Business

The big shrug

U.S. giants took over $35-billion worth of Canadian energy firms in 2001. So who cares?

BRIAN BERGMAN December 24 2001
Business

The big shrug

U.S. giants took over $35-billion worth of Canadian energy firms in 2001. So who cares?

BRIAN BERGMAN December 24 2001

The big shrug

Business

U.S. giants took over $35-billion worth of Canadian energy firms in 2001. So who cares?

BY BRIAN BERGMAN in Calgary

In the wake of the Sept. 11 terrorist attacks on New York City and Washington, it was not uncommon for Canadian pundits to declare, “We are all Americans now.” As a new year dawns on the Calgary oilpatch, that phrase has taken on a different kind of meaning. One by one over the past seven months, a series of Canadian oil and gas giants fell into American hands, to the point that nearly half the industry is now foreign-controlled. Yet the response, in Calgary and across the country, has been muted. The national business press, for the most part, greeted the sales as the natural workings of the free market. Official Ottawa yawned, saying the days of government intervention in such matters were over. And Calgary’s oil and gas barons dismissed the trend as simply part of a larger business cycle. To borrow a phrase from that famous oilpatch pariah, Pierre Trudeau, who speaks for Canada?

Well, if no one else will, Edmonton’s Mel Hurtig is willing to take a stab at it. Publisher of The Canadian Encyclopedia, founding chairman of The Council of Canadians and a prolific author, Hurtig has been sounding the alarm for years about how, in his view, foreign ownership is eating away at Canadian sovereignty. Hurtig’s next book, The Vanishing Country: Is It Too Late to Save Canada? to be published in 2002, will return to this theme, including sections devoted to recent trends in the oilpatch. “When you get so much of the industry foreign-controlled, your national priorities get ignored,” asserts Hurtig. “At what point do you abandon your ability to be Canadian?”

The latest American buying spree began in earnest in May with the $9.8-billion purchase of Gulf Canada Resources Ltd. by Houston-based Conoco Inc. A series of other mega-mergers quickly followed,

including the $7.2-billion takeover of Anderson Exploration Ltd. by Oklahomabased Devon Energy Corp., the $3.3-billion purchase of Canadian Hunter Exploration Ltd. by Houstonbased Burlington Resources Inc., and the $13.3 billion that Duke Energy Corp. will pay for Vancouver-based pipeline operator Westcoast Energy Inc. Taking into account several smaller mergers, more than $35 billion in Canadian oil and gas assets fell into American hands during 2001.

Foreign ownership of Canada’s oil and gas sector now stands at 48 per cent, up from 33 per cent in late 1999, but still considerably below the 74 per cent level that existed in the late 1970s. The Liberal government in Ottawa, which in an earlier incarnation responded to ownership concerns by creating the Foreign Investment Review Agency and imposing the National Energy Program, now espouses a hands-off approach. “There will be combinations and amalgamations from time to time,” shrugged federal Natural Resources Minister Ralph Goodale following the Gulf Canada sell-off. Four months and several billions of dollars in sold assets later, Goodale responded to the Westcoast Energy takeover by saying Ottawa’s hands were tied by market forces. “If we attempt to build walls around Canada,” he said,

“you would see a flight of capital that would mean the dramatic underdevelopment and downturn of our energy sector.” To economic nationalists like Hurtig, Ottawa is part of the problem, not the solution. Hurtig blames Conservative and Liberal governments alike for abolishing FIRA and signing continental free trade deals that he says left Canada virtually helpless to resist foreign takeovers. If nothing else, Hurtig feels Canadians—and especially Calgarians—should be alarmed at the loss of oilpatch head offices. “Any strong, independent country,” he says, “needs head offices, not branch plant operations that have to go to another country on bended knee.”

But Hurtig’s views carry litde currency in Calgary, where memories remain fresh of how capital investment and jobs dried up in the 1980s following the imposition

WHAT’S GONE SOUTH

Key sales of energy firms in 2001 COMPANY

Westcoast Energy Inc.,Vancouver Gulf Canada Resources Ltd., Calgary Anderson Exploration Ltd., Calgary Canadian Hunter Exploration Ltd., Calgary

Source: Peters & Co. Ud.

BUYER PRICE ($ BILLION)

Duke Energy Corp., Charlotte, N.C. $13.3

Conoco Inc., Houston 9.8

Devon Energy Corp., Oklahoma City 7.2

Burlington Resources Inc., Houston 3.3

of the widely-despised National Energy Program. Oilpatch insiders maintain there is an ebb and flow to foreign ownership in the industry and that a number of factors tilted in favour of the Americans during the first half of 2001. High commodity prices combined with high demand, especially for natural gas, left many U.S. producers flush with cash and on the hunt for new supplies. Low stock-market valuations of Canadian energy companies compared with their American counterparts, along with the weak Canadian dollar, also gave U.S. producers a predatory edge.

Some of those elements have already changed. Oil and gas prices dropped dramatically during the second half of the year and energy demand levelled off as the North American economy slipped into recession. “It isn’t surprising that the spate of takeovers has subsided of late,” says Mark Friesen, an oil and gas analyst with BMO Nesbitt Burns in Calgary. “Cross-border transactions tend to be all cash. Companies that have a clean enough balance sheet to do that are becoming more scarce.”

WHAT'S LEFT

Major publicly traded energy firms under Canadian control. All are based in Calgary. COMPANY MARKET VALUE ($ BILLION)

Suncor Energy Inc. $10.4

Petro-Canada 9.9

PanCanadian Energy Corp. 9.8

Alberta Energy Co. 8.1

Talisman Energy Inc. 7.5

Canadian Natural Resources Ltd. 4.6

Nexen Inc. 3.7

Source: Peters & Co. Ltd.

Greg Stringham, vice-president of the Calgary-based Canadian Association of Petroleum Producers, sees a longer-term pattern at play. “In this industry, mergers just go on and on,” he says. “Small companies grow into midsized ones. Midsized companies merge to become big. And big companies spin off their non-core assets, allowing small companies to start up again.” Stringham believes the latter phase is now kicking in, which will see Canadian entrepreneurs formerly associated with some of the takeover targets picking up the ball.

In any event, there is little appetite in the oilpatch for federal protectionism. Industry proponents point out that Canada has a relatively small population with a limited pool of capital. Foreign investment, they say, is crucial to financing increasingly expensive frontier resource exploration. As well, free trade in energy flows both ways: many of the surviving Canadian oil and gas giants, including PanCanadian Energy Corp., Nexen Inc. and Alberta Energy Co., boast extensive U.S. shareholder bases and have waged foreign takeovers of their own. Observes Friesen: “Government intervention has the potential to scare off investors on both sides of the border, to the detriment of everyone.”

None of those arguments, of course, impress the economic nationalists. “Asking industry people in Calgary how they feel about foreign takeovers,” sniffs Hurtig, “is like asking Disneyland how they feel about Mickey Mouse.” Perhaps. But it may be a measure of how the country has changed that it is the nationalist voice that now rings from the wilderness. 33