HOW TO TURN-AROUND THE CANADIAN ECONOMY - ADDENDUM
by the only living Canadian who has done it before
CANADA IS THE 4th LARGEST OIL PRODUCER IN THE WORLD AND THE LARGEST SUPPLIER OF OIL TO THE USA.
HOW DID WE GET HERE?
This outstanding Canadian success story is primarily due to the rise of the Alberta oil sands. However, it was not always so. The Alberta oil sands industry struggled in the 1980's and early 1990's.
Then, a few key initiatives were implemented that revitalized the oil sands industry. These initiatives were originally conceived, developed and proposed by a few foresighted individuals.
A STRATEGY THAT CHANGED CANADA - THE DEVELOPMENT OF THE OIL SANDS
Excerpts from my letter to Syncrude of July 27, 1990, re Syncrude Corporate Strategies.
It is significant that, more than thirty years later:
- all but one of these strategic recommendations have been successfully implemented, and as a result
- Canada is now the 4th largest oil producer in the world, and the largest foreign supplier of oil to the USA.
The conventional oil industry in Alberta is now entering a period of decline in terms of volumes, revenues and profits. It has served as the primary "engine" of provincial economic growth and stability for the last 40 years. Similar roles have been performed in other areas by Hydro Quebec, Ontario Hydro and the German brown coal industry, to name a few examples. In each of these cases major economic and social benefits including jobs, energy self-sufficiency and markets for industrial products have been created by these strategic industries. As the conventional oil industry declines in Alberta, it will be necessary to find a suitable replacement. I believe it is entirely appropriate for the oil sands industry to fill this role.
We are at a critical point in the oil sands industry. Our future could consist of, on the one hand, two struggling plants, Syncrude and Suncor and little else, or alternatively, a thriving series of plants and major expansions eventually producing over half of Canada's crude oil supply and serving as Alberta's primary engine of economic growth and stability.
- Allan MacRae, P.Eng., 27July1990
HOW THE OIL SANDS INDUSTRY WAS REVITALIZED AND CANADA BECAME THE 4TH LARGEST OIL PRODUCER IN THE WORLD.
I primarily initiated the following changes through the Syncrude Canada Ltd. Owners’ Committees:
I wrote a Strategic Vision that the Alberta oil sands could become the primary economic engine of Alberta, and most of the key initiatives that achieved that goal, including:
• New Crown Royalty Terms for the oil sands, initiated in 1988 and implemented in 1997, with Gordon Willmon;
• New Corporate Income Tax Terms for the oil sands, implemented in 1985 (Class 28) and revised in 1997 (Class 41), with Helder Mendes and Dave Devenny;
• A 50% low-cost production increase at Syncrude Canada Ltd. that reduced unit operating cost by 30%, implemented in 1985, with Dave Devenny and Carl Stephenson;
• The acquisition of new oil sands leases for Syncrude that enabled major expansion of production, initiated twice in the 1980’s, implemented in the 1990’s, with Dave Devenny;
• Technical innovations and reduced costs.
The fourth major initiative that revitalized the oil sands was SAGD technology to economically unlock the deep oil sands, developed by AOSTRA and others.
The initiatives listed above were instrumental in the revitalization of the Alberta oil sands and the emergence of Canada as the fourth-largest oil producer in the world, the largest foreign supplier of oil to the USA and for decades the strongest economy in the G8 countries . Over $250 billion in new capital ($500 billion or more in today’s dollars) was invested and approximately 500,000 new jobs were created across Canada. See my website https://Energy-Experts-International.com/ for details and supporting documents.
Alberta Premier Ralph Klein and Cabinet Minister Pat Black were primarily responsible for enacting the new Alberta Crown Royalty Agreement for the oil sands. The new province-wide Royalty compensated Alberta for the extraction of its oil sands with a 25% Deemed Net Profit share, which replaced a hodge-podge of different gross and net royalty structures, different for each project.
Prime Minister Jean Chretien, with strong support from Cabinet Minister Anne McLellan, enacted the Class 41 Corporate Income Tax rule that improved our Class 28 tax rule from the mid-1980’s. Both Class 28 and Class 41 provided a 100% CCA rate on qualifying investments but Class 41 also included in-situ oil sands projects.
With these new Royalties and Taxes, the Alberta and Canada governments shared a ~50% interest in profits from the oil sands, without having to invest one penny!
Syncrude Canada Ltd. owners, senior management, employees and contractors deserve much credit for the hard work, competence and determination to make this happen.
ADDENDUM:
This 2017 article from the Calgary Sun describes our successful turnaround of the Alberta oil sands and the Canadian economy. I’d like to publish my original documents that proposed the major changes to Alberta Royalties, Income Taxes, and technical matters, but after all these years my Confidentiality Agreement still stands.
WHEN THE OILSANDS HIT PAY DIRT
http://www.calgarysun.com/2017/09/25/when-the-oilsands-hit-pay-dirt
Chris Varcoe, Postmedia News, September 25, 2017
[excerpts]
In this historical image from 1996, Anne McLellan, then PM Jean Chretien, Eric Newell
and Pat Black raise their hands after the Declaration of Opportunity was signed.
More than 1,400 oilpatch workers, corporate executives, provincial leaders and the country’s prime minister assembled 21 years ago in northern Alberta to grasp a brass ring of opportunity, pledging to "realize the potential of the oilsands opportunity for the benefit of all Canadians."
On June 3, 1996, Canada’s Declaration of Opportunity for the oilsands was signed, kicking off an unprecedented era of expansion for the world’s third-largest oil reserves.
With a new uniform royalty rate in place by the Alberta government, and tax changes adopted by Ottawa, daily oilsands production was projected to nearly triple to 1.2 million barrels.
Production soared from 445,000 barrels per day in 1996 to top 2.4 million barrels per day last year. It’s expected to hit three million a day by the end of this decade — fully 150 per cent above initial targets.
Capital investment in the oilsands soared to an eye-popping $262 billion from 1996 until 2015. Another $190 billion was spent on operations.
Royalty payments to governments topped $38 billion.
A report by energy consultancy IHS Markit estimated 478,000 jobs — or three per cent of every job in the country — were tied to the oilsands’ boom by 2012. That was more than 10 times higher than the declaration’s target.
Armed with its oilsands bounty, Canada catapulted into position as the world's fifth-largest oil producer, ahead of OPEC kingpins like Iraq, Kuwait and Venezuela.
“For years and years and years, the oilsands was regarded just as this fringe,” says Daniel Yergin, a Pulitzer Prize winning author and world-renowned energy analyst with IHS.
Government policy changes moved the oilsands into a new direction. Instead of having each project negotiate its own royalty deals, Alberta’s new generic regime, along with the accelerated writeoff of costs by the federal government, were designed to give investors certainty, helping offset the large investment risks.
The declaration set the foundation for an explosive period of expansion.
People across the sector believe a combination of factors — high oil prices, attractive rules for investors, and new technology to access bitumen deposits too deep to mine — all coincided to usher in the largest industrial boom in modern Canadian history.
In 18 years, oilsands output increased almost five-fold, “an amazing achievement,” says Yergin.
Hi Allen, I want to know why as a paid subscriber I can't comment. You wrote a letter to Notley and when I click on it it says Im paid but I can't comment, but I can comment here. I have unsubscribed twice now and subscribed again once, what in the world is going on?
Thanks Allan. You'd make the best Premier Canada could ever have.
GO FOR IT SIR!