Oilpatch risks turn from value creation to value destruction; Comment; Everybody Wants A Bigger Cut Of The Booming Industry

For the first time in a generation, Alberta is facing a general strike within its construction trades that threatens to disrupt its booming oilsands industry and is introducing a new type of uncertainty --labour unrest.

It's an absurd situation. Alberta has such a severe labour shortage the worker is king. Construction workers, in particular, are among the highest paid, most job secure, most coddled in the world. For its part, the oil industry is earning lavish profits, suggesting it should have plenty of cash to keep labour content as it presses ahead with ambitious oilsands investments.

Underscoring this absurdity is the provincial context -- this is unfolding, after all, in redneck Alberta, where the union movement is about as cherished as the NDP and job action in the oil industry is a distant memory.

Yet five large construction unions have been given strike mandates by their members and can walk out at any time. Another two are getting close to that position. Some 30,000 workers could be involved. They are turning down pay increases that would make most Canadians cringe with envy: 24% over four years, topping up salaries that often exceed $100,000 a year. (A pipefitter or a welder earns basic pay of $44.91 an hour).

Unions know they have oil companies by the neck. The majority of construction workers are employed in projects in Fort McMurray or outside Edmonton related to the oilsands, where companies are under the gun to meet investor expectations while facing severe staff shortages as more projects ramp up.

Gil McGowan, president of the Alberta Federation of Labour, the largest union group in Alberta, said workers have the right to share in the sector's riches. Besides, he said, the 24% increase offered by the oil companies barely keeps up with the province's inflation.

"It's no secret to the workers in this province that the energy industry has been making record profits. Our question is, 'Why should all those profits go into the hands of managers and investors? Why shouldn't working people see a bigger share of that pie?' " he asked.

It's during boom times that workers get their biggest gains at the bargaining table when they have more leverage, he said.

"It's what business people would do, and I can't understand why anyone would expect working people to behave any differently."

Alberta's construction workers feel entitled to higher rates of pay because the majority work away from home, and rather than returning to their families at the end of the day they face life in a work camp or cramped apartment in Fort McMurray, he said.

The union group believes the solution to the labour crunch is for the provincial government to slow down the pace of oilsands growth, and if that causes companies to leave, then move to public development of the resource, along the lines of what Danny Williams is trying to do in Newfoundland.

Oil companies have big issues of their own: They are trying to contain costs that have trebled and quadrupled in the past few years and represent the biggest risk to oilsands projects. Labour accounts for about half those costs.

They believe they are paying lavish salaries and that they are offering generous pay increases. They are worried Alberta's labour costs are so out of line they are eroding the attractiveness of the oilsands deposits. Meanwhile, labour's increased demands are happening just as a provincial royalty review could recommend at the end of this month a larger provincial take.

Frank Atkins, an economist at the University of Calgary who's been watching the standoff, said the stakes are so high for both sides a settlement is inevitable.

"Those guys on the labour side, they want to work, but they have a legitimate beef. Inflation is biting into them," he said. "What they needed to do is flex their muscle to get the attention, and they did. I don't think you are going to see tremendous wage gains. The companies have a cost problem, and so they want to maintain their costs as low as they can. They are stuck with this expensive labour, they know they need it, they got billions poured into this."

Still, the threat is so serious it's resulted in an overhang in the market on oilsands stocks.

Companies like EnCana Corp., Husky Energy Inc. and Marathon Oil Corp. are pushing projects that could have been done in Alberta south of the border. Marathon, which last week purchased oilsands producer Western Oil Sands Inc., said it can retool its refinery in Detroit to upgrade Canadian heavy crude at about a third of the price of building an upgrader in Alberta.

Some are quietly beefing up their complement of foreign workers.

As the two sides resume bargaining this week, they may want to consider a reality check close to home. The natural gas business in Western Canada has been in recession for about 18 months, destroyed by excessive costs, while its competition in the United States is merrily drilling at a record pace. The finger pointing about who and what killed that boom is still under way.

At some point, the economically fragile oilsands will turn the corner from value creation to value destruction as more and more stakeholders demand a bigger piece. As one executive put it, we're at risk of turning this great resource into a General Motors.

National Post, Page FP3, Tues Aug 7 2007
Byline: Claudia Cattaneo

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