Amid a deepening debate over the value of the oil sands to areas of the country outside Alberta, Canada’s energy companies have mounted an aggressive campaign to persuade provinces like Ontario that they, too, are profiting.
The Canadian Association of Petroleum Producers has highlighted forecasts suggesting oil sands companies will spend some $63-billion on goods and services from companies in Ontario over the next quarter century. To bring home the point, the industry group has produced a list of 255 companies that are “Ontario suppliers to Canadian oil sands.”
But that list – and the broader profit forecasts – mask an important issue: Much of the money that flows to Ontario doesn’t stay there. Often, an Ontario company isn’t really an Ontario company. And even more often, when it comes to tracking how much of the oil sands profit gusher lands in Ontario, a dollar may actually be worth quite a bit less.
A good portion of the money that flows to Ontario is either sent back to the West in salaries, to Asia and the U.S. to procure equipment, or to the headquarters of multinational companies around the globe. CAPP lists dozens of global giants as Ontario-based suppliers, including California-based Apple Inc. and Hewlett-Packard Co., New York-based Goulds Pumps Inc., Arizona-based Baldor Electric Co., Sweden’s Hagglunds Drives AB and Liechtenstein’s Hilti Inc.
Also on the list: Telus Corp., which does have offices in Ontario but is headquartered in Vancouver and does virtually all of its oil sands servicing from the West.
Asked what oil sands work the company has done from Ontario, Telus spokesman Chris Gerritsen said: “We are a bit stymied,” after checking on the issue. “The Telus team in Alberta directly supports the oil sands operations in this province.” In fact, the senior Telus executive in charge of those big corporate relationships, Monty Carter, is based in Calgary.
“We will contact CAPP to ensure they have the most up-to-date information about Telus in their files,” he added.
The Telus experience illuminates the difficulty in tracking just how much of that money actually helps those outside Alberta – an increasingly divisive issue in the wake of last month’s Drummond report, which raised troubling questions about Ontario’s economic future and fuelled a spat between the premiers of the two provinces.
According to CAPP, its oil sands members have documented payments to companies in Ontario, including subsidiaries of larger companies. There is little doubt that those companies provide jobs in Ontario, and that the oil sands help sustain some of those jobs. But at least some of the revenue isn’t staying in the province – indeed, a quick check of some multinationals shows Hagglunds has as many Alberta offices as Ontario, and Hilti has three locations in Fort McMurray alone.
It’s true with smaller companies, too.
Take Graham Nelson, the owner of Glenridge Equipment Corp. The Waterloo-based company distributes MegaDoors, which are used in the truck shops that service huge mining equipment. Mr. Nelson once sold to automotive suppliers. When many of those closed down, he started selling to oil sands companies in 1997. They are now his biggest clients.
“I would be in pain if I were unable to continue that,” he said.
But Mr. Nelson does not run a big operation, employing just five people. And he doesn’t make the doors. They are manufactured just south of Atlanta, Georgia. So while the oil sands have helped keep his business afloat, maintaining jobs in Ontario, some of the money is then being rerouted to the U.S.
It’s a similar story at Guide Valve Supply Ltd., a 17-person operation in Vaughan that supplies ball valves to the oil sands. Mario Martino, who works in sales for Guide, is a huge defender of an industry that “creates jobs, and that’s what pays your bills.
“Right now, all of Canada is based around Alberta,” he said.
But the parts Guide sells aren’t made in Canada. They come from China, mainly, with Italian components. Sourcing local components simply wouldn’t allow Guide to compete. “Let’s be honest, everybody is getting [supplies] overseas,” Mr. Martino says.
Even among companies that use Canadian components, a surprising quantity of revenue flows back west. Take TIW Steel. The St. Catharines-based company designs, manufactures and builds massive structures out of plate steel, much of it Canadian-made, to make the 250-foot diameter tanks used to store oil sands crude. Last year, 80 per cent of TIW’s revenue came from Alberta and Saskatchewan.
A large chunk of its salary dollars, however, don’t stay in Ontario. The company has some 80 people working at its St. Catharines plant. Most months, it pays about 100 western union workers, many sourced out of Edmonton, to actually build its structures.