North American Construction Group says it continues to see opportunities in Alberta’s oil sands despite the recession.
When the news of the economic crisis broke out and oil prices plummeted, there were many who said North American Construction Group (NACG) would not survive, President and CEO Rod Ruston says. But he asserts that the mining and construction firm has proved them wrong.
Based in Acheson, Alberta, the firm is predominantly focused on serving clients in the oil sands, as it provides heavy construction and mining, pipeline and industrial services. In addition, “We do some work in the general construction industry outside the oil sands, particularly in piling foundations and site preparation,” Ruston says.
Founder J.Y. “Ivan” Gouin started NACG in 1953. Thirty years ago, “He took the bold step of going up into the oil sands, which was a virtually unknown operating area at the time,” Ruston says. Since then, the company has completed work for such clients as Suncor, Shell, Canadian Natural, Opti/Nexen and Syncrude Canada Ltd.
Ruston notes that NACG’s success has largely been due to its ability to work in the harsh, rugged conditions found in the oil sands. There, “You get temperature variations from over 30 degrees centigrade in the summer to minus 50 in the winter,” he says.
Not only does this expertise help when it comes to planning the clients’ projects around the weather, but also when NACG is implementing safe work practices “that are second to none,” he says, noting it works very closely with its clients in this area. “We report very clearly to them on what our safety programs are and how we are performing against those programs, and we work with them to find even safer ways to get things done.”
To NACG, safety is not just about having good statistics. These are merely measures of the success or otherwise of the program. Safety is about having the culture, systems and processes that result in commitment from all employees to sustainable safe operations.
In addition, NACG makes sure it gives the clients what they want. “Our ability to deliver is assured,” he says. “When you ask North American to do something, you can walk away satisfied knowing what you have asked to be done will be done at a high level of excellence.”
Overcoming the Odds
A longtime veteran of the resource industry, Ruston joined NACG in May 2005. “I’ve been in the resource industry for about 35 years,” he says, noting that 25 of those years were spent in senior roles at resource companies.
For instance, Ruston previously served as the managing director and chief executive officer of Ticor Ltd., a firm with operations in Australia, South Africa and Madagascar. In addition, he had positions with Pasminco Ltd., Savage Resources Ltd., Wambo Mining Corp., Oakbridge Ltd., and Kembla Coal & Coke Pty. Ltd.
When Ruston came to NACG, he helped guide the company through a troubled period. Previously, the firm had transitioned from family owned to one that was owned by a consortium of four private equity organizations.
“The company had significant debt as a result of the acquisition and through some performance issues, had developed a severe cash flow problem,” Ruston says. “Over the last five years, we’ve been able to overcome those problems.” The company grew from around $300 million revenue in the 12 months to March 31, 2005, to a peak of $1.1 billion revenue in the 12 months to Sept. 30, 2008.
“Our revenue has pulled back to a 12-month run rate of around $750 million since the 2008 financial meltdown,” Ruston says, “but we have proven two things. First, we demonstrated the capability of the company when the business environment is strong, and secondly, we have clearly shown that the company can perform strongly at the bottom of the business cycle.”
He adds that he is proud of how the company overcame the expectation that NACG would close its doors after the economic downturn. “When the world turned upside down with the financial crisis, many in the business thought the oil sands couldn’t survive and therefore, North American couldn’t survive,” he says.
“Those people had two misconceptions,” he continues. “First, they thought the oil sands operators could easily stop production in a low oil price environment. They can’t.
“Secondly, they thought NACG’s revenues were closely tied to the spot price of oil,” he says. “It isn’t. Not only have we survived, we proved that the amount of recurring revenue that North American has, as a result of its extensive exposure to the operating oil sands mining projects, gives us strong revenues and makes us profitable, even in periods of low construction activity.”
Additionally, NACG expects that its base of work will only get larger, Ruston says. “What we’re seeing is that the oil sands, in particular, are getting ready for the next expansion phase,” he says. “We’ve got virtually all of our existing customers up there, except Shell, looking at expansion projects, and we have new operators announcing projects that will provide us with the opportunity to expand our customer base.”
Shell is not looking to the next expansion because the company is in the final stages of construction of its Jackpine mine to expand its Albian Sands operations, a project on which NACG undertook the earthwork for the construction.
He adds that NACG has put out bids for a number of large oil sands projects. “This year will be spent getting engineering done for those,” he says. “We’re preparing for what I think will be a big construction year in 2011.” NACG also has recently refinanced its debt to restructure its balance sheet, Ruston says. “We had, in round figures, about $280 million of debt in the form of [U.S. corporate debt] that was due on Dec. 1st, 2011,” Ruston said.
NACG has been working with its banks to identify refinancing opportunities. “The result is that we recently raised $225 million in Canadian dollar denominated debentures which will be used in conjunction with some cash and other debt instruments to completely eliminate U.S. dollar denominated debt, and in the process, simplify the balance sheet and reduce our funding costs,” Ruston says.
Absolutely Key
NACG strives to reduce the size of its environmental footprint, Ruston says. “Making sure that we look after the environment is absolutely key,” he says. NACG has its own policies and strict procedures for managing its equipment fleet in an environmentally conscientious manner. However, NACG’s main contribution to the environment comes with the expertise the company can bring to its customers in executing work under the strict environmental requirements of the region and in its ability to restore areas where mining has been completed.
By way of example, Ruston notes that the company recently built a pipeline through Jasper National Park in Jasper, Alberta, winning accolades from the environmental community and the residents of Jasper for how well the job was done.
“NACG has a long history of providing reclamation services to clients and is the contractor that undertook the reclamation work on the only area of the oil sands that has been approved by the Alberta government as being completely reclaimed and returned as crown land,” Ruston says.
He adds that NACG was providing reclamation services well before the recent rise of interest in green practices. “The green focus by NGOs is relatively new,” Ruston says. “The operating companies in the oil sands have been investing large sums on improving the environmental aspects of the business for some time and NACG has been a key player in this effort.”
Successful Partnerships
NACG focuses on the early involvement and participation of First Nations groups in its work. “This commitment has led to NACG garnering a long history of successful partnerships with First Nations groups and has enabled NACG and its First Nations partners to deliver high-value construction and mining services to its clients,” the company says.
For instance, in the Fort McMurray area, the company partnered with the Fort McKay Group of Cos. and developed a joint venture, Noramac Ventures Inc. This partnership, which still exists, finds the Fort McKay Band holding 51 percent ownership in Noramac. “We’re very proud of that partnership and work very hard to make it successful,” Ruston says.
According to the company, the joint venture encompasses equipment and personnel supply, subcontracting for tree clearing and the provision of support and infrastructure services. “Other joint ventures have involved clearing and grubbing of sites, logging, earthworks, camp and catering services, contracting of labor and rental of equipment, as well as the provision of overall support and infrastructure services,” NACG says.
In these other joint ventures, NACG’s commitment has gone beyond Fort McMurray. For instance, “In 2004, De Beers awarded a multi-year contract to NACG for the development of its Victor Diamond Mine near Attawapiskat, Ontario,” the company says.
With the chance to hire and train local workers, the company says it formed a joint venture with the Attawapiskat First Nation (AFN). “AFN workers were hired on a priority basis and were trained to ensure that they had the required skills to support the mine,” it states.
“This relationship worked very well for NACG, AFN and De Beers, as NACG was able to consistently employ almost twice the number of AFN workers De Beers and the AFN first envisioned,” NACG says. “The company continues to enjoy an excellent relationship with the Attawapiskat First Nation [and] is currently working with the AFN to develop further opportunities in Northern Ontario.”
Additionally, Kinder Morgan’s TMX-Anchor Loop Pipeline project led to more NACG-First Nation partnerships, the company says. “In 2006, NACG signed a memorandum of understanding with the Simpcw First Nation of Barrier, British Columbia, containing specific clauses devoted to economic opportunities that this Simpcw First Nation would benefit from,” it says.
“In addition, NACG and the Simpcw First Nation are currently working together to pursue additional opportunities, such as the construction of hydro-development projects in the Simpcw First Nation’s traditional territory,” the company says. “Similarly, the proposed Mackenzie Gas pipeline has resulted in the formation of the Mackenzie Aboriginal Corp.”
At a High Level
Of his team members at NACG, Ruston notes that he is particularly pleased with the work of his site supervisors. “We can only do so much from the head office,” he says. “The thing that’s really come to our attention in the last 12 months has been the commitment of our site supervision to absolute excellence in safety and project execution.”
Ruston notes that NACG has given its site supervisors a lot of autonomy as well. “When we have strong site leadership with the ability to make decisions, we get quick responses to our clients’ needs and safe efficient execution of those decisions,” he says.
Here to Stay
Along with the growth in Alberta’s oil sands, Ruston says he sees more opportunities for NACG across Canada with its contracting expertise. For instance, seven months ago, the company purchased a small piling company in Ontario.
“We see big opportunities for that business,” he says. “We see opportunities for the rest of our construction business, spreading in that direction as well. Piling is a good lead-in to new markets.”
Although a “gold rush” attitude towards the oil sands may not return, the sands “are here to stay,” Ruston asserts. “They are very valuable to Canada and very valuable to the United States.”
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