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Week 9: Oil in Canada

School of Administrative Studies. Week 9: Oil in Canada. Business in the Canadian Context— ADMS 1010. Administration. See course outline on website for contact information and class schedule. Check website for slides and changes. Office hours at 205 Atkinson 5:45-6:45 pm on Mondays.

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Week 9: Oil in Canada

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  1. School ofAdministrative Studies Week 9: Oil in Canada Business in the Canadian Context—ADMS 1010

  2. Administration • See course outline on website for contact information and class schedule. • Check website for slides and changes. • Office hours at 205 Atkinson • 5:45-6:45 pm on Mondays Alison Kemper ADMS 1010

  3. Agenda for Week 9 • Leduc • Financing, • vertical integration • oligopoly • The battle between the east and the west of Canada • Supply and demand in Canada and the US • Oil Sands • The battle between prosperity and sustainability Alison Kemper ADMS 1010

  4. Energy stocks account for approximately 25% of the TSE. • In 2010 global demand will exceed 2007 – developed world recovering and emerging market demand kept on growing – now up to 86.7 million barrels a day Alison Kemper ADMS 1010

  5. Leduc Alison Kemper ADMS 1010

  6. Leduc 1 • http://archives.cbc.ca/science_technology/energy_production/topics/378/ • http://www.youtube.com/watch?v=RrzdKYJZLE8 Alison Kemper ADMS 1010

  7. Imperial Oil • http://www.imperialoil.ca/Canada-English/Imports/history/about_who_history.aspx Alison Kemper ADMS 1010

  8. Oligopolies • Product branding • Entry barriers • Interdependent decision-making • Non-price competition (service-based) Alison Kemper ADMS 1010

  9. Biggest oil and gas companies in Canada • http://en.wikipedia.org/wiki/Canadian_petroleum_companies#Market_capitalization_.28December_2010.29.2C_revenue_.282010.29.2C_profit_.282009.29.2C_production.2C_reserves Alison Kemper ADMS 1010

  10. Vertical and horizontal integration Alison Kemper ADMS 1010

  11. http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htmhttp://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm Alison Kemper ADMS 1010

  12. Oil and Gas Economics  Alison Kemper ADMS 1010 http://www.petrostrategies.org/Learning_Center/oil_and_gas_value_chains.htm

  13. How do you brand or differentiate oil products? Alison Kemper ADMS 1010

  14. Alison Kemper ADMS 1010

  15. Alison Kemper ADMS 1010

  16. Integration and Free Trade Alison Kemper ADMS 1010

  17. Alison Kemper ADMS 1010 http://eprinc.org/?p=698

  18. Proven oil reserves http://gunn.co.nz/map/ Alison Kemper ADMS 1010

  19. http://www.neb-one.gc.ca/clf-nsi/rpblctn/spchsndprsnttn/2004/ftrrlfthrgltr/ftrrlfthrgltr-eng.htmlhttp://www.neb-one.gc.ca/clf-nsi/rpblctn/spchsndprsnttn/2004/ftrrlfthrgltr/ftrrlfthrgltr-eng.html Alison Kemper ADMS 1010

  20. Alison Kemper ADMS 1010 http://www.eurasiareview.com/canada-energy-profile-worlds-third-largest-gas-producer-and-exporter-analysis-22042011/

  21. Alison Kemper ADMS 1010 http://www.theodora.com/pipelines/canada_pipelines.html

  22. http://www.parl.gc.ca/Content/LOP/researchpublications/prb0833-e.htmhttp://www.parl.gc.ca/Content/LOP/researchpublications/prb0833-e.htm Alison Kemper ADMS 1010

  23. http://www.parl.gc.ca/Content/LOP/researchpublications/prb0833-e.htmhttp://www.parl.gc.ca/Content/LOP/researchpublications/prb0833-e.htm Alison Kemper ADMS 1010

  24. Alberta oil not 'foreign,' U.S. official tells premiers • US-Canada oil pipeline - water source threatened Alison Kemper ADMS 1010

  25. Oil Sands Alison Kemper ADMS 1010

  26. The oil sands • http://ngm.nationalgeographic.com/2009/03/canadian-oil-sands/essick-photography • http://www.youtube.com/watch?v=ALCTOs2zakc • http://www.youtube.com/watch?v=UYwHR9yb0IM Alison Kemper ADMS 1010

  27. Comparing oil reserves Alison Kemper ADMS 1010

  28. This leads us to the CNQ Case Study—Joe Martin • An Energy Case Study was originally based on Imperial Oil but had to be totally re-written because Red Wilson felt the case overstated Imperial Oil’s freedom from Houston. • The past 30 years has seen the rise of a number of fascinating widely held, Alberta based energy companies; Suncor, Husky, Encana, Canadian Natural Resources. • We tried to get one of them to cooperate on a case study– all were too busy. • So we created this case study which we hope presents some of the future challenges that have firm roots in history and this is the second year it has been used. • Time pd –late 90s, early 21st century • One of two on Energy and one of three on Natural Resources which are cyclical in nature & require for huge amounts of capital • There are huge implications in the FTA for Energy [Harriman Estate in the Catksills] which are largely ignored by media and politicians but are much more significant than softwood lumber Alison Kemper ADMS 1010

  29. Free Trade • The 1988 FTA negotiations were very difficult • In the US “we were being killed by indifference” and in Canada by alarmist, false rhetoric. • Mulroney to Baker re message to Pres ‘Ron, how come the Americans can do a nuclear arms limitation deal c …the USSR…but can’t do a trade deal c…the Canadians?’ • Free Trade Agreement c the US which came into effect on Jan. 1, 1989. Alison Kemper ADMS 1010

  30. FTA • It was supposed to be the ‘sine qua non for success: relief from capricious U.S. trade remedies’. Mulroney was jubilant. ‘A hundred years from now what will be remembered is that it was done. The naysayers will be forgotten.’ • 1993 a new Liberal government in Ottawa. They didn’t rip up the Agreement as promised. Indeed on Jan. 1, 1994 NAFTA came into effect. That may have been the problem. • But rather than a point of departure FTA became a destination to quote Ambassador Gottlieb. Alison Kemper ADMS 1010

  31. Alison Kemper ADMS 1010

  32. FTA - 2 • Why has FTA become a destination rather than a point of departure? • Two reasons – American hostility, especially since 9/11 and the more recent credit crisis and the lack of a Canadian strategy. • Canada is a trading nation – more dependent on trade than any other developed nation. • Your challenge will be to ensure the FTA is not cancelled the way the Reciprocity Agreement was back in 1866 – either formally cancelled or informally, killed by the Mexicanization of the Canada/US border. • John Turner in 1988 Debate asked, “Why did we get a situation where we surrendered our entire energy policy to the United States?” – while Turner made some inaccurate statements he was right on this – we did turn our energy policy over but we have benefited immensely – energy sales have boomed, largely because of price. – see next slide • But is it time to find another customer, e.g. China? • If so, what will U.S. attitudes be? • Will Canada be able to overcome aboriginal objections to the Northern Gateway project? • What will Canadian attitudes be to Chinese Sovereign Wealth Fund Investment? Alison Kemper ADMS 1010

  33. Basic Facts about the Case Study • Murray Edwards • CNRL • Oil Sands – not tar • The Red Queen of Supply • Horizon Project –– see slide • Oil • Gas • US $ - see slide • China – Xuan’ presentation • Canada – aboriginals • USA – Democratic Senators strongly opposed to ‘Tar’ Sands, e.g. Senators Dodd & Burris – now Republican states – Speaker Pelosi Alison Kemper ADMS 1010

  34. Alison Kemper ADMS 1010

  35. US-Canada Exchange Rate Alison Kemper ADMS 1010

  36. Case Questions 1a. What should Murray Edwards do, if anything, to protect CNRL from a hostile takeover bid from North American private investors? 1b. What should Murray Edwards do, if anything, to protect CNRL from a hostile takeover bid from a Chinese sovereign wealth fund? 2. If Edwards agrees to sell to foreign investors, what should the government of Canada do about it; a] if it is a multinational corporation, b] a Chinese sovereign wealth fund? 3. What do you think the US government’s reaction will be if the potential acquirer is a Chinese SWF? 4. From an historical perspective, do you think oil prices in the future will be sufficient to justify continued investment in the oil sands and Canada’s claim to oil superpower status? Alison Kemper ADMS 1010

  37. 1a. What should Murray Edwards do, if anything, to protect CNRL from a hostile takeover bid from North American private investors? • What do we know about takeovers? M &A • What do we know about hostile takeovers? NOT a lot of fun – 24 meal service @ Tory & Tory’s • Poison Pill • White Knight • Buy a 3rd party business to frustrate the bid • BCE Case – duty to all stakeholders – creditors as well as shareholders Alison Kemper ADMS 1010

  38. 1b. What should Murray Edwards do, if anything, to protect CNRL from a hostile takeover bid from a Chinese sovereign wealth fund? Alison Kemper ADMS 1010

  39. 2. If Edwards agrees to sell to foreign investors, what should the government of Canada do about it; a] if it is a multinational corporation, b] a Chinese sovereign wealth fund? Alison Kemper ADMS 1010

  40. 3. What do you think the US government’s reaction will be if the potential acquirer is a Chinese SWF? Alison Kemper ADMS 1010

  41. 4. From an historical perspective, do you think oil prices in the future will be sufficient to justify continued investment in the oil sands and Canada’s claim to oil superpower status? Alison Kemper ADMS 1010

  42. Debrief • We are also looking at two major changes – one external and the other internal • We are seeing the early beginnings of a potential shift from the USA to China just as there was once a shift from the UK to the USA - next 2 maps – can’t be sure – any observations? • We are also seeing a shift within Canada from Ontario and Toronto to Alberta and Calgary just as there was once a shift from Quebec and Montreal to Ontario and Toronto. Alison Kemper ADMS 1010

  43. Changing Canada • While there the changes in Canada’s international relations is just becoming apparent the changes within Canada are much clearer. • Ontario is growing faster than the national average because of international migration but Alberta is growing much faster than Ontario because of international and interprovincial migration. • Ontario has become a ‘have not’ province. • Not only is Ontario losing population to Alberta, Toronto is losing head offices, see next slides. Alison Kemper ADMS 1010

  44. Alison Kemper ADMS 1010

  45. Alberta In/Out Migration 1980-2007 Alison Kemper ADMS 1010 45

  46. Alison Kemper ADMS 1010

  47. What should Canada choose? Alison Kemper ADMS 1010

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