The Perils and Promise of Market Contraction (introduction)

In the wake of 15 turbulent years of natural resource development cycles, Western Canada is now residence-host for heightened expertise, confidence and requisite knowledge to help producers endure and even prosper at a tenuous juncture in political and economic turmoil – nonetheless, ominous perils remain in the pursuit of great spoils.

Retrospection

In 2003, with several multi-billion-dollar projects serving to excite the engineering and construction resource base in Canada, there was more than one international EPC group reluctant to participate in the Canadian rota of opportunities – despite the obvious appeal. At the centre of many discussions, one respected international EPC company was solicited to support the development of a heavy oil upgrader program in Alberta, with the potential of a large contract that could help them establish a Canadian presence. To the surprise of the project team, their invitation was declined. The prospective Asian engineering firm reasoned that it was too great a risk for them –they believed Canadian producers were insufficiently prepared and inexperienced in managing major capital programs, hence making successful project execution improbable.

The project team quickly dismissed the foreign prophecy as both uninformed and unfortunate, then forged on with nary a shadow of a concern; there were ample other interested parties and no time to lose. Ultimately, over the next few years, the project was tenaciously completed by Canadian and other international contractors – but not without a few significant commercial casualties.

...resolve, cleverness, obstinance and untiring work ethic ultimately overcome most trials.

There has always been a resplendent boldness throughout the Canadian industries of natural resource exploitation and infrastructure development. The complex risks inherent in these substantial investments commands it. Challenges are ever-present and changing, but industrious folk face and embrace them, using any (and all) conceivable means at their fingertips. Their resolve, cleverness, obstinance and untiring work ethic ultimately overcome most trials.

At the time, the industrial Canadian West had a self-glorified reputation for being cowboys, and with our hands on our hips, we let echo in our conference rooms, the proverb: ‘despite our mistakes and dysfunctions, every project gets built.’ We later recognized that our brazen ways were not always elegant or ideal. Fortunately, it has been the price of energy that, directly or indirectly, has played the part of the angel that kisses and forgives us for our sins. Our goals might have been better achieved with a simpler grace, had we only accepted or known other methods and means. Still, it is true that even though some projects have been hard-pressed to control budget and schedule, they have been constructed, save for the ‘upgrader alley’ spectre, vexing the Fort Saskatchewan residents.

Since those first years after the turn of the millennium, the theatre of engineering, procurement, fabrication, construction and a great many people supporting it, have all changed, at every level and sector. But, with nearly one-half of Calgary's downtown core vacant, things remain disparate and unclear for many folks.

Often, it can be the introduction of an unknown competitor that forces a company or stable industry to reinvent or improve itself, despite how old methods may have sustained them, and however grave their functional deficits. In a decade and a half, much can be gleaned from our collective body of projects work. We have tried and tested, failed and re-engineered. We have improved our old self. The hard work and resilience of many people and companies have contributed to a truly positive trajectory. We can now be smarter, faster and stronger than ever before – and can confidently throw a resume into international arenas.

Undercurrent

Today, our proud industry has a remarkable opportunity: to embrace our hard-earned education and wisdom, our fortitude and intellect, our industriousness and – of course – our natural resources. We have the opportunity and the incentive to innovate, for the sake of making good things possible in a volatile macro-economy, despite being damned by many for our exploits and unpredictability. We are well positioned to make good on this opportunity. We can measure and think through the perils and the promises borne of this gross market contraction, and raise a more durable and efficient sail. After all, those who choose a life of risk and daring are not held long in a quiet harbour.

Much has happened since the four-year economic winter started late in 2014. The flight or fight for survival is everywhere – from producers to individual tradespeople, as well as all those businesses and professionals impacted by all things E-P-C. The entire marketplace has changed, and remains in a perpetual state of tension, flux, frustration and weary hopefulness. 

So, what is there to look forward to? New business. Prosperity. Advantage.

Here, in this upcoming series of articles from EPC Lens, please allow us to be supportive to your needs. We are a neutral observer – helping to qualify the effects, recognize the perils, as well as the promises – intuitive of the EPC market contraction in Western Canada.

Today, and in the days that follow, EPC Lens outlines some of the common effects and dives into some of the phenomena at play in people’s minds.

Naturally, we must begin with the perils, albeit in descending order:

#6: The Perils of a Canon in Recoil

Long ago, a rather clever industrial steelmaker and arms merchant, Alfried Krupp, redesigned the field gun (kanon) to load from the rear, using a heavy cast steel door -- conceivably to prevent loading accidents and to reduce time between shots. When tested, the big gun's new configuration killed nearly as many on the rear side of the explosion as it did enemies in its target. Practical modifications and refinements were quickly made to the mechanism until the machine's full explosive force was contained and more accurately directed to the front – instantly trebling the artillery's deadly efficiency and range.

The insistence and understanding by the German command that the notion of a rear-loading canon, with its high-strength Krupp steel and quick-loading mechanism, would translate into more shots on target per day and at greater distances paid off in short order. The frightful device weaponized the German armies to destroy her opponents' front-loading antiques. The new Krupp steel potentiated a radical new design and algorithm, achieving enormous advantages in the face of battle.

Obviously, this story played out long ago and is now all but forgotten, and those timely innovations have undergone further improvements by war machines ever since. But, can such a lesson translate (without the horrifying consequence) into a net positive for our kinder, more civilized business of projects all these years later?

Yes, of course. 

Better tools, better ideas and continuous improvement will always offer a strategic advantage. But the true lesson that might be learned from this story follows from the question: ‘How do you learn about the next Krupp (or equivalent) and its ideas before your competitors do? At minimum, how do you keep up?

The greatest of these - is the peril of the status quo

There are a plethora of claims about how improvements can be made to project execution. The promotion of spectacular new ideas – whether good, lame or strange – can come from everywhere and anywhere. It can be exhausting, frankly, just trying to identify and assess the infinity of proposals from technology companies, inventors, self-professed ‘game changers', consulting and engineering firms, fabricators and constructors, and even errant critics.

It is easy to be lured by shiny new gadgets and a faster canon. Conversely, it is easy to dismiss the prophetic inventors and to let someone else wipe the bleeding edge. Nevertheless, things are changing – and changing quickly. The competitive fields of all things EPC have been wanting for transformation and the recoiled canon of a spent market now offer a moment to re-think each part of the business.

To be sure, it takes thoughtful and calculating diligence to find the right new ideas. We need to sort through the inbox of weekly miracles and to have the foresight to recognize the legitimate advances being made by well-intended people and companies, and discard the ballast. The time and energy this takes may be expensive, but inarguably well worth it, therefore, be cautious: a traveller with a stricken match and an oddly designed gun can cause much damage if not directed properly.

There are perils in wielding a half-assembled rifle. There are perils in taking aim at too many targets. There are perils in making changes that cannot be adopted in a short period of time. The greatest of these, is the peril of the status quo – ‘wait and see', or listening for the distant roar of firing canons, are not wise strategies for the current market. Fix the design, load the canon and take aim, before you are caught in the sights of someone with a better idea and a longer range.

R W Harms

? 2018 EPC Lens, Inc.

This series continues with our next article: Peril #5 - Peril X. It's not a variable: the X stands for eXodus