There is talk today about the future of Suncor and who should own Suncor shares, as shares are trading at $42.28 today (February 9, 2017), exceeding the $40/share highs of November 4, 2015, with dividend yields of 3.04%. As oil companies grapple with the downturn in oil prices (languishing just above $50/bbl), slashing spending, cutting thousands of jobs and delaying around $200 billion in mega-projects around the world, I believe NOW is the time to pause and remember the historical development of Alberta’s own Suncor going back to 1962 when Ernst Manning was premier of Alberta.
Is it time for a new generation of ‘genuine equity’ investment in Alberta’s future energy economy? With over 168 billion barrels in the oil sands worth over $9 trillion at currently low oil prices, that will last over 200 years, Albertans have real wealth options to last many generations.
Consider our history of entrepreneurial spirit and investment savvy. In 1962, the Great Canadian Oil Sands (GCOS) project was approved by the Government of Alberta under Premier Ernest Manning. Albertans were invited to invest in $1,500 debentures (the equivalent of $11,307 in 2015 dollars) to start-up CGOS. $1,500 in 1962 was a lot of money; an average house in Alberta was $12,556!
Over 100,000 Albertans (representing roughly 27% of Alberta households in 1962) purchase a $1500 debenture taking a shared equity position in Alberta’s future oil sands asset. This amounted to an investment by Albertans of $150 million (the equivalent of $1.13 billion today).
Suncor, a Canadian subsidiary of US-based Sun Oil Company, provided an additional $250 million in investment dollars to get the project up and running in Fort McMurray. Suncor was founded in 1919 in Montreal as Sun Company of Canada, a subsidiary of Sun Oil (now Sunoco). In 1979, Sun formed Suncor by merging its Canadian refining and retailing interests; Great Canadian Oil Sands (a majority-owned subsidiary, which constructed and operated the first commercial plant to develop Canada’s Athabasca oil sands and went on production in 1967); and its conventional oil and gas interests. In 1981, the Government of Ontario purchased a 25% stake in the company; it divested in 1993. In 1995 Sun Oil also divested its interest in the company, although Suncor maintained the Sunoco retail brand in Canada. Suncor took advantage of these two divestitures to become an independent, widely held public company.
Some deemed it “a daring venture into an unknown field” and “the biggest gamble in history.” It was the largest, single private investment in Canada’s history.
Construction began in 1964, with then president and chairman J. Howard Pew (85-years old at the time), saying, “I am convinced this venture will succeed, and it will be the means of opening up reserves to meet the needs of the North American continent for generations to come.” The Pew Charitable Trust is now one of the most progressive foundations in the US working to protect the environment, encourage responsive government, support scientific research, and improve civic life.
On September 30, 1967 the Great Canadian Oil Sands project officially opened with production volume potential of 45,000 barrels of oil per day.
Today in 2015 Suncor will produce 566,100 barrels of oil per day (up 9% year-over-year) or 206.6 million barrels. This represents almost 23% of Alberta’s total oil sands production volume. Valued at US$55.85/bbl (WTI prices) the estimated market value of this production would be over C$14.5 billion. Sadly our bitumen and synthetic oil earns less (as much as $11-$15 per barrel discount on WTI) than world prices, whether West Texas Intermediate or Brent (North Sea) prices.
Today CGOS is known as Suncor with over $40 billion in revenues (2014), $79.6 billion in assets and $41.6 billion in equity.
In principle the descendants of those original 100,000 Alberta investors may still have a substantial equity position in Suncor and Alberta’s oil sands asset.
I believe Albertans should consider developing a developing a new modern energy company similar to what 100,000 Albertans or 27% of Alberta households did in 1962, investing when oil prices are low in our abundant natural oil and gas assets and abundant renewable (solar, wind, geothermal, biofuel) energy potential.
Imagine if Premier Rachel Notley invited Albertans this week to consider investing $2000 per household of our TFSA or RRSP money in Alberta’s own energy company (let’s call it the Alberta Real Energy Company)? The mandate of our New Alberta Real Energy Company would be to make the highest and best use of Alberta’s energy resources and natural capital.The corporate charter of our new company would include defining the ‘best interests’ of the enterprise in terms of contributing to the net well-being of Albertans and the environment. We would be guided by a new Well-being bottom line or Well-being ROI. We would thus have a shared equity position in our common wealth. We would insist on having our oil and gas resource refined in Alberta to maximize financial returns on investment.
Albertans should insist on collecting both a fair share of the oil and gas industries sales in the form of royalties (at least 20%) and save least 30% of the royalties to build a Legacy Savings Fund that would rival Norway’s US$868 billion (C$1.157 trillion) Government Global Pension Fund (formally the Petroleum Fund).
Sadly Alberta’s Heritages Savings and Trust Fund has languished between $12 billion to $15 billion in since the last major oil price downturn in 1986, when Don Getty took over from Premier Peter Lougheed. In 2016 the AHSTF stood at roughly $14.9 billion in equity.
My preliminary analysis shows that had Getty and future governments kept collecting royalties at 20% of the value of total oil and gas sales (note Lougheed’s government averaged $0.27 on every $1.00 in oil and gas sales from Alberta between 1977-1985) and had then saved 30% of those royalties in the Alberta Heritage Savings and Trust Fund the Fund with the returns on the Fund has realized since 1986, Albertans would be enjoying the benefits of a Fund worth more than $405 billion.
Ironically Norway established its Petroleum Fund in the early 1990 (with its first capital investment of 46 billion NOK (US$7.1 billion) that was modelled after Lougheed’s Heritage Savings Trust Fund and has built a fund over 77 times larger larger in equity than Alberta’s Fund.
There is fundamentally no reason Alberta’s savings fund couldn’t be as large if not larger than Norway’s C$1 trillion Fund.
It comes down to our will do collect and invest our fair share of value of the natural assets of Alberta and Canada.
Lest we forget that we did such a bold thing in 1962 by investing in the Great Canadian Oil Sands, Alberta’s petroleum energy asset.