Thursday, October 09, 2008

Centre of a Storm

A reflection of the trauma of Canada’s energy wars; cover courtesy Maclean’s Magazine. Left to right: federal Energy Minister Marc Lalonde, Alberta Premier Peter Lougheed, Prime Minister Pierre Trudeau and Alberta Energy Minister Merv Leitch. From the book Barbecues, Booms and Blogs: Fifty Years of Public Relations in Calgary, this chapter is excerpted in the November, 2008 issue of Oilweek magazine.
By Peter McKenzie-Brown
The oil price shocks of 1973, 1979/80 and 1986 echoed and re-echoed around the world. Here at home, they aggravated the conflicts that historians now call Canada’s energy wars. As the drums of battle deafened public debate and affronted an industry whose allies were few, federal and provincial partisans clashed for petroleum wealth. Through the Canadian Petroleum Association (CPA), oil and gas producers gradually developed a coherent public voice and eventually played a role in policy reform. They also opened their eyes to the critical importance of good environmental practice. This chapter tells those stories.

Energy wars
The battles began with a shot from Prime Minister Pierre Trudeau. Inflation had become a national problem and oil prices were rising, and on September 4, 1973, he asked the western provinces to agree to a voluntary freeze on oil prices. Nine days later, his government imposed a 40-cent tax on every barrel of exported Canadian oil. The tax equalled the difference between domestic and international oil prices, and the revenues were used to subsidize imports for eastern refiners. At a stroke, Ottawa began subsidizing eastern consumers while reducing the revenues available to producing provinces and the petroleum industry. This outraged Alberta, which had fought long and hard for control of its natural resources.Britain’s Privy Council didn’t award resource ownership to the province until 1930, after a drawn-out legal battle between Edmonton and Ottawa.

Premier Peter Lougheed soon announced that his government would revise its royalty policy in favour of a system linked to international oil prices. His timing was impeccable. Two days later, on October 6, the Yom Kippur War broke out – a nail-biting affair between Israel and the Arab states. OPEC used the conflict to double the posted price for a barrel of Saudi Arabian light oil, to US$5.14. Saudi and the other Arab states then imposed embargoes on countries supporting Israel, and oil prices rose quickly to $12. These events aggravated tensions among provincial, federal and industry leaders.

The rest of the 1970s were marked by rapid-fire, escalating moves and counter-moves by Ottawa, western provinces and even Newfoundland. The atmosphere was one of urgency, alarm and crisis, with global conflicts adding gravity to the federal-provincial quarrelling. Alberta, British Columbia and Saskatchewan (the latter two headed by NDP governments) took steps to increase their revenues from oil and natural gas production and to protect provincial resource ownership from federal encroachment.

The federal government announced a series of national policies founded on the basic notions of federal/provincial revenue sharing, made-in-Canada pricing, increasing Canadian ownership of the industry and a quest for self-sufficiency in oil through development of such non-conventional resources as oilsands and the frontiers.

A single voice
The logical voice for the petroleum industry was the Canadian Petroleum Association, a trade association mainly reflecting the interests of large, foreign-owned companies that together produced around 90 per cent of Canada’s oil and gas. Formed in 1952, the association’s primary function was to compile technical data for the industry – drilling statistics and reserves estimates, for example. The CPA asserted itself as the industry’s voice and quickly found itself in the centre of a storm.

Its Executive Director was John Poyen, a capable manager with a technical background. According to Jack Gorman, who later became the association’s Director of Public Affairs, “When the feds announced the export tax on oil, from his chair in the CPA office Poyen made some fairly blunt comments, without any reference to the CPA’s Board of Governors.” Hans Maciej – at that time the association’s Technical Director and economist – didn’t think so. “John used to call a spade a spade and the feds may not have appreciated his plain talk, but the organisation continued to put the industry’s case forward.”

Harold Millican soon took the top job at the CPA, and Gorman joined him. “It was a happy arrangement,” said Gorman. “Our focus at that time was to be conciliatory, especially because of the way Poyen had shaken the beehive and got a lot of people upset. So we developed our messages, and talked about how oil was getting harder to find and told people about different approaches to the problem. Jim Rennie joined us and we developed an educational approach, producing booklets about the ABCs of the oilpatch.”

As an aside, the CPA library became an important centre of PR learning for CPRS members, beginning with Rennie’s brief tenure there. Monthly “Library Nights” featured bottles of port and thoughtful discussion about every imaginable aspect of public relations practice. Library Night thrived until 1983, when it reappeared as Shop Talk at another venue. It soon disappeared from the historical record. “With some difficulty,” Gorman continued, “I was able to sell the CPA on a program of journalism awards to get the media to take more interest in our industry. I thought it was also important to hold seminars for reporters and separate seminars for editorial writers. So we brought them into town and set up seminars hosted by experts from the oil industry. It was a warm and credible way of working with the media.”

Perhaps, but it was powerless in the face of the worsening political struggles. As Maciej put it, “When politics entered the picture, PR people alone could not play the major role.”

The National Energy Program
In 1979/80, further crises in the Middle East led to panic-driven pricing. The Iranian Revolution came first. War between that country and Iraq soon followed. Oil prices more than doubled, to US$36 per barrel. Such high prices multiplied the amount of money at stake. Pierre Trudeau led the Liberals to electoral victory in 1980, promising vaguely to create a federal energy policy in response to rising oil prices.

The result was the National Energy Program, Canada’s most controversial federal initiative in peacetime. It ended an era of great prosperity in Alberta. On October 28, 1980, I worked for Gulf Canada, and that evening I sat glued to the television as the budget speech described the federal government’s latest energy initiative.

In a beautifully produced book prepared for the occasion by the federal government, Energy Minister Marc Lalonde said, “This is a set of national decisions by the government of Canada. The decisions relate to energy. They will impinge, however, on almost every sphere of Canadian activity, on the fortunes of every Canadian and on the economic and social structure of the nation for years to come.” Right he was, although no one could have imagined the rancour that followed.

A fuming Peter Lougheed compared federal actions to those of a rude invader blundering into Albertans’ living rooms. The province made plans to cut oil production by 15 per cent over three months, threatened to withhold approval of new oilsands projects and launched court actions. British Columbia and Saskatchewan mounted furious protests of their own. The NEP pitted vital interests against each other. Supported by eastern consumers, the federal government took one corner of the ring. Supported by regional voters, the western provinces took the other.

The petroleum industry was a spectator wishing it could score points against either combatant – or better, both. In the beginning, compromise seemed impossible. After a year, however, the two levels of government did reach a revenue-sharing agreement – memorialized in the press by photos of Peter Lougheed and Marc Lalonde toasting the deal with Champagne. Left out in the cold, the petroleum industry didn’t share in the celebrations.

Under the terms of the new deal, the sector could only realize additional revenue if oil prices, which had already begun to erode, continued to rise. Operating under new rules in a declining oil price environment, corporate cash flows dropped precipitously. In response to federal efforts to “Canadianize” the sector, foreign interests sold their assets and headed home. The Canadian sector became mired in debt – a development that contributed to the bankruptcy of once-mighty Dome Petroleum. Drilling slid into a deep funk, and rigs began a highly publicized exodus across the border. Confidence in the industry plummeted.

As the decade wore on, bankruptcies in Alberta reached new highs and real estate prices crumbled. Although exacerbated in 1982/83 by what was then the worst global slowdown since the Great Depression, the severity of the decline was unique among the world’s petroleum-based economies. Norway, for example, boomed throughout the NEP years.

New leadership
At the beginning of this period, in 1979, the CPA’s leadership changed again. Ian Smyth became Executive Director. Perhaps reflecting his civil service background but with the active support of the CPA’s Board, Smyth quickly began to enlarge the association. He began by creating an office in Ottawa to supplement divisional offices in Regina and Victoria. ‘Before long, the organization also had offices in St. Johns, Halifax and Montréal. Smyth’s ambitions, and his plans, were vast. 

“CPA staff often provided access to ministers in Ottawa and the provinces, but we never lobbied in the sense that lobbying is a dirty word,” he said. “We’d do show-and-tells. There would be half a dozen ministers around the table, and we would say: ‘Here we are, the industry, and we want to tell you what we’re doing. If you have any questions, Minister, we will be glad to answer them.’”

Gorman tells a story about this period with a combination of humour and derision: “The next thing you know they hired Allan Gregg, who had just founded Decima Research, to conduct a nationwide survey to find out what Canadians think about the oilpatch. I said to Ian, ‘I can tell you what the people of Canada think about the oilpatch. They think it is run by a bunch of Yankee fat cats who are exploiting Canadians and making high profits and sending most of the money back to the U.S.’ So they launched their campaign and surveyed Canadians and that’s exactly what they found out. “Then they decided to let the research drive a campaign to convince the Canadian people that this really wasn’t true, that the oil industry was really working in the best interests of the country. So they began this big, expensive advertising campaign, but I don’t think it was very effective.”

Norm Elliott and I joined the CPA in 1981, just before the advertising campaign began. Norm was Director of Public Affairs; I was his number two. Our day-to-day work consisted of analysing news and planning communications; preparing news releases and backgrounders; organizing news conferences; arranging publicity and media events (including the National Journalism Awards); managing publications, including a monthly magazine and the annual report; speech writing; meeting and meeting some more.

Despite technological innovation and the evolution of new forms of media over the last three decades, these functions are still the PR professional’s stock-in-trade. They are less art than craft. My role gave me a unique vantage point from which to observe the industry’s response to the NEP. The balance of this chapter describes how the CPA led the charge.

The leader
Ian Smyth was a big, wall-eyed man with a large ego, a superb mind and, when he turned it on, a huge amount of charm. Few people were able to dominate a social occasion, a meeting or an organization as completely as he did. As Norm Elliott put it, “Ian was the leader. He set the rules, he set the thinking and he knew what was going on. I never saw a better mind than his. It was unbelievable to watch him, to see how people responded to him. He came into Calgary not knowing a soul, and within a year he was right on top of things.” Smyth was a quick study, and his commentary was continual grist for the media’s mill.

“He could completely take over an interview,” said Elliott. “The best media people in the country took him on, but he always controlled the interview. No one could acquire that talent. He was just born with it.” Technical Director Hans Maciej continued to answer questions about many economic and most technical matters. On matters of policy, though, Smyth became the industry’s spokesman. The CPA was the industry’s voice, and he was the CPA’s.

When I asked him to describe the advertising campaign, Smyth began thus: “We set out to use opinion polling to find out what concerned people. What we quickly found out was that Canadians were not worried about Canada running out of oil. It was a period of high unemployment and high inflation. People wanted to have a job a year from now. That was their number one concern. As we worked through the research, we realized that we had a theme. That theme was that when the petroleum industry is at work and has the funds it needs to do what it does, it provides jobs and employment right across the country. So we began to run a series of TV commercials and print ads telling that story, and it worked.” He added, “That was the most researched campaign in the history of advocacy advertising. It became a case study in some MBA programs. We researched carefully everything we did. If something didn’t work we junked it and if it did work we did more of it. And so we gradually progressed to a stage where our campaign had a significant impact on public opinion. Partly because of what we did, voters threw out the Liberal Party in the next election.”

Hans Maciej was skeptical about the research, but supported Smyth’s conclusion that the campaign helped people understand the damage caused by the NEP. “I always questioned the numbers we were getting back from our advertising and polling people,” he said. “We would hear that something in public opinion moved by 0.2 percentage points and that was a major improvement. But Allan (Gregg) was an effective snake oil salesman, and it was always interesting to listen to his interpretations.”

“Anyway, I believe we were effective in putting forward the other side while the NEP was collapsing under its own weight,” Maciej maintained. “To their credit, the political opposition (Mulroney’s Conservatives) saw what was happening. It took them a long time to rectify all the wrongs of the National Energy Program, but they eventually did it.”

 Emerging issues
Just before the NEP died, the CPA shifted its focus toward the natural environment. The emergence of environmentalism as a public issue illustrates an important rule for the petroleum industry: A crisis for one is often a crisis for many. Take the cornerstone years of 1977 and 1982.

On June 9, 1977, Justice Thomas Berger issued Northern Frontier, Northern Homeland – the report of the Mackenzie Valley Pipeline Inquiry, and a surprise bestseller. This document raised environmental and social rather than technical objections to an industrial project. In so doing, it killed a proposal to construct a natural gas pipeline from the Arctic. The industry didn’t see this as part of a sea change, but responded with a cacophony of complaints about the “left wingnuts” in Ottawa. Wingnuts or not, 30 years later 1.7 billion barrels of oil and about 25 trillion cubic feet of natural gas remain stranded in the far north.

Five years on, two calamities struck in a single year. The Ocean Ranger disaster off Newfoundland and the Lodgepole blowout in Alberta precipitated more than gripes and grumbles. The Ocean Ranger tragedy involved a semi-submersible drilling rig going down in a winter storm. She took 84 hands into the frigid sea, and none survived. 

The Lodgepole catastrophe involved an Amoco-operated, high-pressure sour gas well. Out of control for 68 days, it took the lives of two blowout specialists and sent another 16 people to hospital. On days with strong westerly winds, residents of Winnipeg (1,500 kilometres away) could smell the rotten-egg odour of the gas. Regulatory opprobrium and public anger were intense. Inquiries went on for years, and the resulting new regulations were as tough as nails. More importantly, in Canada’s national consciousness these headliners reinforced budding concern about public health, industrial safety and environmental integrity. The CPA was the first trade association to take action on these growing worries.

According to Smyth, this, too, arose from research. “We were continually out there taking the public’s pulse. We had noticed from the beginning that the first few top-of-mind issues were always economic – jobs, taxes, inflation and so on. But after a while, people started volunteering the environment as a top-of-mind concern – the only issue that wasn’t bread-and-butter. So I said to the CPA’s Board that we should be, and be seen to be, the most environmentally responsible industry in the country, and they said, ‘See what you can do.’ We began by developing the first industrial environmental code of practice in the country, and soon set up an environmental department.”

Third price shock
As the CPA began its environmental labours, the country’s energy wars were ending. Then oil prices collapsed – a 1986 market phenomenon known as the third oil price shock. The industry’s core issue became survival in a world of lower energy prices.

Environmental policy remained a focus, but big-budget ads were suddenly out of the question. The CPA responded with its first and only community relations initiative. With the CBC and The Calgary Herald as media sponsors, the association’s Share the Earth Triathlon helped brand the CPA green. It was a sporting event with an environmental theme – the first, perhaps, in Calgary.

Why triathlon? It was a new sport and the city (gearing up for the Olympics) was sports mad. The demographics were excellent: a mean age of 36 and surprisingly large cohorts of professionals. Costs were minimal, and volunteers (led by volunteer Race Director Pete Strychowskyj) took care of planning and race-day operations. This early-season event quickly became the most popular in Alberta. The CPA’s wisdom in championing the environment became apparent as the Mulroney government began passing tough new environmental legislation. This included million-dollar fines and five-year jail terms for offending executives.

Smyth twice earned honours with The Globe and Mail’s front-page “Quote of the Day.” On the first occasion he said, “I have never seen a CEO who was prepared to trade five years in the slam for a better bottom line.” On the other he said, “We have plenty of environmental sticks. We need more carrots.”

In large part because of the CPA’s efforts, Ottawa nominated the petroleum industry for a prestigious United Nations award. In 1992, the CPA merged with its former shadow – the much smaller Independent Petroleum Association of Canada – to become the Canadian Association of Petroleum Producers (CAPP). The new organization axed the triathlon which, though still popular, had outlived its usefulness.

The oil shocks left enduring legacies. One was an increase in industry organizations focused on telling the industry story. For example, the respected Centre for Energy is the successor to the Petroleum Resources Communication Foundation, and the SEEDS (Society, Energy, Environment and Development Studies) Foundation has been producing energy information tools for Canadian schools for more than 30 years.

In addition, companies and trade associations are now far more fluent in government and stakeholder relations than when the CPA’s pioneering efforts began. The alphabet soup of industry associations and organizations – CAPP, PSAC, CEPA, CAODC, SEPAC and the rest – are better staffed with or have access to public affairs professionals. They share key messages and backgrounders with their members, so all can respond quickly with the same basic messages. As importantly, senior managers now receive training in how to deal with public issues, and they understand that good environmental performance is the only acceptable business practice.

These developments owe much to the reverberations of the oil price shocks and, later, to the greening of Canada.

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