Fort McMurray braces for impact of oil price drop

Fort McMurray, Alta., the city at the heart of the oilsands, is already seeing signs of a slowdown as the price of oilsinks.

The boom town has weathered many a bust, only to recover and continue its frenzied growth. But this time there are projections that the price drop could be deep and sustained. Thats bad news for the oilsands, where the cost of production is higher than for conventional oil.

The vast majority of Fort McMurrays approximately 75,000 residents maketheir living from the energy industry, as doa so-called shadow populationof about 40,000 whowho live and work in nearby camps.

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While big industry players like Shell, Suncor and Canadian Natural Resources have announced billions of dollars in cuts and hundreds of layoffs, the specific impact has not been felt - yet. In the oilsands economy thousands of contract workers move from project to project, being laid offwhen a job is complete and moving onto the next one.

Its expected to be several months before the full extent of the cuts becomes clear. In the meantime it is the spectre of whats to come that is sending a chill over this northern Alberta city. The early signs of a slowdown can be subtle, but they are rippling through the city.

At The Driving Force, a company that supplies trucks to the energy industry, fewer independent contractors are taking out leases.

"I cant say business as usual," explains manager Shane Boersma. "We havent had so much a lot of returns of vehicles from our current customers but were seeing that there arent as many orders put in as you would normally see."

Things started slowing down just before Christmas, as oil approached $50 a barrel, says Steven Sachse, co-owner of the Wood Buffalo Brewing Company, a restaurant and bar popular with energy entrepreneurs and oil executives.

"We notice it in terms of our sales right now," he says."Theres not as many business meetings happening."

There are other small indicators. Instead of ordering the premium vodka, high flyers are settling for cheaper brands. There are fewer extras with meals. Still, like most of the citys businesses, Sachse expects to pull through.

"The biggest fear right now is how long its going to last. We can definitely weather the storm. We go down to business basics and ensure our costs dont exceed our revenues."

A welcome break for some

Some people call Fort McMurrayFort McMoney, for very good reason. The oilsands bring billions of dollars and thousands of workers to the region. Streets and parking lots are filled with shiny new Ford F150, Dodge Ramand Toyota Tundra pickup trucks. More than a quarter of households report incomes exceeding $250,000.

The cost of housing is high, with the average single detached home selling for $750,000. Construction costs are also sky-high, as contractors have to compete with the big wages paid by energy companies. Thats why a slowdown in energy means a catch-up in municipal infrastructure.

"When you go through a slowdown as a municipality, were grateful for them," says Fort McMurray Mayor Melissa Blake. "We actually get to catch up on these things that we fell behind on."

The lastoil-priceslumpwas in 2008, when it bottomed out at $32 a barrel. Thatcaused the cancellation of many energy projects, several of which have never resumed. But it also afforded some breathing room in an overheated economy.

CharlesIggulden, president of the Fort McMurray Construction Association, expects much the same will happen this time.

"A lot of municipal projects will take off like they did in 2008 where they started the overpasses, twinning some of the highways, and then some of the oil companies spent money on infrastructure to support their projects, future projects," he says.

Doom and gloom

As for doom-and-gloom scenarios, no one with connections to Fort McMurray believes the boom town will become a ghost town.

"We made it through the '30s, we made it through the '80s, we made it through the '90s, right, I think were going to survive it again," says oilfield worker Kevin Sembaliuk.

The mayor believes the people who live and work in camps are most vulnerable as energy giants shelve projects.

"For the most part these impacts tend to affect those we would call our guest workers or temporary workers who fly in fly out from different parts of our country."

She says for those who make Fort McMurray their home the latest bust cycle will help rein in the high cost of housing and allow small businesses more opportunity to build, grow and find much needed staff.