Over the course of 2012, the dozens of energy companies working to wrest profit from the dark, sticky sands of northeastern Alberta will spend $20 billion, much of it in new projects. How much money is that? It’s almost enough to run the governments of Manitoba and Saskatchewan for the year. It’s enough to make a stack of toonies 18,000 kilometres high.
And spending plans for 2013 and 2014 are just as big.
That type of money draws a crowd. Alberta counts more than 5,300 small businesses that work in the oil patch; many of those make their livelihoods from the oil sands, whose hub is the Fort McMurray area. They carry water and scrub down trucks the size of houses. They run buses and million-dollar bulldozers. They drive piles and conduct safety courses. They are electrical contractors and housekeepers and helicopter owners and dry cleaners and financial-service providers.
Without them, some of Canada’s most important energy providers would sputter. Take Syncrude. One of Canada’s biggest oil sands miners, it employs 5,500 people. But it uses a further 1,500 to 7,000 contract workers, depending on the time of year. “There’s a whole economic value chain that accompanies the oil sands,” says Ben Brunnen, chief economist at the Calgary Chamber of Commerce. The area oozes money: Fort McMurray oil producers spend anywhere between $35 and $85 for every one of the 1.5 million barrels that flow out of the area each day.
That has created great rewards for those able to get in. “Just as the large multinational players have experienced growth as a result of all the capital that’s being spent in the oil sands area, smaller private businesses have benefited dramatically from the spending boom,” says Spil Kousinioris, a senior vice-president at Ernst & Young who works with many mid-sized companies operating in the oil sands.
The work is not only lucrative, it’s steady too—the past few years have proven that even when the rest of the world falls into financial disarray, Fort McMurray keeps on spending.
It’s no surprise that many suppliers have staked their savings and their futures on an industry whose might is transforming the country. But hitching one’s star to the oil sands also spells sacrifice. It can mean waiting months to get paid. It means hiring new staff and spending thousands to satisfy clients’ protocols. It means gambles—spending big to buy equipment for a short-term contract in hopes that the gear will still be needed afterward. It means going head-to-head with corporate giants for labour.
“The people aspect of it is a tremendous challenge,” Kousinioris says. “The smaller organizations that don’t have sound HR and health, safety and environment departments are at a disadvantage.”
To see inside the boom, we’ve assembled three stories that illustrate the breadth of work the oil sands offers to local businesses—first nations entrepreneurs among them—and also the immense demands that come with the territory.
BIRCH MOUTAIN ENTERPRISES
Chris Wilson had a sure thing, a job as solid as they come—mechanic at Syncrude Canada.
He’d worked there for 11 years, but it wasn’t enough. He wanted to strike out on his own and start his own business. He not only had the experience and skills—he’d fixed the supersized trucks that roam the Fort McMurray area—but he had connections, too. Growing up in Fort McKay, the first nations town not far from the Syncrude operation, he knew that the band-owned group of businesses in town had work for him.
As he readied himself for his first day on his own, he had everything in place: an incorporated company, a start date—July 4, 2005, a personal independence day—and a $65,000 truck, a big 1 1/2 ton F-450 he had dug into his savings to buy. Birch Mountain Enterprises Ltd. was ready to go.
Except for one thing. What Wilson didn’t have were tools. He had ordered $35,000 worth of them. They hadn’t showed up. So he drove his truck, empty, to the Muskeg River Mine, the enormous Shell project where he was supposed to get to work maintaining heavy-haul trucks.
Luckily, his brother Lee was also a mechanic at Syncrude. On his own time, Lee ran to Canadian Tire “and bought, out of his own pocket, $1,200 worth of wrenches, sockets, an impact gun. It was everything I needed,” Wilson recalls, at least for the first few days.
It was “a pretty rushed first week,” but Wilson quickly fell into a groove. “There was a sense of pride driving home at night in my mechanic’s truck. This was something that had been a burning desire.”
A month later, Lee also quit his job at Syncrude. He bought his own truck and joined forces with Chris. Little more than a year later, their childhood friend Ivan Boucher quit his welding job at Syncrude, got his own truck and joined the brothers.
In little more than half a decade, the three owners have assembled a fleet of 38 pieces of equipment, a winter work force of 42 and contracts with some of the largest corporations in the country.
As a wholly aboriginal-owned outfit, Birch Mountain joined the cohort of small and medium-sized businesses with native connections that are an increasingly important part of the oil sands landscape. The Northeastern Alberta Aboriginal Business Association, which certifies companies as being 51per cent or more aboriginal-owned and operated, had 85 companies on its roster in 2008. Today, it counts 119—a 40 per cent increase in four years. These firms rent equipment, own helicopters, weld, housekeep, keep books, supply clothing, erect scaffolding, consult, build roofs, train people and wire up big plants.
They are tapping into an enormous market. In 2011, Shell announced that in six years, it had spent more than $1 billion with more than 70 aboriginal contractors. Imperial Oil has paid almost $140 million to 25 aboriginal contractors on its $10.9-billion Kearl project. Syncrude spends roughly $150 million every year with native suppliers.
Years ago, oil sands companies hived off some of the least desirable contracts to first nations businesses. They would allow only native contractors to bid on these “set-asides”—for example, janitorial work at Syncrude. But the past half-decade has seen huge change in the companies’ outlook. Imperial Oil, for instance, sends staff to first nations business development workshops. Syncrude employs Steven Jani, a Métis who worked in operations for the company before being named its aboriginal business liaison. Says Jani, “If there is a contract coming up and we don’t have aboriginal businesses on the radar, we put them on the radar.”
He gives an example: Syncrude needed someone to operate its wash bay, where pickup trucks are scrubbed of grime and sticky bitumen. Syncrude’s procurement staff didn’t know of any first nations businesses that might be able to do the work. So Jani checked out the directory maintained by the aboriginal business association. He found a name: Birch Mountain. “They bid on it, and won it,” Jani says.
From their own experience at Syncrude, Boucher and the Wilson brothers knew that maintaining heavy oil sands equipment was tough work. What they didn’t realize is how difficult it would be to hold on to the people who could do the work. After a year of “pulling wrenches” in vehicle maintenance, as Chris Wilson puts it, they had seen substantial success. They were up to four mechanics and three welders. But every time they sent someone out to do a job, they risked losing them. “If the contractor noticed how good the mechanic was, they would try to gobble them up,” Wilson says.
The company evolved its way out of that dilemma when it discovered the acute demand for steam trucks, mobile units used to clean off machinery with hot water. “There was a huge wait time for steam trucks. So we bought our own truck and put that to work. And that built into another. And another,” Wilson recalls.
“So we switched from being a maintenance company in the early stages into more of a service-sector company.”
It was, in some ways, giving up on the dream. No longer would they be mechanics and welders. Plus, they were entering a capital-intensive game that meant dealing with far larger sums of money: a single steam truck can run $184,000.
It was also, in an overheated economy in the midst of an arms race for workers, a brilliant move. Steam truck operators needed nothing but basic truck-driving skills and two weeks of training. Workers were, relatively speaking, easy to find.
“It was probably one of our best moves, to steer away from the trade industry, because it’s way competitive up here. To have a certain niche and find it is hard to do,” Boucher says.
Birch Mountain rapidly built up its fleet. Three steam trucks turned into seven. They bought a water truck to feed the steam trucks. Inland Cement, whose offices are situated near Birch Mountain’s, saw the water truck and asked if the company could start hauling water for Inland as well. So Birch Mountain built up a fleet of water trucks. They got a one-year contract with a camp housing oil sands workers, jointly owned by a first nations company, to haul water and sewage. They bought a vacuum truck to suck up sewage. More vehicles followed.
To raise more business, they cold-called. To keep existing business, they got in their trucks, and drove. Boucher logs 200,000 clicks a year. Every second day, he or one of the Wilsons is at a job site.
“The big thing is making sure you’re out there and talking to the front-line people,” Boucher says. It’s all about “talking to them, seeing them, making sure they’re getting what they expect out of us.”
Still, it hasn’t all been easy. Most of Birch Mountain’s work today is on call, which requires “a lot of planning, and it’s hard to maintain a steady employment base
Don Lapierre had only spent two years sending buses into the oil sands when the request came: Encana had a major maintenance event coming up at its plant, and it needed to move a lot of workers, urgently.
Lapierre would need a half-dozen more shuttle buses. He had just over a week’s notice. It wasn’t enough time to buy shuttles. He had no choice but to improvise. “So we purchased six new school buses for the two-week turnaround,” he says.
The $490,000 cost was not a small bet for a company that had been built on the razor-thin margins that come with school-board work. But it was not a difficult decision, given Lapierre’s customer-first philosophy: “Any time they ask, we’ll flip over backwards. Anything we can do to make them happy, we will do it.”
Lapierre has been in the business ever since his last year of high school, when he signed on as a school bus driver. At 18, he wanted the extra money and didn’t mind that it meant getting to haul around the girls’ volleyball teams.
The teenaged bus driver eventually took over the school bus business, renaming it Aurora Transportation. At the time, he didn’t realize that his hometown would offer geographic good fortune. Bonnyville is a 420-kilometre drive southeast of Fort McMurray. It would soon become an important leaping-off point for the southern stretches of the oil sands, which have become a focus of development in the past half-decade.
Lapierre had 12 buses and a decent living when, in the early 2000s, Encana approached him. The company wanted to know if he could take its workers to and from the Foster Creek development, 90 minutes north of Bonnyville.
Lapierre knew the roads to Foster Creek were so bad that heavy-tracked dozers were often required to pull buses through kilometres of muck. He also knew Encana was only working on a pilot project that might not lead anywhere. So he negotiated a contract that obligated Encana to fund part of his bus costs if the work only lasted for a year.
And then he went out and bought two buses. “We gave it a shot,” he says. “And it continued to grow.”
Lapierre went from two buses to three, then five. He now runs a dozen into Foster Creek, and 18 into Christina Lake, a project run by Cenovus, which was hived off from Encana in 2009. All told, the company has 93 vehicles registered, 85 of them buses, and 80 employees.
It has been an extraordinary growth curve, all the more so considering that it’s an expensive business. A 47-seat Greyhound-style coach runs about $450,000.
Those costs have meant that, for a man who hates borrowing—”I just manage to get one paid off, then move on to the next”—the growth hasn’t come easily. “There was very little salary for quite a few years,” he says.
Early in 2012, Lapierre paused a moment to take stock. He had added three coaches several months before. Three others had just arrived a few days prior. And three more left Pennsylvania that very day, en route to Bonnyville. “So in the last three months, that’s nine of them,” he says. “And guaranteed I’ll be doing at least another five to six highway coaches this year.”
Through it all, Lapierre kept his service edge sharp. His shop number is forwarded to his cellphone 24 hours a day. He often buys specialized buses, built on a heavy-truck chassis, to survive the rough roads. Perhaps more surprisingly, he is bringing on new luxury coaches for the comfort they offer. He hires mostly truck drivers with plenty of experience, but runs them through his own driving school to “fine-tune them a little bit for the bus operations.”
He still deals with the same person at Cenovus that handed him his first contract. “They’ve treated us very, very well, and in turn we try to give back as best we can,” he says.
Still, there are always the nagging doubts. Success is a hard-won commodity, especially for a relatively small player that has pegged much of its livelihood to a single customer. And though the future for the oil sands looks bright, Lapierre can’t quite swallow the doubts. Will the coming years bring predatory new entrants, looking to shoulder him out? Will his dedication to service allow him to fend them off?
He doesn’t know—but he is building a big new maintenance shop.
“They keep talking about how it’s going to get busier. All the plants are always expanding,” he says. “I’m expecting there will be more competition here in the next little while. But we plan on continuing to grow as much as we can.”,” Boucher says. Long-term contracts have been challenging to secure.
But years of working together haven’t hurt relationships between the three owners, who grew up hunting, fishing and ATVing together. In fact, they spend more time together socially now than before they were in business.
When Peter Kiss bids on a new job, he knows to get ready for a corporate patdown. It’s part of doing business in the oil sands, where some of the biggest companies on Earth demand extraordinary scrutiny of even the smallest companies they work with.
For Kiss, the owner of Edmonton-based Morgan Construction, that can mean a potential new client will send a representative to his office and shop on an auditing visit that lasts several days, as the envoy examines equipment, scrutinizes maintenance logbooks and questions employees. “It’s an interview for your company, a job interview,” Kiss says. “Anyone can have a safety system written down. But not everyone follows it.”
Kiss learned early on that if he wanted to work in oil and gas, he could expect both big money and big demands. He has ably navigated between the two: Between 1998, when, as a 27-year-old, he took over his parents’ struggling company, and today, he has grown his employee base from 15 to 500. Morgan Construction now runs 300 pieces of equipment that are used to clear sites for construction, build ice roads, prepare landfills, construct highways, dig irrigation canals, demolish old buildings and clean up waste.
Kiss grew up in his parents’ company, operating heavy equipment when he was still in elementary school. “During the summer, I travelled around with my dad,” he says. “He would have me on small heavy equipment, small dozers.” But when Kiss returned to the family business after attending university, he wasn’t sure it was the life for him. “It was a small company that didn’t do particularly well,” he says. Shortly before they retired, however, his parents landed a contract to work on the massive Alliance pipeline project. “We got a big chunk of the work and we made quite a bit of money,” Kiss recalls. “I was like, ‘This is pretty good.’ I got a taste of what could be if we were to continue on this path.”
He set to work turning things around, buying new equipment and pitching the company’s services. Morgan was still small, but that suited it to jobs like the four- or five-person reclamation tasks required by companies that had experienced spills. Soon, he began bidding on bigger jobs. The larger picture augured well. In 1995, the entire oil sands industry produced 428,000 barrels a day. By 2010, output had risen to 1.47 million. “Outside of some really good luck and some good clients, we’re the product of the economy,” Kiss says.
To benefit, Kiss had to learn to work with an industry that asks a lot of its contractors. Kiss is often called upon to pioneer roads and clear sites for work. “We’re the first guys out there—us and the surveyors,” he says. That can mean operating under a veil of secrecy, since companies exploring new land don’t want to tip their hand to competitors.
“We have some jobs where our workers don’t know who they’re working for,” Kiss says.
Then there’s safety. Compared to the safety protocols required by, for example, government contracts, oil patch work is “black-and-white different,” he says. Government work is often easier in another way, too: To get a public contract, you make the lowest bid, do the work and get paid. In the oil patch, getting a contract typically requires both a good price and a good relationship.
Achieving the latter in the oil sands, which is populated by dozens of companies, can be dauntingly complex. “I don’t know if I’d do it again,” Kiss says. “There are a lot of barriers. Every [client]is different. One company is on one software, one is on another and they all have to be billed differently. They’re all on different timelines.”
The oil patch is notorious for late payments—it can take three months to get from invoice to cheque. All said, “it’s very overhead-intensive to work for oil and gas. Massively overhead-intensive,” Kiss says.
Yet for all the trouble, working in this milieu comes with a major upside: a relative immunity to financial pain. Kiss learned early on to diversify his business, spreading out his work both geographically and across oil and gas projects to shield against the inevitable busts that come when commodity prices spiral.
He hasn’t had to be as careful in the oil sands, where supermajor energy companies come to build 40-year projects. “A downturn in the economy for the majors can mean they can get steel cheaper, they can get turbines cheaper—everything becomes more available to them,” Kiss says. “They’re well-heeled, so financing is no problem.
“The best growth period for us,” Kiss says, “was when the economy turned down.”
LANDING OIL SANDS WORK: WHAT IT TAKES
1. Know that small can be beautiful
To a small business, the Horizon Oil Sands mine is daunting: It’s the kind of construction project whose suppliers count their annual revenues in billions. Over the course of the next few years, Canadian Natural Resources Ltd. intends to build Horizon into a 500,000-barrel-a-day operation—nearly a third of all the oil needed to run the entire country.
But the project’s managers are surprisingly open to working with smaller contractors. Not long ago, CNRL asked for bids to build a hydro-transport system, which mixes oil sands ore with water to move it. When the bids came back too high, the company split the project into three components: pipeline, pumps and the interconnection points at either end. Then the company “rebid it to another group of people—the smaller guys,” CNRL president Steve Laut says.
The bids came back 15% lower. And small businesses found a big new opening in the oil sands, where, Laut says, “they can play a very important role in specialty work and small jobs.”
2. Mitigate that risk
The breathtaking scale of the oil sands typically demands major capital—especially tough for entrepreneurs with shallow pockets. So, many find savvy ways to mitigate risk. When Aurora Transportation took its first oil sands contract, for example, it meant buying new buses for a job that might only last a year. Don Lapierre, Aurora’s owner, wrote into his contract a stipulation: anything less than three years, and the oil sands client would pony up for part of his bus costs.
3. Always be available
Service is critically important, given the sums at risk. Miss a deadline by a month, and an oil sands company might forfeit $50 million worth of oil sales. So smaller companies do what they can to always be available—whether that’s ensuring the shop number rings through to the owner 24 hours a day, or adopting systems that larger competitors wouldn’t dream of. Birch Mountain Enterprises has 42 employees running 38 vehicles—but doesn’t employ a dispatch person. Instead, the company’s owners deploy their drivers themselves, then give the drivers’ cell numbers directly to the client.
4. Hire creatively
Smaller companies often find creative ways to manage the single most difficult element of working in the oil sands—hiring and retaining people. Most turn to Kijiji to source labour from across the country. And no company, no matter the size, gets oil sands work without investing in safety. That means hiring safety professionals and paying thousands for qualified people to write and maintain a company safety policy.
5. Get that first contract
Companies differ in how they tackle the tricky challenge of landing their first job. Some learn the ropes in other parts of the oil patch. Others are fortunate enough to be located nearby, and seize work when it comes to them. Still others use technical savvy to develop innovative products or services that no one else can provide.
But those who have watched business develop in the oil sands warn that today’s market is so competitive that “it’s very hard even for the largest companies to just open up an office in Fort McMurray and expect the work to come.” That’s according to Spil Kousinioris, a senior vice-president at Ernst & Young who says one of the best strategies is simply to acknowledge that those already in place have a big advantage, and pay up. “Some larger entities have tried to joint-venture with companies that have a local flavour, that local presence,” he says. “A lot of others have tried to get in through direct acquisition activity, and I believe you’re going to see more and more of that.”
Special to The Globe and Mail