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
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
WITH A TOP SPEED OF 110 KM/H AND A CARGO CAPACITY OF 20 TONS, LOCKHEED MARTIN’S NEW HELIUM AIRSHIPS COULD BE DEPLOYED IN THE OIL SANDS AND THE MIDDLE EAST AS EARLY AS 2018