Free at last
After 30 years Canada is ready to cut final ties to Petro-Canada
Petroleum News Calgary Correspondent
There were the bumper stickers. “I’d rather push this car a mile than fill up at Petro-Canada.”
There was the cold shoulder. For long enough, Petro-Canada’s then Chief Executive Officer Bill Hopper was not a welcome figure in the Calgary Petroleum Club.
There were the cheap shots. Petro-Canada’s ochre-colored head office in Calgary was commonly known as Red Square.
There was the scorn. Over the use of taxpayers’ money in the 1970s and 1980s to acquire Canadian assets from Atlantic Richfield, Pacific Petroleums, Petrofina Canada, BP and Gulf Canada. Over Hopper’s extensive use of corporate jets and executive chefs and his lavish spending on a corporate art collection.
It was a C$10 billion exercise in providing the government with a “window” on the industry at a time of volatile oil prices and a chance to seize Canadian control of the Arctic and East Coast frontiers through subsidized exploration.
Those days are gone.
The Canadian government’s experiment in running a state-owned oil company is fast winding down.
Government will sell remaining stakeWithin the next year, its remaining 18.74 percent stake in the company will be sold off.
That’s the final step needed to privatize Petro-Canada and remove any cloud of government meddling in the industry.
At current market values, the government’s 49.4 million shares are worth about C$2.8 billion, although the net proceeds are expected to be close to C$2 billion, after deducting the book value of about C$600 million.
“Obviously, we’ve come to the conclusion that the appropriate time has been reached to divest ourselves of this asset,” Finance Minister Ralph Goodale said March 23 when unveiling the 2004-05 budget.
In fact, his hand had been forced earlier in the day when a wave of speculation ahead of the budget triggered an announcement before the North American stock markets opened.
Exactly how and when the shares will be unloaded has yet to be determined.
But years of speculation have finally been put to rest. The sell-off started in 1991 with an initial public offering of 20 percent of Petro-Canada and continued in 1992 and 1995 when two further chunks went on the block. Those three transactions totaled C$2.59 billion, likely less than the last 19 percent will return.
Goodale has indicated that half of the proceeds will go to pay down the federal debt and half to environmental initiatives, including the development of technologies for clean coal, carbon dioxide sequestration and renewable energy as part of Canada’s program to reduce greenhouse gas emissions.
Who’ll buy?Now attention shifts to the likely buyers.
Petro-Canada Chief Financial Officer Harry Roberts said in a statement that the company’s interest in repurchasing shares “will be decided at the time of the sale, based on an evaluation of market conditions and competing priorities.
“We will work with the government to ensure an effective placement of the shares in the market,” he said.
Otherwise the change will have no affect on Petro-Canada’s “business strategies or daily operations,” Roberts said.
Randy Ollenberger, an analyst with BMO Nesbitt Burns, said in a research note that given the strength of Petro-Canada’s balance sheet — with C$588 million of cash available at the end of 2003 — it could purchase the entire block, but is unlikely to do so. Petro-Canada even indicated at a recent investor day that it could handle an acquisition of C$4 billion to C$5 billion.
Martin Molyneaux, an analyst with FirstEnergy Capital, does not expect the sale to a single entity, telling the Canadian Press that “politically, that would not be as palatable.”
Restrictions limit ownership of companyThere was no indication from Goodale whether the government will lift current federal restrictions that prevent any single investor or related group of investors from owning more than 20 percent of the company. A change might open the door to a larger chunk of foreign ownership at a time when Petro-Canada and Suncor Energy are still in the control of Canadian shareholders, while Canada’s other three integrated oil companies are dominated by outside interests — Imperial Oil is 69.6 percent owned by ExxonMobil; Shell Canada is 78 percent owned by Royal Dutch Shell; and Husky Energy is 72 percent owned by Hong Kong billionaire Li Ka-shing and members of his family.
Despite a setback earlier this year when Petro-Canada trimmed 5 percent off its year-end 2003 proven reserves to 1.22 billion barrels of oil equivalent and lowered its 2004 production outlook by 3 percent to 450,000 barrels of oil equivalent per day, the company is strongly positioned in all of Canada’s long-term plays (Alberta oil sands, Arctic and East Coast offshore) and has a valuable international portfolio since its 2002 purchase of Germany’s Veba Oil & Gas for C$3.2 billion.