A Saudi Predator?

How market manipulation helped the kingdom become a major investor in western oil companies

By Peter McKenzie-Brown

The last twelve months have been rough for companies invested in Alberta’s oil sands. Things began rough, with Norway’s US$1 trillion sovereign wealth fund, which has its origins in the country’s offshore oilfields, announced that it would unload the US$81 billion it had invested in bitumen companies. The reason? Such an investment was out of alignment with the 2^oC global warming target set by the 2016 Paris Agreement on greenhouse-gas-emissions. “By going…oil sands free,” the Norwegian news release said, “we are sending a strong message on the urgency of shifting from fossil to renewable energy.”

A strong message it may be, but also haughty. There is a direct correlation between a nation’s oil consumption, its GDP and the quality of life its citizens enjoy. By what right could the world’s rich nations – for practical purposes, the 37 members of the Organization for Cooperation and Development, with a population of about 1.3 billion – justify denying affordable energy to other countries in the world? Well, there is the matter of the global warming emergency.  The case for developing alternative energy resources is dire. After all, the population of our planet is rapidly approaching eight billion.

Norway’s wealth fund soon sold its US$81 billion interests in Calgary-based Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc. From that point on, the statement said, the fund would exclude companies involved in the oil sands from consideration as appropriate investments.

The shares in those companies responded immediately by falling. Even though there is widespread concern about global warming in Alberta, many of us with backgrounds in the oil patch felt affronted. “What else could go wrong?” we wondered. We did not know it at the time, of course, but there would soon be the matter of COVID-19.

As the dangers of travel across a pandemic-stricken planet became obvious, governments imposed lockdowns around the world and global oil consumption plummeted. As international travel crumbled, oil prices dropped for an industry which cannot too quickly shut in production. The poster-child for this event came on April 20^th, when the headline price for a barrel of West Texas Intermediate oil fell into negative territory for the first time ever. For the only time in history, sellers had to pay buyers to take their oil. (See chart.)

                Why did it happen? Essentially, because of the way oil markets function in Texas. The Texas Railroad Commission is the steward of the oil-rich state’s natural resources and the environment, and its regulations led to the reality of oil prices crashing from US$18 a barrel to -US$38 in a matter of hours. Rising stockpiles of crude threatened to overwhelm storage facilities and forced producers to pay buyers to take the barrels they could not store. Was this the doing of big oil – such vast publicly-traded oil companies as ExxonMobil, British Petroleum and Royal Dutch Shell, which are so often characterized as villains when pump prices rise at your local gas station.

In fact, the world’s 13 largest energy companies, measured by the reserves they control, are government-owned and operated – by name, Saudi Aramco, Gazprom (Russia), China National Petroleum Corp., National Iranian Oil Co., Petróleos de Venezuela, Petrobras (Brazil) and Petronas (Malaysia). These state-owned companies and their smaller siblings control more than 75 percent of global production. By contrast, the multinationals produce only ten percent.

Markets, manipulated

In early March, OPEC officials presented an ultimatum to Russia to cut production by 1.5 percent of world supply. For her part, the Eurasian giant foresaw continuing cuts in her market share: after all, America’s shale oil production, which uses fairly new technology, was making the country both the world’s largest consumer of oil and the largest producer. Anxious about this concern, Putin’s government rejected the demand – in effect ending a three-year partnership between OPEC and major non-OPEC producers, widely known as the OPEC Plus cartel. Another factor was weakening global demand resulting from the COVID-19 pandemic. This also resulted in OPEC Plus failing to extend the agreement cutting 2.1 million barrels per day that was set to expire at the end of March. Saudi Arabia, which has absorbed a disproportionate amount of the cuts to convince Russia to stay in the agreement, notified its buyers on March 7^th that they would raise output and discount their oil in April. This prompted a Brent crude price crash of more than 30 percent before a slight recovery and widespread turmoil in financial markets.

Perhaps this Saudi-Russian price war was a game of chicken to see who would blink first. But neither of the major players had much reason to blink. In March 2000, the Saudis had US$500 billion in foreign exchange reserves; Russia had US$580 billion. More to the point, the Saudi cost of production, depending on the grade produced, is three dollars per barrel, compared to US$$30 per barrel in Russia.

Thus, the OPEC plus price war was designed to take advantage of a weak global economy, infected by COVID-19. It Saudi Arabia's case, it assaulted the Western petroleum sector – especially America’s. To ward off from the oil exporters price war which can make shale oil production uneconomical, US may protect its crude oil market share by passing the NOPEC bill.

In April 2020, OPEC and a group of other oil producers, including Russia, agreed to extend production cuts until the end of July. The cartel and its allies agreed to cut oil production in May and June by 9.7 million barrels a day, equal to around 10 percent of global output, to prop up prices, which had previously fallen to record lows.

The Russia/Saudi Arabia oil price war, which had begun the previous month, had a huge impact – probably by design – on the ownership of large oil companies in Europe and North America. Saudi Arabia’s sovereign wealth fund saw nothing but opportunity in the global oil price plunge. During the battle, the kingdom scooped up billions of dollars’ worth of shares in downtrodden energy companies, including Canadian firms.

Filings with U.S. Securities and Exchange Commission indicate the kingdom’s Public Investment Fund (PIF), which has an estimated US$320 billion in assets under management, bought stakes worth US$481 million and US$408 million in Suncor and Canadian Natural Resources, respectively, during the first quarter of 2020. That month, the values of the Canadian producers and three other energy stocks PIF bought — Royal Dutch Shell plc, Total SA and BP plc — had all more than halved from their 52-week highs at the time the kingdom made its acquisitions. The illustration shows the prototypical Royal Dutch share price after the crash. It also shows the quick return the kingdom made from the package of acquisition of these five stocks as markets rebounded: more than US$182.6 million since the end of March.

People Power

Calgary ranks high on the national United Way scale, but it's the people behind the campaign that make a difference.

This article appears in the December issue of Oilweek; photo with permission of Nexen.

By Peter McKenzie-Brown

“While the world is getting better, the disparity between the top and the bottom is getting greater,” according to Talisman CEO John Manzoni. “Those of us at the top who have benefitted from an astounding couple of decades of prosperity often forget that the things that have contributed to that prosperity have actually made things worse for some people.”

“Calgary itself plays a role in that,” he continues. “It’s an oil town, a hydrocarbon city. As the price of oil goes up so do costs…the cost of food, the cost of accommodation, the cost of fuel. As a result, people get left behind. All that’s happening in the financial sector is just exacerbating the situation. I am increasingly of the view that business has a moral obligation and responsibility to help to bridge those gaps.”

Those comments represent the windup to Manzoni’s reply to my question, “Why did you agree to co-chair this year’s United Way campaign?” Now comes the pitch. “If you can do something locally, that’s all the better. Based on that perspective, (the United Way) is a great opportunity to do something that helps.”

A relative newcomer to Calgary – he assumed Talisman’s top job from Britain four years ago – Manzoni also acknowledges business reasons to become involved. “From a selfish perspective, I’m new to the city and it’s a great way to get to know more people. There are many advantages to doing this in addition to the fact that you can do some good.”

Manzoni’s co-chair this year is Sue Riddell Rose – the CEO of Perpetual Energy, which has about 180 employees locally. A native of the city, Rose says she’s “involved in the program because it aligns perfectly with my goals and my husband’s goals and my family’s goals, and our vision of what we want the city of Calgary to be.”

She adds that “The United Way has been a presence in the community for quite a long time. It’s often been said that every dollar given to the United Way contributes six dollars of benefit to the community. That’s because the United Way helps fund high-impact programs that help the city avoid certain kinds of outcomes down the road. If you do that, you can save the system quite a bit of money.”

Campaign co-chairs “come from every part of the spectrum of the Calgary community – sports figures, small business, technology. It just happened that this year they’re both executives from the energy industry,” according to Ruth Ramsden-Wood, who has been the CEO of the Calgary and Area United Way organization for the last 14 years. On average each co-chair dedicates 46 hours to the annual campaign. “They lead a cabinet of 50 people who represent every segment of our society, from major energy companies to universities to unions,” she says. They “work with those people and they meet with people throughout the community for the whole year leading up to the campaign. It’s a pretty hefty role. They become very visible in the community.”

“We put a lot of time into developing our cabinet and they develop additional cabinets in their own sectors,” adds Susan Rose. “That enables our efforts to trickle down and into the community.”

Fun

Manzoni, Ramsden-Wood and Rose give the big-picture look at the United Way. If you narrow your focus to the workplace campaign, matters get much more interesting.

“Every company has its own fun events” says Susan Rose. “It’s part of the intrigue that you can use these events to express your own creativity. Something like 1,200 United Way campaigns will take place this year, and they will all be different. Lots of creativity comes into play, and that can be defining for companies’ cultures.”

What kind of fun? Ask Melanie Swanson, an integrity analyst at Nexen and chair of that company’s 2011 United Way campaign. Nexen’s theme is “Be a superhero,” and that theme led to a public relations home run for the company.

As the United Way season kicked off, hordes of company employees donned superhero costumes to test the previous world record for “most superheroes in a single place.” According to Swanson, “It was a lot of fun to organize the event, but the purpose was to breathe life into the campaign. There was an adjudicator from the Guinness Book of World Records present, and we had to meet particular criteria.” When the adjudicator announced that Nexen’s 437 superheroes had blown away the previous world record, a jubilant crowd went wild. The event got wide-eyed publicity across the full spectrum of media – from TV to Twitter.

The superhero stunt reflects a corporate culture that strongly supports the charity. A year ago Nexen and its 1900 Calgary-area employees contributed a jaw-dropping $1.4 million to the United Way. Half the total was a corporate contribution.

Nexen’s media success was the envy of other companies. According to Peter Ingle, Imperial’s surplus property manager and co-chair of the company’s campaign, “We have fun events, but I have to admit I’m a bit jealous of what Nexen did. I’d like to do something like that. Our events have tended to be more internal. For example, we have large-scale Wii competitions among our employees.”

Ruth Ramsden-Wood never tires of telling stories about corporate fun. For example, “a few years ago a law firm auctioned a goat for its chairman, and I can’t tell you how many e-mails came in from around the country making pledges.” She adds that many companies find imaginative ways to raise money. For example, for three months each year Esso markets $25 United Way gift cards at its service stations – while supplies last, of course. From each sale, two dollars go to the charity.

When it comes to individual campaigns, companies can do anything. According to Manzoni, “to kick off our campaign we had a breakfast for our employees, and about 300 or 400 came. We need events like that to tell people the stories out there – for example, to tell them about the children who go to school without breakfast. The number in Calgary is stunning – I think it’s 20,000. People need to know that, and we need to find ways to fix it.”

Corporate Support

The high level of corporate support within Calgary has helped make the city a champion within Canada’s United Way network. Last year’s campaign raised about $52 million. In terms of total funds raised, that amount put the city in Canada’s number three spot. However, at $39.20 the city was fifth in terms of per capita giving. Fort McMurray was tops, with contributions of $64.78 per head.

Corporate support involves much more than cash, of course. First and foremost, it involves the work and commitment of individual volunteers. “If employees want to take time to work on the campaign, we let them have it,” says Manzoni, “and we find ways to make them feel special.”

Some companies lend people from their staff to the United Way. “We usually get them involved at the beginning of fall, and they work throughout the campaign,” according to Ramsden-Wood. “They become our arms and legs. I believe we have 35 this year, but in previous years we’ve sometimes had more. Companies do this to some extent because they see it as a leadership development opportunity for their employees.”

Nexen’s Melanie Swanson worked as a loaned rep with the United Way last year, and says she got a great deal out of the experience. “It gave me a sense of how much the United Way actually does. So this year I wanted to contribute again by chairing our corporate campaign.” Swanson and Peter Ingles are two good examples of how the system works, and how much effort is involved.

“I’m a big believer in the United Way and I have been ever since I joined the company 27 years ago,” according to Peter Ingle. “I think it’s a good way to be involved. The United Way targets funds in a very focused way.”

“At Esso we have two campaign chairs, and there is an overlap,” he says. “The lead co-chair is putting in maybe 20% of her time during the peak period of our campaign; I’m putting in about 10%. Next year I will do the bulk of the work while we train somebody else for the year after that. We have a really active cabinet, and we have floor leaders” whose job is to see whether their colleagues will open their hearts and wallets to the charity.

While Esso has a notional target of $1.2 million in contributions from Calgary-area employees, Ingle stresses that this is strictly an internal number. “Philanthropy is a very personal thing,” he says, “and we don’t do anything to influence where people direct their gifts. We designed the campaign to help people learn more about United Way and how it can help in our community, but we also send out a really clear message that (giving) is up to the individual.”

Nexen’s Swanson says that during this year’s peak campaign period she invested half of her time in the company’s campaign. A lot of that time went into the superhero event, which she says was designed to “increase participation in and awareness of the event.” Like Ingle, she was assisted by people on each floor who went from office to office talking up United Way giving.

In her case, they were called “Floor Superheroes,” and most of them trotted around with brochures in their Guinness-adjudicated superhero outfits. Asked how much time she and the other volunteers in her company have given to the cause this year, all she could say was “hundreds of hours.” She estimates that the cash cost of the campaign represented 1-2% of the total money raised.

Virtually all the larger companies in the energy industry make direct contributions to the United Way, but they follow quite different models. According to Ramsden-Wood, gift-matching is “really driven by the philosophy within the company.” The most common approach is gift-matching, by which companies match employees’ and often annuitants’ contributions. Gift-matching is usually dollar for dollar, but some companies match at even higher levels – in at least one case, three dollars for every dollar given by the employee.

Gift-matching can be a powerful motivator – especially since there is often no limit to the size of your gift, and you can actually direct your gift to a specific charity along those the United Way serves. Thus, whether you donate $10 or $10,000, matching funds will double the amount the charity receives. As Susan Rose explains it, gift-matching is a way “to show that the corporation is passionate about what our employees are passionate about. The United Way is not the only area where we match employee giving.”

Gift-matching can also cost a company dear. According to Ramsden-Wood, “Some years ago a retiree from Shell was giving huge amounts to the community (through the United Way), and the company matched him for every dollar he gave.” Last year, Shell and its people contributed five percent of the total raised in Calgary. Between 2000 and 2010, their contributions exceeded $32 million – a vivid illustration of the energy industry’s impact on the city’s not-for-profit agencies.

Unlike most other companies, Imperial doesn’t use the gift-matching model. Its Esso Foundation treats corporate United Way funding as part of its nation-wide community investment program. According to the company’s Jon Harding, “the total budget is based on community need in the regions where we live and operate. Over 17 communities across Canada receive funding as part of our annual United Way grants.”

People Power

While workplace campaigns are an extremely important part of the United Way calendar, the organization’s volunteers are active throughout the year.

In United Way parlance, leaders are those who give from $1000-$10,000 in a year and major donors are those who give more. According to Susan Rose, “We have a Leaders initiative, but we also have a Major Donors initiative and I’m very involved in those relationships.” As John Manzoni elaborates, “The vast amount of money comes from Leader level giving, so we want to increase leadership giving.” That is one area of the organization’s focus.

The other is to bring new people into the United Way – “to engage the younger generation.” Organization insiders describe this effort as their BeCause initiative. According to Rose, it “originated 10 years ago to try to get the aged 23 to 35 demographic – people who often don’t have the means to actually give – to become ambassadors spreading the good word about what the United Way is doing in our community. Our company actually has two BeCause ambassadors – young, high-potential employees. They are leading our United Way campaign. Ambassadors focus on the idea that if we work as a village we can make the city a better place.” It’s all about people power.

According to Peter Ingle, Esso also focuses “on getting newer employees engaged in the United Way. We encourage them to just give their time through our Days of Caring, for example.” This is a program in which a team from the company will go out and work in the community – helping repair and repaint a shelter for street kids, for example. At Talisman, Manzoni says, “we dedicate a week to the idea of having (our working groups share) ‘A Day That Makes a Difference.’ Members of our executive team get involved in volunteering somewhere, and people get involved with them.”

“I am inspired by the amount of work the many people involved in the United Way campaign actually do,” says Ruth Ramsden-Wood, who will retire this winter. “We are a chronically understaffed not-for-profit organization, and it is these people who make possible what we do each year.” 

Reaching $1,000,000,000

Shell Canada marks a major milestone with its aboriginal oilsands contractors

This article appears in the October issue of Oilsands Review 

By Peter McKenzie Brown

As the CEO of no fewer than 15 companies, Phil Peddie is a pretty busy guy.He is the chief executive officer of the Fort McKay First Nation, and it's a hefty job.

Seven of the companies he leads are wholly owned by the Fort McKay First Nation. The rest are joint ventures – 51% owned by the band and the balance owned by non-aboriginal business partners. His companies specialize in doing oilsands-related work, and they couldn’t possibly be closer to their customers. Oilsands mining companies encircle the aboriginal community.

Fort McKay is smack in the middle of the cluster of mining projects now producing or under development – those operated by CNRL, Imperial (Kearl), Shell, Suncor, Syncrude, and Total (Joslyn). The community’s location and business acumen are fascinating in themselves, but to put their success in perspective it is worth noting that over the last six years, the Athabasca Oil Sands Project (AOSP) contracted more than $1 billion in services and supplies with aboriginal companies– many of them at Fort McKay. In 2008 alone, more than C$210 million local spending went towards purchasing supplies and services from such aboriginal groups as the Athabasca Chipewyan First Nation.

To put that number in perspective, Syncrude – which began operations in 1978 – couldn’t boast $1 billion of total work with aboriginal contractors until a quarter-century after start-up.

As the crow flies, the closest plant is part of Shell-operated AOSP. Owned by Shell, Chevron and Marathon, the project includes the Muskeg River and Jackpine mines and the Scotford upgrader, near Edmonton. According to the Shell consortium, more than 70 aboriginal businesses participated in the $1 billion spend. Collectively, they provided a wide range of services and products. These include facilities management, general maintenance works, technical expertise, earthmoving, health and safety services, bussing, camp construction, catering and waste management, and many others.

In terms of social and economic renewal, the rise of aboriginal business in the oilsands areas has come at a critical time. One reason is that there are chronic shortages of labour in the oilsands areas, and they are unlikely to go away. Aboriginal communities can provide reliable local labour. The oilsands industry has become Canada’s largest employer of aboriginals by far.

The other reason is that these communities have traditionally been important sources of untapped entrepreneurial talent. To help develop this area, for a quarter of a century the industry has been helping develop aboriginal entrepreneurs to meet its business needs.

Local Labour

According to Shell vice president John Rhind, this is more than a win-win. “Labour shortages are likely to be with us for a long time, and aboriginals have traditionally been an under-represented demographic for the industry. They can bring a lot of value to the oilsands producers. This not only applies to the Fort McMurray area, but to all producers throughout northeastern Alberta. There’s no question SAGD operators can benefit as well.”

According to Rhind, the surge in First Nations businesses was partly driven by the region’s big producers. “Some years ago the oilsands companies around Fort McMurray made a strong commitment to engage with the communities in the area. These included aboriginal communities – Métis and First Nations. But it included other communities as well – for example, non-aboriginals who were not recent hires, but had lived in the area for many years."

These stakeholders in the Fort McMurray area – Rhind calls them "citizens of the environment” – have “a lot to gain from this, and we thought it was important to make this commitment….It isn’t about the dollars. It’s about members of the community participating in our business.”

Until he was appointed to his present position last March, Rhind was general manager of operations for Albian Sands, the joint venture company that operates an oilsands project for the Shell consortium. I asked him to tell me about the project’s aboriginal partnerships. “We’re about developing the ability of aboriginal people in Fort McKay so that when the oilsands is done, decades or centuries in the future, we will be leaving a sustainable culture and economy behind.”

Shell and the other operators in that area have done this in a number of ways, Rhind says. For one, “we look for aboriginals to become part of our workforce.”

He says Shell’s experience is that there is “no difference at all between a First Nations employee and one from any other background….The key is that first that you have to train your employees. Be clear about what expectations the company has of them and give constructive feedback. Second, if there is any systemic racism you have to be relentless in getting it out of the system. That enables people to contribute at the level at which they’re capable, but it also removes any barriers that might stand in the way of their becoming successful in working in an oilsands business. Once you have a cohort of aboriginal workers in the company which includes people in management, then you have a sustainable system that welcomes new aboriginal employees.”

Part of that welcome arrives through Shell’s aboriginal employee network, an internal human resources system developed to support First Nations, Métis and other aboriginal employees. According to a Shell statement, it “draws together aboriginal and non-aboriginal employees and provides a diverse range of learning and social opportunities for employees.”

Local Business

According to the Athabasca Tribal Council, which represents the interests of five Treaty Eight First Nations in northeastern Alberta, there are approximately 5,000 Cree and Dene people in the region. Besides employing aboriginal workers from these communities directly, Rhind notes that his company and others in the area have “appointed people to work with aboriginal individuals to help them develop successful businesses. We want to work with local aboriginal businesses successfully and in a mutually beneficial way.”

That’s the view through the corporate window. Multiple-CEO Phil Peddie picks up the story. He operates in the world of aboriginal entrepreneurialism.

Peddie oversees a large group of companies which collectively employ nearly 1000 men and women. A Shell news release quoted him as saying that “working with Shell and the Athabasca Oil Sands Project over a number of years has enabled the Fort McKay group of companies, joint ventures and entrepreneurs to grow, and has brought significant opportunity to develop skills, establish businesses and further our community.” This reporter phoned to find out more.

The Fort McKay First Nation has seven wholly-owned companies which, collectively, provide a large number of services mostly targeted at oilsands-sector project maintenance and development. These include, for example, light earthmoving, fuel distribution, fleet maintenance and a variety of environmental services: According to the band’s business website, “Our land reclamation services encompass the entire process from start to finish.”

The Fort McKay Group also has a number of joint venture companies in which the aboriginal community forms partnerships with established non-native companies to provide specialized services. For example, Fort McKay Landing Services, which specializes in camp construction, is a partnership with modular facilities giant ATCO Structures and Logistics.

From the First Nation’s point of view, there are many reasons to like these joint ventures. For one, the community has control of a business that is adequately financed. In addition, the venture transfers managerial and technical skills to the local community and contributes to local employment. Also, of course, for their businesses the status Indian shareholders receive their earnings tax-free.

According to Peddie, each of these companies is operated by a management committee with equal representation from both sides. “It brings together the technical and management expertise of our partners plus the labour we can supply. Our unwritten goal for each of these enterprises is 30% aboriginal content. In every business we own, our goal is 30%.” Achieving that percentage of aboriginal employees isn’t easy. “It’s difficult to achieve because the unemployment rate in Fort McKay is quite low. A lot of people are employed by Shell, Syncrude, Suncor, and so on, so for some of our companies we are below that mark and for others we are above it.”

Oilsands employment has transformed the local economy, he says. “Only 30 years ago, the people of this community were primarily trappers. A European boycott of Canadian furs destroyed the trade,” and very tough times followed.

Now a hamlet of some 700 souls, Fort McKay is mainly composed of status Indians from the Fort McKay First Nation. The social fabric also includes a Métis community of perhaps 200, non-treaty aboriginals, and small numbers of individuals of other origin. The Fort McKay Group of Companies can’t strictly draw from the local community to reach its “aboriginal content” goals because most working residents hold fulltime jobs with Syncrude, Shell, Suncor or another big local producer.

According to Peddie, 13% of local people work for the Treaty Eight band’s wholly-owned companies. A similar number work for its JV partnerships. “So to try to reach our content quotas, we employ aboriginal people from all over the region.”

Being Canadian

Like representatives of other companies in the Fort McMurray area, John Rhind says that “working with aboriginal contractors is one way Shell benefits the communities where we operate. We announced our billion-dollar milestone to thank the businesses and partners we worked with during those six years.”

Shell’s achievement is impressive, and certainly something to brag about. However, it is worth remembering that Syncrude began developing business partnerships with aboriginal communities in the 1970s: During the construction of the plant, chairman and CEO Frank Spragins visited aboriginal communities, and let contracts before the plant produced its first barrel of oil. This policy was spurred by Spragins’ successors, Brent Scott and Eric Newell. The company’s ground-breaking efforts were both visionary and transformational.

As the company’s initiatives were coming to fruition, Newell addressed the triumph of Syncrude’s pioneering efforts in a speech given15 years ago. “We’ve brought two decisively different belief systems…those being business and spiritual… together in understanding and cooperation,” he said. “We’ve drawn strength from each other to leap the hurdles and head down the road side by side – on a journey not only to secure Canada’s energy future, but also to explore what it really means to be Canadian.”

One outcome of Syncrude’s initiatives is that today, Phil Peddie is a pretty busy guy.