Incorporated: 1975 as Petro-Canada
Sales: C$5.68 billion (US$4.90 billion)
Stock Exchange: Toronto Vancouver Calgary Montreal
Petro-Canada Limited is Canada’s second-largest oil company. It acts as a holding company for its principal operating subsidiary, Petro-Canada. Its resources division explores, produces, and markets crude oils, natural gas and its liquids, sulfur, and bitumens. Its products division refines, markets, and distributes various petroleum products and by-products, and offers other related goods and services. Petro-Canada was a crown corporation, that is, it was wholly owned by the government of Canada, until July 3, 1991, when the company made its initial public offering.
As a mover on the Canadian business scene since its beginning in 1975, Petro-Canada has altered the landscape of Canada’s petroleum industry. Its development often has been controversial, but the giant Canadian corporation has built an energy network that serves more than 20% of the Canadian market. Each day the company sells more than 44 million liters of gasoline to hundreds of thousands of Canadians who fill up at some 3,500 retail outlets.
Until July 1991, as a crown corporation of Canada, the government owned any property held by Petro-Canada. Common shares in the company were held in the name of the minister of energy, mines, and resources. Almost since its founding, proposals were made to sell Petro-Canada’s common shares to the public. In early 1990 the minister of privatization announced details of a proposed sale, and although no timetable was given, the sale was untaken until a year and a half later.
Created by an act of parliament in 1975, Petro-Canada was a product of the oil crisis that shook the world in 1973 and 1974, driving oil prices up and creating havoc with the energy supply. When OPEC substantially increased oil prices, Canada became aware of the vulnerability of its foreign oil supplies. The energy crisis focused Canada’s attention on the extent to which foreign countries dominated domestic oil production. Coincidental with the OPEC price increases, a sharp downward revision of Canada’s oil reserves created substantial fears about whether supplies of domestic crude oil would be adequate for future needs. Petro-Canada began operating in an effort to provide more Canadian control over the domestic oil industry, to ensure that Canada would receive its fair share of remote and difficult-to-reach energy resources, and to provide the Canadian national government with a listening post on the country’s oil industry.
Maurice Strong, who earlier had helped establish Dome Petroleum, served as Petro-Canada’s first chairman. It was Wilbert Hopper, more than any other individual, however, who made Petro-Canada a success story. Hopper, with degrees in geology and business administration, started in the oil business as a geologist for Imperial Oil in the 1950s. In the early 1960s, he was senior economist for the Canadian National Energy Board, before joining the Cambridge, Massachusetts-based international consulting firm of Arthur D. Little. With a solid reputation in the oil industry, Hopper caught the attention of Canadian Prime Minister Pierre Elliott Trudeau, who sought Hopper’s advice in forming a state-owned oil company. Thus began Petro-Canada. Hopper started his association with the company as a vice president in 1976. Six months later, he was named president and chief executive officer. In 1979 he became chairman as well as CEO.
The initial holdings of Petro-Canada included properties previously owned by the government of Canada, that were conveyed to the company after its formation: 12% interest in Syncrude oil-sands mining project in northern Alberta; 45% interest in Panarctic Oils, and an interest in the Polar Gas project, which was set up to operate a gas pipeline from the Arctic. With access to large amounts of money, Petro-Canada bought several Canadian-based oil companies that significantly increased its land holdings and oil and gas reserves, and quickly made it a giant in the oil industry.
The company’s first purchase, Atlantic Richfield Canada, was made in 1976 for C$342 million. Assets acquired from Atlantic Richfield included both producing and undeveloped oil and gas properties in western Canada, natural gas-processing facilities, undeveloped oil and gas properties in the Arctic, and an additional interest in oil-sands leases. The cash flow from the producing assets funded exploration and development of new sources. Two years later, in 1978, Petro-Canada borrowed US$1.25 billion from Canadian banks to finance the purchase of Pacific Petroleum, which tripled the company’s oil production and quintupled its gas production. Pacific Petroleum’s assets added also coal leases in western Canada, oil properties outside of Canada, and distribution and sales facilities—among them being 400 retail outlets.
Among Petro-Canada’s mandates set forth by the federal government was that of special emphasis on exploration in remote frontier regions. In 1977 the company made its first discoveries of oil and natural gas pools in the Brazeau River area, southwest of Edmonton, and in the late 1970s, it participated in several oil discoveries in the Utikuma Lake area, northwest of Edmonton. Since 1979 Petro-Canada conducted an international exploration program that has included activities in Colombia, Ecuador, Indonesia, Papua New Guinea, and offshore China.
Petro-Canada’s development has been controversial from the beginning. The country’s private oil industry has charged that the state-owned corporation has received preferential treatment and has a significant political and financial advantage over its private-sector competitors. Petro-Canada’s easy access to government funding has been particularly irksome to the Canadian oil establishment. The counter-argument is that Petro-Canada has been required to undertake high-risk projects in the public interest, such as investment in frontier exploration, that can only be done with the infusion of government funds.
Despite the controversy, Canada’s ruling Liberal Party forged ahead with its agenda, introducing federal legislation under the National Energy Program (NEP) that gave Petro-Canada 25% rights on all federal land, including potentially rich frontier acreage. Those rights have been described by the Canadian Petroleum Association as retroactive confiscation of assets. The NEP also gave Petro-Canada more power over the nation’s energy resources, including agreement to the continuing takeover of Canadian companies, which at that time controlled 70% of Canada’s oil production.
During the early 1980s, Petro-Canada continued to nationalize foreign oil companies. In 1981 the company purchased the Come-by-Chance, Newfoundland, refinery for US$237 million and the Belgian-owned Petrofina Canada for about US$1.5 billion. Two years later, Petro-Canada bought BP Canada for US$348 million, a purchase that included 1,640 service stations and 108 terminals and bulk plants.
Canada’s private oil sector strongly protested Petro-Canada’s acquisition of Petrofina Canada Inc. and BP Canada Inc., arguing that publicly funded competition in the oil industry had become a destructive practice. Hostility to the company was displayed in the press, and some oil men began to refer to Petro-Canada’s 52-story red-granite clad headquarters in downtown Calgary as “Red Square.” The private sector also fumed over a federal government decision in mid-1982 awarding acreage in a Sable Island area off Nova Scotia to a group headed by Petro-Canada, protesting that Petro-Canada did not have to compete with other companies for the rights. Relations between the state-owned oil company and the private sector reached an all-time low in 1985 when Hopper announced at a public conference that his company was withdrawing membership from the Independent Petroleum Association of Canada.
By the mid-1980s Petro-Canada was an established major player on the Canadian oil industry scene, the existence and mandate of which was supported by a clear majority of Canadians. With the purchase of the Petrofina and BP interests, Petro-Canada was Canada’s fifth-largest company, with nearly 6,000 employees. It was the country’s third-largest gasoline marketer and the only nationwide station chain. The company continued with successful oil discoveries during the 1980s, principally in the province of Saskatchewan, including the Cactus Lake field in 1980, the Salt Lake field in 1984, and the Hoosier South field in 1987.
The Progressive Conservative Party swept into power in December 1984, determined to reduce the national government’s role in business. “Reform is urgently needed,” Prime Minister Brian Mulroney declared. “Crown corporations have become a state within a state,” as reported in Business Week of September 24, 1984. Petro-Canada, the new government mandated, must be regarded less as an instrument of national policy and more as a commercial operation.
By the mid-1980s Petro-Canada seemed to be moving in this new direction, a change signaled by Chairman Hopper in the company’s 1984 annual report. He wrote: “The corporation has now been given a new mandate by its shareholder [the Canadian government]—to operate in a commercial, private sector fashion with emphasis on profitability and the need to maximize return on the government of Canada’s investment.”
Soon after taking office, the Progressive Conservative government replaced Petro-Canada board members appointed by the previous Liberal government and canceled about US$250 million in additional funding for 1985 that had been Liberal-approved. The government also told the company it had to finance its operation from revenues or market financing.
In 1985 Petro-Canada made a deal that appeared to reflect its new mandate and to mark a turning point in the history of the company. Petro-Canada purchased Gulf Canada Limited’s refining, distribution, and marketing assets in Ontario, western Canada, the Yukon Territory, and the Northwest Territories for C$896 million by using its own internally generated funds and short-term debt—not taxpayers’ money. Among the assets acquired were a lubricants plant, an asphalt plant, and 1,800 additional retail outlets. The acquisition increased the size of Petro-Canada, giving the company at that time about US$10 billion in assets and making it an even bigger force on the Canadian petroleum scene.
For the next three years, the national government talked of privatization but allowed Petro-Canada to consolidate and rationalize its operation. In 1988, for example, Petro-Canada significantly increased its expenditures in natural gas development, reflecting the company’s increased focus on the natural gas business, and also entered into a preliminary agreement providing for the potential development of an oil-sands mining project, the OSLO project, at Kearl Lake, Alberta, and for the Hibernia oil field off Newfoundland’s east coast.
By 1988 the private oil sector’s hostility seemed to have evaporated. Hopper was elected president of the Canadian Petroleum Association and surveys seemed to indicate that the Canadian public had come to accept state ownership of Petro-Canada. One poll showed a 45% public approval of the company, with 35% of the public indifferent or ambivalent, and 20% opposed outright to the company’s existence. Petro-Canada nevertheless saw the need to foster a more favorable public image. It sponsored an 18,000 kilometer cross-country relay of the Olympic torch, in which 7,000 torch bearers participated, for the opening of the 1988 Olympic Games. The 80-day relay cost Petro-Canada C$5.5 million to stage.
The future looked rosy indeed for the oil giant when it reported 1987 to be its most profitable year ever. Despite the glittering reports, the company was having financial problems. Growing cash needs, in fact, led to a shift in the company’s economic strategy from aggressively investing in Canada’s frontier areas toward instead enhancing the company’s financial health and operating capability.
In 1989 Petro-Canada began a C$50 million internal reorganization that was expected to lead to a staff reduction of approximately 1,300 positions. After several years of equivocation, the Progressive Conservative government appeared to be ready to move firmly toward privatizing the state oil company. Energy Minister Marcel Masse said the move would be carried out through a general sale to the public. Petro-Canada’s continuing cash problems led the company to announce in December 1989 that it was looking for an infusion of money to help it develop the country’s energy resources. In January 1990 Hopper gave testimony before a government panel studying Petro-Canada’s future. He served notice that the oil company would not be able to carry out its commitment to costly frontier development without private capital.
A new era began for Petro-Canada in February 1990, when the Honorable Michael Wilson, Canada’s minister of finance, indicated that Canada would begin the privatization of Petro-Canada. According to the announcement, in 1991 the government would offer to the public about 15% of the shares of the government-owned company, but individual ownership would be limited to 10% and foreign ownership to a cumulative 25% of the publicly held shares. Wilbert Hopper welcomed the government’s announcement. The generated equity capital, Hopper said, would help Petro-Canada participate in developing several oil projects, including the Hibernia oil field.
In April 1990 the Canadian government went one step further, announcing that Petro-Canada would eventually be sold in its entirety to the public. After much talk and speculation, the Canadian government had decided to get out of the energy business.
On February 1, 1991, Petro-Canada assumed a new corporate structure. Petro-Canada’s name was changed to Petro-Canada Limited, and Petro-Canada Inc., the company’s principal operating subsidiary, was renamed Petro-Canada; the government-owned shares of Petro-Canada were transferred to the minister of state (privatization and regulatory affairs); and Petro-Canada Limited (PCL) was authorized to issue and sell its own shares.
On July 3, 1991, PCL made an initial public offering, selling 19.5% of the company’s shares on Canadian stock exchanges. The Canadian government indicated that over time it would sell off all its shares in Petro-Canada Limited.
“Petro-Canada: How it grew and where it likely is going,” Oil & Gas Journal December 9, 1985; Smith, Donald M., “Petro-Canada: Government-Owned Company Fares Well in Free Market,” National Petroleum News, February 1988.