Reopening an old wound

Canada prime minister, industry minister hint at review of foreign ownership in resource sector; stir memories of costly 1980 intervention

Gary Park

Petroleum News Calgary Correspondent

That might have been a week to celebrate the growing emergence of Alberta’s oil sands on the global stage was lost amid vague and confusing talk of tighter government restrictions on foreign investment in Canada’s resource sector.

In a series of trade and economic announcements during Prime Minister Paul Martin’s visit to China, the two governments said they would “encourage and push forward joint comprehensive research and study of oil sands technologies.”

That lent added weight to current negotiations that could see a Chinese company take a minority equity position in Enbridge’s proposed C$2.5 billion oil sands pipeline from Alberta to the northern British Columbia coast.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, told The Globe and Mail that the accord is a step forward in encouraging Chinese investment.

Gordon Keep, with Vancouver-based merchant banking firm Endeavour Financial, welcomed anything the government could do to gain access to new capital.

Alberta pushes oil sands in Europe

The high point will be a United Kingdom Oil Sands Investment Symposium on Feb. 3, when the oil sands opportunities will be dangled before 45 European institutional investors.

The mission will also include presentations to the Canada-U.K. Chamber of Commerce and the German-Canadian Business Club.

“We need to make investors aware of the opportunities available in Alberta, particularly in the oil sands,” said Dunford. “And they need to know these opportunities are backed by Alberta’s cost-competitive business environment, growing economy and strong fiscal foundation.”

Canada may review legislation on foreign ownership

In an interview with the Toronto Star he said it is time to review Canada’s legislation governing foreign ownership of its non-renewable natural resources to determine whether the act “really has all of the capacity we would like to deal with all of the issues of the 21st Century.”

He said the act, which has not been overhauled in more than two decades, has adequate powers covering the acquisition by foreign private sector companies of major stakes in Canadian resource companies, but is “softer” in dealing with companies owned or controlled by foreign governments.

Martin said “everybody” shares a concern that “when a company is acquired, there has to be a benefit to Canada.

“I believe that the ownership of a company (making an investment in Canada) is a valid consideration for government to look at. We welcome Chinese and foreign investment in Canada, but we only welcome it on the basis that it is good for Canada.”

He later told reporters that “no deals have been negotiated, no applications have been made” that would require a federal review.”

If government decisions were needed they would be based on the “benefits to Canada and the protections for Canada and the nature of the owner and what the owner has to bring.”

Those thoughts echoed comments by Anne Golden, president of the Conference Board of Canada, who wrote in The Globe and Mail that state-controlled Chinese firms might try to exert undue political influence on Canada.

Stricter foreign investor rules could rebound

He suggested stricter rules for takeovers could rebound on Canadian companies seeking investment outlets in other countries. Although industry leaders, such as Pierre Alvarez, president of the Canadian Association of Petroleum Producers, took a measured view of the remarks by Martin and Emerson, suggesting they did not interpret the words as policy statement, there was an undercurrent of worry among those who remember the Canadian government’s last intervention in the energy sector.

In 1980, the government imposed the National Energy Program that was prepared in secrecy by federal officials without consulting the industry.

By offering a broad range of preferential treatment and incentives to Canadian-owned companies, the government triggered a wave of takeovers and a mass exodus of U.S.-owned companies.

Because of the risks posed by the program, Imperial Oil slashed its capital spending commitments for 1983-86 to C$3 billion from C$9 billion, saying it would only take on investments that then president Arden Haynes said would “add to future earnings and not undermine the financial status of the company.”

Suncor tallies cost of explosions, fire

Although the cause of the Jan. 4 blaze and the repairs needed in the midst of frigid winter conditions are still under investigation, the company has projected that output will fall by 115,000 barrels per day of production to 110,000 bpd until the third quarter — its biggest setback since a major fire 18 years ago. It will take that long to fix one of its two upgraders that convert bitumen into synthetic crude.

The financial impact is still being calculated, although Calgary-based investment dealer Peters & Co. has estimated the loss of cash flow at C$600 million, translating into lost earnings of C$50 million to C$100 million, once the insurance deductible and repair costs have been factored in.

There is also a 30-day waiting period before Suncor can claim up to C$20 million in reimbursement for the interruption to business and a 90-day waiting period before it can claim any additional compensation for lost revenue.

However, the company does not anticipate any problems collecting on its comprehensive insurance policy that covers it for property damage and business interruption worth US$1.15 billion. Both of its primary insurers are based in Bermuda.

Otherwise, Suncor said it remains on target to boost its production to 260,000 bpd by year’s end.

—Gary Park