ALBERTA OIL

The Boom That Ran Away From Home

Alberta offers the opportunity of a generation for venture capital but Canadians still sit back cautiously studying reports while more imaginative Americans pour in millions. At present we have no better than a twenty percent stake in our own major oil fields but there’s still plenty of room on the ground floor

BLAIR FRASER November 15 1951
ALBERTA OIL

The Boom That Ran Away From Home

Alberta offers the opportunity of a generation for venture capital but Canadians still sit back cautiously studying reports while more imaginative Americans pour in millions. At present we have no better than a twenty percent stake in our own major oil fields but there’s still plenty of room on the ground floor

BLAIR FRASER November 15 1951

The Boom That Ran Away From Home

ALBERTA OIL

BLAIR FRASER

ONE DAY LAST YEAR a traveling Texan dropped in on Jack Oberholtzer, Alberta’s Deputy Minister of Industries and Labor. Just looking around, the visitor said; heard you folks had an oil boom. He chatted awhile and then went away. A day or two later he telephoned. “You people don’t realize what’s going on here,” he said. “In my home town they’d know—they’ve seen it before. But you Canadians don’t know what’s happening in your country.”

Eastern Canadians certainly don’t. It’ll be five years in February since Imperial Oil’s Leduc discovery set the Alberta boom rolling, five years in which the oil industry alone has poured seven hundred and fifty million dollars into western Canada, five years that have established the Canadian prairies as a major oil field of the world. Toward these developments the financial powers of eastern Canada have maintained a calm that resembles paralysis. Control of Alberta’s natural resources, and the profits thereof, have very largely passed into American hands.

Alberta has oil, coal and natural gas, the ingredients of a chemical industry. A year ago an American firm sent out a group of its top men from New York to look the situation over. They stayed a few weeks, went back to New York, three months later announced plans for a new chemical plant that will cost at least fifty million dollars and may run to a hundred millions if a contemplated expansion is carried out.

Long before that a Montreal firm had sent out two technical men to make a careful survey. They spent six months in the field, then went back east and spent another six months writing an exhaustive report. Their principals in Montreal have been studying the report for a couple of years. They may eventually decide to build a chemical plant in Alberta, but so far they are still trying to make up their minds. In the years of oil exploration before the Leduc discovery a small

Alberta offers the opportunity of a generation for venture capital but Canadians still sit back cautiously studying reports while more imaginative Americans pour in millions. At present we have no better than a twenty percent stake in our own major oil fields but there’s still plenty of room on the ground floor

sound Canadian oil company ran out of working capital. They sent their best man east to try to raise a couple of million dollars, so they could keep on looking for the oil they felt certain was there.

He still feels bitter about that trip. He remembers, as all too typical, his interview with two leading eastern financiers. One said, “My boy, if I were thirty years younger I’d be into this thing with both feet.” The other looked out the window and didn’t say anything. The westerner went home empty-handed.

“Easterners have forgotten what private enterprise means,” a Calgary businessman said. “They don’t want to take chances, they aren’t interested in venture capital. They’d rather sit on their foamrubber chair pads and clip the coupons off gilt-edged securities.”

An Edmonton man, born in Montreal, put it even more bluntly. “I grew up in the east and I know what they think of us,” he said. “They never think of the west at all except as a dumping-ground for out-of-date merchandise.”

Figures seem to bear him out. It’s impossible to sort out the interlocking ownerships and “farm-out” deals in the oil industry itself, but most people in either government or business in Alberta agree that the Canadian share of the oil development itself is something between ten and twenty percent. At the very highest estimate it’s only forty percent: of the $215 millions being spent

on exploration and development this year ' mgr _ ,,,;

more than $132 millions is direct investment by United States companies. Probably $60

millions more will be spent by Canadian . .

companies owned and controlled by parent firms in the U. S.

The Eyesore in Edmonton

Whether these latter companies should be classed as Canadian or American is a moot point. Imperial Oil, the father of the Alberta oil boom, the company which had faith enough and patience enough to spend twenty-three millions on one hundred and thirty-three dry '( ^ r holes before Leduc came in to justify its faith, has only seventeen American citizens among its twelve-hundred-odd employees. Imperial’s tremendous investment in the Canadian west (now around a hundred millions for that firm alone) has been Canadian money, Imperial

earnings in Canada or investment by Canadians. Men who work for Imperial become indignant when their company is described as “the Canadian subsidiary of Standard Oil of New Jersey.”

However, Standard Oil of New Jersey does own sixty-nine percent of Imperial Oil stock. Control rests with the American company, and control is the heart of the matter.

You can argue, though, that American domination of the oil industry proper was inevitable, even desirable. Americans have the technical experience in the field which Canadians lacked. Even if Canada had had the money (which it hadn’t) it’s doubtful if Canadian capital could have developed Alberta oil so quickly and profitably.

These excuses, even if they’re valid for oil itself, certainly don’t apply to the secondary industries which have been flocking into Alberta in the last couple of years. In 1951 about one hundred million dollars are being invested in Alberta industries other than oil. The big Celanese chemical plant accounts for half that sum, but it also includes a flock of smaller enterprises. Of the hundred-million total only six millions are Canadian.

On an average, since 1947, about a hundred delegations of prospective industries call each year upon the Alberta Industrial Development Board (an agency of the provincial government) for guidance. On an average, fifteen of them represent Canadian firms—and they are not the fifteen likeliest prospects.

These are things the Albertan likes to throw up to a visitor from eastern Canada, and they’re fair enough indictments. But the easterner can make some awkward points about Alberta, too. Even the natives don’t seem to know they have a boom out there.

Hon. A. J. Hooke, Minister of Economic Affairs, some time ago began a series of industrial surveys of smaller Alberta communities. When his surveyors came to the town of Camrose, they had a particular industry in mind, a candidate who offered to bring a considerable chunk of investment and employment to whatever community he chose.

“We don’t want any new industries,” the city fathers said. “The town is big enough now.”

Camrose has since relented and asked for a survey, but the Camrose attitude is not unique. Within the last year a city councilor of Edmonton, the hub and capital of the oil boom, told reporters, “I hope the city won’t grow any more. We’re outgrowing our public utilities.”

I was in Edmonton in 1948, two months after Redwater No. 1 had proved beyond a doubt that Edmonton is the centre of a vast oil field. When I returned this fall I saw that in spite of a considerable amount of new building, Edmonton today is the same frowsy-looking town.

One of Edmonton’s eyesores is the municipal market place. “I’m ashamed every time I drive a visitor through it,” said a member of the Alberta Government, “but you can’t avoid it, it’s bang in the middle of town.”

Last year Edmonton had a chance to get rid of that eyesore and it wouldn’t have cost Edmonton a penny. A New York firm, which

makes a business of this kind of thing in cities across the continent, offered to build a civic centre in that big vacant space, in return for a tax concession over a period of years. The investors would get their money back out of renting office buildings and store space around the community centre; at the end of a stated period the whole thing would be sold back to the city at an agreed and reasonable price.

There was nothing unsound about the scheme; it was carefully investigated by conservative Edmonton businessmen and members of the Alberta Government. However, some neighboring property owners got the idea (probably quite rightly) that their property would diminish in value by contrast with the bright new buildings. They organized a campaign against the scheme and managed to defeat it in a referendum. And so, the eyesore is still there—bang in the middle of town.

The All-Canadian to Oregon

Alberta will soon be authorizing the “export” of natural gas—by “export” Albert ms mean any sale outside the province. Caution in preserving an adequate supply for Alberta’s own needs has prevented this up to now, but, with new gas reserves being discovered every week, permission to export is sure to come before long. The Government has al/eady announced its policy: Alberta’s gas is to serve first Alberta, second, the rest of Canada, third, the United States.

Until very lately it has been taken for granted that any gas pipeline would have to go to the U. S. to find a market worth serving. Furious arguments in parliament, when Canadian pipeline companies were applying for charters, focused on the issue of “Canadian” versus “non-Canadian” routes. It was seldom explained that even the “Canadian” route led to Seattle, and that at least eighty percent of its gas would be sold in the states of Washington and Oregon.

Canadians all took it for granted that Alberta gas could not be brought eastward to the big Canadian

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markets of Ontario and Quebec. It was “impossible” to build such a pipeline—twenty-two hundred miles long, it would be the longest gas pipeline in the world. *

Last year somebody used that word “impossible” to Clint Murchison, an oil millionaire from Texas. Murchison has made a fortune out of his reluctance to believe anything is impossible. He hired an engineering firm to see whether or not a pipeline could be built from Alberta to Montreal. They spent one hundred thousand dollars on a survey, and told him yes, it could.

The line would cost an estimated $253 millions and would run through some very difficult terrain. However, it would deliver 365 million cubic feet of natural gas each day to eastern Canada, at a price substantially below the present cost of the American coal which Ontario is burning.

Murchison hasn’t got permission to build the line. He hasn’t got permission to export the gas from Alberta even if he had the pipeline built. But he and his associates have already spent four and a half million dollars looking for gas in Alberta—they have had four to six drilling rigs at work ever since Sept. 1950.

They plan to sell more than gas, too. The “wet gas” of the Pincher Creek field contains a lot of sulphur and other things which must be taken out before the gas can be used as fuel. But, in thus “cleaning” 365 million cubic feet of gas a day, the operators would extract enough sulphur to meet half of Canada’s present requirements. All our sulphur is now imported and it’s one of the most critically scarce materials in the world.

Ventures like this need money, big money. Has Canada enough capital to take an equal partner’s share? Or should we just relax, as we seem to have done in the past, and let our big rich neighbors develop the country for us?

There are several reasons why Americans seem readier than we to bet on Canada’s future. One is the contrast between the tax laws of the two countries.

American corporations pay a graduated income tax that can go up to a very high percentage of a company’s income. But American law allows any company to deduct, as a business expense, any money spent on developing natural resources anywhere on this continent. Canadian taxes are different. For one thing they aren’t so high; for another thing, only an oil company can deduct expenses of looking for oil. If another firm (the Canadian Pacific Railway, for one good example) were to set up a subsidiary to prospect for oil, its losses in the first few years would come out of the net income, after taxes, of the parent firm.

In other words, when Americans gamble on Canadian oil, they’re often gambling ten-cent dollars against hundred-cent dollars for a Canadian firm.

“Not long ago there was a quartersection put up for auction in the Redwater area,” a Canadian oil man said. “Our company bid $550,000. Texaco, an American company, bid $1.6 millions, and got it. But When you allow for taxation, that bid actually cost Texaco less money than our bid would have cost us.” And that kind of thing, he added, happens all the time.

Another point, as pertinent as it is simple: Canadians haven’t got as

much money as Americans. They

can laugh at losses which would bankrupt us.

Actually, Canadians have made a lot of progress in gaining ownership of our own resources. Forty years ago almost all the new money going into any kind of Canadian project was money from abroad, mostly British. Between the wars we got to the point of finding about half of the new capital we needed and the rest came mainly from the United States. Since World War lí we’ve had the greatest capital investment boom of our entire history, and we’re financing more than eighty percent of it ourselves.

Canadians can argue, therefore, that they haven’t enough money left over for a new unfamiliar field like oil. They’re too busy scraping dollars together for the expansion of industries we know more about.

But it’s still true that Canadians have a strong Scottish preference for the “sound” as opposed to the risky investment. That’s why the Alberta oil boom is still, after nearly five years, so largely invisible in terms of domestic investment.

Grim Days Are Not Forgotten

There are very few Alberta oil millionaires because, for one thing, very few Albertans own the mineral rights to their own land. The provincial government owns the oil and other minerals under more than ninety percent of Alberta’s 163 million acres. So, when oil-rich land is sold for a million dollars a quarter-section, it’s the Alberta Treasury and not some lucky Alberta farmer that gets the money. When oil is pumped out of that land ihe Alberta Treasury gets the royalty, a sliding scale payment which averages thirteen percent of the gross value of the oil produced.

The result, for Alberta, is a kind of sober prosperity which has very little of the lavish, garish, sailor-ashore quality we normally associate with an oil boom. Alberta’s oil last year brought in more than twenty-nine million dollars—almost twice the entire revenue of the provincial government when the Social Crediters first took office in 1935.

Those were grim days, and they are not forgotten. In the first month of Social Credit rule Alberta civil servants found they couldn’t collect their pay. The banks wouldn’t cash provincial government cheques. More than half

of Alberta’s whole revenue went to pay interest on one hundred and seventy millions of debt. The new government, desperate, tried to call the bondholders together and negotiate a reduction in the interest rate. The bondholders paid no attention until the Social Crediters arbitrarily cut the interest rate in half. Then the bondholders attended meetings willingly enough, but they weren’t exactly friendly. Alberta was treated as a bankrupt for years.

Some Social Credit ministers think this old distrust was partly responsible for the reluctance of eastern Canadian capital to take a share in the Alberta boom. And there’s little doubt that the old poverty, the old insecurity had a heavy influence on the Alberta investor. He had, after all, been bitten before. Older men in Alberta can remember the Pincher Creek boom of 1898, the Turner Valley boom of 1914, when a lot of Albertans lost their shirts. Turner Valley had another boom in 1924, still another in 1936, and though none of these was entirely hollow, none really paid off either.

The Albertan has had plenty of chance to see, even in the last few years, that oil prospecting is a rich man’s gamble. Even such a major competitor as the Shell Oil Company, with its enormous financial resources, dropped out of the race in 1946 after spending eleven million dollars and finding nothing but a gas well at Jumping Pound. (That gas will have great value if and when a pipeline is built and “export” permitted; meanwhile, it’s worthless.)

Imperial Oil was the only company to stick it out—and Imperial spent more than twice as much as Shell, before the Leduc discovery. There was plenty of time for even millionaires, even syndicates of millionaires, to go broke drilling dry holes.

Albertans need feel no bitterness, therefore, at the way their oil boom has developed. Alberta may have few millionaires, but it spent twenty millions this year on roads and bridges, millions more on schools, hospitals. Alberta’s debt is now below a hundred millions and going down rapidly; in twenty years the province hopes to be completely debt-free, and this in spite of a continuous and ambitious program of capital development.

Certainly the Alberta Government has no regrets and no doubt that its development policy is sound. American

i capital has been and will be welcome to develop the resources of the province. When oil-bearing land is found j the discoverer may lease only half of I it; the other half is auctioned off, and anyone may buy.

Alberta’s ministers are a little cynical, though, a little sceptical of Canadian and British investors who come to Alberta nowadays bemoaning the ; fact that they are late, and asking if I “there’s any way we can still get in on j the ground floor.”

Hon. N. E. Tanner, Minister of Lands and Mines, is a quiet man with I a talent for candor. To one such delegation recently he said: “Gentlej

men, I don’t want to be rude but 1 do want to be frank. You don’t want i to get in on the ground floor. You want a chance to buy proved land, or I semi-proved land, at the kind of price ! it would have brought when nobody knew what was under it.

“If you really want to get in on the ground floor there is lots of room. Millions of acres in this province are ’ still available, cheap. They’re not in the Redwater area, or the I^educ area, but they’re better prospects now than Redwater or Leduc were five years ago. If you want to go out and explore those lands, go ahead.”

Still a Boat to Catch

Tanner wasn’t fooling. The chances in Alberta are still numberless, still fabulous. The place hasn’t yet been scratched. In Texas, for instance, there are about two thousand drilling rigs j at work exploring and developing oil fields. In the whole of western Canada there are two hundred and one. Twenty are working in Saskatchewan, four in B. C., two in Manitoba, one in the Northwest Territories, the rest in Alberta.

The area of potential oil land runs from Norman Wells inside the Arctic Circle, southward and eastward to the Manitoba border. It’s a big enough territory to contain the whole of Texas, j Louisiana and Oklahoma. It has room I for any amount of exploration, any ; I amount of investment — investment j which would still be a gamble at fairly ; long odds, but a much safer gamble j j than Imperial took in Alberta before !

I Leduc.

So Canadians needn’t fret about j having “missed the boat” in Alberta.

; Maybe we missed one boat or even I two, but the Canadian west is a regular i ferry service—there’s a boat leaving j every hour on the hour. We can still ¡ catch one, any day. Some Canadians ; j have done so already.

A year or two ago, sixteen Calgary i businessmen got together with five j thousand dollars apiece. None of them j knew anything about oil, but they formed a little company and hired themselves a drilling rig.

On the first hole they sank their I whole eighty thousand—and it was j j dry. So they borrowed seventy thouj i sand more and tried again. At one ¡ time, before they really started to get j their money back, they had run up j total liabilities of six hundred thousand dollars. But they did strike oil.

Last summer they sold out for two I and a half millions. Each one of the j sixteen men reaped a clear net profit j of more than sixty thousand dollars I for the two-year investment, and that j was all capital gain, too, not taxable I income. Now some of them, at least, are looking round for other likelylooking properties.

People who do that kind of thing often go broke. Some of them are sure to. Others make fortunes. And, among the lot of them, they make a prosperous nation. ★