Sept/Oct 2008

Partners in growth

North American Energy Partners’ president and CEO, Rodney Ruston, discusses the challenges and opportunities for third-party contractors involved in the oil sands

By R. Ruston

Heavy hauler on the job at an oil sands operation

When North American Energy Partners first began working with customers in Alberta’s oil sands back in the 1960s, nobody predicted the impact it would have on our business. In those days, the process for extracting oil from bitumen was still in its infancy. Costs were high, the technology was unproven and many watching the industry were skeptical about how the oil sands would ever become viable when it cost more to produce a barrel of crude than it could be sold for. Still, early pioneers like Suncor (previously Sun Oil) and Syncrude persevered and they needed third-party construction and mining contractors like us to help them.

Today, the Alberta oil sands have grown to become the dominant part of our business. We now work with virtually every major producer in the region, providing a diverse range of mining, construction, piling and pipeline services. As our customers’ pace of development has escalated, we have grown and evolved our own business in response. In the past five years, our employee base has grown from approximately 658 people to over 2,387, and our equipment fleet has experienced similar expansion. We currently operate over 845 pieces of heavy equipment, including some of the world’s largest mining shovels.

All of this growth is exciting and there is no question that it is rewarding. Our revenue neared the $1 billion mark in fiscal 2008 and we achieved record earnings. However, keeping pace with the demand has also presented significant challenges. At the top of the list is the task of attracting and retaining the heavy equipment operators, mechanics, project managers, construction personnel and support staff that we need. This is especially challenging for a contractor. Unlike producers that can predictably plan their human resource requirements based on production targets, our personnel needs are linked to contract wins — typically large-scale projects that can require the addition of hundreds of new employees on short notice. That is a difficult proposition in any market and particularly so in Fort McMurray’s red-hot labour market.

To address the labour shortages, we have extended our recruiting efforts across Canada and beyond, enhancing our programs for those who want to work here but live elsewhere. This includes the implementation of more flexible work schedules that make it possible for employees to spend every third week at home.

We have also positioned North American as a preferred employer with competitive compensation and a strong emphasis on health and safety. We are well aware that safety can become one of the first casualties of rapid growth, especially given the large number of inexperienced people coming to the oil sands. We have no intention of letting that happen at our company. Our evaluation systems help us accurately determine the competency level of new recruits prior to placing them in the field. If they are weak in certain areas, we ensure they get the appropriate training and are partnered with a more experienced employee. Our training department includes a full contingent of trainers, who work with employees both in classrooms and onsite. We also provide computer simulators that let heavy equipment operators train in a virtual environment before heading to the field. In addition to these job-specific programs, we also offer employees a wide range of short- and long-term development programs that encourage people to upgrade their skills and move up in the company.

Unfortunately, one of the signs of the success of our training program is that North American’s employees are particularly attractive to other employers, including many of our own clients. This is a fact of life in a competitive labour market and one that we have turned into a benefit by reminding new recruits that a stint with North American looks very good on their resume.

Another major growth-related challenge is securing the equipment we need when we need it. Lead times for haul trucks in the 100- to 300-ton range have increased by about 50 per cent to 18 months as a result of worldwide demand for mining equipment. Tire shortages have also ramped up our equipment costs and required us to put trucks on blocks at times. To cope, we have had to improve our long-range equipment planning and utilization and put more managers in place to oversee this function. The job of these managers is to help us achieve the optimal balance of owned and rented equipment and to ensure that equipment is allocated as productively as possible.

We have also become much more sophisticated about how we manage the maintenance of equipment. As an example, we have moved away from manual equipment monitoring systems and installed onboard computerized technologies on our trucks. These new systems monitor the health of the truck and indicate when maintenance is required. Through GPS, these systems also tell us where the equipment is located — an important requirement in a large and growing fleet.

Of course, we are not alone in having to manage growth-related challenges. Virtually all of our oil sands clients are in a rapid development phase and many are outsourcing more significant portions of their operational requirements as part of their own response strategy. For example, in 2005 Canadian Natural Resources Limited contracted its entire overburden mining operation to us under a 10-year contract. More recently, we took on the role of general contractor on Albian Sands’ aerodrome project, which was built to accommodate direct air service to Albian’s Expansion 1 site. We were responsible for all aspects of the design and construction of the project, which included an airstrip capable of landing an Airbus 319, terminal buildings and other ancillary operations.

For North American, having the capacity and the willingness to take on these larger contracts is essential to our continued success in the oil sands. We either keep pace with our customers’ needs or we make way for those who can. However, larger and more complex projects present their own challenges, including more complex client and supplier relationships. The larger the project, the more contacts involved. Add in the high rate of oil sands employee turnover and the challenges escalate. It is not at all uncommon to have key client contacts, such as the project manager, safety administrator and contract administrator, change three times during the life of a contract. To keep projects moving smoothly, we have had to greatly improve our communication practices and tools. This includes building and maintaining client matrixes to simply keep track of who’s who.

More complex projects also carry more risk, and this is an even greater challenge for oil sands service providers. To manage, we have had to adopt more stringent reporting requirements, which necessitated enhancing our internal systems and IT capabilities and expanding our management team. The investment has been worthwhile. Not only has our project management improved but we have also protected our access to growth capital. In today’s tight credit environment, only those organizations with excellent systems and the demonstrable capability to perform can secure financing.

Overall, growth in the oil sands has presented some major challenges for us, but it has also transformed North American Energy Partners into a larger, stronger and much better organized company. Above all, it has made us a highly adaptable company that can respond effectively to new challenges and opportunities. Given industry projections for continued oil sands growth, that adaptability could yet prove to be the most important asset we possess.

Rodney Ruston is the president and CEO of North American Energy Partners and a member of the Northern Alberta Institute of Technology’s President’s Advisory Committee. He has spent his entire career in the natural resources industry.

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