Royal Dutch Shell PLC is cutting hundreds of jobs at a massive Alberta oil sands project, stoking fears that more large-scale layoffs are in store as companies slash spending to cope with collapsing oil prices.
Shell’s move comes as Alberta girds for a multibillion-dollar drop in provincial energy revenue as the industry deals with crude prices that have sunk to below $50 (U.S.) a barrel by reducing capital spending budgets and cutting dividends.
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Already, some companies have put longer-term oil sands projects on hold until markets stabilize, which analysts say may not start to happen until at least midway through 2015. And service industries that support the sector have cut jobs as business has slowed.
Northern Alberta’s oil sands have among the highest development costs in global energy, so operations are particularly vulnerable to skidding crude prices. North American benchmark West Texas Intermediate crude fell 43 cents to $48.36 a barrel on Friday, down from more than $100 in June.
Shell said it is laying off less that 10 per cent of the 3,000 workers at the Albian Sands project, one of five major oil sands mining ventures.
A spokesman for the company declined to give exact job-loss numbers, but a labour official in Fort McMurray, who does not represent Shell workers, pegged them at around 200.
The cuts are not solely tied to crude prices, as the Anglo-Dutch oil major has been working to improve efficiencies around the world for more than a year, said Cameron Yost, spokesman for Shell’s Canadian unit.
Still, the head of Shell Canada, Lorraine Mitchelmore, said in August that the company aimed to cut costs amid an oil-price outlook of $70-$110 a barrel. International prices are now slightly more than $50.
“These are long-term investments, 30-plus years of operations, so we take into account that crude prices will fluctuate over that period,” Mr. Yost said. “That said, we’re always striving to build a competitive business.”
The cuts don’t target a specific part of the oil sands mining, he said. Shell operates and has a 60-per-cent stake in the Albian project. Its partners are Chevron Corp. and Marathon Oil Corp., which have 20 per cent each.
Ken Smith, president of Unifor Local 707A, representing workers at Suncor Energy Inc.’s mine and other employees in Fort McMurray, said he understood 200 people would be laid off at Shell. Mr. Smith said he has not heard of impending layoffs at Suncor, but Shell’s cuts have stoked fears that it could happen elsewhere.
U.S.-based Civeo Corp., which provides work-force housing, said last month it permanently closed one camp in the region and temporarily shut one other, contributing to a 30-per-cent reduction in its Canadian staff.
“A lot of the members are calling up and becoming concerned – are we going to be in layoffs?” Mr. Smith said. “It’s been a long time since we’ve seen layoffs at the major plants, like Shell.”
Alberta Premier Jim Prentice said on Friday that the price drop has landed the province’s economy in a precarious position as its dominant industry retrenches.
“These are some of the most challenging circumstances we have faced in the last 25 years, if not the last 50,” Mr. Prentice said.
“If prices were to continue and persist for a year at $50 per barrel and less, the fiscal hole for the government of Alberta in terms of our finances would approach $10 billion (Canadian). I’m not suggesting that’s going to happen, but we all need to be alive to just how serious a circumstance this is.”
Some other oil sands developers said they are not cutting staff. Cenovus Energy Inc. has halted spending on longer-term expansion projects, but a spokesman said it will keep its staff complement at current levels.
Canadian Natural Resources Ltd., which runs the Horizon oil sands mining project and other steam-driven operations, said it was not laying off staff as it continued to “to focus on effective and efficient operations on our large, diverse asset base.”
With files from Jeff Lewis and Carrie Tait in Calgary