We recap the momentous, the telling and the bizarre business stories of the past year
by Michael McCullough, Scott Messenger and Stephanie Sparks
The Year of the Rat may have come to an end in late January, but the pesky rodents would be back, sullying Alberta’s pristine reputation. By then, 2009 was already the worst year for business in recent memory. Still, we can say these last 12 months have been interesting times, ones that will very likely shape the provincial economy for several years to come. With that, we recap the momentous, the telling and the bizarre of the year that was
Suncor-Petrocan Merger
They’d attempted a union a decade earlier and failed, and Petro-Canada’s origins as a federal stab at resource nationalization would seem to bode against it. But in the end, Suncor Energy Inc.’s $18-billion absorption of PetroCan happened more quickly and with less resistance than even its architects anticipated. On March 23, Suncor CEO Rick George and his counterpart at Petro-Canada, Ron Brenneman, held a press conference to announce that the two companies would be merging. Shareholders from both companies, betting that George could lend his Midas touch to PetroCan’s hitherto lacklustre margins and stock performance, approved the combination, as did the federal Competition Bureau (with some divesting of Suncor’s service stations) and the deal was done by Aug. 1.
With combined annual revenues of $57 billion, Suncor thus becomes the largest company of any kind in Canada and makes the 2002 union of PanCanadian Energy and Alberta Energy Company to form EnCana Corp. look diminutive by comparison. Next came the hard part, letting go some 1,000 head-office staff in Calgary. However, Alberta stands to benefit in the medium term as Suncor redirects PetroCan’s healthy cash flow away from projects such as a Montreal-area heavy-oil upgrader and divests overseas assets in order to focus on oilsands expansion, beginning with restarting the stalled Firebag in situ and Voyageur upgrader projects.
Gas Price Implosion
You don’t know what you’ve got till it’s gone. That certainly applies to natural gas prices, which ended a 10-year stint in the US$5-15 range per million British thermal units last fall, sinking to prices reminiscent of the 1990s, between $2 and $3, by the summer. And with that, a lot of the things that made Alberta work over the past several years collapsed too. Gas producers shut in wells here and diverted their attention to suddenly viable shale gas plays in the United States and British Columbia. Drilling companies laid off workers. Small-town motels sat empty. And the Alberta government suddenly faced a $5-billion revenue shortfall where gas royalties used to be.
While the demand side of the equation, whether through economic recovery or cold weather, is expected to right itself this winter or next, the discovery of massive shale gas reserves and the development of cost-effective techniques to exploit them means massive new sources (read: competition for Alberta producers) can be brought on-stream in short order any time the price of gas pierces the $7 threshold. The size of the reserves is such that the situation could last another 10 years or more.
“There has been a sea change in North America’s natural gas supply dynamics,” energy economist Peter Tertzakian wrote in the Calgary Herald. “All companies must learn to think differently and much more competitively.”
Or as TD economist Derek Burleton put it: “The potential for an accelerated long-term decline of an industry that does so much of the heavy lifting in the Alberta economy is arguably the No. 1 risk facing the province’s standard of living.”
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