Love Is A Bat­tle­field

Part­ner­ships be­tween en­ergy firms and de­fense con­trac­tors are noth­ing new in many parts of the world. In Canada, how­ever, the two in­dus­tries just found each other

Alberta Oil - - CONTENTS - BY TODD COYNE

The global en­ergy and de­fense in­dus­tries share some sur­prising syn­er­gies. And in Canada, they’ve only just be­gun

WHILE A HAND­FUL OF STREET pro­tes­tors crashed the lobby of a down­town Cal­gary ho­tel, de­nounc­ing what they saw as col­lu­sion be­tween Canada’s ma­jor en­ergy and de­fense con­trac­tors, in­side the con­fer­ence or­ga­niz­ers wor­ried their at­ten­dees were be­hav­ing less like war prof­i­teers than like groups of boys and girls at a mid­dle school dance. There were awkward in­tro­duc­tions at the bev­er­age ta­ble. There were drawn-out ex­plain­ers on ob­scure ar­eas of in­ter­est, about which many on­look­ers nei­ther knew, nor had ever thought, the first thing thing about.

It was day one of the in­au­gu­ral Con­vergX con­fer­ence, a three-day courtship be­tween dozens of Canada’s chief en­ergy, de­fense and aerospace firms. And as first dates go, its suc­cess was so­lid­i­fied in the end, when both sides agreed to meet again soon—in Hous­ton this fall.

The de­fense in­dus­try in the U.S., has a long­stand­ing part­ner­ship with the coun­try’s en­ergy busi­ness, dat­ing back to the era of the Texas Rail­road Com­mis­sion, Stan­dard Oil and the First World War. That spe­cial re­la­tion­ship con­tin­ues to­day, and ap­plies as much to the ma­jor in­ter­na­tional play­ers—the U.S. de­fense depart­ment is the world’s largest sin­gle con­sumer of oil—as it does to smaller do­mes­tic oil­field man­u­fac­tur­ers. Take, for ex­am­ple, cen­tral Penn­syl­va­nia’s Medico In­dus­tries, where work­ers forge high-pres­sure steel swivel joints for the drilling in­dus­try, as well as high­frag­men­ta­tion mor­tar rounds for the U.S. Armed Forces. “The mil­i­tary is an ex­cel­lent cus­tomer be­cause if they use it once, they have to re­place it. You shoot a bul­let and that bul­let’s gone,” says Medico’s pres­i­dent of man­u­fac­tur­ing, Bob Mit­val­sky. “With oil and gas, it’s not quite as good as that, but the swivel el­bows do wear out and the tool joints do wear out.”

But the de­fense busi­ness, un­like en­ergy, is not ex­actly a free mar­ket. For rea­sons of na­tional se­cu­rity and po­lit­i­cal

ex­pe­di­ency, gov­ern­ment de­fense pro­cure­ment tends to fa­vor do­mes­tic sup­pli­ers when fill­ing con­tracts. Canada is no dif­fer­ent, al­beit with a de­fense in­dus­try that’s sig­nif­i­cantly smaller than its U.S. coun­ter­part, and is largely owned by Amer­i­can and Euro­pean par­ent firms. (Of the top five Cana­dian de­fense com­pa­nies of 2015, as ranked by Cana­dian De­fence Re­view, only one, CAE, was Cana­dian-owned.)

As with Canada’s en­ergy in­dus­try, our de­fense sec­tor re­lies on ex­port mar­kets. De­fense con­trib­utes more than $1.3 bil­lion to the Al­berta econ­omy— with 40 per­cent of those goods des­tined for ex­port—and em­ploys more than 6,000 skilled work­ers at 170 aerospace and de­fense firms, ac­cor­ing to the prov­ince. To­day, much of that work is ded­i­cated to de­vel­op­ing and de­ploy­ing un­manned aerial ve­hi­cles, or drones— tech­nol­ogy that en­ergy com­pa­nies are now look­ing to for lo­gis­ti­cal sup­port in the near-fu­ture.

In a pitch to at­ten­dees at Con­vergX, Lock­heed Martin Canada, one of the big­gest de­fense con­trac­tors in the coun­try and a sub­sidiary of the world’s dom­i­nant de­fense firm, un­veiled a re­mote-con­trolled he­li­copter that uses the same air­frame as Cen­ovus En­ergy’s SkyS­trat air­borne drilling rig. “We took it and made it re­motely pi­lotable, ini­tially for oper­a­tions in Afghanistan, where we were los­ing a lot of peo­ple in con­voys,” says Gary Bier­mann, Lock­heed’s Cana­dian tech­nol­ogy man­ager. “So we found a way to fly stuff out to the front lines at night with­out hav­ing to risk peo­ple’s lives.”

In many cases, Cana­dian de­fense con­trac­tors, in­clud­ing those sub­sidiaries of Amer­i­can firms, have a freer hand in foreign trade when it comes to cer­tain mil­i­tary-grade tech­nolo­gies over their U.S. coun­ter­parts. Un­der the U.S. gov­ern­ment’s In­ter­na­tional Traf­fic in Arms Reg­u­la­tions (ITAR), Wash­ing­ton has a hard veto over what prod­ucts and tech­nol­ogy com­pa­nies can sell and to whom. In 2012, Lock­heed bought CDL Sys­tems, a Cal­gary-based soft­ware firm spe­cial­iz­ing in aerial drone con­trols. To­day, that’s where the vast ma­jor­ity of the op­er­at­ing soft­ware for Lock­heed’s U.S. com­bat drones is built. “ITAR can be very dif­fi­cult for drones, be­cause, largely, this is a de­fense tech­nol­ogy,” says John Mol­berg, a busi­ness devel­op­ment man­ager at Lock­heed and one of two trained drone pi­lots at the com­pany’s Cal­gary of­fice. “The sil­ver lin­ing is, if you’re work­ing for a com­pany like ours where we hap­pen to have 60 or 70 en­gi­neers who are in Cal­gary, ev­ery­thing we pro­duce doesn’t have ITAR on it be­cause it’s pro­duced in Canada—and that’s sig­nif­i­cantly ad­van­ta­geous when it comes to try­ing to com­mer­cial­ize some­thing.”

The com­pany is also dou­ble-dip­ping on the busi­ness end of the en­er­gy­de­fense nexus. “Lock­heed Martin, as it turns out, is one of those com­pa­nies that’s not just a de­fense com­pany,” Bier­mann says. “We also are an en­ergy com­pany.” It isn’t for noth­ing that Lock­heed is af­fec­tion­ately known within de­fense cir­cles as “Lock­mart,” due to its Wal­mart-like do­min­ion over de­fense and aerospace re­tail. So, try­ing to be­come the lead global sup­plier of mil­i­tary hard­ware, as well as of the fuel in­fra­struc­ture that pow­ers it, just makes good busi­ness sense, ac­cord­ing to Bier­mann. “Both aerospace and the oil and gas in­dus­tries work in very harsh, of­ten un­ex­plored or very re­mote

en­vi­ron­ments,” he says, “and re­quire unique tech­ni­cal so­lu­tions for the safety and vi­a­bil­ity of their busi­ness oper­a­tions in those en­vi­ron­ments.”

In a word, it’s about syn­ergy. Few in­dus­tries op­er­ate on the mega scale that de­fense and en­ergy do, some­times re­quir­ing dra­matic feats of engi­neer­ing just to get equip­ment to where it’s needed. Build­ing a hy­dro­elec­tric dam, tow­ing an off­shore drilling rig, or erect­ing a line of wind tur­bines are each noth­ing short of a mil­i­tary op­er­a­tion. “Be­fore I got in­volved in the en­ergy in­dus­try a num­ber of years ago,” Bier­mann says, “I ar­ro­gantly thought that aerospace was the big­gest-scale in­dus­try out there, un­til I went out and saw some pro­cess­ing plants in the oil fields.”

Phys­i­cal lo­gis­tics aside, risk is an­other x-fac­tor that en­ergy and de­fense com­pa­nies have to con­tend with. There are, of course, in­her­ent fi­nan­cial risks to any busi­ness. And there are cer­tainly in­her­ent phys­i­cal risks to per­son­nel when the tools of the trade are drills de­signed to pierce deep into the earth’s crust or weapons de­signed to kill peo­ple. But the sen­si­tive na­ture of th­ese trades also leaves com­pa­nies in both open to huge rep­u­ta­tional risks, as well. Cy­ber at­tacks, both foreign and do­mes­tic, are rou­tinely touted as the big­gest emerging threat that com­pa­nies in ei­ther in­dus­try face. And pub­lic opin­ion is rarely on the side of those seen to be prof­it­ing—or, in the lan­guage of those Cal­gary pro­tes­tors, “prof­i­teer­ing”— from the ex­ploita­tion of nat­u­ral re­sources or the global arms trade.

To that point, the two in­dus­tries also share some­thing else: a com­mon seat in the court of pub­lic opin­ion—the de­fen­dant’s chair. As Ster­ling Cripps, founder of the Cana­dian Cen­tre for Un­manned Ve­hi­cle Sys­tems and a for­mer mil­i­tary clear­ance diver, told con­fer­ence at­ten­dees, “What we’re try­ing to do is so­cial­ize the ac­cep­tance of drones into so­ci­ety.” Pub­lic fears about the civil­ian use of mil­i­tary tech­nolo­gies like drones are not un­founded. Nor are con­cerns about how the en­ergy busi­ness is con­ducted in many parts of the world. But what those pro­tes­tors might have seen had they come in­side was less a devil’s hand­shake be­tween big-busi­ness war prof­i­teers, and more an awkward slow-dance be­tween part­ners just start­ing to find their foot­ing to­gether.

“Be­fore I got in­volved in the en­ergy in­dus­try a num­ber of years ago, I ar­ro­gantly thought that aerospace was the big­gest-scale in­dus­try out there.” – GARY BIER­MANN, CANA­DIAN TECH­NOL­OGY MAN­AGER AT LOCK­HEED MARTIN CANADA

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