Sharing Alberta's pain - Macleans.ca

Sharing Alberta’s pain

Why its economic woes will be felt across the country

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Sharing Alberta’s painNick Cook, an athletic farm boy from B.C. with Ross Rebagliati good looks, was just out of high school when he arrived in the energy hub of Nisku, Alta., two years ago, looking for work. Within days he’d scored a job as a leasehand, the lowest rung on the drill-rig ladder. “I did my drug test and they said, ‘Okay, are you ready to work?’ I said, ‘Yeah, I’m ready.’ They said, ‘Okay, drive out now, you’re already late.’ ” He was soon earning $21 an hour mopping spit off the ground. So eager was Alberta’s overheated oil patch for even inexperienced labour that his wages soon jumped to $26 an hour. It was brutal work—he put in his share of six-week stints—but back at camp two gourmet cooks awaited, a “campy” to clean up, a fridge full of pop, juice and ice cream, and all the satellite TV he could watch. “I would say we lived pretty good,” he says.

Now Cook is channel surfing at his father’s home in Salmon Arm, B.C. He has not worked since September and has no prospects. He owes $8,000 on his credit card and can no longer afford the minimum payments. “I miss working hard,” says Cook, now 21. “You feel like a real man. It sounds stupid to say. But you’re making decent money. You’re really working.”

Thanks to recession and collapsed commodity prices, there are few Nick Cooks working the patch today. Oil trades at US$50 a barrel, after peaking at US$147 in July. Natural gas, the real backbone of Alberta’s conventional energy sector—accounting for almost three-quarters of its conventional field activity and royalties—hit $13.69 per million BTUs, then fell 70 per cent over the same period. Red Deer is a traffic jam of parked drilling rigs. Thousands of Calgary engineers, once recruited from around the world, are abruptly out of work and flocking to job fairs mounted by the likes of Saudi Aramco. CalgaryInc, a business magazine whose annual “Top 40 under 40” once profiled young phenoms and defined the city’s sometimes brash and callow boom time, just closed. “A huge swath of the workforce right now has only seen one side of a cycle—they don’t know what it’s like,” says Roger Soucy, president of the Petroleum Services Association of Canada. This is what it’s like.

Next month, Finance Minister Iris Evans will drop an Alberta budget that posts a deficit for the first time in 15 years—$1.4 billion—largely due to the sinking Heritage Fund rainy-day savings account. The Alberta Tories are otherwise busy pruning the province’s Ralph Klein-era perks. Last week they cut a gas rebate providing Albertans with a winter heating subsidy. Weeks before that they unloaded the “Alberta Advantage” slogan, adopted by Klein to advertise the province’s low taxes and lack of debt.

None of this is new for Alberta. In the early 1980s, inflation, low oil and gas prices and the National Energy Program conspired to deflate good times. A second hit to oil and gas prices in 1986 prolonged the malaise into the 1990s. (The more sardonic among oil patchers have taken to updating that old bumper sticker—“Please God, let there be another oil boom, I promise not to piss it all away next time”—adding entreaties like, “Okay, God, this time I’m serious.” Others favour Britney Spears above the tag line, “Oops, I did it again.”)

But this time the consequences of Alberta’s slump won’t be limited to the West. Canada owes a good deal of its prosperity over the past decade to Alberta’s energy boom, from beefy federal surpluses to soaring stocks to the surge in the dollar. But if Alberta once shared its wealth, the rest of Canada will now partake in its bust. A massive diaspora of tradesmen—seasoned veterans as well as youngsters like Cook—has bled from Alberta into some of Canada’s most depressed regions. So abrupt is the migration that in Newfoundland, to name one destination, Premier Danny Williams has set aside $800 million in stimulus, aimed in part at putting that province’s prodigal sons to work.

The trouble will ripple out also in the form of diminished tax dollars for Ottawa. Indeed, since commodity prices began soaring in the late 1990s, Albertans have shouldered an enormous share of the national burden, says University of Calgary economist Robert Mansell, not merely through the federal equalization system but via the employment insurance program and the Canada Pension Plan, too. Mansell estimates that between 2003 and 2004, Albertans sent the feds an average net fiscal contribution of $3,500 per capita in 2004 dollars, compared to $2,500 from Ontario taxpayers and $1,500 from British Columbians. In the last four years, those contributions grew to “an average of about $4,000 per capita per year,” he says. “The average Alberta family of four has been making a net fiscal contribution to the federal government of about $16,000 per year.”

A hefty but now waning dose of cash—another thing we’ve seen before. According to Mansell’s calculations, the average Albertan’s contribution was a whopping $12,735 in 1981, the year after the introduction of the NEP, which was designed to send a greater share of Alberta’s energy wealth to the rest of Canada. The next year, oil prices tumbled and that contribution shrank to $8,563 (again in 2004 dollars). Then, after Brian Mulroney cancelled the NEP in 1986, Albertans’ average net fiscal contribution fell to just $680 per capita. Still, that contribution remained high relative to other provinces in the late 1980s and early 1990s, then it soared again when commodity prices boomed in the 1990s. Over the years—and to particular effect during the era of federal budget surpluses—Mansell says Albertans contributed a per capita average of $2,510 per year, over three times the $758 Ontario taxpayers sent Ottawa.

Now Alberta may find itself in straits similar to those of 25 years ago. “It certainly isn’t in the same position to pay for the freight as it has in the past number of years,” says Jack Mintz, Palmer Chair in Public Policy at the University of Calgary. And this time, the new have-not province of Ontario won’t be in a position to pick up the slack. As recession grinds down on Canada, unemployment rates will rise—a proliferation of Nick Cooks on couches across the land—and more Canadians will wind up on welfare. Provincial health budgets will continue yawning for resources, and the provinces for more federal transfer payments. “I think that’s where some of the complexity might be,” says Mintz. “You don’t have the golden goose to help pay for the freight across the country.”

Although Mansell hasn’t crunched the numbers for how the contributions of Albertans may decline at, say, US$40- or US$50-a-barrel oil, “under conditions similar to those today, where costs are much higher than they were in 2003, I suspect the net balance would be more in the range of $3,000 per person per year,” he says—about 25 per cent less.

The impact of low commodity prices will also reach beyond Alberta in the form of lost jobs, particularly in the already damaged manufacturing sector, due to declining investment in the oil sands. These next two years were meant to be a high point in oil sands development, with $40 billion worth of projects under way. Now the Canadian Association of Petroleum Producers projects just $11 billion in spending in the next two years. That loss of capital investment will hurt beyond Alberta’s borders. Three years ago, the Canadian Energy Research Institute predicted oils sands development would create four times as many jobs outside the oil and gas sector as within it, and that as much as 19 per cent of their overall employment impacts would take place in Ontario.

So far, in Alberta, the employment slaughter has been relatively slow in coming thanks to a backlog of large construction projects too far gone to halt. “People think this was an energy boom,” says Alberta Federation of Labour president Gil McGowan. “I can’t emphasize enough how construction has been the engine of the Alberta economy.” That engine is now sputtering to a halt. “People are still busy right now,” says Neil Shelly, executive director of Alberta’s Industrial Heartland Association. “What we’re keeping our eye on is the second to third quarter of this year. This backlog is going to start getting chewed up. As projects are completed—where are the people going to find work?”

By February, when it lost 24,000 jobs, Alberta’s unemployment rate had already climbed a whole percentage point, hitting 5.4 per cent, as bad as it’s been in six years and worse than Saskatchewan or Manitoba. Numbers released this week showed Alberta leading the country in new employment insurance beneficiaries—23,300 in January, a whopping 10.5 per cent increase over December. “We’re facing not a benign slowdown, but a real bust and collapse,” says McGowan, who predicts that in the absence of major oil sands development in the next two years, Alberta’s construction labour force could drop by 60,000 workers. “That’s not even factoring in the tens of thousands of jobs in the spinoff market,” he says.

For those who toil in conventional oil and gas, the work is already gone. The number of drill rigs punching holes in the Alberta landscape is lower than it’s been since 1992, and half of what it was in 2005 and 2006. For the first time in over 20 years, the Canadian Association of Oilwell Drilling Contractors revised its 2009 projection mid-winter—normally the busy season—downgrading drill utilization from 40 per cent to 30 per cent. “Forty per cent was already a very low number,” says CAODC president Don Herring. Even before that forecast, observers suggested there would be 3,200 fewer rig jobs this year than in 2008, 10,000 fewer than in 2007.

If rig activity is an indicator of what’s happening now, land sale prices, or how much companies pay for oil and gas drilling rights, are forward-looking—and the way forward is miserable. In 2006, the average price per hectare was $702. In 2007 it was $434. Last month, land was going for just $105.24 per hectare. Such numbers don’t bode well for Alberta’s oil and gas workers. Still, as roughnecks and others are fond of reiterating, the oil fields aren’t for sissies. “If you’re a pansy-ass cupcake, you’re not going to last five minutes,” says Dale Avon, a 50-year-old seismic surveyor. That’s equally true of the oil patch’s boom-and-bust employment climate—and the hangover that follows good times.

Avon, after six years of making as much as $10,000 a month unearthing hidden pools of petroleum, is back in Halifax collecting $1,500 in EI. “We all got to living pretty large,” he says. “You get 10 grand a month, you live spending 10 grand a month. It’s easy to do. I’m living on a shoestring. If I don’t have work, guess what: I’m filing for bankruptcy.” He gives himself until August. Mostly, Avon and his ilk are baffled by the swift decline in demand for a product—petroleum—many thought would always sell. “I came out here to Alberta to start over again. I’ve lived good since,” says Golden, B.C.-born Dave Taylor, a 39-year-old heavy equipment operator clinging to his job in Red Deer. “All of a sudden they’re saying, ‘Oh, well. Sorry.’ And I don’t even know why. I’m a phone call away from having nothing again.”

But Avon misses more than just the money. Like Nick Cook, the leasehand whose only work experience after graduating high school made him feel like a “real man,” he longs for the rough-and-tumble job that pushed him and his treasured colleagues to the limit. He recalls one recent job. “Camp was 100 miles on an ice road into the bush. We were 60 miles past that when we were drilling. Either you got along with these guys or you were gone. And that camaraderie . . . ” His voice trails off. “It’s the edge. That’s the last frontier. That’s the last gold rush. We’re never in our lives going to see this again.”