Saturday, March 01, 2008

Leading the Charge

This article originally appeared in Oilweek; photo from The Calgary Herald
In a career that has yet to span two decades, Tristone Capital founder George Gosbee is a shining activist for better business and better politics
By Peter McKenzie-Brown George Gosbee is an unusual mix of builder, campaigner and populist, and from any of these perspectives he seems to be on the leading edge. Tristone Capital Inc. is his foundation, and it is probably corporate Alberta’s greatest recent success story. Despite his high-profile participation on provincial boards, he has been a leader in the industry campaign against the Alberta’s recent royalty regime change. And as an observor of social change, he has recognized the growing strength of political populism and has set up a firm that he believes will become a leader in the field. Builder: When Gosbee enters the room, he brings a lightning-sharp mind and a strong command of numbers and issues. He also brings an engaging personality and takes control of the interview – in an unassuming way, of course. It’s a pleasure to do business with him, and that is certainly one of the factors behind his remarkable success. At 38, his credentials are a running commentary on what his kind of energy can create during quite a short career. He is the founder, chairman, president and CEO of Tristone Capital, the largest oil and gas property acquisition and divestiture business in the world. When he sold Tristone in 2003, the Globe and Mail called it the “deal of the year” because of the high sale price: $101 million in cash and stock. Eighteen months later, he bought back the enlarged company for an undisclosed sum. A 1992 graduate of the University of Calgary, Gosbee began his career with merchant bank Peters and Co., where he was appointed managing director in his mid-twenties. He moved to Newcrest Capital for a couple of years, and then began to create Tristone. “I founded Tristone in 2000 because I saw the opportunity for a better type of banking firm,” he recalls. “I recognized that there was a lack of confidence among oil companies dealing with bankers that were not global or technical. I formed Tristone with the mandate of being a technical global banking firm, which was rare.” The company has three components (the “tri” in its name): property acquisitions and divestitures, investment banking and capital markets. “We were the first firm to combine oil and gas property acquisitions and divestitures with investment banking.” “It’s a client-driven strategy”, Gosbee says. “Our clients wanted bankers who knew what was going on under the ground and around the world.” And that’s what Tristone quickly came to provide. Now the world’s largest independent energy advisory firm, Tristone has more than 150 employees, of whom more than 40 are engineers, geologists and geophysicists. It has offices in London, Calgary, Houston, Denver and Buenes Aires. Tristone has seats on three major stock exchanges, does research on 72 petroleum-producing basins, and has 20 datarooms to facilitate property sales. “In any one week, we have $1-2 billion worth of properties for sale.” Tristone’s spectacular successes reflect Gosbee’s exploitation of an important trend in the petroleum industry – one that became increasingly clear in the 1990s. Briefly, acquisitions have become a critical form of reserves replacement. The industry can’t replace reserves by the drill bit anymore, so the number of transactions in the sector has become easily the largest on the planet. “Pharmaceutical companies don’t have to acquire the assets of other companies to stay in business,” Gosbee says, “and neither do other kinds of companies. Oil companies are the exception. They have to.” Campaigner: After the change of premiership in Alberta at the end of 2006, the new government under Ed Stelmach offered him two important appointments – both of which he accepted. He was asked to sit as a board member on Alberta’s Economic Development Authority. Created by former premier Ralph Klein, the authority describes itself as “a partnership that provides businesses with a direct working link to the Alberta Government. A network of business and industry sectors made up of private sector volunteers work with government to attract investment, promote the Alberta Advantage and help generate more wealth and employment for Alberta.” More importantly, premier Stelmach also invited Gosbee to serve as vice chairman of the Alberta Investment Management Corporation. (Toronto-based TD Bank’s Charles Baillie is chairman.) A Crown corporation with more than $70 billion of Alberta’s assets under management, the newly formed entity is one of the largest public sector asset managers in Canada. “This is rather exciting,” Gosbee says with characteristic understatement. “Not a lot of people get to have the experience of helping create a Crown corporation.” Notwithstanding the government’s evident confidence in him, when Alberta’s Royalty Review Panel released its report last September, Gosbee helped lead the charge against it. This was his latest campaign, and the one with the highest profile. “I wrote a letter to the citizens of Alberta and put it in 17 newspapers around the province,” he says. “There is an opportunity for increased royalties, but the math is wrong. We can’t make this kind of decision on faulty math.” He adds, “I dumped on the panel’s report and I dumped on the process and I dumped on the result. It seems as though the people of Alberta are now taking the oil and gas industry for granted. I think we’re in a dangerous situation.” Strong words, but he backed them up at a news conference (more than 25 reporters were present) at which he provided Tristone’s thinking about why the formulas are wrong. “Yes,” he says, “I was upset with the outcome, but that doesn’t mean I’m not going to continue working with (the government) and the premier in trying to come up with solutions to the unintended consequences of what they have done. I think the government respects my comments because we can back them up with our team’s research.” In Gosbee’s view, the most important failing of the Royalty Review Panel was its impact on natural gas, which he calls the province’s economic driver. “If you mess with the economic driver of this province, then we’ve got a mess on our hands. The general public didn’t know about it. Even the premier didn’t understand it.” Now he rolls out the statistics. “About 64 percent of Alberta’s royalties come from natural gas, and five percent of the gas wells – the deeper wells – account for 64 percent of the gas royalties paid. Now we have a problem on our hands. The (deeper) gas wells are marginally economic at today’s gas prices, and those recommendations (scheduled to come into effect at the beginning of 2009) are going to make them uneconomic.” In a research paper, Tristone points out that a tiny two percent of the province’s oil and gas wells account for 40 percent of provincial royalties. When Gosbee began his campaign against the fiscal changes, many newspapers put it down to self-interest. The irony is that the opposite is true; the new regime offered a lot of near-term opportunity for Tristone. “M&A (merger and acquisition activity) is going to be great this year. If the government hadn’t done anything, it would have been status quo for us, but we will actually benefit from increased numbers of transactions. October 25th (the day the Alberta government acceded to the panel’s recommendations) was a record trading day for Canadian oil and gas equities, with Canadian equities falling off 30 percent compared to the American companies. There is a global bull market in energy, and institutional investors didn’t want to be out of it. They just wanted to be out of Canadian energy stocks. And that’s mostly because of government decisions.” Populist: In university, Gosbee says, “(I realized) that I didn't want to sit back and wait for opportunities. I wanted to create them.” It shows. An avid skier, runner, rock climber and golfer, Gosbee owns (with Precision Drilling’s Hank Swartout) a heli-skiing company in the Rockies. With his wife, Karen, he founded an athletic wear company called Cura. He also co-founded a company with a subtle but more vital purpose. Mass LBP (“led by people”) is a new public policy company, based in Toronto. “Governments aren’t like they used to be 20 or more years ago,” he says. “Governments now rely more on popular opinion. We have a different type of politician now, people who rely on popular opinion, and it’s the process of how to consult that is the problem. So I got together with some leading academics in Toronto to discuss how governments are going to make decisions and come up with a better way to make these decisions, taking into account public perception and what’s best for the public.” The result was Mass LBP which, according to its online prospectus, “is reinventing public consultation.” Advertising the importance of “a seat at the table, a hand at the wheel and a turn at the mic(rophone),” the company claims to help governments, corporations and not-for-profits make decisions and set priorities that enjoy public understanding and popular support. “I’m pretty passionate about that, too,” says Gosbee, adding that populism is on the rise across the continent. “We had a situation in Alberta where the politicians and the population and the industry all wanted to change the oil sands (regime). How did we screw it up so badly? Why did we go after (the driver of) our provincial economy, which is natural gas? There needs to be change. As Canadians we need to find new and better decision-making.” Asked about his philanthropic interests, Gosbee says only that he and spouse Karen donate mostly to the organizations they are involved with. However, he stresses the importance of giving back to the community. Chairman of the board for the Alberta College of Art and Design, he also sits on the boards of the Libin Cardiovascular Institute of Alberta and Calgary’s private Edge School, which now has a $49 million school under construction. The Edge School, which trains student-athletes in both sports and academics, seems particularly close to his heart – perhaps because of his love of sports. “I’m a big believer that life is a partnership. Team sports like those at Edge school give you (a sense of partnership). So if you can grow up in that environment you’re better prepared for the future.” The oldest of his children, John (age 13), is already studying at the Edge. The others – Carter (10) and Isla (6) – will attend when they reach sixth grade. Gosbee’s on a roll now. “You’re a partner with your spouse, with your kids. You’re a partner with your community, with your business.” He stresses that 80 percent of Tristone’s employees are shareholders in the company, which is held privately; only employees can own company stock. There are perhaps 25 “senior partners” at Tristone, he says, “but we consider all our shareholders to be partners.” Yes, he’s a populist in business, too.
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