Oilfield contractors keep Canada humming, PSAC says
Big Oil gets the ink, but small service firms make the national engine tick
From gravel pits and cement plants to engineering and laboratory services, 38 of 285 industries tracked by Statistics Canada are at least partly sustained by Alberta-based oil and gas activity. From batteries and switches to bolts and trucks, finding and producing fossil fuels uses 225 of 705 commodities sold by Canadian enterprises.
The annual value of expertise and products exported by Alberta-based oilfield contractors nudges $13 billion. Foreign sales account for up to four-fifths of revenues among 38 firms that venture abroad. International demand for made-in-Canada energy technology and talent held firm through the 2008-09 global financial and economic contraction.
All that data, plus much more, adds up to a paint-by-numbers portrait of a poorly understood sector. It is economic message art. An educational and political agenda inspired the 250-company Petroleum Services Association of Canada (PSAC) to commission the work by the Canadian Energy Research Institute (CERI) and Mission Capital Inc.
The goal is to replace the popular caricature of Big Oil with a more complete and attractive picture. The idea is that to see under-appreciated realities of Canada’s fossil fuel supply business is to realize it deserves respect. Tinkering with royalties, taxes and regulations affects the livelihoods of relatives, neighbors and friends across the country – and not just a handful of mighty corporate monoliths.
“I get sick and tired of being a second-class citizen in my own province,” growls PSAC chairman David Yager, a second-generation participant in the oilfield service and supply sector. “We’re always collateral damage or unintended consequences of energy policies.” He recites a long history of changes blamed for heavy employment casualties, from the federal Liberal government’s 1980 National Energy Program to the protracted 2007-10 dispute over royalties between Alberta’s Conservative regime and the industry.
As chairman of HSE Integrated Ltd., Yager also illustrates the range of economic niches created by Canada’s role as an international fossil fuel supplier. The firm’s title is short for health, safety and environment.
“The oil and gas component of the Canadian economy is historically focused on hydrocarbon production, pricing, royalties and taxation,” writes CERI executive Peter Howard in a report done for PSAC, titled The Contributions of the Canadian Oil and Gas Service Sector to the Canadian National Economy. “Often absent from this debate is the myriad of companies and tens of thousands of workers that support the exploration and production (E&P) companies, the oil and gas service sector (OGS).”
In the support and contracting realm, “Wells drilled, production rates, revenues, royalties and taxes are replaced by words like casing, production strings, tubing strings, bits, wellheads, rig move, rig days, rig release, packers, plugs, fraccing, cementing, coring, testing and abandonment,” Howard observes.
The job descriptions are about specialists who execute the industry’s plans, often with mud on their boots and dirt on their hands, like “surveyors, rig crew, drilling supervisor, trucker, loader operator, jug hound, mud man, snubber, well tester, tool push, well site geologist and safety supervisor.” The roll call includes occupations that make more than one industry tick like carpenters, welders, insulators, electricians, instrumentation technicians, truck drivers, mechanics and fabrication shop workers.
A single term, little used or understood by outsiders, describes a big and growing business of environmental services that goes with the turf of carrying out oil and gas operations from cradle to grave. “At the end of economic life for a field facility, the final word is ‘abandonment.’ The OGS sector includes the companies responsible for sealing, removing and reclaiming the land footprint back to its original condition.”
Sticking up for oilfield contractors: PSAC chairman David Yager
The portrait crafted by CERI and Mission Capital – with summaries posted at www.psac.ca – shows the oil and gas support sphere working at peak capacity in 2006, the last year of complete national economic accounts available. Followup studies are planned into how the field fared during the global recession.
The industrial picture reveals a complex reality, with branch lines reaching out from resource-rich Alberta to manufacturing and technology in Ontario and Quebec. Startling measurements of sheer size also emerge.
About 800,000 jobs or five per cent of the 16.5 million-strong Canadian labor force were part of keeping the oil and gas industry humming, often whether or not the wage-earners involved knew the destinations of their products. All the activity generated a $65-billion, five per cent share of Canada’s $1.35-trillion gross domestic product (GDP).
Big Oil, the exploration and production firms, paid $12 billion in royalties to governments, which are their prime public revenue contributions under a corporate tax regime rife with allowances granted to encourage resource development. The support sector spun off $9 billion or four per cent of all the $225 billion in taxes paid to the federal and provincial governments. “I can’t think of any other place in the world where oil and gas activity swishes around and touches so many people as in Canada,” Yager says.
Much better known parts of the national economy were considerably smaller even in 2006, well before the contraction brought on by the global financial crisis. On the GDP contribution scale, $25 billion came from the Canadian auto industry, $26 billion from agriculture including crops, $18 billion from mineral and coal mining, $29 billion from forest products, $34 billion from residential construction, and $15 billion from other types of building.
As a hard-core, lifelong opponent of government interference who has been an energy adviser of Alberta’s Wildrose Alliance counterpart to the Tea (taxed enough already) Party in the United States, Yager delivers a blunt summary of the economic message to politicians.
He describes old habits of ignoring his sector as a case of, “When the oil and gas industry gets in trouble we just leave the country – when the auto industry and agriculture get in trouble it hits the front pages.”
Rather than seek government help, the PSAC chairman asks for official recognition that, “When our E&P clients get a cold, the service sector gets pneumonia. Let our clients make a buck and we’ll figure out the rest.”