Class 10: Canadian Oil Industry

1. Class 10: Canadian Oil Industry

2. Canadian Oil Industry

3. Class 10:Canadian Oil

4. Exam Info Exam is 7-10 PM December 22 in Tait Mackenzie East and West The exam is scheduled during the exam period as defined by the University.� It is your responsibility to ensure that you are available to sit exams during this period. You may be able to defer the exam for legitimate documented reasons. Please read the Universities Deferral Policy. Link is on my website �http://www.alexatyork.com/bus_class.html

5. Remainder of Term Class 11 � Wine in Canada � Group Assignment 3 Class 12 - Financial Services � Confed. Life & RBC

6. Canadian Oil Industry

10. Direct Employment in Oil and Gas Extraction

11. Oil & Gas Employment Other The energy sector, excluding service stations and wholesale trade in petroleum products, provided direct employment for 257�462�people in 2009, or 1.8�percent of employment in Canada. In addition, service stations and wholesale trade in petroleum products provided direct employment for 96�199�people (0.7�percent). http://www.nrcan.gc.ca/statistics-facts/energy/895

13. Canada�s Exports by Segment

14. Energy stocks account for approximately 25% of the TSE. What is permanent and what is transitory? Oil is not as significantly relatively as it was 30 years ago. In terms of power generation � its place has been taken by natural gas and nuclear On the supply side there is an end point in sight to the Saudi Oil reserves � the largest being Ghawar. The Athabasca Oil Sands are non conventional and costly to access but most of the international agencies [NOT BP] now recognize them. As a consequence Canada now has greater oil reserves than either Iran or Iraq. There are major implications for Canada, both domestically and internationally, with the recognition of the eventual end of the Saudi reserves and the coming on stream of the Oil Sands. 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

15. Importance to World.

16. Proven oil reserves 16

18. Overview of Current Oil Condition

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20. The Elusive Goal of Capitalist States � To simultaneously achieving high employment and stable prices. � Oil and price shocks limit that as a possibility.

21. Oil Prices since WWII

23. Oil and Gas Economics� 23

24. Oil Really Early Canadian History

26. Canadian Oil 1700 -2002

34. Alberta Oil 34

35. Leduc 1 On Feb 13 1947, on the sleepy Alberta farm of Mike Turta, 15 km west of Leduc and about 50 km south of Edmonton, Imperial Oils Leduc #1 well blew in. Before that date, Canada had to rely almost fully on oil imports from other countries. Some crude had been found in Western Canada at Turner Valley Alberta, but nothing big enough to spark a new oil boom. 35

36. Imperial Oil Imperial Oil founded 1880 Purchased by J.D. Rockefeller�s Standard Oil 1898 By 1900 dominated Canadian Market In 1907 started chain of gas stations 1907 Standard Oil in US and Imperial Oil in Canada controlled 90% share

37. Imperial Oil 1911 Standard Oil broken up US anti-trust legislation In Canada market share droppd to 50% by 1940 Oil Industry had become an Oligopoly Oil Production In Canada dropped and had to start importing oil

38. Oligopolies and Monpolies Oil Industry has an Early history of Monopoly and a late of Oligopoly Product branding Entry barriers Interdependent decision-making Non-price competition (service-based) Low Oil Prices in early 60�s drove out independents By 1970 almost all oil and gas controlled by major foreign owned oil companies � Dome petroleum the exception

39. Oligopolies Founded initially on the scale and scope elements of production and distribution. Secured by scale and scope distribution, research, marketing and development.

40. Oligopolies Giants can, however, and do stagnate. Flexibility and innovation can falter in the face of the needs of the dominant brand.

41. Imperial Oil Leduc 1 On May 10, 1947, Leduc No. 2 hit the much bigger Devonian Reef, and Imperial Oil began building the town of Devon for its employees. By the end of 1947, Imperial Oil and a group of small companies had drilled 147 more wells in the rich Leduc-Woodbend oilfield. Only 11 were dry. 41

42. Biggest oil and gas companies in Canada 42

43. Biggest oil and gas companies in Canada

44. Oil Industry Structure

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46. 46

47. Canadian Oil 1970�s-Today

49. 49 Alison Kemper ADMS 1010

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51. 51

52. The Oil Sands

53. Oil Sands Alberta oil not 'foreign,' U.S. official tells premiers US-Canada oil pipeline - water source threatened 53

54. Oil Sands History I Athabasca tar sands, although there is no tar present)[3] are large deposits of bitumen, or extremely heavy crude oil, located in northeastern Alberta, Canada - roughly centred on the boomtown of Fort McMurray. These oil sands, hosted in the McMurray Formation, consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water. The Athabasca deposit is the largest reservoir of crude bitumen in the world. 54

55. Oil Sands History 2 Commercial production of oil from the Athabasca oil sands began in 1967, when Great Canadian Oil Sands Limited (then a subsidiary of Sun Oil Company but now an independent company known as Suncor Energy) opened its first mine, producing 30,000 barrels per day (4,800�m3/d) of synthetic crude oil. Development was inhibited by declining world oil prices, and the second mine, operated by the Syncrude consortium, did not begin operating until 1978, after the 1973 oil crisis sparked investor interest. 55

57. Oil is a Big Trade Issue

59. International Trade The exchange of goods and services between or among countries Enables a country to specialize in those goods it can produce most cheaply and efficiently Enlarges the potential market for goods of an economy Major force of economic relations among countries Is an extension of governmental policy

60. Reasons for Trade Resources are not completely distributed across the globe. The climate and terrain of a state. The skills of its labor force. The advantages of specialization

61. NAFTA Article 605: Other Export Measures Subject to Annex 605, a Party may adopt or maintain a restriction otherwise justified under Articles XI:2(a) or XX(g), (i) or (j) of the GATT with respect to the export of an energy or basic petrochemical good to the territory of another Party, only if: a) the restriction does not reduce the proportion of the total export shipments of the specific energy or basic petrochemical good made available to that other Party relative to the total supply of that good of the Party maintaining the restriction 61

62. NAFTA - 2 Why has NAFTA 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. 62

63. NAFTA John Turner in 1988 Debate asked, �Why did we get a situation where we surrendered our entire energy policy to the United States?� But is it time to find another customer, e.g. China? If so, what will U.S. attitudes be? What will Canadian attitudes be to Chinese Sovereign Wealth Fund Investment? 63

64. Strategic Moves Increasing Interests in Canadian Energy Sector Recent Investment China Investment Corp. bought $1.7 billion stake in Teck Resources Sinopec holds a half share in the Northern Lights project, Alberta Penn West Energy Trust sold a 45% stake in an oil sands project located in the Peace River area of northern Alberta to China Investment Corp for C$817 million Sinopec agreed to buy ConocoPhillips�s stake in oil-sands producer Syncrude Canada Ltd. for $4.65 billion

65. FDI From National Policy Canada has encourage Foreign Direct Investment particularly in the Natural Resource Industry. Government supported unfettered development Provided massive capital and technological expertise Alberta began to regulate in 1970 to maintain future supply Although CDIA lagged FDIC from 1960 to 1997, this trend has reversed since 65

67. Exhibit 27.) Outward and Inward FDI, 1950-2001 (in $millions) Statistics Canada: Bilateral Investment Table Statistics Canada: Bilateral Investment Table

68. FDI �Evidence of Canada �hollowing out� is mixed, with some actually suggesting that the opposite is true in the past decade� . Federal Government engage in several reviews Should we be concnerned? What should we do? Trudeau creates National Energy Policy in the 1980 to combat foreign ownership

69. National Energy Policy Petro-Canada created as Crown Corporation Canadian prices subsidized against world prices Provided tax incentives to Canadian companies Extra tax to fund Petro-Canada acquisitions of foreign owned resources Provided grants to switch to energy alternatives exploration � prices still below world market Gave preferential exploration permits to Petro-Canad

70. National Energy Policy - Reaction Alberta threatens constitutional challenge Claims of unfair competition by Petro-Canada FDI stopped Many oil companies left Canada Alberta unemployment rose dramatically Huge resentment in Western Canada Eventually Scraped by Conservatives in 1984 Petro-Canada privatized

71. Watkins Task Force of Foreign Ownership and the Structure of Canadian Industry 1968 Recommended the creation of a special agency to coordinate government policies and programs dealing with multinational corporations. Goal was to gather more information on their activities. Most countries have such an agency Fear of concentrationMost countries have such an agency Fear of concentration

72. Watson (1968)/Wahn(1970) Report Respecting Canada-US Relations Restated Watkins's recommendation. Suggested that Canadians attempt to secure 51% ownership of foreign firms. Recommended stringent laws to countervail American extraterritorial jurisdiction. The Task Force resulted in the important 1968 Watkins Report, a report which measured foreign (especially U.S.) takeover and described the costs to Canada and Canadians. The economic costs and the distortions introduced to suit U.S. priorities were and are large and real. In addition, the social, cultural, moral, and philosophical costs and distortions were and are immeasurable. No political economist (or any other writer) has attempted to discuss all the implications because they are so numerous. Pressure from the population for action resulted in two more Reports following on the Watkins Report. The second, the Wahn Report, appeared in 1970. The third, the Gray Report, appeared in 1972. Both were reports from within the Liberal government, but the Gray Report was only released when it was leaked and published by Canadian Forum magazine. Earlier, Prime Minister Pierre Trudeau had told a delegation from the Committee for an Independent Canada that he would not release the Gray Report because to do so would upset the stock markets. Certain key areas identified as not allowing foreign takeoversThe Task Force resulted in the important 1968 Watkins Report, a report which measured foreign (especially U.S.) takeover and described the costs to Canada and Canadians. The economic costs and the distortions introduced to suit U.S. priorities were and are large and real. In addition, the social, cultural, moral, and philosophical costs and distortions were and are immeasurable. No political economist (or any other writer) has attempted to discuss all the implications because they are so numerous. Pressure from the population for action resulted in two more Reports following on the Watkins Report. The second, the Wahn Report, appeared in 1970. The third, the Gray Report, appeared in 1972. Both were reports from within the Liberal government, but the Gray Report was only released when it was leaked and published by Canadian Forum magazine. Earlier, Prime Minister Pierre Trudeau had told a delegation from the Committee for an Independent Canada that he would not release the Gray Report because to do so would upset the stock markets. Certain key areas identified as not allowing foreign takeovers

73. Herb Grey�s Foreign Investment in Canada Report (1972) Resulted in the Foreign Investment Review Agency (FIRA) 1974 A foreign firm would be questioned if it was contemplating the purchase or erection of a plant in Canada about the need for this particular plant. A foreign firm would be questioned about the nature of the technology to be employed in comparison with technology available in Canada. Served for 40 years and was the longest serving member of the House when he retired in 2002. � From WindsorServed for 40 years and was the longest serving member of the House when he retired in 2002. � From Windsor

74. Herb Grey�s Foreign Investment in Canada Report A foreign firm would be questioned about employment opportunities. A foreign firm would be questioned about its plans for research and development, its product innovation in Canada and its plans for purchasing materials, components and services in Canada.

75. A New Era ? Move to the Right Privatization Air Canada 1988 Free Trade Agreement 1989 NAFTA 1994 Sale of Canadair and de Havilland Privatization of CN 1995 Privatization of Air Traffic Control 1996 FIRA scrapped Replaced by Investment Canada Act Deregulation of oil and gas prices created by NEP Deregulation of the Airline Industry Creation of a more laissez-faire Conservative Party Current Speculation Harper Government will privatize CMHC, AECL, Can. Wheat Board

76. Investment Canada The Investment Canada Act allows the Minister 45 days to determine whether or not an Application for Review should be allowed, but the Minister may unilaterally extend by an additional 30 days. Cultural industry reviews often require at least 75 days to complete. What does net benefit to Canada mean? Net benefit to Canada is a test which focuses on the level of economic activity in Canada including employment, resource processing and utilization of parts and services produced in Canada and Canadian exports, together with the degree and significance of participation by Canadians in the business, the effect of the investment on productivity, competition, national industrial economic and cultural policies and the contribution of the investment to Canada's ability to compete in world markets, among other matters.

77. Investment Canada Halt foreign takeovers: Dion May 28, 2007  Industry Minister Maxime Bernier brushed aside calls to put a halt to the recent rush of foreign takeovers of Canadian firms Monday, saying he won't act until he hears from a panel of experts that is unlikely to report for another year. "We won't change the Canada Investment Act in the near future," he said. "We will set the panel, we will wait for their recommendations, which we said will come before the next budget, and after that we will act if we have to do

79. Argument Against FDI in Natural Resources Branch Plant Economy Supplier of Raw Materials Importer of finished goods No value added work being done in Canada

80. Argument For FDI in Natural Resources Provided needed capital for exploration and development Provided technology Encouraged exploration Diversified Markets (China)

81. 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. 81

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83. Alberta In/Out Migration 1980-2007 83

84. 84 Other includes Edmonton, Ottawa, etc.Other includes Edmonton, Ottawa, etc.

85. Next Oil Superpower

86. Basic Facts about the Case Study Murray Edwards CNRL Fear of a hostile takeover Oil Sands � not tar Oil � stable for past 24 months around $80+/barrel; [cost of break even or better in Oil Sands - $35?] back in 06 heading towards $70 Gas - low $4 to $6 � US $ - see slide Canada � aboriginals Environmental Issues a major concern USA � Many US Senators strongly opposed to �Tar� Sands, China�s growing interest in Canadian Oil and Gas resources

87. Cost of US $: Dec. 2000-2010

88. China In broader terms we need to start thinking about China as the Near West NOT Far East. After the US China is the 2nd largest economy in the world again � back where they were a century ago. Much of the post WW II era smaller than the Soviet Union and in certain years smaller than Germany and/or Japan� now nearly twice as large as Japan or India, the next two largest economies. China is having a huge impact on North America but as a supplier, e.g. the textile industry, not as a customer. China is becoming a world power house in terms of exports of consumer durables, communication equip & technology but still has large needs in the areas of energy and financial services. Does this present an opportunity for energy and other exports? Does this give Canada the opportunity to diverse its export markets which are now US dependent [76.5%]?

89. China presents an opportunity but has its own challenges China is two economies rolled into one � 450,000,000 in wealthy coastal China in a vibrant emerging market; and 750,000,000 living in a poor agricultural developing country. Of 118 cities dependent on natural resources, some 30 are running out of supply � six have unemployment rates of 20%+. China � like Canada � has powerful centripetal forces - Regional disparities, economic realities However Jim Rogers says that Shanghai is to 2007 as NYC was to 1907 and London was to 1807

90. Chinese State Owned Enterprises Chinese investment funds and state-owned enterprises will become increasingly important players in Canadian merger and acquisition activity and will focus their sights on larger and larger companies, experts say. there are many second-tier companies, that could be targets, including Talisman Energy Inc.and Nexen Inc. both of which have operations outside Canada that would increase their appeal to a Chinese company. Addax Petroleum Corp., which has properties in Africa and Iraq, was recently acquired by Sinopec International Petroleum Exploration and Production Corp., while PetroChina bought Canadian-based PetroKazakhstan, which has assets in central Asia, for more than $4 billion in 2005. PetroChina bought a 60 per cent stake in two of Athabasca Oil Sands Corp.'s projects for $2 billion in August, and mining giant Teck Resources Ltd. (TSX: TCK-B.TO) sold a 17.5 per cent stake to China Investment Corp. in July. It looks like these corporations are using their cash to help develop assets, so they're not necessarily just going out and buying companies outright," "In the case of countries like China, they don't have the natural resources, they have huge demands, and they're looking for supply certainty."

91. Next Week Group Assignment on Wine Industry Free Trade Agreement (FTA) and North American Free Trade Agreement (NAFTA) Readings (to be done prior to class): http://archives.cbc.ca/economy_business/trade_agreements/topics/536/ http://www.thecanadianencyclopedia.com/index.cfm?PgNm=TCE&Params=A1ARTA0003054 Case: The Challenging Years, pp. 243-260 AND Wine Industry, pp. 265-283