governments over managing Alberta’s energy resources.

Gray, who got his start in Calgary’s oil industry as a summer student in the 1950s, saw the situation as an opportunity. “Prices were rising, and ultimately Alberta and Ottawa had to resolve their differences,” he says. The issues were indeed resolved, and the commodity sector boomed. The next swing he felt was in 1980, when Prime Minister Pierre Trudeau’s Liberal government introduced the National Energy Program, seeking more federal control over the energy industry. An outcry ensued while Alberta’s economy flailed. He attributes the company’s survival to two factors: “We were a private company, and our balance sheet was in very, very good shape.”

With the backing of owner Noranda Mines, Canadian Hunter was somewhat insulated from the volatile market. “[Noranda] understood what we were doing, and they were supportive of what we were doing. That helped us weather the storm. They got nervous, like everybody did, but nevertheless they stuck with us,” Gray says. Canadian Hunter became one of Canada’s largest natural gas producers before being sold to Burlington Resources in 2001.

Gray, who is in his 80s, wonders if entrepreneurs today could follow his lead and find opportunities amid the uncertainty. “I think there will be a lot of money made on the upside here, when things finally do start to normalize,” he says.

Still, he suspects the current downturn will play out differently than previous ones, because of literally groundbreaking technologies like horizontal drilling and multistage fracturing. His advice to executives is to be resilient. “You have to get your costs down; you have to try to control your destiny rather than have others control it,” he says. “I’ve got a lot of hope for the future, but the near term is going to be difficult.”


RICK ORMAN

Senior Counsel, Canadian Strategy Group

As a businessman and former politician, Rick Orman has seen downturns in the oil patch from many angles. Trained as a petroleum landman—an agent who bids on government-issued leases on producers’ behalf—Orman, 67, was consulting in Calgary when the National Energy Program was introduced. The impact rippled beyond the oil industry to markets such as real estate. On the side, Orman had just built a spec house in northwest Calgary. For an entire year, the property didn’t attract a single offer. But what goes down must come up, Orman says, and when the economy rebounded, the house sold.

Next, Orman started a junior oil and gas company, and later entered provincial politics. Running for the Progressive Conservatives,he won a seat in 1986 and was appointed employment minister just as the price of crude plunged and the unemployment rate spiked to 10.4%. He attempted to perform a balancing act between stimulating the economy and keeping control of the budget—the same two things Alberta’s current NDP government finds itself trying to do. Programs were put in place to encourage people who could not find jobs to upgrade their skills.

From 1989 to 1992, as minister of energy, Orman responded to an oversupply of natural gas by helping develop new markets in the United States. He later got back to business, having lost the 1992 PC leadership race to Ralph Klein.

Orman’s varied experience has given him insight into just how much efficiency matters in the energy sector, during good times and bad. “The problem I’ve seen over the years is that as the price increases, there are greater and greater inefficiencies,” he says. Companies that are nimble survive price collapses, as they can react more quickly. When oil prices dropped in 1998, for example, an international oil and gas exploration company Orman founded four years earlier, Kappa Energy, merged with Cabre Exploration. “We were very small, and we were able to do a merger, so that allowed us to save costs and become more efficient,” Orman says.

Amid oil’s current decline, he expects company owners to turn to mergers and acquisitions, like he did. “Businesses have to find ways to get efficient, to get through the next 12 to 18 months, and then be ready for a swing in prices,” he says.


EASTON WREN

Director, Americas Petrogas Inc.

When Easton Wren arrived in Canada in 1968 to work for Amoco, Calgary was a small town with a tightly knit oil and gas industry. Wren, a geophysicistfrom Scotland who had worked in Africa, fell in love with the place. He never left and went on to work for PanCanadian Petroleum.

Wren founded Petrel Consultants in 1978, a year when oil prices were rising, the provincial government was introducing incentives to promote exploration and Calgary, awash in money, was the place to be. “You could walk downtown at lunchtime and get three job offers. It was nuts,” says Wren, 77. But after two golden years, the economy soured with the introduction ofthe National Energy Program. Petrel was able to survive, Wren says,thanks to consulting work on foreign projects for Petro-Canada. Those contracts were lifesavers again in 1986, when crude prices collapsed and Calgary lost its buzz. At Petrel,Wren and the firm’s two other partners didn’t take salaries for about 18 months. “It was rough going. We cut back, but we didn’t let anyone go,” he says.

As prices started to rebound, Wren resigned from Petrel, ready to try his hand at something new. He dabbled in other industries, including film and television, but never left the energy sector entirely, continuing to sit on boards for oil companies and teach geophysics. “It’s been a love affair,” he says. Wren’s advice for today’s managers is to remember that passion, even during tough times. “You’re living in the best possible place in the world,” he says. “This place isn’t going to die. It’s just having a temporary sag. It will bounce back.”


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