Petro-Canada to Be Sold to Finance Oil Exploration
TORONTO — CANADA is selling Petro-Canada, the government-owned oil company. It will be the largest sale ever of a Canadian government asset, with the minimum sale price expected to be $4.3 billion (Canadian; US$3.7 billion). Petro-Canada's assets range from oil and gas wells in western Canada to huge reserves in the Hibernia oil field off the coast of Newfoundland, in the middle of the frigid Labrador Current, dubbed ice-berg alley.
The firm is the second largest Canadian oil company after Imperial Oil Ltd., an Exxon Corporation affiliate. Shell Canada Ltd. ranks third.
The Conservative government of Prime Minister Brian Mulroney introduced legislation on Oct. 1 saying the first 15 percent of the Petro-Canada will go on sale once market conditions are right. It plans to sell all of Petro-Canada eventually. It just wants to do it one piece at a time, as it did with Air Canada. The government sold the airline in two lots.
But it looks as if there will be more than two issues of Petro-Canada stock.
``It's a large company and it cannot just be done in one or two tranches [slices],'' says John McDermid, the cabinet minister responsible for privatizing government businesses.
The money from the first block of shares sold will go to the company, not the government. But it will save the government money. Petro-Canada, with government encouragement, is a 25 percent partner in the consortium drilling for oil in the Hibernia field off Newfoundland. The company has said it needs at least C$500-million for this and other exploration projects.
``The money has to come from somewhere; either the government puts up more or it comes from the market,'' says a source closely associated with Petro- Canada who asked not to be identified.
Petro-Canada was started in 1975 by the Liberal government of then-Prime Minister Pierre Trudeau. It was a period when Canadian economic nationalism was running high and there were worries about foreign ownership of Canada's oil and gas reserves. There still are. Opposition politicians say they will fight the sale of Petro-Canada.
``Most of the oil industry in this country is owned by foreigners and owned by private interests,'' says Lorne Nystrom, member of Parliament for the socialist New Democratic Party. ``We intend to drag this out and we intend to try and mobilize public opinion against it.''
Petro-Canada took over the Canadian assets of Petro Fina, the Belgian-owned oil company, and British Petroleum, along with part of the assets, mainly gas stations, of Gulf Canada. It also bought the assets of other foreign and domestic producers in Canada.
The Calgary-based Petro-Canada is now the largest Canadian-owned oil company, with assets estimated at C$6.8-billion and 3,300 gas stations across Canada.
Despite the recent announcement, the actual deal will probably not go through until next spring.
``Petro-Canada wouldn't have time to get organized before next year,'' says Richard Wyman, an oil analyst with Peters & Co. in Calgary.
The Canadian government says it will limit foreign ownership of Petro-Canada to 25 percent of the total and individual ownership to 10 percent. It did the same with Air Canada.