Petro-Canada, created by the federal government in the mid-1970s as Canada's national oil company, was the offspring of the world energy crisis, Canadian ECONOMIC NATIONALISM, and a tradition of state-supported development of the country's costly energy frontier. Some 20 years after it went into business, Petro-Canada is 80% privately-owned and the largest Canadian-owned oil and natural gas company with extensive interests in "upstream" (exploration and development) and "downstream" (refining and marketing) activities. It has major interests in western Canadian production, the Alberta oil sands, the Hibernia and Terra Nova projects of offshore Newfoundland and oilfields in Algeria, and controls nearly one-fifth of Canada's oil refining and gasoline market. As of 1995, it ranked 24th among the Toronto Stock Exchange 300 companies.
In the early 1970s, energy issues became the focus of a broad debate in Canada between Prime Minister Pierre TRUDEAU'S LIBERAL MINORITY GOVERNMENT and its critics. Trudeau was assailed by nationalists and by the NEW DEMOCRATIC PARTY, which after the 1972 federal election held the balance of power in the HOUSE OF COMMONS. The PETROLEUM INDUSTRY was overwhelmingly under foreign - mostly American - control, the Canadian Arctic was coming under corporate pressure because of the recent discovery of oil in Alaska, and Canada's ENERGY POLICIES appeared to be increasingly oriented to North American rather than domestic needs.
Many national governments had already established state oil companies in the attempt to gain more control over, and knowledge about, the international oil industry: such companies were used to ensure security of supplies, to enhance the collection of revenues and to give governments better information about world energy markets, yet they were costly to set up and, over time, they tended to become almost indistinguishable from their private-sector counterparts. The Trudeau cabinet initially rejected the idea of establishing a Canadian state oil company on grounds of cost and efficiency.
However, in the fall of 1973 the world structure of oil collapsed, oil prices quadrupled, and the major oil companies saw their holdings nationalized in the Arab oil-exporting countries of the Middle East. The insecurity of oil imports forced Ottawa to reassess its assumptions: Canada, though a temporary net exporter, was vulnerable to a cut-off of imported supplies for Québec and the Atlantic provinces, and it urgently needed to know more about its potential to produce energy from its frontier areas). The minority Liberals were threatened with parliamentary defeat by the NDP unless they acted to protect consumers and to set up a Crown-owned petroleum company. More radical voices were calling for the NATIONALIZATION of the entire oil industry, and the oil-consuming provinces were strong supporters of federal intervention to enhance the security of supply. Trudeau's government therefore accepted an NDP motion calling, among other things, for the creation of a national oil company late in October 1973.
The Petro-Canada Act, passed in 1975 after an acrimonious debate in Parliament, created a new CROWN CORPORATION with broad powers to carry out exploration and development, to acquire imported oil supplies, to engage in energy research and development, and to go into "downstream" activities such as refining and marketing. The new corporation was established with an initial $1.5 billion and access to debt capital as "an agent of Her Majesty," thus reducing its cost of capital; but the Liberal government also drafted the legislation so as to give Ottawa authority over Petro-Canada's capital budget and its corporate strategy. The government wanted to keep its new Crown entity as its policy arm and to prevent it from striking out on its own: it wanted Petro-Canada mainly to be active in the frontiers - the oil sands, the Arctic, the East Coast offshore areas - and not in the conventional oil and gas sector in Western Canada.
Since setting up headquarters in the hostile culture of Calgary in 1976, with Maurice STRONG, the prime minister's friend, as the company's first chair, Petro-Canada's principal object has been corporate growth. It has been oriented to growth rather than profitability because this has served several management interests. Growth was necessary if Petro-Canada was to carry out its job of exploring and developing the frontier oil and gas basins, and also have the autonomy from Ottawa to make its own decisions. Moreover, from its first day of operations, Petro-Canada was the target of a campaign by right-wing oilmen and the federal Conservative Party - then led by Joe CLARK - to disband the company. Clark was a native Albertan who understood the West but grossly underestimated the strength of nationalist sentiment and Petro-Canada's symbolic importance in the rest of the country.
His threat to "dismantle" rather than merely privatize Petro-Canada spurred the company's managers to expand their domain by making a series of corporate acquisitions whose overall effect was to make the Crown oil company one of the largest players in the oilpatch, far too large for any government to break up. Petro-Canada survived the brief minority Conservative government headed by Clark in 1979-80, the years of the "second oil crisis," because it was able to link its own fate to Canadians' fears about the supply, price and ownership of energy. It held a share in the big Hibernia oil find off Newfoundland and was a partner in the Syncrude oil sands venture in Fort McMurray, Alberta, and both of these were identified in the public's mind with security and national control.
The Liberals returned to power in 1980 and soon introduced their controversial NATIONAL ENERGY PROGRAM, among whose proposed measures was to be a greatly expanded Petro-Canada: as large as any multinational, the federal Energy Minister stated. Its roles under the NEP were multiple and costly. It was to advise the government, import oil, accelerate oil sands exploitation, act as a catalyst in frontier exploration and development, collect economic rents and other benefits, and help "Canadianize" the entire oil industry. It also had substantial "downstream" assets to operate. All of which entailed large expenditures for delayed returns, expenditures which could only be justified under the assumption - which was conventional wisdom in most governments - that oil would be insecure and very costly throughout the 1980s and 1990s.
In the event, the assumption proved to be incorrect and by 1981-2 the world oil industry was in its worst crisis of overproduction, falling prices and glutted markets in 50 years. The oil-exporting countries lost their control of prices, which plummeted from over $40 per barrel to less than $10 per barrel in the space of a few months. In these circumstances of overcapacity, the case for having state oil companies which could take the longer view and focus on security of supply was much less persuasive than it had been. Well before Brian MULRONEY's Conservatives took power in 1984, Petro-Canada had begun to look to its own resources and to fashion a strategy to manage its growing empire on conservative, market-driven principles. Ottawa no longer intervened in company policy. Petro-Canada wrote off several of its costlier frontier projects, and, in an especially brutal use of corporate power, summarily fired 2000 employees - nearly 25% of its workforce - in response to falling prices.
Petro-Canada's need for new equity capital and management's desire to be freed of the obligation to serve as a policy arm of the state pointed to a predictable outcome: the corporation, with its estimated $6 billion in taxpayer-owned assets, must be privatized. Partial privatization began in 1991 and continued in 1995, by which time private investors held about 80% of the shares in Petro-Canada and the government of Canada held the remaining 20%. Since no single investor can hold more than 10% of the public offering (foreign ownership was restricted to 25% of the public float) and the federal government has abjured any intervention in Petro-Canada's affairs, control remains firmly in the hands of the management.
