It is my pleasure to be part of a new industrial collaboration network representing Go Productivity as their Executive-in-Residence. GO Productivity along with the Construction Owners Association of Alberta, the Alberta branch of the Supply Chain Management Association and June Warren-Nickle’s Energy Group have formed this coalition to raise awareness of the need for change and adaptation in the industrial construction sector. This is all about making sense of the new normal caused by lower for longer commodity prices.
Our first project is the June Warren-Nickle’s Oilweek magazine publication of a special report entitle “The New Project Era.” This report outlines the real-world consequences around the poor performance of Alberta’s industrial construction sector, especially around energy projects. The norm had become, especially for for oil sands projects, to NOT be on time and to NOT be on budget. The reasons are many, not the least of which was engineering insufficiency and management laxness with $100+ oil making lots of wasted time, talent, equipment and materials all normative.
I will have more to say about that in later posts. In the meantime here are some hard facts and figures about the current circumstances in the energy sector.
- The results of lower and persistent oil prices however are disturbing, economically on a macro, micro and personal level for many Albertans.
- Drilling rigs are only about 15% utilized.
- We have had the largest two year decline in energy based capital spending since 1947 when that data was first tracked. That’s a $50B and 62% decline in investment.
- The real numbers are a record $81B capex in 2014 to $31B capex in 2016.
- That is not a shabby investment number for most provinces but lower oil prices and a 2% corporate tax rate hike are not the unique Alberta-based deterrence to investment.
- Even before the downturn started two years ago Alberta was spiraling towards crises and investors were balking.
- With minor exceptions Alberta energy project costs were escalating into big cost overruns, late completions and dramatic workforce productivity declines.
Projects are delayed, differed and downright dumped in some cases. The “silver lining” for oil sands suppliers is that the 2.5m-barrel/day in place today, and soon to be 3m, means a focus on maintenance, repair, operations and project optimization investments are still being made. These costs are estimated to rise 10% compounded annually with 2017 spend about $25B. Smaller and sustaining capital project spends is expected to go from $9.5B in 2014 to $14.1B in 2017. Bring these emerging projects in on time, on budget with improved safety and productivity we will go a long way to returning Alberta to international investment competitiveness, regardless of any oil price recovery.
Learn more insights in the New Project Era by clicking here for a download of the report.