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Accelerating rentals in Saskatchewan

When people think Saskatchewan, they conjure an image of the endless prairie fields of wheat, so flat that non-Saskatchewanians joke, “you can watch your dog running away from you for days.”


September 15, 2009
By Rich Porayko

Topics

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 Drilling in the Bakken Oil Formation. Saskatchewan boasts the fastest economic growth rate of any Canadian province due in part to a rich supply of potash, uranium, oil and natural gas.
Photo courtesy of Petrostar Petroleum Corporation


 

When people think Saskatchewan, they conjure an image of the endless prairie fields of wheat, so flat that non-Saskatchewanians joke, “you can watch your dog running away from you for days.”  Laugh it up because now the joke is on the rest of the country. The U.S.-based business magazine The Economist has called Saskatchewan, “the new Alberta.”

Saskatchewan boasts the fastest economic growth rate of any Canadian province and not just because of agriculture; the province also has a rich supply of potash, uranium, oil and natural gas. Combined with a massive injection of money, brains and resources in the medical and technology sectors with the building of the Canadian Light Source synchrotron particle accelerator, the provincial economy is strong and skilled workers are coming back to Saskatchewan again, this time to stay.

Doug Mitchell, vice-president of Saskatoon, Sask.-based The Rent It Store says the industry is very robust. “There is a lot of activity with potash mines, with the potential of two new operations, and they are still spending a ton of money on renovations. We’re talking hundreds of millions of dollars. Uranium is on hold because of commodity prices but it will come back and it is a major source of revenue for the province.”

The mining companies are going forward with long-term projects, anticipating that commodity prices will rise again. Mitchell explains, “They are expanding certain mines now and they are looking at putting new ones in the ground which are five year projects and a major amount of manpower. Right now, there’s not enough manpower to go around and that’s the biggest problem.”

With regards to oil, Mitchell says, “This year Saskatchewan is going to pump more light sweet crude than Alberta. It mostly comes from the Bakken oilfield in southeast Saskatchewan, which has been buried in shale, but now they’ve figured out how to extract it. There is a very high volume and you can see the pumps every quarter mile. That is where a majority of the dollars have been spent. Heavy crude is basically sitting idle, although we have more of it than Alberta, it’s sitting deeper in the ground.”

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Doug Mitchell, vice-president of The Rent It Store in Saskatoon, Sask., says rental companies are benefiting from the province’s economic growth.


 

Crude oil is considered “sweet” if it contains less than 0.5 per cent sulphur, compared to a higher level of sulphur in sour crude oil. Light sweet crude oil is the most sought-after version of crude oil as it is used to process gasoline, kerosene, and high-quality diesel.

The term “sweet” originated because the low level of sulphur provides the oil with a mildly sweet taste and pleasant smell. Nineteenth-century prospectors would taste and smell small quantities of the oil to determine its quality.

The Bakken Formation is a rock unit occupying about 520,000 square kilometres covering parts of Montana, North Dakota, and Saskatchewan.

 An April 2008 USGS report estimated the amount of technically recoverable oil in the Bakken Formation at 3.0 to 4.3 billion barrels, with a mean of 3.65 billion barrels.

Oil was first discovered in the Bakken in 1951, but efforts to extract it have historically met with difficulties. However, the presence of horizontal fractures has allowed oil companies to utilize horizontal drilling techniques in which they drill wells horizontally along the bedding, rather than vertically through it. In this way, a borehole can contact many thousands of feet of oil reservoir rock in only about 40 metres. Production is also enhanced by artificially fracturing the rock, to allow oil to seep to the oil well.

“The economy looks good, even five years down the line,” says Mitchell. “With what’s going on now, we’re very, very busy. It’s going to get even busier; it’s just a matter of when. We’re fortunate in Saskatoon because we service the north, which is potash and uranium with the potential for gold and diamonds.”

Mitchell describes when things really started to change, “Basically since the Conservatives took over from the NDP, they are much friendlier to business, which has brought a lot of people into the province. We’re getting a lot of people moving back from Alberta, B.C. and Ontario. In Alberta, before oil crashed, the government jacked up royalties but in Saskatchewan, we lowered ours so now we have lower royalties than Alberta, which has stimulated a lot of oil exploration out here.”

Saskatoon was also selected as the location for the Canadian Light Source (CLS) which is one of the leading sub-atomic particle accelerator synchrotron devices in the world and is the only one in the country. The state-of-the-art device, which is as large as a Canadian football field and produces focused light millions of times brighter than the sun, acts like a giant microscope and is being used for research on a seemingly endless list of applications such as computer chips, new drugs, medical imaging, engine lubricants and hazardous waste. “The CLS brings in a lot of permanent people which affects housing, commercial space, labs and the like. We’re pretty well wide open here. We’re very fortunate. Cities have doubled in size after putting these in.”

“So with all the research and resource based activity going on and everyone coming back home for affordable houses, housing has got more expensive. Cheap housing doesn’t exist anymore. However, it has been more of a slower, controlled growth as opposed to Alberta where the infrastructure couldn’t keep up.”

Mitchell continues, “A senior manager for Graham Construction, whose head office is in Saskatchewan, just got back after being away for 10 years. Graham Construction is huge and they do a lot of work all over the place. They are telling us they’re bringing the rest of their crews home after some major projects in Vancouver and Calgary. That is a good sign that they are optimistic that they can compete, keep their guys busy and in turn, support a large contingent of rental stores.”

Within eight blocks of The Rent It Store there are six rental outfits, including several national companies with brand new stores. “There is no shortage of larger rental stores servicing the area,” says Mitchell. “However, there’s lots of work . . . right now. The large U.S. corporate chains have brought in a lot of equipment. They’ve closed down stores in other areas and brought tens of millions of dollars worth of equipment into the branches here.”

As with any market, if there is a surplus with products such as there was with high lift equipment in Saskatoon, companies end up reducing prices to get it out the door. “All in all, compared to other places, the general rental prices are holding up except for high lifts, aerial lifts and forklifts. The market for this equipment is now saturated. Three years ago you couldn’t find one, now there are 20 in the air ready to go to work.”

Nevertheless, The Rent It Store finds that flexibility has its advantages when it comes to competition. “We have 3,500 square feet of sales where the other guys don’t do any sales. We can weather the storm better than some here. We also do a lot of custom service work.

Because business has been good, we sold all the used equipment and everything in the fleet is new. We were fortunate to have been able to buy all new equipment when the dollar was a little friendlier,” he says.
And with an $80 million dollar airport expansion on the horizon, no wonder Mitchell is confident that “the future is still looking very good.”


Rich Porayko is a professional writer and founding partner of Construction Creative, a marketing and communications company located in Metro Vancouver, B.C.  richp@constructioncreative.com