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Vol. 9, No. 51 Week of December 19, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil sands costs: Alberta government to the rescue

Province invokes rarely used labor code section to open way to ‘blanket’ contract in oil sands; non-union labor can be used, unions uneasy

Gary Park

Petroleum News Calgary Correspondent

The Alberta government has intervened to rein in galloping construction costs in the oil sands sector.

For only the fourth time since changes to the Alberta labor relations code almost 30 years ago, the government has granted special status to a major industrial project.

The designation will allow Canadian Natural Resources (known by its stock symbol CNQ) to negotiate an agreement with one union that would apply to all trades involved in the C$10.5 billion Horizon project.

Human Resources Minister Mike Cardinal told reporters the cabinet order is justified because of the construction jobs and economic benefits Horizon will generate.

The project, which has yet to receive final approval from the CNQ board, is expected to have a peak workforce of 6,500 in 2006 and 2007 and hire 2,500 full-time employees once the bitumen mine and upgrading facilities are operating.

Horizon is targeting eventual output of 232,000 barrels per day.

A spokeswoman for Cardinal said the blanket labor agreement is intended to last for the duration of the project, through 2012.

Non-union labor will be used

CNQ said the designation will allow it to use non-union labor on the project, although it does not expect the provision will actually lower labor costs.

Real Doucet, CNQ’s senior vice president, oil sands, said the objective is to “bring stability and long-term forward planning to the process.

“It also ensures we can forecast what happens. We are not interested in doing constant negotiations for each contract,” he told the Calgary Herald.

Doucet said that making sure “everybody works under the same kinds of conditions” will give CNQ access to all workers.

CNQ has indicated it might seek federal permission to import foreign workers, flying them to a landing strip capable of handling Boeing 737s near the Horizon site.

But Doucet denied rumors that foreign workers are already being recruited.

Labor demand exceeds what area can provide

Mike Glennon, executive director of the Athabasca Regional Issues Working Group, said oil sands developers have little choice but to look far beyond Alberta for the skilled labor needed.

“With so many massive projects under construction concurrently, the demand is going to far outstrip what this area can provide,” he said.

If the C$7 billion Mackenzie Gas Project moves forward that will add to pressures on the labor market and is likely to result in similar project designations.

CNQ has already had a taste of the soaring costs that have bedeviled other oil sands ventures. Rising steel prices have seen original estimates climb by C$2.1 billion.

An Alberta Federation of Labor spokesman said there would be no objection if the master agreement was signed with a responsible union.

That mood would change if the sole purpose was to sign “sweetheart deals with contractors who agree never to strike and things like that,” he said.

Given that increase before construction has even started, a spokesman for the Alberta Building Trades Council said his organization understands CNQ’s business case and the need to contain costs.

But he said the council is concerned the company “now has the means to sign a low-ball, blanket deal that would impact all the construction trades. We hope that is not their intention.”

Nexen discloses cost increase

On the same day the special status for Horizon was announced, OPTI Canada and Nexen disclosed a C$98 million increase in costs for their 50-50 Long Lake oil sands project, although the hike will add less than 3 percent to the C$3.4 billion budget.

OPTI President Sid Dykstra said the extra money is needed to cover the cost of drilling additional wells to ensure Long Lake can sustain production at 72,000 bpd when it comes on stream in mid-2007.

He said the drilling would eventually have been needed, but the partners decided to swallow the cost now to provide insurance against output losses.

OPTI, which is 35 percent owned by Israeli power technology company Ormat Industries, warned there will “continue to be pressure on labor costs and availability of skilled labor which will be monitored closely as field construction ramps up in 2005.”

Long Lake plans to expand to about 140,000 bpd, although no timetable has been set.



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