A Saudi Predator?

How market manipulation helped the kingdom become a major investor in western oil companies

By Peter McKenzie-Brown

The last twelve months have been rough for companies invested in Alberta’s oil sands. Things began rough, with Norway’s US$1 trillion sovereign wealth fund, which has its origins in the country’s offshore oilfields, announced that it would unload the US$81 billion it had invested in bitumen companies. The reason? Such an investment was out of alignment with the 2^oC global warming target set by the 2016 Paris Agreement on greenhouse-gas-emissions. “By going…oil sands free,” the Norwegian news release said, “we are sending a strong message on the urgency of shifting from fossil to renewable energy.”

A strong message it may be, but also haughty. There is a direct correlation between a nation’s oil consumption, its GDP and the quality of life its citizens enjoy. By what right could the world’s rich nations – for practical purposes, the 37 members of the Organization for Cooperation and Development, with a population of about 1.3 billion – justify denying affordable energy to other countries in the world? Well, there is the matter of the global warming emergency.  The case for developing alternative energy resources is dire. After all, the population of our planet is rapidly approaching eight billion.

Norway’s wealth fund soon sold its US$81 billion interests in Calgary-based Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc. From that point on, the statement said, the fund would exclude companies involved in the oil sands from consideration as appropriate investments.

The shares in those companies responded immediately by falling. Even though there is widespread concern about global warming in Alberta, many of us with backgrounds in the oil patch felt affronted. “What else could go wrong?” we wondered. We did not know it at the time, of course, but there would soon be the matter of COVID-19.

As the dangers of travel across a pandemic-stricken planet became obvious, governments imposed lockdowns around the world and global oil consumption plummeted. As international travel crumbled, oil prices dropped for an industry which cannot too quickly shut in production. The poster-child for this event came on April 20^th, when the headline price for a barrel of West Texas Intermediate oil fell into negative territory for the first time ever. For the only time in history, sellers had to pay buyers to take their oil. (See chart.)

                Why did it happen? Essentially, because of the way oil markets function in Texas. The Texas Railroad Commission is the steward of the oil-rich state’s natural resources and the environment, and its regulations led to the reality of oil prices crashing from US$18 a barrel to -US$38 in a matter of hours. Rising stockpiles of crude threatened to overwhelm storage facilities and forced producers to pay buyers to take the barrels they could not store. Was this the doing of big oil – such vast publicly-traded oil companies as ExxonMobil, British Petroleum and Royal Dutch Shell, which are so often characterized as villains when pump prices rise at your local gas station.

In fact, the world’s 13 largest energy companies, measured by the reserves they control, are government-owned and operated – by name, Saudi Aramco, Gazprom (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia). These state-owned companies and their smaller siblings control more than 75 percent of global production. By contrast, the multinationals produce only ten percent.

Markets, manipulated

In early March, OPEC officials presented an ultimatum to Russia to cut production by 1.5 percent of world supply. For her part, the Eurasian giant foresaw continuing cuts in her market share: after all, America’s shale oil production, which uses fairly new technology, was making the country both the world’s largest consumer of oil and the largest producer. Anxious about this concern, Putin’s government rejected the demand – in effect ending a three-year partnership between OPEC and major non-OPEC producers, widely known as the OPEC Plus cartel. Another factor was weakening global demand resulting from the COVID-19 pandemic. This also resulted in OPEC Plus failing to extend the agreement cutting 2.1 million barrels per day that was set to expire at the end of March. Saudi Arabia, which has absorbed a disproportionate amount of the cuts to convince Russia to stay in the agreement, notified its buyers on March 7^th that they would raise output and discount their oil in April. This prompted a Brent crude price crash of more than 30 percent before a slight recovery and widespread turmoil in financial markets.

Perhaps this Saudi-Russian price war was a game of chicken to see who would blink first. But neither of the major players had much reason to blink. In March 2000, the Saudis had US$500 billion in foreign exchange reserves; Russia had US$580 billion. More to the point, the Saudi cost of production, depending on the grade produced, is three dollars per barrel, compared to US$$30 per barrel in Russia.

Thus, the OPEC plus price war was designed to take advantage of a weak global economy, infected by COVID-19. It Saudi Arabia's case, it assaulted the Western petroleum sector – especially America’s. To ward off from the oil exporters price war which can make shale oil production uneconomical, US may protect its crude oil market share by passing the NOPEC bill.

In April 2020, OPEC and a group of other oil producers, including Russia, agreed to extend production cuts until the end of July. The cartel and its allies agreed to cut oil production in May and June by 9.7 million barrels a day, equal to around 10 percent of global output, to prop up prices, which had previously fallen to record lows.

The Russia/Saudi Arabia oil price war, which had begun the previous month, had a huge impact – probably by design – on the ownership of large oil companies in Europe and North America. Saudi Arabia’s sovereign wealth fund saw nothing but opportunity in the global oil price plunge. During the battle, the kingdom scooped up billions of dollars’ worth of shares in downtrodden energy companies, including Canadian firms.

Filings with U.S. Securities and Exchange Commission indicate the kingdom’s Public Investment Fund (PIF), which has an estimated US$320 billion in assets under management, bought stakes worth US$481 million and US$408 million in Suncor and Canadian Natural Resources, respectively, during the first quarter of 2020. That month, the values of the Canadian producers and three other energy stocks PIF bought — Royal Dutch Shell plc, Total SA and BP plc — had all more than halved from their 52-week highs at the time the kingdom made its acquisitions. The illustration shows the prototypical Royal Dutch share price after the crash. It also shows the quick return the kingdom made from the package of acquisition of these five stocks as markets rebounded: more than US$182.6 million since the end of March.

The Best of the Best

Imperial Oil's Kearl project is poised to open, bringing "green" bitumen to the world. This article appears in the September issue of Oilweek 

By Peter McKenzie-Brown

Imperial Oil has been a big player since Canada’s petroleum industry began. With roots that go back to southwestern Ontario’s 19^th century oil boom, in 1947 the company kick-started the industry’s modern era with its Leduc discovery.

Not so well known is that Imperial has been the consummate pioneer in the oil sands business. In the middle of the last century, the company joined the Syncrude consortium, which in 1962 applied to the Conservation Board for approval to proceed with the Syncrude project. The final decision to proceed with Syncrude didn’t take place until 1975. By that time Imperial had developed the cyclic steam stimulation, which now drives its Cold Lake project. Not so well known is that, as part of its early Cold Lake experimentation, the company conducted the first tests on steam-assisted gravity drainage – the technology of choice for in situ recovery in the Athabasca deposit. Today, SAGD is the source of about half of Canada’s bitumen production.

The folks at Imperial are getting ready to do it again. When commissioned at the end of this year, the Imperial-operated Kearl oilsands project will process oil from a mine 70 kilometres from Fort McMurray. Unlike all the other mine-based projects up there, however, Kearl won’t produce high-carbon oil. Indeed, the product flowing into American refineries will produce no more carbon emissions than those produced by the average barrel now refined in the United States.

The Kearl project is huge. When it reaches full capacity of 345,000 barrels per day around 2020, it will be one of the world’s largest sources of crude. And it will produce low-carbon bitumen for 40-50 years. It will achieve this apparent industrial miracle through advanced oil sand processing techniques and the production of diluted bitumen which doesn’t need to be upgraded. A significant later add-on will be power from energy-saving cogeneration for the provincial power grid.

Imperial’s long experience in oil sands development and management – not least as a charter member of the Syncrude consortium – means the company has depth and breadth of experience. According to Kearl’s designated media spokesman, Pius Rolheiser, “The project will use the best of the best technology.” One of those “best technologies” is high-temperature paraffinic froth treatment (HT-PFT).

Paraffinic Froth: To understand the oil sands revolution Kearl represents, you have to understand froth treatment. “After oilsand is mixed with hot water to liberate the bitumen from the matrix of sand, water, silt, and clays, the bitumen is separated from the resulting slurry,” science and technology writer Diane Cook explained. “In a flotation vessel, the bitumen is removed as a highly viscous mixture of oil, mineral solids, and water called bitumen froth. The froth is then diluted with a hydrocarbon solvent to reduce its viscosity and enhance separation from the emulsified water and solids.”

The earliest plants mixed oilsands with hot water and naphtha in a separation vessel to separate the bitumen from the water, sand and other wastes associated with the ore. The facility skims the froth from the top of the vessel to get a product for further processing. The problem with this approach is that the resulting bitumen blend can contain as much as 3.5 percent sediments and other impurities, which require further processing and upgrading before they can be transported in a regular pipeline.

The key to Kearl’s low-carbon achievement is to use paraffin rather than naphtha. Originally developed by Syncrude in partnership with NRC’s CANMET Energy Technology Centre in Devon, Alberta, high-temperature paraffinic froth treatment removes only lighter hydrocarbons from oil sands ore, leaving undesirable asphaltenes behind. Asphaltenes carry most of the very fine solid particles (“fines”) that create tailings pond nightmares for older plants. According to Rolheiser, through this process “we can return them as waste to the mine.”

Asphaltenes consist primarily of carbon, hydrogen, nitrogen, oxygen, and sulfur, as well as trace amounts of vanadium and nickel. Heavy, gunky hydrocarbons, they contain almost as much carbon as hydrogen. Thus, in the typical refinery, asphaltenes are a low-end product with few uses beyond road pavement and roofing tar. The fewer asphaltenes you pipe into the refinery, the more high-end products the refiner can ship out after processing.

As Cook explained when a Shell-patented version of the process went into use at its Athabasca Oil Sands Project, paraffinic froth treatment “produces a much cleaner, diluted bitumen product that contains less than 0.1 per cent residual water and solids. In this process, the contaminants are readily separated by gravity, without the need for energy-intensive centrifugation, and the light aliphatic solvent is easily recovered from the diluted bitumen without the use of a lot of heat…. As a result, the bitumen has a lower viscosity, which allows the bitumen to be transported by pipeline to upgraders or directly to market with a small amount of diluent added.”

It is in this area that the Kearl project is revolutionary. Although Shell recently applied this process at existing project, Kearl will be the first oilsands mine constructed entirely without reference to an upgrader. According to Rolheiser, “Kearl bitumen will be somewhat lighter than the other marketed diluted bitumen produced in the oil sands.” This is possible because of the higher-quality oil produced through paraffinic processing.

Proposal, Budget, Expansion: This project has been a long time coming. Mobil Canada acquired Lease 36 – the oldest of the leases – in 1952. Imperial acquired lease 87 in 1989. A decade later Imperial and Husky Energy bought lease 6. Once the two companies had the property in their collective hands, Imperial took the lands amenable to surface mining while Husky took the sections that were better developed through in situ technologies.

 Mobil made the first proposal for a Kearl mining and upgrading project in 1997, to be based on lease 31A – an adjacent lease that plays a smallish role in today’s Kearl project. After the 1999 merger of the two majors that gave ExxonMobil its name, the international giant holds 100% of the mining rights to leases 36 and 31A and a 30% interest in the project.

Rolheiser said his company’s affiliation with ExxonMobil has played a key role in project development. Through that storied giant, “Imperial has access to global technologies, assets and expertise. They have executed multibillion-dollar projects all over the world. They have an unprecedented research capability. Our affiliation with them gives us a lot.” Not only did ExxonMobil bring patents and engineering ideas to the table. “It also enabled us to leverage our own expertise.”

Imperial originally conceived Kearl as a three-phase development in its original proposal, with each phase producing about 110,000 barrels per day. It was that project that Imperial began scoping out in 2004/5, with the company then presenting its regulators with a cost estimate of $8 billion for phase one. Estimated costs later rose to $10.9 billion for that phase.

According to Rolheiser that’s because “As we got into the execution of the project (in 2011) we realized that there were some facilities that we didn’t need to duplicate, and in fact we could make the surface footprint somewhat smaller. So we re-configured the project into two phases (instead of three). So, what we’re building today for $10.9 billion is a different development than what we had envisioned building for $8 billion. It includes additional investments in things like tailings management to meet ERCB Directive 74, and regional pipelines (that we hadn’t originally planned for).”

The company plans to begin construction of the expansion phase, for which it has budgeted $8.9 billion, in 2015. After construction and debottlenecking, the full project will be on stream at the end of this decade. The project encompasses a 4.6 billion barrel resource, and Imperial expects initial development costs to total about $6.20 per barrel.

Rolheiser added, “We can now get to our license capacity of 345,000 barrels per day, which was our target when we originally envisioned the project. We’re just going to get there in a different way.” Kearl will operate near capacity for 40 to 50 years, so “commodity prices are likely to have a minimal impact on our planning. For projects like Kearl we really do take a very long view of things. We aren’t even thinking about year-to-year prices. Our current expansion plans are not contingent upon approval of any particular pieces of pipeline infrastructure. They aren’t dependent on whether Gateway goes ahead.”

Well-to-Wheels: According to a 2010 report by IHS CERA, a highly respected American think tank, the Kearl project will result in life-cycle greenhouse gas emissions similar to the average of oil refined in the United States. In Brussels last year, the Jacobs Consultancy, an international firm, gave a report to the Centre for European Policy Studies in which it reached the same conclusion.

These reports differ so markedly from those used by environmentalists because they compare full lifecycle emissions. If you want to make apple-to-apple comparisons of crude oil sources, this is an important concept. True well-to-wheels, calculations account for GHG emissions associated with every stage of a product’s life: extraction, processing, refining, distribution, and use. The IHS CERA and Jacob’s reports add those emissions, for example, to the product’s total. Adding these factors into the equation dramatically changes the GHG estimates.

The case of Nigeria’s Bonny Light oil is dramatic example. During refining, this high-quality oil (35° API with negligible sulphur content) produces relatively low levels of GHG emissions. However, the country’s practice of flaring associated gas during oil production hugely increases the lifecycle emissions of its exports. According to the Jacobs report, in recent years Nigeria has flared 27 cubic metres of natural gas for every barrel of crude it produced. This is the main reason that Jacobs’ full cycle calculation showed Nigerian light crude producing 7% more GHG emissions than the average slate of oils refined in the US.

Well-to-wheels GHG emissions for oil sands and conventional crude oils (kgCO2e per barrel refined products)
Crude	Well-to-retail pump	Well-to-wheels	% difference from average US crude consumed
Canadian oil sands: mining dilbit (Kearl)*	103.6	487.6	0
Average US barrel consumed	103.1	487.1	0
Average oil sands imported to US (2009)	133.5	517.5	6 %
California heavy oil	165.6	549.6	13 %
Nigerian light crude	135.2	519.2	7 %
Canadian heavy oil	82.6	466.6	-4 %
Venezuelan partial upgrader	157.6	541.6	11 %
West Texas Intermediate	54.6	438.6	-10 %

(Source: IHS CERA.)

By contrast, the Kearl project will produce GHG emissions that are virtually identical to those of the average barrel refined in the US, whether you are measuring those emissions at the retail pump or a vehicle’s exhaust (both marked in red on the table).

If you take the chart too seriously, it may seem that only WTI and Canadian heavy oil are greener sources of oil from a GHG perspective among the crudes listed in the table. However, it is worth noting that Canadian and Brent light oils, for example, are not listed. This illustrates the importance of comparing Kearl production to the average slate of oils refined in the US.

Of course, if it is fair game to add emissions from flaring natural gas in the Nigerian calculation, it is also reasonable to deduct them if a producer can make a credible case that its production practices actually offset GHG emissions. The Kearl project does this in two ways.

For one, it was designed without an upgrader – traditionally, a major source of GHG emissions for oil sands mines. Using paraffinic processing makes this possible: just mix the higher-grade bitumen with diluent and ship it by pipeline to an existing refinery. To put the significance of this innovation into context, consider that exports to the US from many countries will become more carbon-intensive as national oil companies export increasingly lower-grade crude – a phenomenon known as “the blackening of the barrel.”

The IHS CERA study forecast that “new mining projects without upgraders (like Kearl) will increase (American) imports of lower-carbon oil blends.” In 2030, the report suggested, “the average carbon intensity of oil sands blends (will) remain about the same as today.” This could mean that Kearl oil will become less carbon-intensive than the average refined in the US.

Kearl’s other big carbon-lowering tool will be the use of cogeneration. Environmentally and economically efficient, cogen involves the simultaneous production of electrical power and heat from a single fuel source. The oil sands industry has used cogen during bitumen production since the 1970s, so the practice is not new. In the quest for reliable self-sufficiency in power, all new mining facilities since then have used cogeneration, though generally aimed at little more than supplying their own projects.

Imperial will also install gas-fired cogeneration units at Kearl, selling some of its production into the grid, though details are still sketchy. According to Rolheiser “They will be added to the operation as a separate project (before 2020), but not as part of initial plant development.”

As the Kearl project moved through the approval and construction phases, most media discussed the project in the context of an anti-Kearl lawsuit from an environmental coalition (Imperial won the case), and concerns within the US about transporting huge modules on state highways. The pity is that, in general, they are unlikely to cover Kearl as an environmental triumph.

People Power

Calgary ranks high on the national United Way scale, but it's the people behind the campaign that make a difference.

This article appears in the December issue of Oilweek; photo with permission of Nexen.

By Peter McKenzie-Brown

“While the world is getting better, the disparity between the top and the bottom is getting greater,” according to Talisman CEO John Manzoni. “Those of us at the top who have benefitted from an astounding couple of decades of prosperity often forget that the things that have contributed to that prosperity have actually made things worse for some people.”

“Calgary itself plays a role in that,” he continues. “It’s an oil town, a hydrocarbon city. As the price of oil goes up so do costs…the cost of food, the cost of accommodation, the cost of fuel. As a result, people get left behind. All that’s happening in the financial sector is just exacerbating the situation. I am increasingly of the view that business has a moral obligation and responsibility to help to bridge those gaps.”

Those comments represent the windup to Manzoni’s reply to my question, “Why did you agree to co-chair this year’s United Way campaign?” Now comes the pitch. “If you can do something locally, that’s all the better. Based on that perspective, (the United Way) is a great opportunity to do something that helps.”

A relative newcomer to Calgary – he assumed Talisman’s top job from Britain four years ago – Manzoni also acknowledges business reasons to become involved. “From a selfish perspective, I’m new to the city and it’s a great way to get to know more people. There are many advantages to doing this in addition to the fact that you can do some good.”

Manzoni’s co-chair this year is Sue Riddell Rose – the CEO of Perpetual Energy, which has about 180 employees locally. A native of the city, Rose says she’s “involved in the program because it aligns perfectly with my goals and my husband’s goals and my family’s goals, and our vision of what we want the city of Calgary to be.”

She adds that “The United Way has been a presence in the community for quite a long time. It’s often been said that every dollar given to the United Way contributes six dollars of benefit to the community. That’s because the United Way helps fund high-impact programs that help the city avoid certain kinds of outcomes down the road. If you do that, you can save the system quite a bit of money.”

Campaign co-chairs “come from every part of the spectrum of the Calgary community – sports figures, small business, technology. It just happened that this year they’re both executives from the energy industry,” according to Ruth Ramsden-Wood, who has been the CEO of the Calgary and Area United Way organization for the last 14 years. On average each co-chair dedicates 46 hours to the annual campaign. “They lead a cabinet of 50 people who represent every segment of our society, from major energy companies to universities to unions,” she says. They “work with those people and they meet with people throughout the community for the whole year leading up to the campaign. It’s a pretty hefty role. They become very visible in the community.”

“We put a lot of time into developing our cabinet and they develop additional cabinets in their own sectors,” adds Susan Rose. “That enables our efforts to trickle down and into the community.”

Fun

Manzoni, Ramsden-Wood and Rose give the big-picture look at the United Way. If you narrow your focus to the workplace campaign, matters get much more interesting.

“Every company has its own fun events” says Susan Rose. “It’s part of the intrigue that you can use these events to express your own creativity. Something like 1,200 United Way campaigns will take place this year, and they will all be different. Lots of creativity comes into play, and that can be defining for companies’ cultures.”

What kind of fun? Ask Melanie Swanson, an integrity analyst at Nexen and chair of that company’s 2011 United Way campaign. Nexen’s theme is “Be a superhero,” and that theme led to a public relations home run for the company.

As the United Way season kicked off, hordes of company employees donned superhero costumes to test the previous world record for “most superheroes in a single place.” According to Swanson, “It was a lot of fun to organize the event, but the purpose was to breathe life into the campaign. There was an adjudicator from the Guinness Book of World Records present, and we had to meet particular criteria.” When the adjudicator announced that Nexen’s 437 superheroes had blown away the previous world record, a jubilant crowd went wild. The event got wide-eyed publicity across the full spectrum of media – from TV to Twitter.

The superhero stunt reflects a corporate culture that strongly supports the charity. A year ago Nexen and its 1900 Calgary-area employees contributed a jaw-dropping $1.4 million to the United Way. Half the total was a corporate contribution.

Nexen’s media success was the envy of other companies. According to Peter Ingle, Imperial’s surplus property manager and co-chair of the company’s campaign, “We have fun events, but I have to admit I’m a bit jealous of what Nexen did. I’d like to do something like that. Our events have tended to be more internal. For example, we have large-scale Wii competitions among our employees.”

Ruth Ramsden-Wood never tires of telling stories about corporate fun. For example, “a few years ago a law firm auctioned a goat for its chairman, and I can’t tell you how many e-mails came in from around the country making pledges.” She adds that many companies find imaginative ways to raise money. For example, for three months each year Esso markets $25 United Way gift cards at its service stations – while supplies last, of course. From each sale, two dollars go to the charity.

When it comes to individual campaigns, companies can do anything. According to Manzoni, “to kick off our campaign we had a breakfast for our employees, and about 300 or 400 came. We need events like that to tell people the stories out there – for example, to tell them about the children who go to school without breakfast. The number in Calgary is stunning – I think it’s 20,000. People need to know that, and we need to find ways to fix it.”

Corporate Support

The high level of corporate support within Calgary has helped make the city a champion within Canada’s United Way network. Last year’s campaign raised about $52 million. In terms of total funds raised, that amount put the city in Canada’s number three spot. However, at $39.20 the city was fifth in terms of per capita giving. Fort McMurray was tops, with contributions of $64.78 per head.

Corporate support involves much more than cash, of course. First and foremost, it involves the work and commitment of individual volunteers. “If employees want to take time to work on the campaign, we let them have it,” says Manzoni, “and we find ways to make them feel special.”

Some companies lend people from their staff to the United Way. “We usually get them involved at the beginning of fall, and they work throughout the campaign,” according to Ramsden-Wood. “They become our arms and legs. I believe we have 35 this year, but in previous years we’ve sometimes had more. Companies do this to some extent because they see it as a leadership development opportunity for their employees.”

Nexen’s Melanie Swanson worked as a loaned rep with the United Way last year, and says she got a great deal out of the experience. “It gave me a sense of how much the United Way actually does. So this year I wanted to contribute again by chairing our corporate campaign.” Swanson and Peter Ingles are two good examples of how the system works, and how much effort is involved.

“I’m a big believer in the United Way and I have been ever since I joined the company 27 years ago,” according to Peter Ingle. “I think it’s a good way to be involved. The United Way targets funds in a very focused way.”

“At Esso we have two campaign chairs, and there is an overlap,” he says. “The lead co-chair is putting in maybe 20% of her time during the peak period of our campaign; I’m putting in about 10%. Next year I will do the bulk of the work while we train somebody else for the year after that. We have a really active cabinet, and we have floor leaders” whose job is to see whether their colleagues will open their hearts and wallets to the charity.

While Esso has a notional target of $1.2 million in contributions from Calgary-area employees, Ingle stresses that this is strictly an internal number. “Philanthropy is a very personal thing,” he says, “and we don’t do anything to influence where people direct their gifts. We designed the campaign to help people learn more about United Way and how it can help in our community, but we also send out a really clear message that (giving) is up to the individual.”

Nexen’s Swanson says that during this year’s peak campaign period she invested half of her time in the company’s campaign. A lot of that time went into the superhero event, which she says was designed to “increase participation in and awareness of the event.” Like Ingle, she was assisted by people on each floor who went from office to office talking up United Way giving.

In her case, they were called “Floor Superheroes,” and most of them trotted around with brochures in their Guinness-adjudicated superhero outfits. Asked how much time she and the other volunteers in her company have given to the cause this year, all she could say was “hundreds of hours.” She estimates that the cash cost of the campaign represented 1-2% of the total money raised.

Virtually all the larger companies in the energy industry make direct contributions to the United Way, but they follow quite different models. According to Ramsden-Wood, gift-matching is “really driven by the philosophy within the company.” The most common approach is gift-matching, by which companies match employees’ and often annuitants’ contributions. Gift-matching is usually dollar for dollar, but some companies match at even higher levels – in at least one case, three dollars for every dollar given by the employee.

Gift-matching can be a powerful motivator – especially since there is often no limit to the size of your gift, and you can actually direct your gift to a specific charity along those the United Way serves. Thus, whether you donate $10 or $10,000, matching funds will double the amount the charity receives. As Susan Rose explains it, gift-matching is a way “to show that the corporation is passionate about what our employees are passionate about. The United Way is not the only area where we match employee giving.”

Gift-matching can also cost a company dear. According to Ramsden-Wood, “Some years ago a retiree from Shell was giving huge amounts to the community (through the United Way), and the company matched him for every dollar he gave.” Last year, Shell and its people contributed five percent of the total raised in Calgary. Between 2000 and 2010, their contributions exceeded $32 million – a vivid illustration of the energy industry’s impact on the city’s not-for-profit agencies.

Unlike most other companies, Imperial doesn’t use the gift-matching model. Its Esso Foundation treats corporate United Way funding as part of its nation-wide community investment program. According to the company’s Jon Harding, “the total budget is based on community need in the regions where we live and operate. Over 17 communities across Canada receive funding as part of our annual United Way grants.”

People Power

While workplace campaigns are an extremely important part of the United Way calendar, the organization’s volunteers are active throughout the year.

In United Way parlance, leaders are those who give from $1000-$10,000 in a year and major donors are those who give more. According to Susan Rose, “We have a Leaders initiative, but we also have a Major Donors initiative and I’m very involved in those relationships.” As John Manzoni elaborates, “The vast amount of money comes from Leader level giving, so we want to increase leadership giving.” That is one area of the organization’s focus.

The other is to bring new people into the United Way – “to engage the younger generation.” Organization insiders describe this effort as their BeCause initiative. According to Rose, it “originated 10 years ago to try to get the aged 23 to 35 demographic – people who often don’t have the means to actually give – to become ambassadors spreading the good word about what the United Way is doing in our community. Our company actually has two BeCause ambassadors – young, high-potential employees. They are leading our United Way campaign. Ambassadors focus on the idea that if we work as a village we can make the city a better place.” It’s all about people power.

According to Peter Ingle, Esso also focuses “on getting newer employees engaged in the United Way. We encourage them to just give their time through our Days of Caring, for example.” This is a program in which a team from the company will go out and work in the community – helping repair and repaint a shelter for street kids, for example. At Talisman, Manzoni says, “we dedicate a week to the idea of having (our working groups share) ‘A Day That Makes a Difference.’ Members of our executive team get involved in volunteering somewhere, and people get involved with them.”

“I am inspired by the amount of work the many people involved in the United Way campaign actually do,” says Ruth Ramsden-Wood, who will retire this winter. “We are a chronically understaffed not-for-profit organization, and it is these people who make possible what we do each year.” 

Contractor Survival

The infrastructure business shifts as the economy reels

This article appears in the March 2009 issue of Oilsands Review; photo from here.

By Peter McKenzie-Brown

Infrastructure reflects the times in which it is created. In Alberta, a literally off-the-wall example can be found in the control panels at the Turner Valley Gas Plant – a mothballed facility now being prepared for restoration as a historic site. Made in Germany during the 1930s, its control panels sport swastikas welded into the steel – a reflection of the political turmoil of the day.

The network of firms that create and maintain roads and industrial facilities make up the infrastructure business. Combined, they represent a huge segment of the modern economy. In Alberta in recent years, this business has been increasingly dominated by efforts to develop oilsands infrastructure, but since the beginning of the global financial crisis that has changed.

Infrastructure firms with contracts to design, engineer and construct massive projects like Petro-Canada’s postponed Fort Hills project have led to layoffs in professions where, a year ago, the demand was almost desperate. However, these cases have not yet been large. Indeed, many companies sense a need to rebalance the sector. Once that’s done, they say, demand for new and revitalized infrastructure will remain strong. Indeed, there is even a sense among some firms that both the province and the oilsands industry itself can benefit from the breathing room the slowdown is providing. Perhaps the irrational exuberance of the last few years really needed a pause for serious contemplation.

Spider webs and feeding chains: The infrastructure business consists of a spider web of design, engineering, manufacturing and contracting firms working with owners to build and install roads, pipes, wires, vessels and related technology. And in recent decades, the business has changed in dramatic ways. For example, said Bernie McAffrey, “It used to be that electrical and instrumentation was maybe 10 percent of the cost of a compressor station, say. Today that part of the equation I would guess is over 23 percent. A typical project now needs more than twice as much automation technology as it did a couple of decades ago.”

McAffrey founded Ber-Mac Electrical and Instrumentation in 1981. As last year wound down, a largely unnoticed item in the news – the acquisition of Calgary-based Ber-Mac by Swiss multinational ABB – received regulatory approval to proceed. More than three times larger than ABB’s previous western Canadian operation (built up through a combination of organic growth and small acquisitions), the new entity is an especially big player in the oil patch. McAffrey is now a vice president of ABB Ber-Mac, which employs about 750 technical and field people in the three western provinces, including 715 in Alberta.

Even though the financial crisis became apparent while the acquisition was in the works, ABB did not pause in its efforts to acquire the Canadian firm. According to ABB Ber-Mac’s new vice president and general manager, Marcus Toffolo, “This acquisition was not for cost-cutting but for growth. Long term, we may take skills out of Alberta to the rest of the world but that’s not feasible just yet because of regional demand.” He added, “When we looked at this acquisition (we were impressed with Ber-Mac’s) basic business model of vendor neutrality, regional distribution, customer satisfaction. We don’t want to change that.”

In broad terms, the infrastructure business applies technical and scientific knowledge and uses resources to build systems that benefit the economy. It employs a feeding chain that begins with minnows – firms of just a few technical staff – but ranges up to large multinationals like Zurich-based ABB. That global giant has more than 100,000 employees and annual revenues in the tens of billions of dollars.

McAffrey, whose company has successfully risen from the bottom toward the top of the feeding chain, has seen huge changes in the entire business since he set up his firm. “The amount of installed technology in Alberta has grown by leaps and bounds. In the beginning there were only two oil sands plants. In terms of magnitude and sophistication (infrastructure in Alberta) has grown dramatically.” The good news for the business is that these huge amounts of installed infrastructure have to be maintained and continually upgraded. Nowhere is this truer than in the oilsands.

Colleaux Engineering vice president Al Striga sketches out the size of the challenges. “It’s very unusual to see so many huge facilities packed into such a small area as (the Fort MacMurray area). If you throw in the need for cold weather operation, you don’t see anything else like this anywhere in the world. You have to specify cold-weather compatible equipment, instrumentation and metallurgy. Enormous pieces of equipment have to move at temperatures ranging from -40 to +30, and everything has to be reliable. The challenges are huge.”

His company is one of the minnows at the bottom of the feeding chain, but has done some oilsands work. “Large firms get the project. We get involved as subcontractors to the big firms. We get awarded a module or component of a facility.” Like other firms, Colleaux Engineering has been hit by the postponement of oil sands projects. “Within 72 hours of the time Fort Hills went down, we got a call saying our part of the action was all over.”

Like everyone else interviewed for this article, the principals at Colleaux Engineering are optimistic about Alberta’s medium-term outlook. “We’re hearing everything from doom and gloom to an optimum environment,” said Striga’s sidekick and the company president, Steve Colleaux. “We aren’t too worried about the future. We’re in an interesting part of the market. We don’t need a lot of work to stay busy. A company with a thousand people needs 200 hours per person per month. That's a lot of hours.” His 20-year-old company only employs ten technical staff.

What’s hot, what’s not:Although many oilsands projects are disappearing into the black holes of indeterminate postponement, opportunities for the infrastructure business in Alberta still abound. The amount of effort needed for infrastructure maintenance is vast. Consequently, there will be a rebalancing of the infrastructure industry in the province, with the slack from project cancellations being shifted toward these other areas.

The construction of new oil sands projects is an area of disappearing opportunity, and the business is alive with reports of large-scale oil-sands related layoffs. Some projects are staying the course, however – notably Imperial Oil’s Kearl project.

According to a source who requested anonymity, “Kearl is going ahead like crazy…. Rather than scaling back their efforts, (the project team at Imperial) are doing the opposite. They are spending about $1.5 million dollars per day on more than 1,000 engineers to engineer the hell out of it right now while contract engineers are cheaper. (Because of parent ExxonMobil’s strong cash position), they have the option to be greedy when others are frightened and frightened when others are greedy. In a couple of years when the competition is just starting to re-examine their preliminary plans, they will be digging holes and welding steel based on contracts formed in a down market.”

Despite the cancellation or downsizing of some projects (notably two Enbridge proposals to take bitumen to US markets via Ontario and Quebec), transmission is still a solid area of growth. So is the creation of new infrastructure in areas where oilsands operations are strong.

Asked how the shifting sands of the bitumen business have affected his business, Mark Wrightson – president of Whaler Industrial Contracting – was direct and to the point. “We submitted a proposal (for a SAGD project) to Connacher Oil and Gas in the fall. Just prior to the contract being awarded, the project was shelved. When Petro-Canada postponed Fort Hills, half a dozen projects fell off our project board.” However, he said, “our primary focus is on transmission – pump stations primarily. Eighty percent of the work we are doing is in transmission infrastructure, and Enbridge, TCPL, Husky and others have projects to take away bitumen. There is such an infrastructure deficit in take-away capacity that we expect these projects to remain strong.” The downside, such as it is, is that “there will be a lot more competition for that kind of work.”

Similarly, built-up infrastructure needs to be maintained, and basic oilsands maintenance presents tremendous opportunities. According to Pinal Gandhi, a project manager with Whaler, “It’s not going to stop. Syncrude and Suncor have old plants. They have a tremendous need for maintenance. They will cut down on the expansion side, but they will continue to put a lot of money into maintenance.” His enthusiasm is infectious. “Until recently (Suncor’s) upgrader was operating at 150 percent of capacity. Pumps were worn out” and so was a lot of other equipment. The company “wanted production. They didn’t care about the cost. The downturn is an opportunity to slow down on production but put money into maintenance.”

He adds that “Fort MacMurray itself has a huge need for infrastructure. They need (highway) flyovers, all kinds of supporting facilities. Anyone who works outside of the city has to spend a minimum of three hours per day to commute to work.” Again, he believes that the slowdown in oilsands development provides the opportunity for the infrastructure business to work with the city and the province to upgrade roads and develop other infrastructure. Wrightson concurs: “It’s embarrassing how little has been invested in infrastructure at Fort MacMurray.”

A construction manager with the Trotter and Morton group of companies, Mike Dickson has the ironic motto that during construction “contractors are merely an inconvenience to someone else making money.” In today’s environment, he says, “long-term projects that are three to four years out are being cancelled. (That is why our company) sees opportunity and is more interested in the smaller projects involving the necessary infrastructure maintenance and not mega-expansion.”

In general, newer infrastructure employs fewer people than the systems it replaces. According to Colleaux Engineering’s Al Striga, it develops in a virtuous cycle. “The more automation you implement, the lower the cost becomes, and the more automation you want.”

An oilsands automation engineer with one of North America’s largest engineering firms (he requested anonymity) discussed the potential of recent breakthroughs. “Digital automation has been around forever and a day, but the fact remains that if you go to any plant anywhere in the world, you will find that 80 percent of the loops are on manual. So we are not doing our job correctly. Ideally, you should have a plant that operates on automatic 100 percent of the time. We’re missing the boat somewhere, and I just can’t put my finger on why. If we can put more loops on automatic, we can approach that Holy Grail.”

As beguiling as such a development sounds, it’s going to be a long time coming. As Steve Colleaux acknowledges, automation (one of his firm’s specialties) controls processes better than people. “In a perfect world, automation can do everything. However, in the real world things aren’t like that. The system may come up with an alarm that says ‘We have a malfunctioning pressure transmitter. We can’t see what’s happening in this vessel.’ You need operators around to deal with those real-life problems.”

There are other problems in the wind. According to Trotter and Morton’s Mike Dickson construction used to be founded on the “three-legged stool of owner, engineer and contractor.” That changed, he says, with the advent of engineering, construction and procurement (EPC) teams serving as project managers. “Contractors are now the labour, which really means the risk.”

He believes relationships between owners and contractors may become strained in the emerging marketplace. “The sustainable win/win contract philosophy we have been experiencing (which was based upon the owner’s need to woo contractors and the contractors’ need to see repeat or possibly evergreen contracts) has given way to the more win/lose style of heads-up construction.” This, he says, may result in a more litigious environment.

What will mark the infrastructure development of the next few years? Nothing like the swastika in the gas plant – that much is for sure. Perhaps the mark of infrastructure during the next few years will be welded instead on the bottom line. “In the boom,” said Whaler Industrial’s Mark Wrightson, “just-in-time construction didn’t work at all – in fact, it rarely works well at the best of times. You couldn’t get deliverables on time. Everything was delayed. But today you can get turbines and gensets (electrical generators combined with engines). They are now being manufactured for a smaller market. A lot has changed.”

For the infrastructure business, perhaps the real mark of this changed era will be slower-paced, lower-cost, more orderly development. Surely that isn’t all bad.