Canada’s Oil Capital Turns to Amazon and Airlines to Make Up for Price Plunge
Mark Craig didn’t worry much when oil plunged from $100 a barrel to less than $50 in late 2014. Having worked in the Canadian oil industry since high school, the Calgary resident had seen booms and busts before. His confidence seemed justified when, just months after taking a buyout at British oil giant BP Plc, he was hired to manage the IT department at Calgary-based Penn West Petroleum in April 2015. Then, four months later, Penn West cut a quarter of its staff, including Craig, in the midst of an accounting scandal. Oil had just begun to take another leg down, ultimately bottoming below $30 a barrel, and no one in the city that’s the epicenter of Canada’s oil and gas industry was hiring. Two years later, no one is hiring still. “After Penn West, I realized there were basically no jobs out there,” says Craig, 56. “It was a very harsh reality that slapped me in the face.”
Most oil producers are operating under the assumption that the days of $100 crude are gone for good, and they’re planning to stay as lean as possible. As that realization sinks in, Craig—and Calgary—are retooling.
The unemployment rate in the province of Alberta, of which Calgary is the largest city with about 1.47 million residents, was 7.3 percent in November. That’s down from a peak of 9 percent a year earlier, but it’s still a full percentage point higher than the national average. The oil, gas and mining industries employed about 143,000 workers in the province at the end of last month, down almost 40,000 from July 2014, when oil prices began their long slide.
The job loss is visible in Calgary’s downtown, where the vacancy rate for office space sits at about 27 percent, near a record high, according to brokerage CBRE Group Inc. By contrast, only about 10 percent was empty in 2014. Landlords are now so desperate for tenants that the average rent they’re charging for the highest-quality space is cheaper than the lowest-quality space was in 2008, CBRE says.
“I love roller coasters, but this was a bit too much,” says Mayor Naheed Nenshi, who says he has watched the city’s attempts to diversify beyond hydrocarbons ever since the early 1990s, when he was a student at the University of Calgary and the industry accounted for about half the city’s economic activity. (It’s closer to 30 percent now.)
The drive has continued under Nenshi, who’s serving his third term since he was first elected in 2010. Rather than trying to set up new industries from scratch, his administration has concentrated on building out those in which the city already has a toehold, such as transportation and logistics, agribusiness, renewable energy, financial services, manufacturing, and creative industries such as film and television. “We need to ensure that we are taking advantage of the downturn to attract different kinds of businesses, to create a more resilient economy, to create an economy with shock absorbers, so that we are better suited to manage the ups and downs of world commodity prices,” he says.
His administration can claim a few successes so far. Amazon.com Inc. announced in October that it will be opening a fulfillment center in the city that will eventually employ more than 750 full-time workers. Another major victory was WestJet Airlines Ltd.’s decision in September to base its new low-fare carrier, dubbed Swoop, in Calgary. While WestJet’s headquarters are in the city, the company says it was aggressively wooed by two other Canadian cities it would not identify, and there was no guarantee it would choose its hometown.
Incentives offered by Calgary and Alberta helped clinch the deal, according to Bob Cummings, WestJet’s executive vice president for strategy and head of the Swoop startup. With the prize of more than 500 jobs hanging in the balance, all of the stakeholder groups involved in the process showed they were “hungry” for the development, helping sway WestJet’s decision, says Cummings, adding. “I’m not sure Calgary was quite at that level five to six years ago, when oil was at $100.”
Looking ahead, Mayor Nenshi is confident that the city’s long-shot bid to host Amazon’s second headquarters will have the effect of luring additional tech businesses to the city. The campaign has grabbed media attention with ads featuring a glowering, bearded man and the tagline “Hey, Amazon. Not saying we’d fight a bear for you...but we totally would.”
While Calgary’s boosters see the city’s oil and gas heritage as an advantage, the industry is often viewed as stodgy and old-fashioned by those in other lines of business. Persuading outsiders that the local workforce has skills that can be deployed in other lines of work is challenging and frustrating, says Mary Moran, president and chief executive officer of Calgary Economic Development. “The ability to drill 5 kilometers down and 3 kilometers across to hit a bathtub-sized target—that’s innovation,” says Moran, describing the expertise required to extract oil from slabs of rock deep underground. “We didn’t invent Tinder, we didn’t invent Shopify, but there’s still pretty intricate and sophisticated technology that’s happening here.”
Calgary may one day be able to tout startup success stories like Shopify, an Ottawa-based e-commerce company with 1,500 employees. RocketSpace, a San Francisco-based tech accelerator, announced plans in May to open its first Canadian campus in downtown Calgary early next year. While the operation will employ fewer than a dozen people, the company has leased 75,000 square feet of office space, most of which will be occupied by fledgling companies.
Moran is quick to say that no one expects the energy industry to disappear from the city entirely, but as its footprint shrinks, locals will have to make some adjustments. “People are having to make a mindset shift, because if you’re going to work in a smaller company, you’re going to have to grind it out a little bit more,” she says. “You won’t make as much money, you won’t have as short hours, you won’t have Fridays off.”
Craig, the industry veteran, says he can live with that—and many people in his situation feel the same way, he says. To help his peers get back on their feet, Craig co-founded a nonprofit late last year, the GoldMind Project. The group is run entirely by volunteers and holds events to help unemployed workers revamp their résumés, decide whether they want to be entrepreneurs, or just get motivated. At a recent event downtown, a local career consultant gave an hourlong talk on networking and answered questions from the 50 attendees, ranging from how to use LinkedIn to when to slip a new contact your business card.
In addition to GoldMind, Craig has started a one-man tech-consulting business. A current project involves designing a case-management system for a local law firm. He hasn’t quit looking for full-time work—though he’s resigned to the knowledge that any position he lands will be less cushy than his last one. “There’s no longer that job that people wanted to have into retirement, with a pension and all of that,” he says. “That’s started to sink in for a lot of people.” —With Katia Dmitrieva