The worldwide economic downturn has caught up with an Oilsands heavyweight, as one company is slashing spending that will result in construction workers losing their jobs.
Oilsands Development
The worldwide economic downturn has caught up with an Oilsands heavyweight, as one company is slashing spending that will result in construction workers losing their jobs.
Oil services contractors Flint Energy Services Ltd. and Lockerbie & Hole Inc. will have millions of dollars in revenues deferred and will be forced to lay off workers, as a result of a recent decision by Suncor Energy Inc. to cut its capital spending in 2009.
Declining revenues and market conditions prompted Suncor’s board of directors to cut their capital spending plan in half to only $3 billion.
“We made changes to the capital plan because of the current market uncertainty and low oil prices,” explained Suncor spokesperson Shawn Davis.
In October 2008, Suncor slashed the 2009 capital budget by one-third to $6 billion, which delayed the completion of its Voyageur heavy oil upgrader by one year to 2012.
The most recent cuts mean that Suncor’s $20.6-billion Voyageur expansion project, which includes the postponed upgrader, along with expansion plans at its Firebag in-situ operations, have been delayed.
The Firebag 3 project is currently about 50 per cent complete.
Flint plans to work with Suncor to demobilize the project and protect the facilities that have already been fabricated or constructed.
Suncor’s postponement already caused Flint to lay off construction workers immediately, with additional layoffs expected once the project has reached safe mode.
“At this time, construction restart and completion targets for these projects, and start up and completion targets for all other expansion projects, have not been determined,” said Suncor’s financial report.
The company lost $215 million for the fourth quarter of 2008, compared to net earnings of $1 billion in the fourth quarter of 2007.
Significant decreases in commodity prices in the fourth quarter contributed to the decline.
Despite projects being mothballed, the company is ready to start back up on short notice.
“We will be taking delivery of materials and equipment we have already purchased and they will be warehoused until it is time to resume construction,” Davis said.
‘We will still be doing some of the engineering work and making sure we are ready to restart construction when the time is appropriate.”
The news of the cuts in spending has hit Flint Energy Services Ltd. hard.
The company anticipates a possible reduction in 2009 revenues for its Facility Infrastructure division by between $100 million and $150 million.
“We are working closely with Suncor to complete all necessary work on the site in preparation for what we hope is a short-run postponement of the project,” said Bill Lingard, president and CEO of Flint.
“We are confident that oilsands development will continue, albeit at a reduced pace for now.”
Lockerbie & Hole Inc. was given a confirmation by Suncor that its construction program on the Firebag 3 co-generation plant has been delayed.
The move deferred about $35 million in revenue from fiscal 2010 until a later date.
Earlier this month, Lockerbie & Hole Inc. was acquired by Aecon Group Inc.
The deal is expected to close in early April 2009, subject to regulatory approval, approval of Lockerbie’s shareholders, court approval and certain other conditions.
The combined company will employ about 9,000 people during peak construction periods, including about 1,500 full-time salaried employees (1,100 from Aecon and 400 from Lockerbie) and about 7,500 hourly employees (5,000 Aecon and 2,500 Lockerbie).
A spokesperson for Lockerbie & Hole declined to comment on the Suncor situation or the acquisition.
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