The rising sun turns the lakes of northeastern Alberta into a glowing orange as the Beechcraft 1900 dips toward the dark green forest that hides the oil sands.
Through the cockpit window, a narrow strip emerges, a ribbon of asphalt carved out of the towering evergreens. The descending plane follows a path similar to another small plane that a year before crashed just shy of the runway. One person died. The strip, called Kirby Lake, was taken out of regular use.
But now the airstrip is being reopened. Up and down its 4,960-foot length, crews are working to upgrade lighting, smooth out terrain and install new navigational aids and weather-monitoring instrumentation. Oil producer Devon Energy Corp. , the operator, is spending millions on a modernization project intended to safely land the workers who will build and operate decades worth of new oil sands projects, wresting hundreds of millions of barrels of crude from the earth.
Soon, this line of asphalt in the forest will resemble the kind of municipal airport you might find in a small town. And for an industry that has seen air connections become nearly as vital as pipelines, Kirby Lake is but one dot on a map of northeastern Alberta that has grown crowded with private airstrips.
As a new oil sands boom sweeps across northeastern Alberta, energy companies are turning to increasingly sophisticated air squadrons in an attempt to balance their relentless demand for workers with an urgent need to stave off soaring costs.
Call it Air Oil Sands. Industry giant Suncor Energy Inc. alone moves enough people that it would rank somewhere between Canada's `10th- and 12th-largest airline. Several oil sands companies operate fully functional airports, complete with baggage handlers, and have filled out employment rosters with pilots and mechanics. One airplane charter outfit engaged in oil sands work is bringing in new airplanes so fast it doesn't have time to paint them before they start flying workers.
“The scale is enormous,” says Scott Clements, chief executive officer of the Fort McMurray Airport Authority, shaking his head.
The fast-growing aviation industry taking root in the oil sands provides a window into the scale and complexity of expansive projects enveloping ever-greater parts of Canada's capital spending and work force. Oil sands companies are going to great lengths to secure workers as the industry’s runaway growth creates another crunch period, marked by sharply rising costs for materials and increasingly scarce skilled labour.
Flying around personnel isn't cheap. It costs roughly $42,000 a year to air-commute a single person to the oil sands. But that cost has been justified by companies eager to find and retain skilled workers that often aren't interested in moving to Fort McMurray – or some of the hinterland operation sites that sit hours away. In fact, labour is already so expensive that it can be cheaper to fly a worker on a private jet directly to site than to swallow the additional hourly cost of having that worker fly on a commercial airline to Fort McMurray, then sit on a bus for several hours.
“Time is money and the schedule is crucial,” says Scott Bolton, national energy leader with PricewaterhouseCoopers. Aviation “is a means of accessing skilled labour quickly.”
“The cost of flying in skilled labour, and the infrastructure of doing that, is obviously expensive,” Mr. Bolton said. But “it’s the best means of accessing somebody that’s trained and can hit the ground running.”
For workers, air travel provides convenience, since it allows people to get picked up at or near home. Oil sands companies run flights to Calgary and Edmonton, small communities across Alberta, major centres in Saskatchewan, and a handful of cities on the East Coast. That creates an effective expansion of the available labour pool.
Private air service is also a perk that can keep employees happy, an important consideration for companies who know training a single worker costs, at a minimum, $25,000. Some cost twice that.
In-flight frills are key. Suncor, for example, provides workers with a muffin or banana bread on the flight. When it tried to pull the banana bread recently, it was met with an outcry. The company reversed the decision.
“We are a service provider,” said Bill Grainger, Suncor's director of transportation. “Our employees actually quite like flying on our own aircraft. It's sort of an ownership thing and a pride thing – that I go to work on our aircraft, and I go direct to site.”
A LABOUR ADJUSTMENT
Track the numbers, and the link between boom times and oil sands air travel becomes clear.
Six years ago, Suncor flew just 800 passengers a month. Today, it flies 25,000.
Alberta’s dramatic rise helps explain why. In early December, the number of workers employed in the province’s resource sector surpassed the peak it hit in 2008. And much more work is coming – new oil sands mines and other projects that haven’t begun.
“If you look at the oil sands, there’s a whole bunch of stuff that hasn’t even really started yet. That’s the scary thing,” said Justin Bouchard, an analyst with Raymond James in Calgary. He has prepared a special report on the topic to be published next week.
Labour shortages and cost inflation “will be the story, the only one that’s going to matter” in the next one to five years, he said. “Pipelines, whether we send our oil to China or the U.S., Keystone – all that stuff is a backdrop. I think the most important thing is going to be cost inflation,” he said.
Alberta is surging. Figures compiled by CIBC World Markets show that the province has the lowest unemployment in the country, at 4.9 per cent, after posting real GDP growth of about 4 per cent in 2011 – double the Canadian average. Industrial wages are way up. A journeyman pipefitter makes nearly 12 per cent more per hour today than in 2008, at the height of the last boom.
Costs are rising. One Calgary banker pointed to costs for phases three and four of Suncor’s Firebag development that, taken together, average $50,000 per flowing barrel, the standard industry metric on expenses. That’s a high number, especially since the record for non-mining oil sands projects stands at $52,000.
“I'll bet there is going to be further creep in those costs and they set a new record,” the banker said. “Cost escalation is a huge risk these days.”
With that problem in mind, companies are scrambling for fresh approaches, constructing more of their projects far from the field – both through huge yards building Lego-like modules around Edmonton, and through component builders as far afield as South Korea.
“You’ll see more of automation and a lot more emphasis also on the whole supply chain dynamics, to make sure that the people supply chain is as efficient as possible,” said Chris Lee, energy and resources leader for Deloitte Canada.
But “aviation will continue to be very, very important. There are only so many skilled workers available.” Some oil sands companies have even mooted plans to begin picking up workers in the U.S.
Aviation companies are scrambling to keep up. Calgary-based North Cariboo Air, one of the busiest oil sands charter operators, has doubled in size every 24 months for the past six years. In the past week alone, North Cariboo is getting a Dash 8-300 painted in Trois-Rivières, installing seats in two Beechcraft King Airs, and waiting on delivery of a Beechcraft 1900. It has a BAe 146 jet sitting in Calgary, preparing to enter service. In the span of little more than a month, those five planes will give North Cariboo the capacity to move around 300 new people a day – or 9,000 a month.
“Right now, it’s a bit of a growth spurt,” said Hart Mailandt, the director of business development for North Cariboo Air.
THE SUNCOR AIRLINE
No one tracks the size of Canada's corporate flight departments, the aviation offices that move workers into mines and forest operations and hydro operations. But most are modest. Hydro-Québec, for example, shuttles workers to remote sites on three Dash 8 aircraft that, in 2010, moved 68,000 workers over the course of the year, or under 6,000 a month.
Then there's Suncor – or SunJet, the name it gives its fleet. On one particularly busy month, the company flew 32,000 people. SunJet runs five aircraft, including three Bombardier-made regional jets, two with 90 seats, and another with 50. Two additional business jets ferry around executives. All told, its planes fly 400 hours a month, run by an aviation department staffed with 55 people. It supplements those with outside help – on any given day, the company can have four or five charters moving around a broad assortment of people.
“Everybody flies. That includes employees and contractors,” Mr. Grainger said.
SunJet planes run to Calgary, Edmonton, Saskatoon and Vancouver. They even take Fort McMurray-based employees to Suncor's own Firebag airport, located near its oil sands operations of the same name north of the city. The airstrip is exclusively for Suncor's own flights, and it's sophisticated enough to land the class of Boeing 737 jet that WestJet flies.
Numerous companies have similar arrangements. Syncrude Canada Ltd., MEG Energy Corp., Canadian Natural Resources Ltd., Statoil ASA and Devon all have private strips. Royal Dutch Shell PLC runs a major aerodrome, also used by Imperial Oil Ltd., located on a lucrative enough oil sands deposit that at some point, the existing runway will be torn up and built somewhere else so Shell can mine beneath it. Each of these is a major commitment: Paving an airstrip alone can cost $25-million; building an entirely new airport can cost $40-million, or more.
All of the private oil sands aerodromes move, by one estimate, 750,000 people a year. A similar number move through Fort McMurray. Combined, that's enough traffic to exceed the passenger volume moving through city airports in Victoria, St. John's, Saskatoon, Regina and Quebec City.
Each company uses a different strategy. Syncrude, for example, has just two small business jets that it uses to shuttle high-level personnel between Edmonton, Calgary and its Mildred Lake mine site. Syncrude is among the closest operations to Fort McMurray, but it still sees benefits in maintaining a paved strip on site.
“A lot of people don't appreciate how far north these oil sands operations are. Although they're 10 to 20 minutes north [of Fort McMurray]in flying time, they can be anywhere from one hour to, in some cases with weather, two hours drive,” said Robin Borse, manager of aviation for Syncrude. The savings are even more apparent when flying direct from Calgary. It's an hour to Fort McMurray. It's 65 minutes to Mildred Lake. For someone flying in and out in a day, “that's two hours' savings,” he said.
It doesn't hurt either that those flying on oil sands planes board at private terminals and circumvent the time-consuming security procedures that come with flying on commercial airlines.
And companies that have done the math say flying in workers is actually cheaper than having them arrive on commercial jets, or otherwise. Not only are there the time savings, there's also liability. It costs less to insure workers travelling by air than on the ground.
Persuaded by the logic, enough companies are flying workers around that Statoil thinks it can make money handling them. Already, its Leismer aerodrome, set up as a separate corporation with Thai company PTTEP, welcomes flights chartered by ConocoPhillips, Cenovus Energy Inc., Petrobank Energy and Resources Ltd., and Harvest Operations Corp. – each of which pays landing fees to touch down there.
Sometimes, as many as eight aircraft are on the ground at once. And with forecasts suggesting substantial growth – Statoil alone sees its output growing 20,000 barrels a day to 80,000, an increase that will bring far more people – the company has already sketched out the next steps to expand the airport.
“We would need to build a taxiway so that we could station aircraft ready for takeoff and landing off the airstrip,” said Brian Blattler, Statoil’s vice-president of commercial affairs. “It’s our ambition that we become a hub – a regional airport.”
PREPARING FOR GROWTH
The practice of flying workers is not without controversy. It has infuriated officials in Fort McMurray, which see oil sands airplanes carrying away jobs from the municipality. Environmental groups see aviation as enabling a level of activity they see as unsustainable. “You obviously want to ensure that socio-economic benefits are optimized. And if it’s all fly-in, fly-out labour, it’s not clear that’s the case,” said Simon Dyer, policy director at the Pembina Institute, a Calgary-based environmental advocate.
The Fort McMurray airport authority, too, is gearing up against private oil sands aerodromes that, while equipped with safety equipment, are not certified by Transport Canada and don’t maintain the same standards. Fort McMurray airport is now building a new terminal five times the size of its current building. It’s also engaged in a new regional transportation plan, which involves new roads and bridges to speed ground traffic. When that is built, the airport hopes it can woo planes back to its tarmac.
For now, though, Air Oil Sands is flourishing.
At Devon’s Kirby, the equipment is all brand new: a new sweeper, de-icing machine and mauler – used for snow removal. Much more is coming. Devon has plans to build a series of buildings, including a new terminal, equipment shed and accommodations for the staff that will maintain the strip 24 hours a day. A wider, thicker runway will land bigger aircraft, and a paved apron will provide parking for up to six planes.
Because, of course, they’re preparing for growth. Industrial plans for this area, a two-hour drive south of Fort McMurray, show the next five years could see the arrival of 20,000 new workers.
And a good chunk of them will come by air, arriving from across the country – and, indeed, the world – to skim over the forests of northeastern Alberta and build the next generation of Canada’s oil works.
“Today, we bring people in here from Calgary, Edmonton and Lethbridge,” said Nick Geib, a Devon manager responsible for Kirby, as he stands beside the runway in the trees.
“But we could bring them in from anywhere as our level of labour rises. You can’t source everyone from Edmonton and Calgary. There’s not enough people ready to work in the oil patch.”