Business

Petrocan takes to the pumps

Suzanne Zwarun May 26 1980
Business

Petrocan takes to the pumps

Suzanne Zwarun May 26 1980

Petrocan takes to the pumps

Business

Suzanne Zwarun

When Petro-Canada acquired the 366 Pacific 66 gasoline stations from Oklahoma-based Phillips Petroleum Co. just over a year ago, in what was then the largest take-over in Canadian history, a handful of dealers simply couldn’t restrain their nationalist zeal. They fashioned their own temporary signs covering up the Pacific 66 logo to announce that Petrocan had arrived. The retailers who jumped the gun can now roll up their portable maple leaves and put them away. In the next few weeks Petrocan’s own signs will go up at Pacific 66 stations from the Lakehead to Vancouver Island and the Yukon—a changeover costing $5 million. The new name? Petro-Canada, of course. The new logo: what else but a maple leaf or, more precisely, the top half of a large maple leaf?

This week’s announcement that Petrocan’s gas stations will be known as “Petro-Canada” stations has been long in the making. For weeks the Calgary “oil patch” has been abuzz with speculation about the name Petrocan would choose. Some oilmen, still miffed at the tint of socialist pink in their entrepreneurial midst, took chortling delight in Petrocan’s difficulty in finding a name—including a near blooper with one version (which Petrocan won’t reveal) which sounded great in English but which translated into an obscenity in French. (The name Petro-Canada works in both languages.) With only one per cent of the Canadian retail gasoline market (five per cent of the Western Canadian market), Petrocan’s maple

leaf is not suddenly going to shoulder aside Speedy Gulf and Trustworthy Texaco in the Canadian consciousness. But for Western Canadians, the red and white Petro-Canada signs—and credit cards—will be the first neighborhood evidence of Canada’s excursion into the big leagues of the international oil world.

Until the $1.46-billion acquisition of Pacific last year, Petrocan was in bad need of credibility in the business world. Only five months before the Pacific take-over, Petrocan had made a grab for Husky Oil but lost out to private bidder Robert Blair—and had been derided throughout the industry as naïve, inept and lead-footed. In its first three years of existence, Petrocan had become, almost passively, the largest Canadian-owned oil company. But despite its size, it seemed to be fulfilling Tommy Douglas’ prediction, during a Commons debate over its formation, that Petrocan would be “nothing more

than a sophisticated method of subsidizing the oil industry by joint ventures, by taking over projects the private sector does not want to take over and by drilling in areas the private sector thinks are too risky, or too difficult.” Petrocan, as its detractors gleefully pointed out, had yet to lay corporate hands on its first barrel of oil.

With the acquisition of Pacific Petroleums, Petrocan overnight became the ninth-largest producer of oil and liquid gas in Canada (liquid gas includes propane, butane and ethane) and the second-largest natural gas producer (see chart)—and, at the same time, gained a foothold in both refining and marketing. Everything has been coming up roses since. During last year’s spring election campaign, while the Conservatives were stumping the country threatening to dismantle Petrocan, the company and its partners made two significant gas finds—at Whitefish, in the Arctic Islands, and a wildcat at Venture, off Nova Scotia. By the end of the year, a gas delineation test at Bjarni on the Labrador coast proved successful and two other Labrador gas wells are likely winners. The Hibernia oil discovery, off the Grand Banks of Newfoundland, has not yet been confirmed commercially worthwhile, but it is being treated as Canada’s answer to the North Sea. Taken together, 1979 might mark the turning point in Canadian frontier exploration which, with the exception of early exploration work done by Dome Petroleum Ltd., was at a standstill when Petrocan came on the scene. For Petrocan, having survived the slings and arrows of the late Conservative government, it was indeed a turning point.

Petrocan was created—in a cliché that still clenches teeth in the oil patch—to give Canada a “window on the oil industry.” At the beginning of the 1970s few saw the necessity for such a window. The late Joe Greene, then Liberal energy minister, claimed there was enough oil and even more gas in Canadian ground to meet demand for several countries. Then came the energy crisis of 1973-74. The federal government suddenly saw the wisdom of a secure energy supply: the national and Alberta energy boards, relying on data supplied to them by the leading oil companies, just as abruptly decided that Canadian energy supplies were anything but infinite, and the blame for the earlier optimism fell on the multinational oil companies which had provided the original forecasts. Canadians were suddenly outraged by the awesome clout of a small handful of companies dominating the international oil world, and their distrust bled into government

circles. Conceived by a Liberal-NDP trial marriage after the 1972 election, Petrocan was intended as an all-Canadian, state-owned, integrated oil company (i.e. one involved in all phases of the business, from exploration and development to retailing).

In its brief four years, Petrocan seems to have set out to confound the people convinced that government agencies always act with sloth-like speed. In January, 1976, the company was armed with a government spending commitment of $500 million, to be

spread over five years, and a staff of three—Maurice Strong, Wilbert Hopper (see profile below) and Joel Bellworking out of a downtown Calgary hotel room. A mere three months later, the peripatetic Strong, then chairman of the board, was on the wing between Peking and Hanoi, invited there by the Vietnamese government to discuss Canadian involvement in the development of Vietnam’s off-shore oilfields. Back home in Calgary, Hopper and Bell were planning the purchase of Atlantic Richfield Canada Ltd. (subsequently bought for $342 million) and considering participation in exploratory wells in the Beaufort Sea, on one frontier, and Sable Island, on the other. Vietnam remains outside Petrocan’s sphere, but little else has. In fact, Petrocan employees have been caught singing—to the tune of This Land Is Your Land—uFrom Atlantic Richfield to Pacific Petroleums. . . “I’m not going to claim we’ve done things nobody else would do,” says Hopper, now chairman and chief executive officer. “But we’ve gotten things started earlier than the rest of the industry would have started them. Without our involvement the pace would have been much slower, and the prospects of a contribution from frontier areas to Canada’s future energy supplies would be more remote.” To date, the government has invested almost $1 billion in the company which, by Senior Vice-President Joel Bell’s calculation, is currently worth $5 to $6 billion, not even counting what Hibernia might blow in with. For their money, taxpayers got what Hopper calls “a two-horse philosophy”— frontier exploration and, just in case the frontier doesn’t come in, research and development of tar sands and heavy-oil technology: “We’ve taken the only prudent policy a country could take.”

By the end of 1979, Petrocan had spent 60 per cent of its exploration budget-more than $200 million—on frontier exploration, a far greater risk than any company with private shareholders could afford to take. The company participated in 60 of the 114 frontier wells drilled in three years. With working interests in 100 million acres through various joint ventures (of which Petrocan’s share outright amounts to 25 million acres), the company has become a major frontier landholder in the Scotia Shelf, East Coast, Labrador and High Arctic, and has found enough East Coast gas that Hopper credits Petrocan with the fact that Canada is as close as

it is “to having an economic source of natural gas to supply this critically energy-short area.”

But exploration is not enough, as Hopper points out. Thus Petrocan has become a participant in the Alsands project, which will build a third plant in

Alberta’s oil sands and is a partner in a $185-million venture to examine the feasibility of a heavy-oil recovery process. Petrocan is also a leader of the Arctic Pilot Project, a $1.75-billion proposal to liquefy natural gas in the High Arctic and transport it by tanker to the East Coast. To aid in the immensely expensive undertaking of energy, research and development, Petrocan also plans to open a $10-million research centre next month in Calgary.

Canada, in short, as Petrocan sees it, is at last starting to pick its way down the rocky road to energy self-sufficiency. Whether Canadians will get there, whether Petrocan can take them, is another question. Vice-President Bell points out that the Canadian Petroleum Association (CPA) estimates Canada will need one million barrels a day from the frontiers by 1990 if the country is to be self-sufficient. But while Petrocan is spending $150 million, the CPA reckons it would take $209 billion to bring in that much oil. “There’s not a snowball’s chance,” says Bell. But there remain the imponderables—from a gigantic strike to decreased energy consumption. As exploration Vice-President Bob Meneley puts it: “We just have to go flat out and hope we get lucky.”