Key lesson in place for Klein’s successors

The fact that Alberta has had just three premiers during my 35-year oil and gas industry career is a remarkable testimony

By Gwyn Morgan

Troy Media

The fact that Alberta has had just three premiers during my 35-year oil and gas industry career is a remarkable testimony to the stability of Alberta politics.

Unfortunately, there was little stable about the province’s revenues during much of that period. When Peter Lougheed became premier in 1971, the world price for oil was just $3.60 (all prices in U.S. dollars) per barrel.

The oil price rose slowly until the end of the decade, when it suddenly rocketed to $37 due to a combination of Middle Eastern tension and OPEC activism. Spirits were high as investors returned to the sector.

Then, as fast as that optimism had risen, it was snatched away. Oct. 28, 1980, is a date burned into my memory. That’s the day the Trudeau government introduced the National Energy Program (NEP).

Investors fled and the industry entered “four years of NEP purgatory” that ended with the signing of the Western Accord between the Mulroney and Lougheed governments on June 1, 1985.

Months later, just as Lougheed handed the reins to successor Don Getty, oil prices began a precipitous collapse.

Getty was dealt a tough hand. Natural resource revenues plummeted from $4.3 billion to $1.6 billion in the first year of his tenure, leading to large deficits, exacerbated by his government’s failed attempt to diversify the economy by establishing crown corporations to invest in the hi-tech sector.

In the case of one of these money-losing Crown corporations, I sat on a volunteer board charged with stabilizing and selling the company. Ironically, the buyer was Nortel.

By 1992, Getty’s last year in office, oil prices had moved up to $20 per barrel, but they were poised to drop continuously during the first six years of his successor’s term, reaching $12 in 1998.

That was the financial legacy Klein inherited when he moved into the premier’s office.

As a Calgarian, I had come to know Ralph during his years as the city’s immensely popular mayor. But running the province, particularly one so far in the red, was quite a different prospect.

And while the Getty government eschewed spending cuts in the hope that oil prices would come to the rescue, most Albertans had come to see that as a false hope.

Those of us running oil and gas companies knew we would just have to hunker down, cut costs and focus on survival. Would the folksy, populist Ralph Klein follow through on his campaign rhetoric and do the same?

The answer came when Calgary’s University Hospital Board, of which I was vice-chairman, was served notice that funding would drop by a massive 20 per cent. This was in line with cuts to other public-sector spending, but we never believed that health care spending would, or could, be cut that much.

It was in the implementation of that new reality that I learned much about Klein’s leadership philosophy. Rather than a bureaucratic, top-down approach to the cuts, he charged hospital boards and administrators with the responsibility of determining how best to deliver health care for less.

In Calgary’s case, we had to face the reality that two aged and inefficient hospitals were much more costly to operate than existing newer, underutilized facilities. There was a great outcry against closing the 40-year-old general hospital, but Klein held his ground and supported our decision. The day the General came down, in one of the largest implosion demolitions in Canadian history, signalled our new premier’s determination to bring his province back from the financial brink.

Klein’s approach to the province’s most important industry refl ected the same treat-all-equally approach. Formerly, each oilsands project had its own uniquely negotiated royalty terms. Provincial officials consulted with the industry and implemented generic terms, over the objections of some producers.

Klein also simplified the conventional oil-and-gas royalty regimes and tied royalty rates to productivity, thus unleashing the recovery of formerly uneconomic reserves. His government assiduously avoided special deals.

Klein’s philosophy was basically that government sets the rules and industry plays the game, which provided a vital component of stability in an industry subject to risks that include commodity prices, market access and cost escalation.

These are lessons his successors would be wise to heed.

Gwyn Morgan is a Canadian business leader and director of two global corporations.