Even if it doesn’ t get any worse, it may be some time before it gets better, so local and regional businesses are playing the waiting game to see how the oil price situation pans out.
Even if it doesn’ t get any worse, it may be some time before it gets better, so local and regional businesses are playing the waiting game to see how the oil price situation pans out.
After sliding downhill for the past several months, the global price of oil was approximately $47 per barrel last week. Confidence in Alberta’ s oilsands has followed the price downwards, with some speculating that there’ ll be a widespread slowdown in the province’ s oil industry.
In a community that’ s closely linked to the success of the oilsands, that’ s cause for concern, even for business owners who are putting the best face on things, says local Chamber of Commerce president Ron Briscoe.
“I think the business owners I’ ve talked to are remaining fairly positive so far, but they’ re concerned,” Briscoe said. “One silver lining is that it costs a lot less to fuel up their trucks and equipment, but they’ re bracing for the impact to their businesses if oil stays low for a long period of time.”
A large number of the businesses in Lac La Biche County, from contractors to basic service providers, stand to be affected by a potential slowdown in the oil industry, Briscoe says.
“As of 2013 the County had 805 registered businesses, and by my count, over 300 of them are related to the oilpatch, either directly in oil and gas production or indirectly in construction, transportation or technical trades,” he said. “That’ s over one-third of all the businesses in the County, so oil is certainly a huge part of our local economy.”
Whether or not businesses are already feeling at a loss financially isn’ t completely clear, he says, although cost-cutting measures within the industry appear to be filtering out into the wider world.
“I haven’ t heard of widespread layoffs or cancelled contracts locally, although I have heard that some oilfield companies are instructing contractors to reduce their rates by 20 per cent,” Briscoe told the POST. “If I personally took an unexpected 20 per cent pay cut, it would most definitely hurt. That may be a big adjustment.”
According to Lac La Biche County’ s municipal profile, there are 23 oil extraction projects operating within the municipality. There haven’ t been project cancellations, but some developments that lie just beyond the County boundaries have been postponed.
For example, Norwegian company Statoil says it will wait and see before developing more of its holdings near Conklin. French company Total SA says capital spending will be 10 per cent lower this year and two of its planned projects have been moved to the backburner.
Other companies are dialing back their operations in Alberta-not backing out, but allowing their growth to level out.
Consultant Ken Chapman, who’ s a former executive director of the Oil Sands Developers Group, says many oil producers have adopted the wait-and-see approach.
“The announcements have been deferrals of capital expenditures,” he said. “They’ ve been deferred indefinitely.”
As it is, the projects that are in progress have been committed to, he says. In a sense, the producers have come too far to turn back now.
“There’ s still a lot of things going on, and they will continue because they’ re past the point of being stopped,” he said.
What does that mean for communities like Lac La Biche? It means that work in the oil industry continues to be available, even while the industry adapts to new realities, he says.
Trades like construction may see changes in the level of need for their services, but others like maintenance will be as in-demand as ever. Overall, the influence that the oil industry has on local and regional workforces will transform, according to Chapman.
Going forward, it won’ t be all about oil, he says.
“I think we’ re going to go from crazy busy to reasonably engaged,” he said. “Margins are going to get squeezed,” he added, elaborating that companies will be under pressure to boost productivity. In short, they’ ll have to work smarter rather than harder.
The same goes for communities like Lac La Biche, where stakeholders will need to reassess their relationship with the oil industry, Chapman says. Producers are going to do what they need to in order to stay viable, but Lac La Biche County and other impacted municipalities should be looking closely and critically at how to proceed.
“Communities are going to have to look at this as strategically as the government is and the companies are,” said Chapman.
The community’ s connections to the oil industry aren’ t limited to employment. Companies large and small have invested in community infrastructure and programs in Lac La Biche County for a number of years, but community development initiatives might wane if oil prices continue to squeeze those profit margins, says Chapman.
“(The companies) have got pressures now that they didn’ t have before,” he said, explaining that some of the larger companies, even with diminished budgets, will still have the resources to invest in the communities that are affected by their operations. “The good news is they’ re all working in your area,” he noted.
There is a possibility, however, that those larger producers, like Cenovus Energy or Devon Canada, may start to absorb their smaller cousins if that’ s seen as a cost-effective strategy, which means fewer people out there to work with, he says.
“I wouldn’ t be surprised if there’ s some rationalization in the industry,” Chapman told the POST. “We might see a consolidation.”
Oil prices have been on a downward trajectory since last summer, falling to their lowest level in years because of a global oversupply.
It’ s not the first time that this has happened-“We’ ve been through this before. We know what this is about,” Chapman said-but this round of adjustments is different. People shouldn’ t look for a sudden upward jump in the price of oil, he says.
“This is not going to be short-term,” he said. “This is a correction, not a volatility issue. We’ re going to sit at the bottom for a while and then come back up gradually.”
Briscoe says that many businesses appear confident in their ability to move forward, even with oil prices as low as they are.
“The company I work for, ATB Financial, recently surveyed 300 small business owners, and 88 per cent of them believe that their business will be the same or better off six months from now,” he said.
The Chamber president, too, says that oil price changes are nothing new. Stakeholders simply need to hold on tightly.
“We’ ve been through this a bunch of times before and we’ re still kicking,” he said. “For example, not only did we survive the oil price crash in 2008, but for the next six years we enjoyed an oil boom and tons of growth. That’ s the economic roller coaster that businesses are on in Alberta, and we’ ll keep on riding all the ups and downs ahead of us just like we’ ve always done.”
Lac La Biche County’ s Mayor Omer Moghrabi says that, while difficult economic circumstances might lie ahead, this municipality has other industries like forestry that will support it through rough times.
"Because we’ re so well balanced, we’ re going to be able to weather those storms,” he said. “We go through this every five or six years.”
The County’ s revenues might take a hit if extraction projects are cancelled but “there’ s a silver lining to it,” the mayor says. That silver lining could come in the form of a vastly increased labour pool for projects that aren’ t directly linked to oilsands development.
The key thing is to maintain a positive outlook, says Moghrabi.
“I don’ t know if being negative would help,” he said.
