ABORIGINAL FIRMS GET LEAN AND FIT
Cost-cutting in the oil sands has led First Nations contractors to improve efficiency and transparency
While the industry continues to favour First Nations groups working in the oil sands, the days of aboriginal companies securing easy contracts in the oil sands sector are long gone, say companies working in Alberta’s oil patch.
Oil sands producers have become more stringent in their demands for bids on contracts, which has compelled First Nations to focus on their core strengths and become more competitive.
As oil sands companies focused on cost control following the recession of 2008-09, repercussions for businesses tied to the industry were felt almost immediately in the drop of contract opportunities and higher expectations on the work front, said Marguerite MacDonald, chief financial officer of Fort McKay Group of Companies.
“Four years ago, we didn’t have to bid on a lot of the work that we now bid for,” Ms. MacDonald said. “It is no longer a given. In the last four years all the plants have tightened spending and reduced costs.”
The Fort McKay group of companies was started in the late 1980s with one $50,000 janitorial contract, and has grown into logistics, earthmoving and site services with revenue projections of $200-million for 2014.
During her four years as chief financial officer, Ms. McDonald has seen staff expand to 1,000 people from 300 in 2010. She attributes part of the growth to taking a hard look at the group’s business strategy, getting rid of low-profit ventures, taking on smaller projects and diversifying its client base.
The band-led group is undertaking more strategic planning and business modelling, and working more closely with producers such as Royal Dutch Shell PLC and Suncor Energy Inc. to fit in with their new protocols.
The bottom line is applicable to all businesses in the remote northeastern corner of Alberta, where the oil sands industry is the prime employer, directly or indirectly through services. While companies have moved to cost-control mode, they continue to be bound by law to consult with, and provide opportunities to, aboriginal communities impacted by the industry.
Approximately 100 majority aboriginal and First Nations-owned companies operate in the Wood Buffalo municipality, offering site cleaning to heavy machinery operators and facility management. Suncor frequently works with contractors, aboriginal or nonaboriginal, to maximize dollars spent for services provided, said Bryan Jackson, Suncor director of stakeholder and aboriginal relations for the Regional Municipality of Wood Buffalo.
“With the aboriginal vendors, we actually spend more time working with them to help make sure that the changes that we are making to our process or changes in our safety protocols get communicated down to them and worked through their organizations,” Mr. Jackson said.
Suncor has invested $2-billion in contracts with First Nations and aboriginal businesses in the past decade, half since the 2008-09 recession.
It makes sense to work with local companies, said Mary Peg Campbell, manager of stakeholder and aboriginal relations for Suncor.
“Aboriginal businesses know the area, know the customers and the environment and they work near the community, so there’s actually some economics at play here,” Ms. Campbell said. “We’re not taking people from another area and flying them in and out for the same types of services. So there is a real value in having local suppliers that can provide those types of services.”
Many oil and gas corporations have policies outlining a certain percentage of its contracted workers must be aboriginal. Every company has a slightly different philosophy on how they are going to award bids to aboriginals, said Nicole Bouchier, president of Fort McKay, Alta.-based Bouchier Group.
Some award bids based on costs, others want to be within a certain
It gets you in the door, but it doesn’t necessarily get you the contract
percentage range depending on the community, while others focus on local aboriginal companies, regardless of the cost. First Nations-run companies are also viewed differently than privately run companies as their businesses affect a greater community base, Ms. Bouchier said.
Nicole and husband, David, started the private company in 2004 with 15 people and one small project with
FP ENERGY Canadian Natural Resources Ltd. to build a temporary access road at the Horizon site for about $300,000.
Currently, they employ 800 people, around 70% aboriginal, have 250 pieces of equipment, from snowplows to graders, and brought in US$125-million in revenues last year — up from $85-million the previous year.
The company is assessing the financial impact of French giant Total ASA shelving the Joslyn project, as Bouchier had a security contract on site. The turn has forced them to seek work they might not have looked at, said Ms. Bouchier, adding the company is more focused on operational contracts, rather than construction sites, and has shied away from bigger mine projects because of the volatility associated with them.
“It’s our goal to be operating in some capacity on all our surrounding neighbourhood companies. One might be facilities maintenance, others medical, others safety,” she said. The company is looking at 20%-25% growth year on year, down from last year’s 36% growth to match the slower pace going on in the oil sands region.
For the Mikisew Cree First Nations, the downturn forced the bandled company to “clean house” and become more transparent in its financial operations, more precise in communicating between companies, said Scott Ferguson, president of Mikisew Group of Companies.
“Would I say [cost-cutting] limited us? I would actually say that over the last two years our opportunities have grown, simply because we can demonstrate a sound financial administration,” Mr. Ferguson said. “And also that we are mindful to execute our operations with that cost efficiency in place. As a result, we’ve been approached by a number of different groups to take on work.”
Mikisew Group has more than 500 employees, about a third aboriginal, and expects to double that amount during the busy winter season. Last season, it saw a record $100-million in revenue, compared with about $78-million the year before.
With direction from chief and council, Mikisew Group in Fort Chipewyan refocused on profitable, attainable goals, steering away from excesses such as the short-lived Air Mikisew airline, with $50-million worth of assets, which went under.
Instead, the group has signed a contract with Executive Flight Centre to manage some of the smaller runways in northern Alberta, offering baggage handling, security, de-icing, and fuelling, Mr. Ferguson said.
The move is part of a changing business model, where Mikisew Energy Services is moving from subcontracting in primary labourbased contracts in site services to becoming a prime contractor, he said.
The group is expanding its client base from its four primary clients Suncor, Shell Canada, Imperial Oil Ltd and Surmont Energy Inc., to bid on contracts with new projects by players such as Husky Energy Inc., Brion Energy and TransCanada Corp.
Being an aboriginal company does offer an initial advantage in creating contacts within the industry, Ms. MacDonald noted.
“So yes, it gets you in the door, but it doesn’t necessarily get you the contract,” she said. “You still have to deliver the service in a safe and efficient manner. You have to be competitive, it’s not something that’s just handed to you. But you do kind of have the one-up.”