The Alberta Energy Company Ltd. was a Canadian independent petroleum company that existed from 1973 to 2002. The AEC was created by the Government of Alberta under Premier Peter Lougheed as a mechanism for Albertans to invest in the Syncrude oil sands project. Besides its participation in Syncrude, the AEC also received the rights to produce gas in the Suffield Block. The company was established as a mixed enterprise and at its inception was half owned by the provincial Crown and half owned by the public. A restrictive charter, which prevented individual shareholders from acquiring more than one percent of the company and mandated directors be residents of Alberta, ensured control remained within the province. Until 1982, the company was barred from participation in conventional oil and gas exploration, but after that time was given the right to compete with private companies in that area. In 1983 the government began to decrease its equity, and in 1993 divested of its remaining shares.
The AEC grew to become a global oil and gas producer and a highly profitable company. After Canadian Pacific Limited divested of PanCanadian Petroleum in the fall of 2001, AEC president Gwyn Morgan and PanCanadian chairman David P. O'Brien began negotiations for a merger. In April 2002 the two companies merged to create EnCana Corporation, which became the world's largest independent petroleum company.
History
Formation of the company, 1973–1974 The Alberta Energy Company originated in the Syncrude project. In 1957, Cities Service Oil Company of Bartlesville, Oklahoma established a Canadian subsidiary, Cities Service Athabasca Inc., to produce heavy oil in the Athabasca oil sands. The company opened a test plant at Mildred Lake and began strip mining bitumen. In the early 1960s, Cities Athabasca partnered with Imperial Oil, Royalite Oil, and Richfield Oil and submitted a bid to the Alberta government to construct an extraction plant. However, the government rejected the bids by Cities and Shell and instead approved the Great Canadian Oil Sands proposal. After the rejection, on 4 December 1964, the Cities group joined to form Syncrude Canada Ltd., whose first president was Frank Keller Spragins (1914–1978) of Imperial.Earle Gray, The Great Canadian Oil Patch: The Petroleum Era from Birth to Peak, (JuneWarren, 2004), 349-50.
The Syncrude group later resubmitted an application to build a plant, and in 1969 the proposal was approved by the government. By this time, Richfield had become Atlantic Richfield and Royalite had merged with British-American Oil to form Gulf Oil Canada. Over the next two years the project proceeded slowly. In the 1971 Alberta general election, the Progressive Conservative Association of Alberta, led by Peter Lougheed, won a majority of seats. The victory unseated the Social Credit Party, which had been in power since 1935. Whereas Social Credit had participated in the oil industry passively by collecting royalty payments from leases, Lougheed's Conservatives intended to invest and participate actively in the industry. One of the Lougheed government's first actions was to suspend construction of the Syncrude plant and to have his government draft a new policy on oil sands development.Gray, 350.
In August 1973, the government met with representatives from Syncrude and its four partners to discuss the terms under which the government would allow the project to proceed. The first meeting, between company vice-presidents and cabinet ministers was led by Don Getty, and ended with the government group walking out. The second meeting was between Lougheed and the five company presidents: Spragins of Syncrude, Jerry McAfee of Gulf, Jack Armstrong of Imperial, Gordon Sellars of Cities, and Robert Anderson of Atlantic Richfield. Lougheed's terms for the project were:
The Alberta government would collect 50 percent of Syncrude's profits, and A new corporation, the Alberta Energy Company, would: hold the option to acquire a 20 percent stake in Syncrude after operations had begun, own 50 percent of the Alberta Oil Sands Pipeline, and own 80 percent of the power plant for the proposed facility.Gray, 351.
The new corporation, the Alberta Energy Company, would be owned 50 percent by the provincial government and 50 percent by the public. The Syncrude group agreed grudgingly to the terms, and on Tuesday, 18 September 1973, the government incorporated the Alberta Energy Company. The following day, Lougheed gave a province-wide television address to announce the plan.Kevin Peterson, "Alberta to share profits of new oil sands venture," Calgary Herald, (19 September 1973), 1. Over the following months, the government revealed the full plan for the AEC. To increase the viability of the company, the province would sell it the natural gas reserves in the Suffield Block, which hitherto had been off-limits for petroleum exploration.Peterson, 1. The Suffield sale was especially complicated, as the province owned the mineral rights, while the federal government owned the surface rights and leased the land to the British Army for use as CFB Suffield. The AEC purchased the rights for $54 million, which the private sector argued was below value. Further, the AEC had to ensure exploration and production was farmed out to private industry.Allan Tupper, "Alberta Energy Company," in Privatization, Public Policy and Public Corporations in Canada, ed. Allan Tupper and G. Bruce Doern, (The Institute for Research on Public Policy, 1989), 220.
After the announcement of the plan, Alberta New Democratic Party leader Grant Notley inveighed the proposal for what he believed was its failure to keep the profits from the oil sands in the hands of Albertans. Notley reiterated that even if the AEC acquired the full 20 percent stake in Syncrude, only 10 percent would actually belong to the Albertan public, while 80 percent of the profits would go to the four American-controlled companies that made up the rest of the consortium. At a conference at the University of Calgary held by the Committee on Socialist Studies, Notley called the project "the most gigantic sellout in the history of Canada" and told the audience that, were he premier, he would renegotiate the deal.Greg McIntyre, "Notey blasts Syncrude deal as 'sellout'," Calgary Herald (29 September 1973), 28. When the legislature reconvened on 10 October, Notley asked Lougheed, "has the government considered the feasibility of developing a totally Canadian-owned plant in the tar sands owned by the Alberta Energy Company in partnership with the Canada Development Corporation?"Alberta, Legislative Assembly, Hansard, 17th Leg, 2nd Sess, No 58 (10 October 1973) at 3140.
On 7 December 1973 in the Alberta Legislature, Don Getty, Minister for Federal and Intergovernmental Affairs, delivered a statement on the AEC. In it he said, "we are convinced that there is a demonstrated need for an energy investment company whose control will always remain in the hands of Albertans. There is also a need to develop the basis for a continuing partnership between Albertans and their government, with the government providing the initial leadership in establishing such a company."Alberta, Legislative Assembly, Hansard, 17th Leg, 2nd Sess, No 78 (7 December 1973) at 4247.
The Alberta Energy Company Act, which established the company, received royal assent on 6 June 1974.Bill 32, The Alberta Energy Company Act, 3rd Sess, 17th Leg, 1974 (assented to 6 June 1974). As the AEC was created to provide a vehicle for Albertan ownership of the oil industry, the Act included strict provisions to keep control of the company within the province. These included a stipulation that three-quarters of company's directors had to be Alberta residents,The Alberta Energy Company Act, section 3.1. and prevented any entity besides the Government of Alberta from owning more than one percent of the company's shares.The Alberta Energy Company Act, section 26.1-2.
The nine directors elected to the first board were Mathew M. Baldwin, Edward A. Galvin, M. Earl Lomas, Peter L. Macdonnell, John E. Maybin, Stanley A. Milner, Raymond J. Nelson, Gordon H. Sissons, and J. Harry Tims."AEC names first president," Oilweek, (14 October 1974), 8. All except Maybin, whose residence was Toronto, lived in Alberta. On 9 October 1974, the board appointed David Edward Mitchell (1926–2010) as the company's first president. Prior to taking the position, Mitchell was president of the Great Plains Development Company of Canada, a subsidiary of Burmah Oil.
Upon his appointment, Mitchell received a letter of understanding from Premier Lougheed that outlined the relationship between the government and the company. In the letter, Lougheed explained that the government would not play a role in the company's operations; neither civil servants nor politicians would be allowed seats on the board; government nominees to the board would be for a minority of seats; the board would retain full control over the appointment of officers; and the company was expected to generate good financial results for its shareholders. Finally, the AEC was forbidden "to engage in exploration in the conventional oil and gas industry in Alberta."Hon. E. Peter Lougheed, Premier of Alberta, to David E. Mitchell, President, Alberta Energy Company (9 October 1974).
Mitchell era, 1975–1993 At the end of 1974, Mitchell resigned the presidency of Great Plains. In January 1975, he assumed his new role with the AEC and the company began operations. The first office was established on the tenth floor of the Aquitaine Tower in Calgary.Ron Nowell, "New energy firm 'shifting gears,' " Calgary Herald, (10 April 1975), 40. The company's first annual general meeting took place in June of that year. However, as the government was still the sole shareholder, the meeting was closed.
The AEC was capitalised at $150 million in 15 million shares. The initial share offering was held off for most of the company's first year due to poor overall conditions in the marked. In November 1975, the AEC sold its first offering. The offer comprised 7.5 million shares at $10 per; the government retained its 50 per cent holding. The company gave a two-week priority period from the 7th to 14th during which time only Alberta residents were allowed to purchase, and the sales were done on the Alberta Stock Exchange. At the end of the period, purchasing rights were extended beyond the province and trading began on the Toronto Stock Exchange, Montreal Stock Exchange, and Vancouver Stock Exchange."AEC issue 'success'," Calgary Herald, (25 November 1975), 29. Initially, Members of the Legislative Assembly of Alberta were forbidden from owning stock in the company. However, on 19 November 1975, the company charter was amended to allow MLAs to acquire stock.The Alberta Energy Company Amendment Act, 1975, SA 1975(2), c 37. By 1979, 18 of 29 cabinet ministers were shareholders in the AEC.Tupper, 219.
In April 1978, the provincial government sold the AEC production rights to the Primrose Lake block. Similar to Suffield, the province owned the mineral rights while it leased the surface rights to the federal government for use as an air weapons range, part of CFB Cold Lake. The AEC paid $45 per acre for the 1.25 million acres. Private industry again complained about the sale, claiming a fair price was $150 per acre.Thomas Kennedy, "Producers are miffed about AEC land deal," Globe and Mail (28 April 1978), B1.
In August 1979, the AEC exercised its option to acquire a 20 per cent stake in Syncrude. It made this purchase for $570 million, and became the company's second largest shareholder behind Imperial, which held 25 per cent. However, two weeks after the acquisition, it sold half of its newly acquired stake to a consortium of Petrofina and Hudson's Bay Oil and Gas for $365 million, thus netting an $80 million profit.