Nova Corporation of Alberta

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Nova Corporation of Alberta

801 Seventh Avenue Southwest
Calgary, Alberta T2P 3P7
Canada
(403) 290-6000
Fax: (403) 290-6379

Public Company
Incorporated: 1954 as The Alberta Gas Trunk Line Company Ltd.
Employees: 8,500
Sales: C$4.74 billion (US$4.10 billion)
Stock Exchanges: Toronto Montreal Alberta New York London Geneva Zürich Basel

Nova Corporation of Alberta is the primary natural gas transporter in the Alberta region. In addition, it markets and manufactures petrochemicals and plastics, with divisions that handle consulting, research, and product development. It is one of the largest ethylene producers in North America; one of the largest North American producers and marketers of polyethylene; and it owns the only facility in North America that produces and markets methyl-methacrylate resins (SMMA resins), from which housewares, appliances, and faucet handles are made.

Nova’s beginnings can be traced to 1954, when it was incorporated as The Alberta Gas Trunk Line Company Ltd. (AGTL) by the premier of Alberta, Ernest Manning. Initially it was involved in gas gathering within the province of Alberta. By the mid-1960s, several Canadian gas companies were vying for the attention of the National Energy Board to secure permission to compete in the gas export market. In 1967 the United States approved a pipeline that would stretch from the north central United States to eastern Canada, with the potential of bringing billions of dollars in revenue to the gas industry in Alberta.

In an effort to assert itself in this growing marketplace, AGTL announced in 1970 its plans to build a C$1.5 billion Alaskan pipeline. This was the brainstorm of S. Robert Blair, who came on board as executive vice president of AGTL in 1970 and was appointed president and chief executive officer later that year. Blair, a Canadian nationalist, foresaw a pipeline that stretched from Prudhoe Bay, Alaska, to Alberta, covering AGTL’s existing transmission system, and then on to the rest of Canada and the United States, ultimately drawing from and including the gas fields in the mostly untapped Canadian Northwest Territories. Eventually, AGTL joined forces with other interested parties to form a study group to research the feasibility of the plan. Economic restrictions, protests by environmental groups, and logistical concerns slowed down the plan’s momentum, and by the time the pipeline’s proposed completion date drew near in 1974, AGTL had withdrawn from the consortium that had grown to 26 companies. Instead, perhaps in reaction to the rerouting of the pipeline solely through the United States, AGTL proposed to develop its own all-Canadian pipeline stemming largely from the Northwest Territories. Ultimately, this project, the Alaska Natural Gas Transportation System, received approval from the Canadian and U.S. governments. As of 1991, it had not been built, but was expected to be constructed when demand for Alaskan gas increased in the lower 48 states.

During the 1970s AGTL began to form and incorporate several subsidiary companies related to the gas and oil industry. AGTL formed Alberta Gas Chemicals Ltd.; Algas Resources Ltd., now Noval Enterprises; Algas Engineering Services Ltd., now Novacorp Engineering Services Ltd.; and Novacorp International Consulting Inc. The company also acquired a 50.001% interest in Pan-Alberta Gas Ltd., which AGTL had used previously to supply gas to companies outside of Alberta. In 1974 AGTL incorporated The Alberta Gas Ethylene Company Ltd. and Algas Mineral Enterprises Ltd., now Novalta Resources Ltd. The latter was formed to carry out gas exploration and development. Later that year, AGTL formed Foothills Pipe Lines Ltd. with Westcoast Transmission Company Ltd. to continue its work on the Arctic pipeline project. By the end of 1974, AGTL’s net income was C$17.8 million, almost triple its earnings a decade earlier.

In 1975 AGTL began to explore possibilities for producing ethylene, a derivative of natural gas used in plastics. At this time, Dow Chemical Company of Canada and Dome Petroleum Ltd. were also exploring petrochemical possibilities in Alberta, and Dow had plans to build such a plant. After resistance both from industry officials, about the need for two plants, and from the Alberta government, which had already given AGTL the go-ahead, the three companies decided to merge their plans. AGTL would build the plant near Red Deer, Alberta, supply Dow with the ethylene the plant produced, and allow Dome to build the pipeline that would transport the surplus chemicals to eastern Canada and the United States.

AGTL continued to acquire companies in 1975 and 1976, including Grove Valve and Regulator Company through its U.S. subsidiary, A.G. Industries International Inc., and WAGI International S.p.A., now Grove Italia S.p.A. In 1977 Q & M Pipe Lines Ltd., which formed a joint venture with Trans-Canada Pipe Lines Limited, was incorporated. The pipeline joint venture, Trans Quebec & Maritimes Pipeline Inc., was created to build a pipeline connecting Montreal to Nova Scotia. AGTL’s net income in 1977 had grown to nearly US$58 million, and Blair was ready for his biggest move to date—a 35% share purchase in Husky Oil Ltd.

Husky Oil was a prominant oil and gas producer and marketer in Canada. Blair had watched Husky as a possible acquisition, but when another Canadian oil company, Petro-Canada, placed its bid, AGTL was forced to act. In the meantime, Husky called on U.S.-based Occidental Petroleum to counter the Petro-Canada bid. While officials of Occidental and Petro-Canada fought over the legalities of the takeover, AGTL, in what is known as a “creeping takeover,” was buying shares in Husky openly, confounding both the Toronto Stock Exchange and the Ontario Securities Commission, which held that AGTL should have made its acquisition intentions public. AGTL had made its purchases in the New York market, however, outside of these bodies’ jurisdiction. The Husky coup was a much-discussed incident in the industry, and once again, it was speculated that nationalism provided extra incentive for Blair, who wanted to rescue Husky from Occidental. By the following year, AGTL had purchased 69% of the Husky stock.

In 1980 AGTL changed its name to Nova, an Alberta Corporation, a name that better reflected the company’s growing activities. Nova continued to assert itself in the marketplace, acquiring Western Star Trucks, Inc., a truck manufacturer, and forming a joint venture with the Alberta government for Nov-Atel Communications, a cellular telephone company. It also dissolved some joint ventures it had owned with Shell Canada Ltd. and built a polyethylene plant in Joffre, Alberta, in addition to the new plant it was planning to build with Dome Petroleum Ltd. at Empress, Alberta, for liquefied natural gas extraction. With its increased interests in petrochemicals, Nova formed Novacor Chemicals Ltd. in 1981 to manage and operate the plants.

These changes, however, could not deter such problems as a declining petrochemical industry and subsidiaries that were losing money. By 1982 a recession, coupled with severe price restrictions and higher taxes from Canada’s national energy program, threatened the profitability of Nova’s Husky Oil and Alberta Gas Chemicals. By the end of 1983, stockholders saw stock prices that had peaked at C$14.38 two years earlier plummet to C$6. The year 1984 was better for the company. Husky was able to sell off some of its assets, earning Nova a US$505 million profit, and Nova put its valve companies up for sale. Net income for that year quintupled 1983 income at C$203.4 million.

The year 1985 brought the deregulation in crude oil pricing, as well as a positive shift in taxes and other charges. Blair became chairman of Nova, in addition to his titles as president and CEO.

The company was also dealing with the scandal surrounding Husky Oil and its US$5 million lawsuit against John A. Grambling Jr. for breach of contract. Grambling had conspired with another businessman, Robert H. Libman, to illegally borrow US$100 million from several banks to buy Husky’s Denver, Colorado-based refining and marketing unit. Eventually, the complex network of loans began to unravel, and both businessmen were caught. Grambling was indicted on 32 counts of bank fraud and Libman was indicted on 2 counts of conspiracy, among other charges. The year 1985 had been a difficult one in the oil industry overall, with a fall in crude oil prices and a large decrease in net income. Blair and other Nova officers took a 15% pay cut, and the company reported its first annual loss, of C$192 million.

Blair had to do some quick restructuring to rescue the company; in 1986, after much discussion, Nova took Husky private, retaining a 43% share and transferring 43% to a Hong Kong investment group led by Li Ka-shing, for C$855 million. A Canadian bank also retained some shares. The company name changed to Nova Corporation of Alberta, and shareholders’ rights were reorganized so that class B shareholders, primarily gas companies, would no longer be allowed to elect members of Nova’s board. Class A shareholders received full voting rights through the conversion of their shares into ordinary common shares. Blair also replaced Nova’s president, Robert Pierce, with James Butler, chairman of Novacor Chemicals Ltd., Nova’s petrochemicals subsidiary, and consolidated Novacor into Nova.

In 1988 Nova took over Polysar Energy & Chemical Corporation of Toronto, a petrochemicals company, for nearly C$1.92 billion. The takeover was hostile. The drawn-out battle ended when Nova agreed to pay Polysar its asking price. Blair ultimately felt the battle was worth it because it allowed Nova to expand its role in the global marketplace and achieve prominence as one of two of the largest ethylene producers in North America. At the same time, Husky bought Polysar’s subsidiary, Canterra Energy Ltd., for C$400 million. Later that year, Husky was given permission through government financial backing to upgrade its Lloydminster plant, and Nova was guaranteed by the government a sustained supply of ethane, a necessary material for the production of ethylene, so that it could move ahead with plans to expand its petrochemicals output. The Canadian government, eager to build its Canadian resources, was very supportive of the growth of Nova Corporation. By the end of 1988, Nova reported net income of C$424 million.

The following year, import tariffs between Canada and the United States were eliminated, and the National Energy Board, which previously had placed certain controls on the export of natural gas, loosened its restrictions. In addition, Canada gained access to U.S. oil from the north slope of Alaska. Such changes encouraged an increase in natural gas trade between the two countries.

Conditions conspired to undercut Nova, however. The petrochemicals industry languished the following year, with tremendous financial repercussions on Nova. Coupled with the debt it took on to purchase Polysar, Nova’s cash flow as well as its earnings shrunk to half that of the year before, and it was forced to put subsidiaries Novalta Resources, Grove Italia, Western Star Trucks, and Trans Quebec & Maritimes Pipelines up for sale. Nova also sold NovAtel Communications Ltd. to Alberta Government Telephones. Nova was restructured internally into autonomous divisions of petrochemicals, plastics, and rubber. Stock prices languished, and rumors circulated that the company might put its remaining interest in Husky up for sale.

By 1990 the oil industry was caught in the Persian Gulf crisis, which boosted oil prices temporarily. That year Nova President James Butler resigned, his position was left vacant, and all division presidents reported directly to Blair. Nova sold Grove Italia for approximately C$114 million to an Italian bank subsidiary and its Polysar rubber operations to Bayer AG of Germany for C$1.25 billion, in order to increase its earnings. It also began a program to ensure Nova’s practices were environmentally sensitive. Nova’s net income in 1990 was C$185 million, considerably lower than projected, due to volatile prices in the petrochemicals and plastics industries and due to the continuing debt caused by the acquisition of Polysar.

Along with several other Canadian energy companies, Nova rode the wave of the oil boom in the late 1970s and 1980s and was struggling to pick up the pieces in the 1990s. In addition, both Canada and the United States continued to suffer a recession in 1991. Subject to the disappointing profits of the heavy oil and gas industry and the fluctuating prices of the petrochemical industry, in early 1991 Nova entered discussions with securities analysts to decide whether to sell off its interests in Husky Oil and whether to split its company into two separate entities, a pipeline concern and a petrochemical concern. Later that year, Nova decided to sell Husky for $325 million, after determining that a split was not feasible at the time. Blair retired September 1, 1991, and was succeeded as president and chief executive officer by J. E. (Ted) Newall, formerly chairman and chief executive officer of DuPont Canada Inc. Nova’s natural gas transportation system through Alberta continued to be its stabilizing force.

Principal Subsidiaries

Pan-Alberta Gas Ltd. (50.005%); Foothills Pipe Lines Ltd. (50%); Novacorp International Consulting Inc.; Novalta Resources Inc.; Novacor Chemicals Ltd.