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Oil boom beckons in Cold Lake
Yadullah Hussain Financial Post yhussain@nationalpost 25 Jul 14
Osum Oil Sands Corp. chief executive Steve Spence says he used to call Cold Lake the “unknown story in the oil sands”.
Cpl. Kath ryn Poudrier / Aerospace Enginering Test Establishment The Alberta city of Cold Lake, an air base south of Fort McMurray, is poised to become an energy hub, as well.
Not any more. While the city of Fort McMurray farther north has garnered all the attention for its rapid growth, Cold Lake city has been an oil boomtown in its own right with production in its vicinity ramping up to half a million barrels per day.
“It is actually the most understood region [in terms of geology],” Mr. Spence said, although the Athabasca basin in Fort McMurray produces the bulk of Canada’s oil output.
Osum made a big move in Cold Lake in June, picking up Royal Dutch Shell PLC’s assets in the region for $325-million. The Orion project produces about 6,700 barrels per day and is located close to the company’s Taiga facility, which is yet to start production. Mr. Spence expects the Orion transaction to close by the end of the month.
Mayor Craig Copeland says his city is ripe for a new boom.
“In the past few years, we have really seen a ramp up in development in our city. We have had several small booms before, but all of a sudden a lot of people have been coming to work on construction sites,” Mr. Copeland said in an interview. “This past winter — the winter that was so cold — we had approximately a good 3,000 people embedded in the community in rentals; houses and hotels were full.”
The city’s population has grown 9% in the past two years to reach just under 16,000, according to the latest census published in July. The mayor says non-residents would probably take the population closer to 18,000.
Without the oil sands, the city would primarily be home to about 5,000 military personnel and their families working at the 4 Wing Cold Lake airbase, Mr. Copeland says.
But it’s the oil that’s spinning the economic wheels. The region and its adjoining areas produce about 500,000 barrels per day and that number could rise by another 150,000 by 2017, according to Oil Sands Community Alliance data.
Cold Lake is also home to Canadian Natural Resources Ltd.’s Primrose operation, which has had trouble managing an oil leak since last year. In a ruling this month, the Alberta Energy Regulator said it’s “not prepared to approve a return to full operations at these sites until all potential risks are addressed.”
Other well-established players in the region are gearing up for a new round of expansion in the region. Imperial Oil Ltd., a long-time resident, expects to start producing 40,000 barrels per day from its Nabiya project by the end of the year. Cenovus Energy Inc. is set to expand its Foster Creek project near Bonnyville and Cold Lake by 90,000 barrels per day by the end of 2016. The company spent $370-million with businesses based in the community on goods and services last year.
Osum also plans to raise output from Orion to 10,000 barrels per day and kick-off Taiga with 12,000 barrels per day in the first phase, taking capacity to 45,000 barrels per day.
The rush of new production will test the limits of the city’s infrastructure, and Mr. Copeland can see it coming.
“Every 100 barrels produced creates one to two permanent jobs,” Mr Copeland said.
With population growing, housing challenges are not far behind. Residential prices shot up 14.5% last year and have risen another 5.6% year-to-date, according to Royal Le Page Northern Lights Realty. Home prices have climbed more than 150% in a decade.
The city has offered a $7,500 rebate per door for builders in a bid to stimulate construction activity, and developers have responded with as many as 300 new housing units expected to come on-stream within three years. As many as 500 new hotels rooms are also on the books, the mayor says.
The city council is also in talks with nearby Bonnyville to annex about 1,220 hectares of land to “accommodate growth for the next 50 years.”
Housing and land are not the only challenges.
“There is pretty much room for any type of service,” said Sherri Bohme, executive director at Cold Lake Regional Chamber of Commerce. “We are somewhat underserviced in almost every business category. So the potential for start-up is great, but the availability of commercial land can be a challenge.”
Labour shortages are also chronic in the city, raising fears of an escalation in prices.
“It’s really hard in Cold Lake to attract healthcare professionals, teachers and people that work in the services industries and restaurants when rents are so high,” Mr. Copeland said. “A lot of people who don’t make oil sand wages were forced to leave the community because they could not afford to live here.”
Some government agencies such as the Lakeland Catholic School Board have purchased property and intend to rent out bedrooms to teachers at cheaper rates.
A report last year by the Department of National Defence and Canadian Forces Ombudsman highlighted the ugly side of the boom. Many Royal Canadian Force members in the city have been forced to take up a second job in the city to make ends meet.
“A number of families said they could no longer afford telephone, cable or Internet services,” the report said. Others sold belongings, dipped into their Registered Retirement Savings Plan funds and even claimed bankruptcy in order to meet their financial obligations.
While the business community grapples with the growing pains of the economy, it’s also mindful that the excesses of the boom could very easily be reversed, as the Canadian government makes changes to its temporary foreign workers program.
“The temporary foreign workers changes could potentially debilitate any potential growth of existing business and business coming in,” the chamber’s Ms. Bohme said.
The rules could have “devastating consequences” for the community, Mr. Copeland added. “Probably, within a year or two, this community is really going to feel an impact of a lot of fast food chains, restaurants that are fully staffed by foreign workers. The rules are going to cause devastating results. I don’t know how the hotels are going to cope,” he said.
The TFW program has come under fire as it’s seen as taking jobs away from Canadians, but Mr. Copeland does not see the logic especially in Alberta where there is a labour shortage.
“Nobody from Ontario and [the] East Coast is coming to Cold Lake to work in the fast food industry.”
But Ontarians and people from the East Coast are coming to the city for oil jobs.
“The baseball caps tell you their affiliation. You would be surprised at the number of people from southern Ontario that are based here,” said Mr. Copeland, who is originally from Mississauga, Ont.
Mr. Spence says unlike Fort McMurray where the majority of people are cooped up in campsites, Cold Lake offers an advantage when attracting talent. “They can drive home every night — there is a real selling feature to it.”
The city has an infrastructure deficit of $250-million, and although the oil sands companies are chipping in with contributions for the community, including the new Cold Lake Energy Centre, a multi-use recreation facility that can hold 1,800 people, Mr. Copeland believe federal and provincial governments need to help out more as the tiny city is an economic dynamo feeding taxes and employment to the rest of Canada.
Ms. Bohme believes Cold Lake can replicate Fort McMurray’s success, but sidestep its shortcomings.
“I am hoping that we have put enough things in place so that we don’t have some of the challenges Fort McMurray has.”
