SPECIAL REPORT

Creating an oil giant too big to hate

ANN FINLAYSON,MICHAEL SALTER August 26 1985
SPECIAL REPORT

Creating an oil giant too big to hate

ANN FINLAYSON,MICHAEL SALTER August 26 1985

Creating an oil giant too big to hate

SPECIAL REPORT

When Petro-Canada, the Crownowned oil company, paid $1.6 billion in 1981 to purchase Petrofina Canada Inc. and then bought BP Canada Inc. in 1983 for $348 million —using taxpayers’ money to finance both purchases—private oil companies protested strongly. Their executives said that publicly funded competition in the oil industry was a destructive prac-

tice and they labelled Petro-Canada’s former headquarters in downtown Calgary “Red Square.” But last week, when Petro-Canada announced that it was buying most of the refining and marketing assets of Gulf Canada Inc.—including four refineries and 1,800 gas stations in Ontario and the West—for $886 million, private companies did not protest. Explained David Yager, editor of The Roughneck, a monthly oil industry magazine in Calgary: “Nobody wants to get Petro-Canada angry. It is so big now that everybody does business with it.”

Indeed, Petro-Canada’s latest purchase-completed only 10 days after Olympia & York Developments Ltd. of Toronto paid $2.8 billion for San Francisco-based Chevron Corp.’s 60.2-percent stake in Gulf Canada—strengthens its position as Canada’s largest domestic oil company. When the Crown company completes the deal by taking over Gulf’s 120,000-barrel-a-day refinery in Edmonton—likely in early 1987—it will be the largest processor of crude oil in Canada. And by adding Gulf’s outlets to its existing network Petro-Canada will have 4,285 gas stations, more than any other gasoline retailer in Canada. The

purchase gives Petro-Canada a genuinely national retailing network: fully 1,300 of the newly acquired outlets are in Western Canada, where Petrocan had only 370 stations and a six-per-cent market share.

Still, spokesmen for Petro-Canada’s competitors said that they were relieved that it bought Gulf’s less profitable “downstream” marketing and refining

operations rather than the more lucrative exploration and development assets. Indeed, as Petro-Canada begins to replace Gulf’s gas station signs with its own, it will probably have to sell or shut down some operations that are too close together. As a result, the entire industry may benefit from reduced competition among gas retailers. Said James Hamilton, an analyst with brokers Bell Gouinlock Ltd. in Calgary: “By eliminating one of the players, it may help cut down on gasoline price wars.”

The possibility of higher gas prices,

however, worried con_

sumer groups. Said Sally Conrad: policy Hall, president of the Consumers’ Association of Canada: “We will be watching very closely to ensure that pricing abuses do not occur.” For his part, Bell Gouinlock’s Hamilton said that consumer demand would have to pick up and excess refinery capacity trimmed before prices could increase.

The deal also marks a turning point in Petro-

Canada’s history of acquisitions. The company will pay for Gulf’s assets by using its own cash and by borrowing money from the banks, not the taxpayers. Since its creation by an act of Parliament in 1975, Petro-Canada’s mandate has been to help make the country self-sufficient in oil and decrease foreign ownership. In pursuing that strategy, the company has received $4.2 billion in direct government grants—much of it used to buy out other oil companies.

Now, under Prime Minister Brian Mulroney’s government, Petro0 ^ Canada has a new man-

date. For one thing, using federal money is unacceptable. And, according to Petro-Canada chairman Wilbert Hopper, the company is to operate in a private sector fashion — emphasizing profits, not the pursuit of Ottawa’s policy objectives. The next step, many in25 dustry experts believe,

0 will be for the Tories to

1 privatize Petro-Canada. “ Indeed, last week stockbrokers were already

speculating on when the

first block of Petro-Canada’s shares would be offered to the public.

Still, some oilmen criticized the Gulf deal, charging that the Tories had reneged on a pledge to dismantle Crown corporations. Said James Conrad, executive vice-president of the Petroleum Marketers’ Association of Canada: “The deal is a 180-degree shift in policy.” However, analysts noted that for the Tories, permitting Petro-Canada to buy most of Gulf’s assets was less politically damaging than having a foreign company purchase them.

_ But late last week the

oil industry’s attention was focused on a more immediate concern: the buyer most likely to purchase Gulf Canada’s remaining 675 gas stations in Quebec and Atlantic Canada and its refinery in Montreal, estimated to be worth $150 million. Petro-Canada seemed to have reached its limit.

-ANN FINLAYSON and

MICHAEL SALTER

KEN POLE

JEFF ADAMS