The Last of the Free Enterprisers: The Oilmen of Calgary 9780773595606

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The Last of the Free Enterprisers: The Oilmen of Calgary / J . D. HOUSE ~

"Some day- in the millennium - there may be no need for his type. At present homage is due to it from those who think themselves superior, a nd who possibly are." E. M. Forster, Howards End.

THE CARLETON LI BRARY NO. 122

Published by Macmillan of Canada, A Canadian Company, in associa tion wi th th e Institute of Canadian Studies, Carle ton University

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A b-l~ c . .;u Copyright © J . D. Ho use 1980 All rights reserved - no part of th is book may be reprod uced in any form without permission in writing from the publisher, except by a reviewer who wishes to quote brief passages in connection with a

review written for inclusion in a magazine or newspaper.

To Marj orie a nd in Memo ry of Cha rles Hunter

Canadian Cataloguing in Publicatioll Data

House, John D., 1944 The last of th e free enterprisers (The Ca rl e to n li bra ry; no. 122)

Includes bibli ographica l references. ISBN 0-7705-1 846-x pa. I. Petro leum industry and trade - AlbertaCalgary. 2. Execut ives - Alberta - Ca lgary. I. Carl eto n Univers ity. Institu te of Canadi an Studies. II. Title. III. Seri es.

H D 9574.C23A675

338.4'76655'097 1 C79-094913-x

Prin ted in Canada for The Macmillan Com pany of Canada Limited 70 Bond Street, Toronto, Ontario M5B IX3

Contents

Tables Figures Preface I. Introduction: Calgary and Its Oilmen 2. Corporations and Entrepreneurs 3. How the Industry Works 4. Inside a Major 5. Careers: The Luxury of Choice 6. The Structuring of Job Satisfaction 7. Beliefs: The Oil Community in Crisis 8. Conclusion: The Oil Industry and Ca nadian Society Postscript 1979 Appendix I. Methodology: Studying the Oil Industry Appendix II. Supplementary Tables Appendix III. Sample Interview Schedule Appendix IV . Questionnaire No tes References

IV V

VI

I 10 31 55 77 95 109 128 163 169 189 193 196 213 223

Tables Table I: I Table 1:2 Table 1:3

Table 1:4 Table 2: I

Head Office Locations of Oil Companies Operating in Canada Net Value of Production in CommodityProducing Industries, Alberta Distribution by Place Raised (random sample of 349 Calgary entrepreneurial, managerial, and professional oilmen, 1974) Fathers' Occupations of Random Sample of Calgary Oilmen, 1974 (Per Cent) Ratings of Performances of Alberta

2 6

7 7

Energy Resources Conservatio n Board,

Provincial Government, and Federal Governmen t by Random Sam pie of Calgary Oilmen Production of Crude Oil by Company Table 3: I Rank, 1973 Exploration (Net Land Holdings) by Table 3:2 Company Rank, 1973 Employees in Canada by Company Table 3:3 Rank, 1973 Political-Party Preferences of Sample of Table 7: I Calgary Oilmen Religious Preferences of Samples of Table 7:2 Calgary Oilmen and Calgary Academics Table Ap. I: I Characteristics of Companies Employing Respondents Occupation and Organization Position of Table Ap. 1:2 Respondents Table Ap. 1:3 Personal Demographic Sample Characteristics Table Ap. II: I Sex of Survey Sample of Calgary Oilmen Table Ap. 11:2 Marital Status of Survey Sample of Calgary Oilmen Table Ap. 11:3 Country of Origin of Survey Sample of Calgary Oilmen

29 32 33 34 III III 179 180 181 189 189 189

v

Tables

Table Ap. 11 :4 Table Ap. Table Ap. Table Ap. Table Ap. Table Ap. Table Ap. Table Ap.

Number in Sample by Number of Their Company's Employees in Canada 11 :5 Organiza tional Level by EmployeeRelated Decision-Making 11 :6 Organizational Level by Organizationally Related Decision-Making 11 :7 Organizational Level by Job Codification (Formalization) 11:8 Organizational Level by Imposition of Structure (Formalization) 11 :9 Organizational Level by Powerlessness II : 10 Regression Analysis, Variables Re lated to Job Satisfaction, Sample of Calgary Oilm en II: II Regression Analysis, Variables Related to Subjective Alienation, Sample of Calgary Oilmen

190 190 190 191 191 191 192

192

Figures Figure 2: I Figure 4: I Figure 4:2 Figure 6: I Figure 6:2 Figure 7: I Figure 7:2

Metropolis-Hinterland Ties of the Canadian Oil Industry Core Structure of an Exploration and Production Company Administrative Hierarchies and Mobility Barriers Job Satisfaction of Sample of Calgary Oilmen Subjective Alienation of Sample of Calgary Oi lmen Economic Conservatism of Sample of Calgary Oilmen Exploration Activity (Geophysical)

12 60 61 96 97 11 0 123

Preface

Despite the proliferation of literature on the international oil industry in recent years, very little has been written about oilmen themselves. This book is an initial attempt to fill in that gap. Although much of the material which follows bears upon the political economy of oil and of multinational corporations, I have chosen not to analyse it in those terms in the present work because it would distract me from my main purpose. That purpose is to presen t a descriptive and interpretive ethnography of the oilmen of Calgary during a specific historical phase, the oil crisis of the mid-1970s. It is a study of oilmen as a community, and of oilmen within the larger Canadian community. As far as possible, I will allow the data to speak for themselves in presenting a sym pathetic understa nding of the oilmen's social world, a world that they perceived to be in crisis at the time of my research. Only in the final chapter, which relates some of the findings to larger questions about international and national petroleum politics and economics, do I intrude my own ideas explicitly into the analysis. In that, I can be seen to be working towards a third position, different from either the oilmen's themselves or their radical critics'. But that position, which advocates a more directly regulated form of capitalist enterprise within the Canadian oil industry, needs to be more full y developed in a subsequent work. My present concern is more strictly ethnographic. Calgary oilmen feel themselves to be misunderstood and unfairly disliked. In their view, academics and radical politicians oppose them in the name of romantic and ill-conceived forms of nationalism and socialism ; provincial and federal governments increasingly impinge upon their freedom and effectiveness for their own short-sighted political ends; and the general public falsely accuses them of massive profiteering at the public's expense.

Preface

vii

To these views, the oilm en reply with their own ve rsio n of reality. Th ey consider themselves to be hard-workin g, technically competent, and econo mically efficient in servin g Canadians th ro ugh finding a nd deve lo pin g crude petroleum and natu-

ral gas, producing it, transporting

it,

refinin g

it,

and marketin g

petroleum produ cts for th e na ti o n's industries, residences, and automobiles. Fo r them, there is no contradicti o n between public service a nd priva te pro fit-m aking. Th e latter both allows th e fo rm er and is legitimated by it. Gove rnm ent in fringe ment and public disapprova l m ust, therefo re, be d ue to misunderstanding. Indust ry is a t fa ul t only to the ex tent th at it has been guilty of poor public re lations; it has fa iled to get its messages across to the pu blic. As an attempt at an objective account of the oil industry, and sympathetic understanding of oilm en in the Calgary oil community, this ethnography is in line with the industry's professed aims. Written , however, from an o utsid er's perspec tive (a nd o ne sympatheti c to Canadia niza tio n, to improve d gove rnme nt control of energy reso urces, a nd to ma ny aspects of socialism as preferable to capita lism), it does no t make a case fo r the industry, nor is. it written in terms of the industry's own rhetoric. Indeed, onc of its aims is to analyse th at rhetoric in terms of the oil community'S organi zing myth , the myth of free enterprise. This is a myth not only in th e sense th at it distorts economic reality, both present and pas t- it appea ls to oilmen mainly as a romanticized, id ea l past- but also in th e more important sociological sense that it both symbolizes and reinforces the unity of the Calgary oil co mmunity. It serves, in Emile Durkheim 's sense, a positive fun ction for internal social SOlidarity. But, because it distorts rea lity, and beca use it has o nly negative appeal for extern al critics, the myth of free enterprise has become a barrier to th e oil community's attempts to convey its messages. The rhe toric only re inforces what everyo ne suspects of oilmen a nyhow. I believe, howeve r, th at oilmen do have something o f im porlance to say to th e rest of us, and one of my intentions is to try to convey th ose messages in different wo rds, words that o ilmen th emselves may not recogni ze nor even agree with. T he theme canno t be adequately ex pressed a t this point. In ge neral terms, it is that the ma laise that oilm en feel (or at least

VIII

THE LAST OF THE FREE ENTERPR I SERS

felt in the early part of the 1970s) is less economic than communal, their fear is as much for their social and personal identities as for their material well-being. But their economic rhetoric prevents them from articulating these more primitive

feelings. The strength of the feelings, I will submit, and the vigour with which outmoded notions abo ut free enterprise are upheld, reflect something that is healthy and valuable within the oil community. Without becoming its advocate, I want to convey, if not an unde rstanding of, at least a feeling for what that something is and its implications for the contemporary Canadian energy scene. The pursuit of this theme subsumes three interrelated aims which can be more easily a rticulated: I. To analyse the socia l structure of the Canadian oil industry at the micro level, particularl y of its exploration and production phases: of the various socioeconomic units involved; of their internal orga nization; and of their in-

terrelationships. 2. To describe the oilmen of Calgary as a commun ity (a group of people with shared interests, aspirations, career possibilities, satisfaction s, and beliefs and values) and to show how oilmen as a community are conditioned by the social structure of their industry. 3. To assess the future viability of the Canadian oil community, in particular to ask what lessons outsiders, including critics, might learn from a better acquaintance with its operations; and, conversely, to suggest how Calgary oilmen themselves might better adapt their behavio ur and their rhetoric to the real energy prospects and problems facing Canada in the last part part of this century. am grateful to the following people for their help in researching oilmen, and in preparing this manuscript: Margaret Gall, Ann Fietz, Gordon Myers, Larry Deboice, Bill Johnston, Jon Brehaut, Wayne Rowe, Sandra Doucet, and Vera Edgecombe. Roger Krohn and my wife, Jeannie, provided helpful comments on an earlier draft of the manuscript; and the latter was a source of support a nd encouragement throughout the research and writing. Imperi al Oil Limited helped immensely by providing a "no-strings-attached" research grant, and by allowing me to study their Calgary operations in some detail. In particu lar, I would like to thank the many oilmen of Cal-

Preface

ix

gary who contributed ge nero usly of their time a nd interest to this research; and the few who have read and criticized parts of the manuscript. If I have no t come to agree with the oilmen on many issues, I have come to respect them as a hard-working, weU-inten tioned breed of people with an enviab le sense of com munity loyalty a nd solidarity.

THE CARLETON LIBRARY

A series of reprin ts, ori ginal works, and new colleclions of source material

relating to Canada, issued under the editorial supervision of the rnstitute of Canadian Studies of Ca rleton University, Ottawa. Director of the Institute

S. F. Wise Executive Editor

Virgil D. Duff (Macmillan of Canada) Editorial Board

Marilyn J. Barber (History) Dennis Forcese (Sociology) David B. Knight (Geography) Steven Langdon (Economics) Maureen Molot (Political Science) J. George Neuspiel (Law) Derek G. Smith (Anthropology) Publications Editor

James H. Marsh

C H APTER ONE

Introduction: Calgary and Its Oilmen

Calgary, Al berta, is the oil capital of Canada. Historically, this has been due to chance as much as anythin g else. It happened that the first significant discoveries of oil a nd gas in western Canada were in southern Alberta early in th is century. Since Calgary was the nearest la rge town, it developed as the exploration and production headquarters d urin g the T urner Va lley phase of the industry fro m 19 14 th ro ugh the 1930s (Davis, 1969 :20 - 23). But oil exploration and production did not become big business in Canada until Imperial Oil's majo r discovery a t Leduc, Al berta, in 1947 touched off a " dyna mic decade" of major oil discoveries in which Alberta became increasingly industrialized, prosperous, and powerfu l (Hanson, 1958). Although Leduc is only sixteen miles south of Edmon ton (which has become an important service and pipeline centre fo r the in dustry), Calgary had already become the admi nistrative cen tre. New companies, bra nches, and government offi ces esta blished themselves there because it was kn own as th e oil capital. During the late 1960s and early I970s, improved com munications and methods of tra nsporta tion a llowed the oi l companies to centralize their operations and consolidate Calgary's position. The city is now firmly established as the " Houston of the North", the heart of explora tory acti vities for the oil industry in Canada. T he viability of Calgary's economy and of its oil community depend not only upon prospects a nd government regulations in Alberta, but a lso upon those in other provinces, in the federally administered a reas in Canada's northern frontier, and in the o ffshore area o f the cast coast where jurisd ictional rights are currently in dispute between federal and provincial governm ents. The oilmen of Calgary a re now the oilmen of Canada, an essentia l gro up in any consideration of the nation'S energy prospects.

2

THE LAST OF THE FREE ENTERPRISERS

The contemporary importance of Calgary is indicated in Table I: I, which shows that 428 of 644 oil companies operating in Canada in 1973 cited it as the location for their head office.' These include all the largest independent Canadian companies (such as Dome Petroleum Limited , Home Oil Company Limited, Panarctic Oils Lim ited), and the Canadian subsidiaries of large foreign companies that confine their Canadian operations to exploration and production (such as Mobil Oil Canada Limited, Chevron Standard Limited, Amoco Canada Petroleum Limited). The large, integrated oil companies (including the four largest- Imperial Oil Limited, G ulf Oil Canada Limited, Shell Canada Limited, and Texaco Canada Limited) all have their head offices in central Canada, mostly in Toron to, near the largest Canadian refin in g and marketing areas. But each of these also conducts its exploration and production operations from Calgary, under the di rection of senior and middle managers who are based locally. As Table I: I shows, a number of American oil companies operate branch plants in Canada, although the more usual pattern is for a foreign company to establish a Can adian subsidiary with its head office in Calgary.' TABLE I: I Head Office Locations of Oil Companies Operating in Ca nada Head Office

Number

Per ce nt

428 21 30 5 58

66.5 3.3 4.5 0.9 9.0

Forei n mainl U.S.)

542 102

84.2 15.8

TOTAL

644

100.0

Calgary Ed monton

Toronto Montreal

Other Canadian Total Canad ia n

SOURCE:

Nick le's Canadian Oil Register, 1972 - 73.

An obvious implication of these facts is that oil dominates the economic and social life of the city. Some 13, 125 people were employed in petroleum-related industries in 1971 (compared to 5,700 in Edmonton).' Although this is only 7.38 per cent of the labour force, it represents a well-paid, highly edu-

Calgary and Irs Oilmell

3

cated, highly visible segment of the population whose members participate as leaders in most of the ci ty's socia l, cultura l, recrea tional, and political affairs. Oil mea ns wealth , not only in

the form of high salaries (Calgary geologists and engineers are among the highest-paid professionals in Canada) but also, mo re dramatically, in th e form of the roya lti es, rents, and

profits that underpin the fortunes of many individu als and families who have struck it rich (a nd continue to strike it rich) as individual capitalists a nd entrepreneurs in the oil industry. This money stimulates local businesses of all kinds, and creates local employment (Ha nson, 1958: 286 - 89). On the exploration and production side of the petroleum industry, the way in which th e labour force is divided between city and countryside is revealing. Nearly a ll the manual workers, the direct explorers for and producers of oil and gas, li ve and work in rural areas- often quite remo te areas in northern

Alberta, British Columbia, and Saskatchewan, as well as in the Beaufort Sea, the Arctic isla nds, and the stormy waters off the shores of Nova Scotia, Newfoundland, and Labrador. These men- the technologists on geological and geophysical ex ploration crews; the roughnecks, rousta bouts, and tool pushers on drilling rigs; the workers on oi l production sites and in gas processing plants -are 110/ the oilmen of Calga ry. They are a dispersed and invisible proletariat who make no mark on the urban social scene. Calgary oilmen, by contrast, a re more prestigious types: professional wo rkers, managers, a nd entreprene urs. Professional workers- the geologists, geop hysicists, a nd engineers responsible for technical analysis and professional recommendations about where petroleum might be found and how it should be prOd uced- are in the majority. These people view themselves as profess io nals and poten tial managers rath er than workers, and with justification , as most managers are

recruited from their ranks. For blue-collar workers, upward mobility is extremely difficult to achieve. The most that they can aspire to is a positio n as tool pusher o n a ri g>! or as fie ld

supervisor of production operations. In the past, geologists, geophysicists, a nd engineers th emselves spent a substantial portion of their tim e early in their

careers "in the field " . But field trips have declin ed in importance, although they continue to play so me part in training. This decline is largely the result of the massive impact of the

4

THE LAST OF TH E FREE ENTER PR I SERS

computer revolution upon the oil industry. Geophysicists have become expert interpreters of computerized seismic data, geologists of computerized electrical well-logs, and engineers of computer simulations of producing oil and gas fields. The oilmen of Calga ry rarely encounter oil. This is equally the case for managers a nd entrepreneurs. Managers administer resources: fin ancial capital, land, physica l plant, machinery, exp loration and production rights, raw materia ls, and people. Entrepreneurs make decisions about th e uses of those reso urces. There are many entrepreneurs in the Calgary oi l comm unity. They include senior-level managers in large companies who enjoy some degree of decision-making authority in addition to thei r administrative responsibiliti es, businessmen in small oil companies or service companies, and independent consultants. Indeed, the continued viabi lity of small business opera tions that work co-operati vely with the major oil companies helps give the Ca nadian oil industry its unique character. 5 It is this character, I think, th at sets the tone for the socia l and cultural life of Calgary. It is a busin essman's city that rewa rds ha rd wo rk, a nd values material prosperity, economic growth, politica l conservatism, and community service through voluntary associations. At the same time, it mainta ins the myth of the frontier, symbolized by the annual Ca lgary Stampede. Oilmen continue to be gen uine explorers of the Ca nad ia n fron tier, albeit in contemporary a nd sophisticated ways. Like Calgary itself, they feel that this distinguishes them from those in the metropolitan ce ntres o f eastern Canada. Th is western identity, part myth and part reality, can be better ap preciated when seen in th e context of the history and the social characteristics of Calgary oilmen. BA CKG R OUND AND SOC IA L C H A RA CTERI STI CS OF CA LGA RY O I LMEN

Alberta, like the rest of western Canada, was origin ally se ttled as a gian t bread-basket for Ontario a nd Quebec, and as a market for their manufactured goods. This left the hinterland prairie economy extremely vul nerable to both natural and market fluctuations. These combined adversely to create a dire and prolonged depression in Alberta during the 1930s. World Wa r Two brought short-term relief fro m this, but the end of the war was a mixed blessing as people feared a return to pre-war

Calgary and Its Oilmen

5

dependency, vulnerability, and poverty. In view of this previous history, it is not surprising that the Leduc discovery was welcomed euphorically by Albertans. Nor is it surprising that American capital, expertise, and manpower were also welcomed as the only available means of developing the new wealth a nd opportunities as rapidly as possible. Conditions were favourable" and the combination of vigorous capitalist development under American leadership, sound management of petroleum resources under th e Alberta Energy Conservation Board, and the co-operation of the federal government in opening up protected Ontario markets for Alberta crude oil west of the Ottawa Valley succeeded in promoting the rapid growth of Alberta's oi l industry. Table I :2, which summarizes the province's net value of production over the years, illustrates this shift from an agricultural to an agriculture-and-mining. based economy. Note, however, that Alberta continues to depend heavi ly upon primary industry. The failure to progress in manufacturing towards the 1970 Canadian average of 56.4 per cent of net value of commodity production, combined with the fact that oil reserves have begun to decline, helps explain Albertans' distrust of central Canada, and their taking a hard line on maximizing their income from future oil production. Over the years since Leduc, ano ther less obvious but equally important change has occurred. This is the Ca nadianization of the Alberta oil industry- Canadianization not of ownership (the industry is still about two-thirds foreign-owned) but of the socially more important element of personnel. As Table 1:3 shows, most oilmen in Calgary today are Canadians, and most of these in turn come from either Alberta or one of its neighbouring provinces' Of the random sample of Calgary oilmen surveyed, 91.4 per cent were Canadian citizens. In addition, many of the Americans who have been in this country for a long time, though they retain their U.S. citizenship, profess a strong allegiance to Canada. This Canadianization of oil-industry personnel reflects the multinational corporations' strategy of incorporating locals into their subsidiaries in developed countries (Tugendhat, 197 1: 193 ; House, 1978); but it has a lso involved a rcal transformation of an important sector of the population, and this is our current focus. A quarter of the Calgary oilmen come from farming backgrounds, and another 30 per cent from workingclass backgrounds (see Table I :4). Albertans' allegiance to the

'"

TABLE 1:2 Net Value of Production in Commodity·Producin g Industries M~m ' 1935 Agriculture Mining

Electric Power Manufactu ri ng Construction Other Total

1940 %

$(rhousaflds)

79,394 16,096 4,572 23.769 2 1.000 2,5 14

53.9 10.9 3.1 16. 1 14 .3 1.7

147,78 1 27,85 I 5,8 10 37,747 29.000 4.524

147.345

100.0

252,7 13

$(thQlIsandsj

t960 $(Ihollsands)

Agriculture Mining

Electri c Power Manufac turing Construction Oth er

Total *Estimates SOURCE:

329,278 349, 11 5 48.587 339.377 445.55 I 24,008 1,545,9 15

1945

$(Ihousands)

2 1.4 5 11,904 690,524 22.7 3.2 69,389 22. 1 475,343 29.0 470,8 16 9,346 1.6 100.0 2,227,3 21

1955

%

$(,hOIl.WIIU!sj

%

Sfthol/sands)

%

58.5 11.0 2.3 14.9 1 1.5 1.8

212.707 41 ,713 8,227 78.548 53,000 9, 108

52.8 10.3 2.0 19.5 13. I 2.3

44.1 16.3 1.8 16.5 19.7 1.6

332,403 303,752 28.858 263,3 09 338.700 15.929

25.9 23.7 2.2 20.5 26.4

100.0

403,303

100.0

331 ,066 122,543 13.863 123 .893 147.700 11 .280 750,345

100.0 1.282,95 I

100.0

1970 ·

1969

1965 %

1950

$(thollsands)

%

%

$(thollsands)

23.0 566,702 3 1.0 1, 103,604 3. I 94,460 2 1.4 702.820 753, 132 2 1.1 0.4 10,082 100.0 3,235,800

%

$(fhollsallds)

17.5 563 ,000 34.3 1,293.000 108,000 2.9 2 1.7 693,000 23.3 796,000 11 ,000 0.3 100.0 3,464,000

1.3

'"r

197 1· %

S(lhOIlSlJl/ds)

16.3 603 .000 37.3 1.486,000 3. I 11 8.000 735,000 20.0 23 .0 824.000 11 ,000 0.3 100.0 3,777,000

..., :t

%

16.0 39.3 3. 1 19.5 21.8 0.3 100.0

>

...,

~

0

."

...,

:t

'" '"''""

."

'"...,z '"'" ~

Reprinted with permission from Industry and Resources, 1973, Alberta Bureau of Statisti cs.

'" '"'" ~

~

Calgary arId lis Oilmen

7

TABLE 1:3 Distribution by Place Raised (random sa mple of 349

Calgary entrepreneurial, managerial, and professional

oil men, 1974) PLA CE

NU MB ER

276

Canada Western Canada British Columbia Alberta

Saskatchewan Manitoba Ontario Quebec

Atlantic Provin ces

243 17 135 66 25 21 4 8

79.08 69.63 4.87 38.68 18.91 7. 16 6.02 1. 15 2.29

United States

27

7.74

Great Britain

15

4.30

Other European

20

5.70

II

3. 15 lOO.Q7

Ot her TOTAL

349

TABLE 1:4 Fathers' Oeeup'ations of Random Sample of Calgary Oilmen. 1974 (per cen t)

Professional Management-Adm inistrati on Small Business Clerical Skilled Trades Unski lled

Farm er Salesman Other

18.0 8.3 8.6 9. 1 14.3 12.0 24.0 5. 1 0.6 100.0

N

= 348

8

THE L AST OF TH E FR EE ENTE RPRI SE RS

oil industry is based partly upon economic self-interest, partly upon the genuine pride of the local people in their ability to succeed in the national a nd, increasingly, the internation al petroleum scene. The followin g career acco unt is typical of many contemporary Albertans' personal biographies.' I was born in Lethbridge, raised in Medic ine Hat and Calgary. My dad was in the life- in surance business. I guess I had my mind made up tha l I was goi ng to be a petroleum engineer when I was fifteen years old. This was the year when the Leduc discovery was bei ng made. This was soon followed by Redwate r. There was an awful lo t of excitement and talk about th e money to be mad e. It all so und ed very logical to me, an industry that it wou ld be a good idea to gel into on the ground noa r. I work ed wi th Imperi al for one summ er before I graduated and gOl to kn ow a littl e abo ut th e organiza tion and ilS people, and I looked at so me of the alternate otTe rs from

other major companies and I guess by the process o f elimination I ended up with Impe rial. I've stayed with them for twe nty years. I've spent a year in Tulsa with the old Ca rter Resea rch Labora tory there, and th en I've been on vario us assignmenlS here and there. I've just co me from four mon ths at th e Hu mb le lab in Houston.

This process of career selection whereby a number of Albertans have become oilmen appears, from the individual's perspective, to be a matter of free choice a nd equal opportunity. But other information suggests a rather different process. Calgary oilmen a re incredibly homogeneous in their social charac teristics. In the first place, as the term "oilmen" implies, they are nearly all male-99. 1 per cent of our sample' Women's li beratIOn has a long way to go in the Calgary oil community, where virtually all the professionals and managers are male, and all the secretaries a re fem ale. T his latter group constitutes the urban proleta riat of the oil in dustry, in that its members totally lack any sense of working-ciass solid arity, organization, or consciousness. Even the few women who are accep ted as geologists, geophysicists, and engineers experience difficulties. They have to play down their femininity in their work roles to prove that they a re as much "o ilmen" as anybody else, and they face innumerable difficulties in their attempts at career mobility. The gi rls in th e departme nt don't want to have a female superviso r. If you want lO ge t along, yo u can't just start orde ring people

Calgary and lIs Oilmell

9

around. I'm kind of limited here because I think the company has a policy th at you can't send a woman out in to th e fie ld . You lack a lot of basic understanding because you can't get out into the field. Basically. just being a woman is a disadvantage.

The oilmen in o ur sample were homogeneous in many other ways as well . They arc nearly all married,' support the Progressive Conservative party in federal and provincial politics, express preferences for established religions,1O and derive fro m British o r northern-European ethnic stock. " To put it negatively, the oilmen of Calgary include a lmost no wome n, no radicals, no Jews, no native Indians, no Inuit, no East Indians, no blacks, and no French Canadians. This is not because Calgary oilmen are unusua lly sexist and racist, but rather that the complex processes where by people choose and a re chose n for careers in the oil industry favour some gro ups and discrim ina te against others. Once such a homogeneous community becomes esta blished, it tends to perpetuate itself. C hange cou ld only come from a conscious effort from within or with out the o il community to crea te new, special-status opportunities for women and members of minority groups in Alberta and the rest of Canada. It seems unlikely, however, that such a n impetus will come from oilmen themselves in the foreseeable future, partly because their social homogeneity reinforces thei r community cohesion and ease of socia bility. This, in turn, strengthens the informal ties and processes through which business is conducted on a day-to-day basis within the Calgary oil industry.

CHAPTER TWO

Corporations and Entrepreneurs

No doubt because of the visibility of their local gas stations and the focus of the media, a few major oi l companies a re viewed by the public as monolithically dominating the industry in Canada. There is some truth in this, but it distorts a nd oversimplifies a more complex rea lity. The Canadian oil industry is actually organi zed as a complicated network of hundreds of companies of varyi ng sizes and types. To understand th e industry, we need to analyse the nalUre and role of each of these types; but first the industry as a who le needs to be located within the large r system of which it is a part- tha t is, contemporary international capitalism. The world capitalist system can conveniently be thought of as divided into metropolitan and hinterla nd regions (Frank, 1967). The metropoles a re both economically and politically powerful. They are the major decision-making centres, are heavily industrialized, and provide most of their citizens with a high material standard of livin g. The hinterlands are economically and politically weak and dependent, their degree o f industrialization is low, and their populations suffer from chronic underemployment and pove rty. They provide both raw materials for the metropoles and markets for the laller's manufactured goods. Furthermo re, th eir capital-intensive, natural-re-

source and man ufacturing industries a re largely owned and controlled by foreign corporations with headquarte rs in the metropoles which appropria te the hinterland's econom ic surplus, thereby reinforcing and perpetuating the inequality an d dependency of the metropol is-hinterland relationship . Canada's position within this system is not clear cut. On the one hand, its major resource and manufac turin g indu stries are

owned and controlled by foreign capita l (Safarian, 1966; Government of Ca nada, 1972), mainly by multinational corporations with head offices in the United States, which has become 10

Corporatiolls and Enfrepreneurs

11

Ihe dominanl melropolilan power during Ihis century. On Ihe olher hand, Canada is highly induslrialized and a large proporlion of ilS population enjoys a high malerial slandard of living. Canada is besl viewed, I would suggesl, as a privileged hinlerland region wilhin Ihe wo rld capilalisl syslem, as a kind of favoured adjuncI of Ihe Uniled Slales. Canada's resources have been developed as a nalural nonhern eXlension of American expansion. Canada's populalion, unlike Ihose of Third World countries, has been inlegrated inlo Ihis expansion and has ridden 10 prosperily on Ihe coal-tails of American capilalism. The cosls of this prosperily have been some erosion of sovereignly, an increasing annual drain of economic surplus, and perpelUal dependency (Levin, 1970); bUI, again unlike Third World countries, Canada has enjoyed a privileged dependency in an a lmosl benign palron-clienl relalionship. The growl h of Ihe Canadian oil induslry clearly refleclS Ihis panern. Before Ihe Leduc discovery, Ihe centres of Ihe induslry were in soulhern Onlario and Monlreal, where imporled pelroleum was refined to provide Canadian markels. The major cities, panicularly Monlreal and Toronlo, were salellile cenlres in Ihe world capilalisl syslem which, in lurn, developed Iheir

own metropolitan-hinterland domination over western Canada. The major discoveries of oil and nalural gas in Alberla during Ihe lale 1940s a nd Ihroughoul Ihe 1950s occurred wilhin Ihe conlexl of Ihese eSlablished lies belween Canada as hinterland and Ihe Uniled Slales as melropole, and belween weSlern Canada as hinlerland and cenlral Canada as melropole. Calgary, as Ihe salellile centre for Canadian pelroleum exploralion and production, has found ilself involved in Iwo differenl selS of melropolis-hinterland ties. Inlegraled Canadian subsidiaries continue 10 have Ih eir head offices in cenlral Canada, so Ihal Ihe exploralion and produclion departmenlS in Calgary reporl to and are controlled by head offices in Toronlo (Imperial, Shell, Gulf) and Monlreal (BP Canada, Pelrofina Canada, Texaco Canada). These in lurn are ultimalely controlled by Iheir parenl corporalions in New York, Pinsburgh, London, and Belgium . Canad ian subsid iaries involved only in exploration and production, on the olher hand, have Iheir head offices in Calgary, and Ihe Calgary office repons direclly 10 Ihe parcnl company in New York, Chicago, Dallas, or HOUSlon. More reccnlly, some Canadian

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T H E LAST OF TH E FREE ENTER PRI SERS

subsidiaries operating out of Calgary have reversed the historical trend by diversifying into refinin g and ma rketing, mainly in western Canada and the northwestern United States. (For example, Pacific Petroleums Limited, Tota l Petroleum [No rth America) Limited, and Union Oil Company of Ca nada Limited). These ties a re illustrated in Figure 2: I. This metropolis-hinterland perspecti ve locates the Calgary oil industry withi n a large r system; but it gives a rat her onesided, mechanica l view that fails to do justice to the energy, dynamics, and independent eme rge nt properties of its local operations. We have already seen that the industry in Calgary FIGURE 2: 1 Mctropolis - Hinterland Tics of the Canadia n Oi l Industry

PA CIFI C OCEAN To Eu ropean Cap itals ATLANTIC OCEAN

Corporatiolls and Entrepreneurs

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is statTed largely by Canadians. These personnel should not, for the most part, be viewed simply as admin istrati ve pawns of their centra l-Canadian head offices or foreign parent corporations. Rather, they are active participants in decision-making processes, both as technical experts and as manager-entrepreneurs.' Furthermore, many of them are employed not by foreign subsidia ries, but by large privately and publicly owned Canad ian independents, or a host of small local oil companies, or a myriad of local service-and-supply companies. Still others work as independent consultants. To appreciate better the dynamics of the oil industry in Calgary, we need to examine each type of unit that comprises it, and to try to grasp the principles of organi zation whereby the units are interrelated in their dayto-day operations. THE CANAD IA N MAJORS

The dominant units of the Canadian oil industry are the subsidiaries of large, multinatio nal oil com panies. The term "major" was originally used to refer to seven such companies (five American, one Dutch/ British, and one British) that once exercised a virtual monopoly of the industry outside of North America a nd the communist world. These were: Exxon Corporation (origi nally the Standard Oil of New Jersey); Mobil Corporation (originally the Standard Oil of New York); Standard Oil Company of California (trade name Chevron); Gulf Oil Corporation ; Texaco Incorporated ; the Royal Dutch/ Shell group of companies; and the British Petroleum Company Limited (Odell, 1970: 13 - 15). More recen tly, these have been joined by a number of other oil companies that have developed into large multina tio nals. These include the established American " independents" (s uch as Occidental Petroleum Corporation, Superior Oil Corpora tion, Continental Oil Company, and the Standard Oil Compa ny [India na]); and a group of European companies with varying degrees of sta te ownership (such as Societe Na tionale de Petroles d'Aquitaine [Aquitainej, the Compagnie Fran~ai se Petrole [CFPj, Petrofina [of Belgiumj, and the Italian state company, Ente Nazionale Id roca rburi [ EN I]).

In discussing the contemporary oil scene in Canada, I will use the tenn "major" to refer to all of the above types of

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THE LAST OF THE FREE ENTERPR ISERS

companies. But it is striking that the six largest oil companies in Canada are subsidiaries of six of the original "seven sisters". Of those, only Standard of California fails to have a subsidiary in the list of Canada's largest fifty companies (Canadian Business, July 1976: 38). Imperial Oil, which is 69.5 per cent owned by Exxon Corporation, is by far the largest oil company in Canada, with gross assets in 1975 of $4.1 billion and 15,321 employees, making it twice as big as its nearest rival, the third largest Canadian company by sales, and the second largest by net income.' Shell Canada (79 per cent owned by the Royal Dutch/ Shell group) and Gulf Oil Canada (63.9 per cent owned by Gulf Oil Corporation) vie for position as the second and third largest companies with 1975 sales of nearly $2 billion each. Texaco Canada (68.2 per cent owned by Texaco Incorporated) and DP Canada (65.6 per cent owned by the British Petroleum Company Limited) are also large integrated companies, ranking fourth and fifth in size in Canada. Texaco used to display both patterns of metropolis-hinterland control, as Texaco Exploration Canada Limited, a wholly owned subsidiary, operated out of its Calgary head office in exploration and production ; the two Texaco companies have recently merged their operations in the same pattern as the other majors. (Financial Post, February 25, 1978: 26). The integrated Canadian majors built up their strength largely by buying out independent Canadian companies, with the original owners maintaining some equity interest. Subsidiaries confining their operations to exploration and production tend to be wholly owned with tighter control from head office. Canada's two largest resource companies, Mobil Oil Canada Limited and Amoco Canada Petroleum Company (Financial Post 300/ Summer 1976), are wholly owned subsidiaries of Mobil Oil Corporation and Standard Oil of Indiana. Other important integrated Canadian majors include Petrofina Canada, Sun Oil, Pacific Petroleums, and Total Petroleum (NA); while Hudson's Bay Oil and Gas (53.1 per cent owned by Continental Oil Company, 21.2 per cent by the Hudson's Bay Company), Canadian Superior Oil Limited, Aquitaine Company of Canada, Union Oil Company of Canada, and Atlantic Richfield Canada Limited (recently bought by the national oil company, Petro-Canada) are Canadian majors confined mainly to exploration and production.

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THE LARGE INDEPENDENTS

The Canadian oil industry is dominated by foreign ownership. In addition to the Canadian majors, a number of American independen ts - smaller U.S. compan ies which have extended their continen tal operations north of the border-also have subsidiary offices in Calgary. Among the largest are Ashland Oil Canada Limited and Mu rphy Oi l Company, but there are numerous other companies. A few other companies are best described as bi-national. The most importan t is Canada's seventh largest oil company, the fu lly integrated Husky Oil. Its head office is in Calgary; until a share purchase by Alberta Gas Trunkline Limited in 1978, the largest shareholder was a Denver family who we re forme rly Canadian; most of its exploration and prod uction is in Canada; a nd most of its refi ning and marketing is in the United States. To qualify as "mature", a petroleum company must be fairly large, and must have sufficient production to finance a signficant proportion of its operating a nd exploration costs from internally generated funds. (This notion of corporate "maturity" will be discussed more extensively in Chap ter Four.) By these criteria, very few oil companies have been able to attain and maintain maturity while preserving majority Canadian ownership. The main reason for this is that a successful Canadian company represents a tempting plum for aggressive foreign competitors. It provides petroleum resources, local manpower and knowledge, and access to internal markets in Canada. Exxon, Shell, G ulf, Texaco, a nd numerous others initially established or consolidated their operations in Canada by buying out local independen ts. It was simply "good business". And Canadian compa nies have been willing to sell, not only to make a lot of money, but also to gain access to the financial resources, technology, and expertise th at the multina tional affili ation provides. Even the two most notable contemporary exceptions, Dome Petroleum Limited and Home Oil Company, have barely survived as independent Canadians. Dome is currently 45.2 per cent foreign owned, and may find itself under pressure if its extremely expensive exploration program in the Beaufort Sea proves unprofitable. Dome is important, however, for showing that a Canadian company can participa te and compete successfully in the big leagues of petroleum exploration. Home Oil would have sold out recently, but was pre-

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TH E LAST OF TH E FREE ENTERP RI SERS

vented by the Canadian government and was salvaged for Canada by the Consumers' Gas Company's buying 49.7 per cent of its outstanding sha res. The only other large, successful Canadian petroleum compan ies have had massive financial backing from other sources within the country unrelated to petroleum . Pan-Canadian Petroleum Limited is 87 per cen t owned by Canadian Pacific Investments Limited, whi le Panarctic Oils Limited is a consortium of Canadian independents involved in arctic exploration with the back ing and 45 per cent ownership of the federa l government. More recently, the federal government has established a national petroleum company, Petro-Canada; a nd the provinces of Alberta, British Columbia, and Saska tchewan have all set up provin cial companies. Whatever its merits and demeri ts, it is clear that "free enterprise" in the Canadian oil industry has meant foreign ownership. There are, however, numerous small Canadia n companies operating out of Calgary as well, and a few of these may be able to break in to the ranks of mature independents in the not too distant future. TH E SMALL t N DEPENDEN T S

The North American petroleum industry is unique in its happy juxtaposition of large corpora te and small entrepreneurial enterprise. This is owing largely to the la nd-tenure systems which allow interested parties to acq uire oi l a nd gas exploration rights and permits (from individuals in the U.S., from governments in Canada) with only smail outlays of initial capital. As there is more exploration to be done than even the majors can undertake, there is always room for the " little guy" who hopes to strike it rich by finding oil. Much of the colour and verve of the Calgary oil community comes from this sector of its population. Its members eschew becoming organization men in large corporate bureaucracies; indeed, to compete for manpower, the large oil companies themselves have had to institute greater flexibility and openness in their internal organizations than might otherwise have been the case. Today, the small oil companies survive as the scavengers of the industry. Unable to compete with th e majors and large independents for prim e prospects, pa rticula rly in expensive frontier exploration, they operate on the frin ges - re-evaluating

Corporations alld EllIrepreneurs

17

prospects that the majors ha ve examined and aba ndoned, drilling on the outskirts of established fields, or, most romantically, drilling wild-cat wells in un ex plored areas consid ered as poor prospects on the basis of seismic information. In 1972, independents acco unted for 82 per ce nt of western Ca nada's wild cat drilling.' Most of these efforts fail, and there is a high turnover rate of small oil compan ies. A few succeed, and either go on to become established independen ts or, more usually, sell out to larger com panies. The matter of scale is important in understanding the viability of these small compa nies. An exploration play may be so small that it promises to add little to the nation's reserves and is no t wort h the majo rs' efforts they have bigger and more ambitious projects for their massive but still lim ited resources. As oilmen put it, the majo rs are only interested in "elephant hunting", but success in findin g small ga me, " rabbit hunting", can mean personal fortunes for individu al entrepreneurs. Most of Calgary's oil millionaires, apart from a few lucky famili es who happened to enjoy freehold rights to minera l exploration in the early pa rt of this century,' have made th eir money and continue to make th eir money in this way- this is an ongoing, vi able form of contemporary entrepreneurial activity. Small oil compa nies, by contrast with large ones, are much more firmly stamped by the personalities o f their owners and leaders. The com pany is the tool of the entrepre neur, designed a nd manipu lated by him to make himself and (if he forms a public compa ny) his shareholders rich. Own ership a nd control are almost evenly divid ed betwee n the two dominant types of partner, capitalists and en trepreneurs. Cap italists provide money. Entrepreneurs mobilize reso urces and provide technical and manage rial skills. The first initiative may come from th e en trepreneur who looks for people to in ves t in his company, or from a group of peop le with money to inves t who seek out a Calga ry oilman with an established reputa tion for setting up companies and conducting exploration plays. One important source of exploratio n capital in wes tern Canada has been "d rilling fund s" from wealthy Ame ricans. The U.S. gove rnment has allowed its cit izens, eve n in othe r countries, to deduc t the full amount of money inves ted in oil a nd gas ex ploration from taxa ble in come. This has been a tremendous incentive for those in high-income-tax brackets. If oil is found , they strike it

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THE LAST OF THE FREE ENTERPRISERS

rich; if not, they can at least deduct the full amount of their investment for income-tax purposes.

Many small Canadian oil companies have been heavily dependent upon that source of financing and have been careful to nourish contacts south of the border. We have some internal mo ney. and then we have external money; we have what you would call in vestors. people in th e high-income bracket in th e States that invest in oil and then they can deduct th eir intangibles from th eir gross incomes which lowers their income. If they make a million dollars a yea r. then they have to pay taxes on say. $600,000. So if they put half a million dollars in oil exploration, they ca n deduct that half a million from their gross income, so their net income is only $500,000; an d they only have to pay taxes on say $300,000. So the government is in a sense pUlling in soc, and th ey're putting in soc. They' re 50(1: dollars. We have probably 60 or 70 per cent of our money coming from people lik e this.

Recently, as drilling incentives have improved within the U.S., and as the American government has planned to bar foreign exploration from its allowable deductions, the Canadian government has responded by making similar opportunities available for wealthy Canadians to become even wealthier, while protecting small oil companies (and thereby Canadian exploration) from crippling capital shortages. This dependency upon a limited external source of financing

distinguishes the small companies from the established majors and independents. Some one- or two-man firm s choose to remain private, at least initi ally. This gives them complete

control over their operations and, if they do happen to make a viable discovery, the profits are all theirs. Often, once they have established production , they will use their reserves as a selling point to go public, and use the capital raised by selling shares to fin ance further exploration and to develop their production. Unsuccessful private companies can tide themselves

over in lean periodS by accepting consulting contracts and making deals for others on a contract basis. Most companies do aim to grow to the extent that they will be able to finance operations and expansion largely from current cash flow. This means finding and developing sufficient petroleum reserves that they can rely upon a continual and secure income from

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their own petroleum production. Some Canadia n companies (e.g., Siebens Oil and Gas, Ranger Oil) appear to be reaching this point. Particularly if their North Sea discoveries prove profitable, they may soon be classifiable as mature Canadian independents. Another growth stra tegy, one less often practised " because of greater a ttendant risks, is to sell off productive properties once they are developed. This provides more funding for increased exploration in the short term , but leaves the company extremely vulnerable should exploration prove unsuccessful. In the pages that follow, we will have more to say about small oil campa rues, about their relations among th emselves and with their larger and more powerful competitors, and about the careers of their members and the rewards their jobs provide. First, however, we need to fill out our introductory sketch of the units th at make up the socia l organization of the Alberta oil industry. DR I LLI NG COMPAN IES

Oil companies, large and small, are the enlrepreneurs of petroleum exploration and production, in Ih at they mobilize and make decisions about the use of resources- where to conduct geological and seismic exploration, where and when to drill for oil, a nd how that oil should be produced and transported to refineries. BUI oil companies as such do surprisin gly little of the physical work that such operations require. Over the years, they have gradually come to contract out more and more work to specialist firms. The most importan t of these are the drillin g companies, and the drilling industry itself is now international in scope and dominated by its own multin atio nals. As of 1974, the Canadian Association of Drilling Con tractors listed fifty-two drilling-contractor members, and another thirtytwo service-rig members. While the large international drilling companies have recently focused their expertise and activities upon the larger-scale, more technically challenging, and more lucrative offshore drilling scene, conventional onshore drilling in Canada is now dominated by Canadian-owned companies wi th head offices in Calgary. The oilwell-drilling industry is now abo ut 90 per cent Canad ian owned ' This trend away from foreign ownership is illustrated by Brinkerhoff Drilling

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THE LA ST OF THE FREE EN T E RPRI SERS

Canada Limited. Form erly owned by the large private American firm , BrinkerhofT Drilling Incorporated, it was bought in 1972 by a Toronto-based company, Upper Canada Resources. This type or affIliation with larger industrial organizations, which provides a kind or corporate ramily shelter both rrom the short-term seasona l fluctu ations that characterize Canadian drilling and rrom longer-term market uncertainties, is common. Westburne Drilling Limited, Canada's largest drilling contractor, is a subsidiary or Westburne International Industries Limited; and Sedco Drilling is a di vision o r Bow Valley Industries Limited. Others, such as the large Peter Bawden Drilling Services Limited, and the smaller Gamell Drilling, are independent companies in their own right. A few American internatio n-

als, such as Santa Fe International Corporation, have established small subsidiaries in Canada; but, since most orrshore drilling to date has been in international waters beyond national government control, the interna tional drilling companies have not experienced the same need as the oil companies to set up Canadia n subsidi aries. The Canadian drilling industry is beset by seasonal fluctuatio ns, exposure to market uncertainties, continual connicts be-

tween management and labour a nd resultant high worker turnover rates, and structured dependency upon the oil companies. The peak months ror drilling in Canada are during the winter, rrom October through March, when th e muskeg or the northern prairie provinces and the icy waters or the Beaurort Sea and Mackenzie Delta are rrozen solid . The number or employees or a small, seven-rig drilling compa ny (the largest companies have up to thirty or more rigs) fluctuates rrom around 45 to about 130 employees during a yea r. These includ e a permanent nucleus of managers and stafT in Calgary, a nd the supervisory stafT or the company's va rious field operations. Most workersthe roughnecks (labourers) and other " derrickmen"- are laid ofT at the end or the drilling season. There is no more work ror them to do, and the company cannot arrord to keep them on its payroll. This, however, creates perennial problems or labour turnover, and the company tries to employ its best people on a yea r-round basis. One man per rig. the 1001 pusher, is on a permanent basis. But we have the supervisor submit a list o f his key people. and we try to keep anywhere from two to three people per rig em ployed for

Corporations (md Elllreprelleurs

21

twelve months - lik e during the spring break-up when the rigs are inactive they can do a lot of maintenance and repair work , pain ting. clean ing up. and anyt hing else that we can lind them , because we feel that as long as we can keep these fe ll ows around then whe n we ge t ready to start out in the Fall th eir loyalty to us will be greater and th ey wi ll stick with us.

The drilling business (as well as the service-and-supply and consulting businesses) is vuln erab le to market o r politically determined slow-downs. In the adjustment period in the early 1970s, when provincial and federal governments responded to high world prices for oil by dramatically increasing royalty and tax takes, oil compan ies retaliated by slowing dow n their exploration programs marked ly, particu la rly in Saskatchewan and British Colum bia. This meant fewer drilling contracts a nd economic hardships for many drilliog compan ies, some of which adapted by moving rigs south of the border whe re the U.S. govern ment was encouraging renewed exploration efforts. SERVI CE·AN D-SUPPLY COM PA

tE S

n,e oil companies' policy of contrac ting out most of their work has created business opportunities fo r hundreds of smaller firm s that provide a myriad of services and supplies dazzling in dheir range and diversity. These can include: core operatio ns li ke geophysical exploration and interpreta tion, rig repair and maintenance. the provision of specialized chemical fluid s for drilling (called "mud"), and the construction of gas-processing plants and oil-production facilities, as well as such peripheral but essential items as helicop ter services, catering. and "scouting" for info rmation . Some companies specialize in designing and manufacturing particu lar types of equ ipment. The fo llowing technical description conveys the kind of complexi ty involved. We specialize in drilling recorders that record th e various drilling functions: rotary speed (how fas t the bit is turning). pipe weight. pump pressure, the nuid pressure that washes the cU llings ou t of the well, and how rast their pumps are strokin g. and thin gs like this. We have one item that go t us started in busin ess, called a devia tion too l. In drilling in the plains here. th ey will try to kee p it as straight as possible to Sleer toward a target area. We just have a small 1001 that meas ures this drift.

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THE LAST OF THE FREE ENTERPR I SERS

Many of the companies that specialize in such equipment are subsidiaries of American and other foreign firms. Indeed , some are essentially local distributors of foreign manufacturers. More mundane products and services are supplied by local Canadia n companies. The success of service-and-supply companies depends upon their establishing and maintaining busi ness and personal contacts with key people in the oil companies. T heirs is very much a selling operation, as they a ttempt to establish good reputations for their products and themselves. This is particularly the case for one type of service, information exchange. Information, particularly geological and geophysical information, is a key resource in the oil industry, since it is essential for making rational decisions about new drilling prospects. Large oil companies operate their own scouting departmen ts, but smaller companies must depend upon specialist service companies which act as middleman brokers of information. They gather data both fro m official sources in governments a nd industry associations, and from personal contacts throughout the industry. As one man put it: "We spend a great deal of time maintaining contacts with people in 90 per cent of the industry." This information is then provided to clients on a fee-forservice basis, the cha rges being either for particular pieces of informa tion or, more usually, for weekly reports supplied a t a regular monthly fee . Most oil companies provide such information fairly freely to the brokers because the system works on a reciprocal basis. Our job is to collect the infonnation an d get it ou t to the industry as fast as possible. Some people do not rea lly want to release inrormation but do so because it is a co-operat ive venture. You scratch my back and I'll scratch yours.

By using a broker, the company requesting information is able to maintain its anonymity, and majors sometimes work through

brokers for this purpose; but the main reason for using a specialist seems to be convenience and economy, as the larger companies also engage in directly recip rocal information exchanges. As we shall see, establishin g and mainta ining personal contacts is even more crucia l for consultants.

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CONSULTANTS

Many small Calga ry compan ies (they number in the hundreds) refer to themselves as "consultants", Most of t~em are one- or two-man operations, but they range in size up to companies with as many as seventy or eighty members expert in various

aspects of oil and gas exploration and production. They differ from the small independents in that they do not aHempt to find oi l for themselves and, consequently, do not depend upon raising capital; a nd from most types of service companies in that what they have to sell is a specialized expertise directly rela ted to the finding and producing of petroleum. Consultan ts are of many varieties, but we ca n distinguish three mai n types. The first type, the "technica l expert", most clearly resembles consultants in other fie lds. He sells specialized kn owledge and advice in return for a fee, and may be held o n a retainer basis by a number of companies that want to maintain access to his

services as needed. Experts representing a wide va riety of areas - from corrosion engineering. to computer-simulation techniques, to petroleum-accounting systems- are to be found in

this group. The second type of consultant is the " independent professional". He is a geologist, geophysicist, or engineer who, having had training and experience in one or more large oil companies, decid es to go o ut on his own and work fo r various com-

panies on a contract basis. This provides grea ter freedom and independence and the chance to make more money if things go well. But it is risky, as contracts are hard to come by in slow

periods. The independent professional differs from the technical expert in that he o lTers routine exploration and productio n

skills, rather tha n a highly specialized expe rtise. Probably the most common type is the geologist who lives by contracting to "sit on wells" for his client companies. This involves going into the field to drilling sites to oversee the work of the drilling contractor on behalf of the client, and to collect and initially examine rock specimens as they are removed from the drill hole. Small companies like to hire such independent professionals on a contract basis, as it is cheaper than keeping them

on permanent staff. When their own geologists are busy, either because of a peak in exploration activity or because they are involved in some more technically demanding work at head

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office, large companies also hire independent professionals from time to time. Because of their vulnerability to market swings, and the difficulties many have of drumming up business on a regular basis, independent professionals o ften work on a sub-contract basis with la rge consulting firm s. This provides greater security, as the firms find them jobs, but it represents an admission of partial failure as they in turn must limit their cherished independence by agreeing to refer all their business through the firm. The third type of consultant (I will call him " the dealmaker") is the most interesting. The deal-maker is like the small independent in that his livelihood depends upon his entrepreneurial skills. The difference is that, whereas the small independent puts together deals for his own company, the deal-maker does it for other people in return for a fee , a commission, or a percentage interest in the venture. Deals include the pUlling toge ther of exploration plays, the purchasing of producing properties, and the organization of corporate acquisitions and mergers. I've been talkin g to a mining compan y that would li ke to gCI

involved in the oil and gas industry. They have large amo unts of capital behi nd them so they can take on almost any size of deal that I can put to them. By and large th ey arc still being a little bit cau tious about the industry, so they want 10 buy producing reserves or a company that has producing reserves. They arc not quite ready to go and explore on their ow n to any ex tent. Once they get some

cash flow then th ey would ce rt ainl y go and ex plore. I have an other couple or clients, well , they wou ld look at a million-dollar deal bu t th at's ge lling a litt le small for them ; they would prefer to look at a deal that would run from probably $3 or $4 million up to SI5 or $20 million. There's an other co mpany that I work for, bu t it's very small and they are look in g for marginal dea ls, perhaps up to half a million doll ars. Then th ere's an associate of mine in the States who's a sort of ta x-doll ar rai ser. So I'll pu t a deal to him - here's a piece of property th at in volves some producti on and some deve lopment dri lling. To interest him it has got to involve drilling because that's where the tax doll ars are. In his situation, il co uld be any size deal. If it was a $20 million deal. it would take a littl e longer. He would si mply get on the plane and go to New York and start hitting his contacts over th ere. and maybe in a big dea l he would have to bring a 101 of oth er people in wi th him. New York financial

Corporations and ElIlrepreneurs

25

people. So, the $20-million deal for him would have to be slightly better th an for the Canadian mining company to take ca re of all these guys in between.

These deal-makers, and consultan ts generally, are highly dependent upon main ta ining good business con tacts within the oil community. In particula r those they sustain relations with include: characters known as "deal-sniffers", who have reputations for coming up with good ideas about potential deals even though they might not organize them themselves; bankers who know of deals that might be attractive beca use some client is in financial trouble ; and lawyers who have clients in legal trouble. The deal-makers a nd small independents (often the same entrepreneurs at different stages in their careers) show clearly that, despite oilmen's fears about the future, free enterprise is currently alive and well and thriving in Calgary. In practice, a single person or firm often becomes involved in each of the three types of consulting we have considered. This is particularly so for large consulting compan ies. We're a one-stop shop. We do everythin g, well , except for geophysics. But we have our ow n drillin g-producti o n secti on, which ca n handl e anyt hing from drilling 10 produ ction operati ons. We were proj ec t manager o n a big ex plorati on play rece ntly; we ran the whole show- ord ering materi als, nego ti ating co ntracts, and that so rt of thing. We have a rese rvoir engineering group which does everything from highly sophisticated. three-dim e nsional, three-phased numeric simulation to eva luations, underwritings, merge rs, arbitrations, the whole bit within the rese rvo ir gro up . We have our ow n gas-plant-design peop le who design and supervise the co nstructio n of gas plants; we're just pUlling the finishin g touches o n a $25 millio n plant at the moment. We even have o ur own rural gasificalion group and pipeline group.

The importance for the flexibility and adaptability of the oil industry of having consultants of such variety and scope ava ilable is a theme that will be developed in Chapter Three. ASSOC IATIONS AND REGULATORY AGENCtES

[nconsistently, oilmen do not really believe in "free enterprise" in the literal meaning of the term. It is more nearly correct to state that they believe in private enterprise regulated so as to

26

T H E l AST OFT H E FREE EN T ERPRI SE R S

favour the interests of the industry itself. Regulation is necessary to avoid the social anarchy that a truly free-enterprise, free-market system would entai l (Pola nyi, 1957; Bliss, 1974)anarchy in the form of cut-throat competition, uncontro lled market fluctu ations, specula tive stock-ma rket booms and busts, and wasteful uses of resources. Oilmen also ma nage to refrain from complaining abo ut such government measures as tax exemptions and exploration incentives that "i nterfere with" the free-market system for their benefit! Except for the very early T urner Valley days, the Ca nadia n oil ind ustry has a lways been highly regulated, and this has been one of its strengt hs. The current concern of the industry is not with regu lation as such, but with wha t it conside rs to be over-regulation a nd, particularly, regulation tha t appea rs contrary to its members' economic interests. In part, the industry regulates itself thro ugh its two national associations, the Ganadian Petro leum Associa tion and the Independent Petroleum Associa tion of Canada. But most regulation is imposed by federa l and provincial govern ments a nd their public services. Broad policies a re established by the federal and provincial legisla tures, while day-to-day opera tions are gove rned by the Na tional Energy Board a nd va rious provincial boards, the most im portant bein g the Alberta Energy Conserva tion Board. T he existence of two trade associa tions reflects th e divergi ng and sometimes conflicting in terests of multi na tional a nd locally based oil companies. The Canadian Petroleum Association (CPA) was established during the Turner Valley days to rep resent the interests of all oil companies in Canada. Bu t, afte r Leduc, it came to be dom inated by the majors. The independents wanted to open up eastern-Canadian markets by havin g the Interprovincial Pipeline built to Montreal; but the majors were supplying their eastern refineries with cheap crude o il from Venezuela and the Middle East, and preferred to "bank" the more expensive Albertan crude in the gro und for fut ure use. This policy hurt the independents, as th ey needed the cash flow from Canadian production as soon as possible and wanted immediate access to the Montreal market. They formed their own organi za tion, T he Independent Petro leum Association of Canada (IPAC), to promote this a im . In the event, the federal government sided with the majors and eastern-Cana-

Corporations and Entreprelleurs

27

dian consumers who wanted cheap energy, and the pipeline was terminated at Samia in 1953. The recent oil crisis has shown this decision to be short-sighted, as foreign exporters have drastically increased the price of their crude, and eastern Canada's security of supply has been threatened by the Arab oil embargo. As of 1973, the C PA had 235 member companies, 100 of them active petroleum explorers and producers. It had a permanent staff of seventeen, most stationed at Calgary headquarters, but worked mainly through forty standing committees tha t could call on some 800 to 900 experts from the member companies. The CPA continues to be dominated by the majors, and the large annual fee effectively precludes most small independents from joining. Large independents belong to both trade associations. IPAC had 216 member companies in 1973, including 153 independent explorers and producers.

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TAB LE AP. 1:3

Personal Demographic Sample Characteristics PERCENTAGE OF

CH A RACTERISTI C

CHARA CTE RI ST IC

PERCENTAGE OF

RESPONDENTS

Age (N 23 30 46 -

12 45 43

Sex (N - )50)

99

Male Female

Single Married

2 95

Other

Yearly Income (N

)

=

£dllcation (N = 349) High school(fechnical Bache lor's degree Master's Degree/ cA PHD Other

U.S.A. U. K. Europe Other

9 24 46 21

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