Manitoba Committee Hansard — 8 December 1988 (Education Committee, Sitting 3, 34th Legislature, 1st Session)

34-1-ed3

Manitoba — Debates (Hansard)

MG-8048 First Session - Thirty-Fourth legislature of the Legislative Assembly of Manitoba STANDING COMMITTEE on ECONOMIC DEVELOPMENT 37 Elizabeth 11 Chairman Mr. H. Pankratz Constituency of La Verendrye VOL XXXVII No. 3 � 10 a.m., THURSDAY, DECEMBER 8, 1988. ISSN 0713-9969 Printed by the Office of the Queens Printer. Province of Manitoba

NAME ALCOCK, Reg ANGUS, John ASHTON, Steve BUR RELL, Parker CARR, James CARSTAIRS, Sharon CHARLES , Gwen CHEEMA, Gulzar CHO RNOPYSKI, Wi lliam CONNERV, Edward Hon. COWAN,Jay CUM MINGS, Glen, Hon. DERK.ACH, leonard, Hon. DOER, Gary DOW NEV, James Hon. DRIEDGER, .Aibert, Hon. DRIEDGER, Herold, l. DUCHARME, Gerald, Hon. EDWARDS, Paul ENNS, Harry ERNST, Jim, Hon. EVANS, Laurie EV.ANS, leonard FllM ON, Gary, Hon. FINDL AV, Glen Hon. GAUDRV, Neil GlllESHAMME R, Harold GRAY, Avis HAMMOND, Gerrie HARAPiAK, Harry HARPER, IEiijah HEL W ER, Edward R. HEMPHILL, Maureen KOZ.AK, Richard, J. LAMOUREUX , Kev in, M.

MALOWAV, Jim MANDRAKE, Ed MANNESS, Clayton, Hon. McCR.AE, James Hon. MINENKO, Mark MITCHELSON, Bonnie, Hon. NEUFELD, Harold, Hon. OlESON, Charlotte Hon. ORCHARD, Donald Hon. PANKRATZ, Helmut PATTERSON, Allan PENNER, Jack, Hon. PL OHM AN, John PRAZNIK, Darren ROCAN, Denis, Hon. ROC H, Gilles ROSE, Bob STORIE, Jerry TAYLOR, Harold URUSKI,Bii l WASYLYCIA-l EIS, Judy YEO , lva MANITOBA LEGISlATIVE ASSEIIIISlY CONSTITUENCY Osborne S:. Norbert Thom pson Swan River Fort Rouge Heights Selkirk Ki!donan Burrows Portage la Prairie Chu rchill Ste. Rose du Lac Roblin-Ru ssell Concordia A rthu r Emerson Niakwa Riei St.

James Lakeside Charieswood Fort Ga rry Brando n East Tuxedo Virden St. Boniface Minn edosa El lice Kirkfield Park The Pas Rupertsland Gimli Logan Transcona lnks ter Elmwood Assiniboia Morris Brandon West Seven Oaks River East Rossmere Gladstone Pembina La Verendrye Radisson Rhineland Dauphin Lac du Bonnet Tur!le Mountain Springfield St Vital Flin Flon Wolseley lnierlake St.

Johns Sturgeon Creek PARTY LIBERAL LIBERAL NDP PC LIBE RAL LIBERA L LIBER AL LIBE RAL LIB ERAL PC NDP PC PC NDP PC PC LIBER AL PC LIBE RAL PC PC LIBERAL NDP PC PC LIBE RAL PC LIBE RAL PC NDP NDP PC NDP LIBER AL LIBERAL NDP LIBERA L PC PC LIBE RAL PC PC PC PC PC LIBE RAL PC NDP PC PC L IBERAL LIBE RAL NDP LIBERAL NDP NDP UBERA.L

lEGISlATIVE ASSEMBlY OF MANITOBA THE STANDING COMMITTEE ON ECONOMIC DEVElOPMENT Thursday, December 8, 1988 TIME - 10 a.m. LOCATION - Winnipeg, Manitoba CHA IRM AN - Mr. Helmut Pankratz (La Verendrye) ATT EN DANCE - 11 - QUORU M- 6 Members of the Committee present: Hon. Me ssrs. Connery and Downey Me ssrs. Evans (B randon East), Evans (Fort Garry), Driedger (N iakwa), Gil lesham mer , He lwer , Kozak, Pankratz and Storie APPEARING: Staff of the Manitoba Oil and Gas Corporation: Mr. Jim Oborne - Chairman of MOGC Mr. John Sadler - Presi dent of MOGC Mr.

Ken Neuf eld - Comptroller of MOGC MATTERS UNDER DISC US SION: Conside ration of the Annua l Re port of the 1987 Manitoba Oil and Gas Corpor ation (MOGC) Mr. Chairman: I would like to call the committee on the Manitoba Oil and Gas Corporation to order at this time , and I would ask the Minister, the Honour able Jim Downey, for his opening remarks. *

(1005) Hon. James Downey (Minister responsible for The Ma nitob a Oil and Gas Corpo ration Act): Mr. Chairman, I first of ail want to introduce who I have with me here today. We have Mr. Jim Oborne, who is the chairman of the board of Manitoba Oil and Gas; we have Mr. John Sadler , who is the general manager of the Manitoba Oil and Gas; Mr. Ken Neufeld sitting back be hind them, who is the comptroll er of the company. Manitoba Oil and Gas Corporation was establi shed under The Manitoba Oil and Gas Corporation Act of 1983.

Its purpose was to carry out and to promo te exp lora tion and dev elopment of oil and natural gas in Manitoba or el sewhere with the priority of "within Manitoba." The affairs of the corporation are man aged by a board of directors. The chairman and direct ors are appointed by !he Lieu tenant-G ove rnor- in- Council . The capital under the Act of the corporation was esta bl ished as $20 miiiion divide d into 20,000 shares.

The an nual rep ort for the year ending December 31, 1987, which we are 38 considering tod ay, shows the equ ity of the province to be loan approval of $15 million with accumula ted year end lo sses of $1,244,903 and a net loss for 1987, $244,53 6.0 0. There have been no repa yments to the province or payments back on the equ ity that the province has in. Curren tly, the province has flowed $12.8 million to the Manitoba Oil and Gas Corporation. As has been publicly discussed and decla red by the current Govern ment, it has been the desir e of the province to sell the Manitoba Oil and Gas Corporation.

There has been a process that has been taking pl ace over the past few wee ks. Because of the particular situation of the proposed sale of the corporation, it would be difficult to get into a lot of detail because we are deal ing with private companies on the other side and, as wel l, we do not want to je opardize the current negotia tions tha t are taking place. However, there may be some areas that we could discuss and I would apprecia te, as we ll, if the mem bers of the committee fe lt the y had ques tions that dealt speci fically with the chairman of the board, Mr.

Oborne, we woul d like to have those advanced early as Mr. Oborne has other commitments for later on this morning. it would be apprecia ted if we could deal with those questions first. As this committee was called relatively a short period of time ago, Mr. Oborne had a pre vious commitment.

Ho wever , having said th at, I want to as well acknowledge the work of the board of directors of the Manitoba Oil and Gas Corporation, but particularly the cooperat ion that we have had f rom the man ager , the ma na gement staff and all th e empl oyees of the Manitoba Oil and Gas in the last few months with the discussions of sale, with the way in which the y have dealt with me as the Minister . They have been very open. We have, as I indicated to Mr. Sadler initially , I wanted to make sure that all staff of Manitoba Oil and Gas Corporation were dealt with fairly and openly .

I can say that from my side I have appre ciated their straightforwardne ss and their full coopera tion in the activities of Government and our end ea vours to carry out our manda te. I kno w it is a difficult time for indi viduals who have put a lot of time and effort into the corporation. However, the se decisions are made and it is a matter of carrying them out properly and dea ling with peopl e properly and that is what we have intended to do. Those are all the comments I have and I woul d apprecia te gett ing on with the report. Mr.

Chairman: Okay, then I gue ss we are open for que stions to the Minister at this point. Mr. Kozak. *

(1010) Mr. Richard Kozak (Transcona): The Minister focuses at some le ngth on the continuing record of net fin ancial

Thursday, December 8, 1988 losses of the corporation. I wonder if he, and corporate staff alo ng with him, would not ag ree with the propos ition that in considering the fin ancial state ments of an oil and gas company, cash flow is frequent ly, if not normal ly, if not always, consid ered a more accurate reflect ion of the fi nancial per formanc e of the corporation. I note, in making that comment, that in fiscal 1987 for the first time in its history the Manitoba Oil and Gas Corporation achieved a positive cash flow of $230,591.00. Mr. Downey: I think there are some cases when one has to loo k at the cash flow.

But as wel l, in this particular situation, I did make ref erence to the fact that there were some $12 mil lion of taxpayers' money tied up in shares which does not show as any expense to the taxpayers or to the corporat ion. That would add a considerable amou nt of accoun ting fig ure to the opera tions of the company if there were a cost of carrying that money added to it. The manage ment or the board chairman would be free to add, as well, his comments, Mr. Chairman . Please do so, if you care to. Mr. Jim Oborne (Chairman, MOGC): Sorry, I am not use d to these microphon es.

Certain ly, cash flow is a meas ure that oil companies are me asured by. In cash flow, the biggest component of cash fl ow, other than the real charges against that cash flow of opera ting costs and lifting costs, a major component is the depr eciation and depletion charge. That charge is a no n-cash charge but is set up to be reflec tive of the fact that, in most oil companie s, they capitalize much of their original finding cost and in the fact tha t th ey are prod ucing barrel,; out of their recov erable reserv e pool. Thos e barrels, on ce produced, in the ory are gone.

A depletion charge is to, for financial purposes, compens ate for that fact that as you produce reserves you are losing reserves. unless you are proving up additional. Ul timately , at the end of the day, if you continue to produce but do not explor e, you have used up all your reserves and, yes, you have had conside rable cash flow but you are left with no assets at the end. Mr. Kozak: I would ce rtainly like to thank the company officer who provided that observa tion. I do not dispute that observa tion. Indeed, depletion is a factor in the financ ial statements of oil and gas compan ies.

De pletion is directly subtracted from the bottom line of the corporation. 11 is a direct charge against profits of the corporation. However, in term s of traditional accounting practices within the oil and gas indus try, there is no offse tting cred it, if you will, or contribution to profits by virtue of ne w reserves added.

I would note at this point that the Manitoba Oil and Gas Corpo ration has not been unsuccess ful in adding ne w reserves to its inventory of reserves, and I would note that these reserves are not listed , and appropriately not listed, as making any contribution to the profita bility of the company . *

(1015) I wonder if the Minister or the staff accompanying him could inf orm us whether additions to reserves are more than offse tting deple tion. 39 Mr. John Sadler {President and CEO, MOGC) : l belie ve to answer that ques tion as of tod ay, I would have to ind icate to you that the y are not, as you may know, in the oil and gas busine ss. The defi nition of reserves are those that are ec onomic all y producible under current prices and tec hnical factors and with the current price of oil, which we would have to apply in the accounting sens e, to what is called the cei ling test.

We would, as of the end of this year, in all probab ility have to take a red uction in reserves because again of the lo w oil prices that we are se eing today. I could perha ps qual ify that by taking us back from toda y to, say, last January or immed iately after this repor t was produced, in that we had been certa inl y finding additional reserv es at a reasonable price. But I have to qualif y that now by say ing with current prices that �e are seei ng, it is certainly going to affect the reserves that we can count. Mr.

Kozak: I would cer tainl y agree with the Minister 's staff that it is difficult to project the performance of the corporation with complete accuracy for the fiscal year 1988. What we have before us today is information on fiscal 1987. As I look at the proved reserve summ ary contained therei n, I note that new proved reserves added a total of 753,000 barrels in 1987, while reserves produced were only 51,700 barrels.

I would suggest that the concept of proved reserves is someone who has some background in the oil and gas industry does imply that these reserves are ec onomically producible, and I would sugge st that the ec onom ically prod ucible reserves of the Manitoba Oil and Gas Corporation increased by over 700,000 barrels in 1987. This increase in the assets, shall we say, the eventually profitable assets of this corporation are not reflected in the net lo ss of the corporation and are not reflected in the cash flow of the corporation. I would go so far as to assert, Mr.

Chairman, that the net lo ss of $244,536 experienced by the corporation and the positive cash flo w of $230,591 would, if this were an industrial company whose accounting was done on the basis normally done by an ind ustrial company , the profit of the Manitoba Oil and Gas Corporation, lea ving depletion aside and giving full account to reserve additions, would be in the mil lions of dolla rs. *

(1020) I belie ve this is an extremely valuable asset of this province. I reject the Minister's sugges tion that we should focus on the net lo ss of the corporation and I urge this Government not to give away this corporation but rather to achieve fair value for it in any sale. Mr. Dow ney: I appreci ate the com ments of th e Honourable Mem ber, and I can assure him that all considera tions are bei ng taken into account in the proposal to div es t of the Man it oba Oil and Gas Corporation.

I can assure him very fully that there have been qualified people involved in the overviews of what valuation we have, of the current situation be ing taken into account, and I want to assure him that I am fully prepared to inform him that it will not in any way

Thursday, December 8, 1988 influence the current negotia tions of the activities that have been carried out in the sale of it. I do not think he wants to get overly excited about the situation. I kno w that there are current points that he has made have to be taken into account but again we are looking at-h aving seen the books that have been prepared by the former admin istration under their direc tion as it is being rep orted, it does in fact show a loss. I think as wel l one has to be prepared to deal with any pote ntial writedown that the company is facing this particular year.

I kno w there are some substantial num bers of mill ions of dolla rs that come within that categ ory, not including the carryi ng charge that I have ind icated that it takes to carry $12.8 million that is currently invested in Ma nitoba Oil and Gas that is no t having any financial pay ment made to it on behalf of the taxpayers. Mr.

Kozak: I would concur with the Minister that a most legiti mate ques tion before this committee is whether in fact this Government or any Government would li ke to have public funds tied up in a vent ure that is probably self- sustaining or that in other hands woul d be self- sustaining and very attractive.

I am, howe ver, very anxious to get on the record that in my view as someone who operated for some years as a sen ior corporate plan ner for three of Canad a's major oil comp anies, I per sonally vie w the fina ncial pe rfo rmance of this cor porat ion as a sign ificant turnaround, and I would say that its profitabil ity is the eq uivalent, given the dif ference in accou nting pro cedu res fo llo wed in dif ferent indus tries, of an ind ustrial company's profit in the range of pe rhaps $2 mill ion to $3 mill ion. I state that es timate off the top of my head.

Precis e analysis would pe rhaps produce some more precise es timate on my part, but I would reiterate this is an ext remely val uable asset of the province. I pe rsonally belie ve that although prese nt oil prices are de press ed, the vola tili ty of the oil market is such that they will not always be de pressed , and I would suggest that the province can recoup every pe nny of its invest men t in the Manitoba Oil and Gas Corporation if it decides to proceed with dives titure and possibly make a significant profit that the taxpayers would undou bted ly thank the Government for. Mr.

Downey: We ll, I appre ciate having the expert ise at the table and I am sure that the Mem ber, in looking at the next year 's review of the Manitoba Oil and Gas or the next activitie s that are to take place, he will still apply the same principles and the same endor sement of which he is so willing to give at this particular juncture, that he carries through when he sees the 1988 and the proces s. I would hope that he do es not change when he may see some thing a little dif ferent on the horizon. He has firml y planted himself in that position. I, Mr.

Chairman, am not able toda y to deviate from the bookke epi ng practice that was es tabli shed by the former adminis tration and the report that is before us that in the accountin g practice and the accounting process that was ca�ried out truly dem onstrates a loss of $244,000.00. That is the report that is before us. There is not another accounting method bei ng appl ied 40 here. There is a system that is appl ied that we are being asked and we are asking this committee to approve. This committee is not sitting to change the accounting practice.

You may want to acquire their accounting practices but we have to deal with what is. *

(1025) I am sure again, having the exp erience that he has, he apprec iates that as wel l. He may want to say that it is, and I think the Member would apprec iate, a relatively highl y spec ulative system that we are in in the oil business. We were told, and he should be we ll aware of this if he wanted to read Hansard , that it was basically es tablis hed so that the Man itoba taxpayers would have a windo w into the oil company , into the oil business in Manitoba.

I am sure the Mem ber as well knows that the Government has a windo w in the oil company through the royal ties process, through the fact that every oil company has to file publicly what the y find in each hole after a pe riod of a year, that it is all public information. Mines and Energy are very much involved in the activities of the oil company. The y can read financial statements of other oil companie s that are involved . The y did have a pretty good windo w. But to put the taxpayers' money at risk, to lo se money at whatever accounting, may wel l not have been the best of decisions.

We ne ver did belie ve that we should have been in it for the sheer purpose of a windo w. We bel ie ve that the private sect or was doing a relatively good job in dev eloping the oil busine ss in Ma nitoba. I know that the current mana gement went above and beyo nd the call of duty to try and make the company successfu l. We have substantial propert ies that are tied up. Mr.

Chairman, again it is a matter of trying to look after the taxpaye rs' money in the best of interest I am sure there are many pe ople who have contin ually asked for support in hospitals, in othe r social needs and other areas who would ha ve maybe felt better if the mone y had have been spent there rather than invested in a Manitoba Oil and Gas Comp any. Mr. Kozak: I certai nly do hope that the Minister has not been left with the impressi on from my remarks that the Offi cial Oppos ition rejects di vest iture of the Manitoba Oil and Gas Corporation.

Wha t is in dispute tod ay, what is under discussion tod ay, is the ext remely important principle that the Gover nment of Manitoba and the people of Manitoba achie ve fair value, possibly even a significant profit on the invest ment that has been tied up in the corporation over the la st pe riod of time. I would also like to concur with the Minister that we do ex amine the financial statem ents of any corpora tion, no t just the Man itoba Oil and Gas Corporation, on a year-by-year basis.

I recog nize that it is possible, given wild fluctuations in the price of crude oil and natural gas, that the financial re sults for 1988 may not match the financial resu lts for 1987. We are certai nl y prepared to look at the financial resu lts for 1988 when the y are prese nted to us. I would also like to concur with the Minister that the accounting practices emplo yed by the Manitoba Oil and Gas Corporat ion are appropriate. lt is appropriate that the corporation show a net lo ss of $244,536 and

Thursday, December 8, 1988 a positive cash flow of $230,591. 00. However, I would like to reiterate that the accounti ng practices em ployed within the oil and gas ind ustry and availa ble to it do differ from those no rmally used in other industries. if this were an indu strial corpor ation , I have ev ery confid ence in saying that the net effect of depl eti on charges and additions to reserves would resu ll in a profit in the mill ions of doll ars.

I say that the accounting practices presently empl oyed are suitabl e and in the inter est of the corporation, bec ause these accounting practices which are widely favoured in the oil and gas ind ustry and would be a matter of great concern to the oil and gas indu stry if they were abandoned, permit oil and gas compani es, as a rule, not just this oil and gas company, to report either a ne t loss or very lo w profits.

I would sugges t that this situation is very much in the interests of any oil and gas comp any be caus e it minim izes th e company's tax liabilit y, and I congratulate the Manitoba Oil and Gas Company 's managers for using accounting procedu res that extremely effect ively limi t the tax liabili ty of the corporation. I, nonethele ss, do sugges t that the real profitabil ity, the un derlying pro fita bi li ty, of this corporat ion is substantial. I would suggest that in any sale of the corporation the taxpayers can hope to recoup their inves tment to a very large degr ee, if not make a sign ificant profit. Mr.

Jerry Storie (Fiin Flon): I appreciate the comme nts of my colleague from Transcona. I think there are two interes ting things that the Mem ber has said that we need to follo w up on, and one of them is of course a review of the current situation. We have to und ers tand what the current situation is, but we have to als o unders tand more rea listically what the prospects are.

I know that the Minister has been critical of the existence of Manitoba Oil and Gas since its incept ion and I belie ve, for ideological reas ons , becaus e po liti cally it was opposed by he and his col leagues at the time and, in my opinion, there has never been a sincere look at the be nefits of having a windo w, having a corporation that emp lo ys pe ople, having a corporation that has proved to be a succes sful and an active partner in the oil and gas industry in southwes tern Man itoba. *

(1030) The annual report that we are look ing at indicates that some 20 pe rcent of the activity in that part of the province is a direct resu lt of the activity of Manitoba Oil and Gas and I know and have heard and have talk ed to pe ople in the indu stry in Manitoba who had acknowledged that MOGC is an ext remely good partner. The y have capable, knowledgeable staff and have added to the growth and development of the indus try in Manitoba. That goes without sayi ng. We have seen in the report before us, as far as I am concerned, significant improvement in the position of the corporation.

As my friend from Transcona indicated, the fact is that becaus e of the improving reserve situation of the corporation, it stands to be a profitable operat i0n in its own accounting terms in the future. I think the Minister raises the point that some $12. 8 41 mill ion has been flowed to support the corporation at this poin t and the annual repo rt, the 1987 Annual Report, indicates the sharehol ders equity at $13.7 million.

The fact is that we have a significant investment, a positive inves tmen t in this corporaticn to this point and if this Government is det ermin ed, as it appears as a re sult of a Bill that was tabl ed in the Le gislature on Dec em ber 7, if it is their inten tion to dismant le this corporation, to se ll it, then the minimum that the people of Manitoba have a right to expect is a significant profit on that sale .

My ques tion to the chairperso n, in which you see at this point is, what is the prospect of reco uping our inves tment at this po int, gett ing a ret urn on our inves tment as a resu lt of this sale, to the chairperson? l\ll r. Downey: Mr. Chairman, I will let the chairperson respo nd in a minute. I just want to make absolutely sure that the committee is fully aware that in the exerc ise-a nd the chairman can respo nd to this as we ll-i t was an absolut ely and totally major ef fort put into maximum expo sure of Manitoba Oil and Gas to the industry in the potential sale of it.

That was an ef fort that was put forward to make sure - and I guess this would go back for comments from the Mem ber for Transcona (Mr. Kozak) as we ll if he were, as I belie ve his comments have come in the past, that the bes t way to get a re turn is to expose it to the marketpl ace, to the best available market that is available. I would refer to the chairman to respo nd to that ques tion. lt is a matter of makin g sure exposu re, and I have asked the chairman to comment on the Mem ber's ques tion. Mr. Oborne: An answer to the direct ques tion is ne gligible. Mr.

Storie: I am sorry, if you could just elabora te on that. Mr. Oborne: I am sorry, I think your direct question was, what are the chances of recov ering or exceed ing the province's invest men t, and the answer is ne gligi ble. Mr . Sto rie: Then a mo re di rect que st ion to the chairperson of MOGC, in the chairpe rson' s opinion, what is the likeliho od of MOGC bec oming a profitable corporation, assuming only modest increases in oil prices over the next few years and assuming significant increases perhaps going back to $25 a barrel? Mr.

Oborne: If you make the assumption that the price goes back to $25 a barrel , but you inflate that for the pe riod of time it takes to get ther e, if $25 a barrel is an objective in the se cond half of the Nineti es, which is about the range that consultants are looking at the se days, in 1980 dol la rs, that is pretty close to the current price. In other words, infl ation, your costs are increasing during that pe riod as we ll, so that a $25 price in 1996- 97 pretty we ll eq uates to roughly a $15 price tod ay. Mr. Storie: I am inte rested to get an opini on from the chairperson.

Is the chairperson saying that Manitoba Oil and Gas Corporat ion is not likely to be profitable in the future, despite a price increase which would amount to 70 perc ent?

Thursday, December 8, 1988 Mr. Oborne: This que stion of profita bility which again is do you look at cash fl ow, do you look at net profit which is normall y what you would pay dividends out of. I would have to say that unle ss the price of oil is very quickly into the lo w-to-m id 20's, then profitabili ty is unli kely . Mr. Storie: Wel l Mr.

Chairper son, I would be inte rested to kno w whether that vie w is shared by, for exam ple , the ge neral manager or whe the r the chairperson could ind icate on what basis he make s that assumption, given that we have a positive cash flo w in 1987 at oil prices which were-g ive me a figure. What were the oil prices in 1987, the ave rage per barrel? Mr. Sadler: You have the first page of the financia l re vie w ind icate that in '87 our price s re alized were $22.75 pe r barrel, Canadian.

So we did see quite an imp rovement during '87, and of course since the be ginning of this year the y have stead ily deter iorated to the point whe re now we are down to in the vicinity of $14 Canad ian, $14.50. Mr. Storie: Mr. Chairper son, what is likely to be the change in barrels produced over the ne xt year from the reported 212 per day in '87? Mr. Sadl er: We, prior to the change in Gove rnment, had drill ed a few wel ls ea rly this year, -(Interject ion) - *

(1040) An Honourab le Member: Do not be embar rassed about it. Mr. Sadler: No, I am not. I can tell you that we achie ved for one month wel l over 300 barrels a day. I think it was in the order of 320 barrels a day. But as you know, in this busine ss you have to ke ep drill ing and you do have, certai nly on wel ls he re in Manitoba, some high initial decl ine during the early years and the n it te nds to flatten out.

So, we did reach a high of over 300 barrels a day, and we are now down to in the vicinity of 225 barrels a day, so we have had some very rapid initial de cline on those successful wel ls that we had. But just to perhaps add a little le vity, in addition to the good wel ls that we had prior to March of this year, the share holde r while not wan ting us to spend very much mon ey, we got pushe d by one of our opera ting partne rs to participate in a couple wel ls which was agreed to, and the y turne d out to be very good wel ls too, so we have had go od for tune unde r both Gover nme nts. Mr.

Storie: Wel l, the obvious que stion the n is, at what point would MOGC be profitab le? Given its current prod uction of 212, at what point woul d it be profitable ? At 22.75, the 1987 price, how many barrels per day would it take to beco me a profitable corporation? Would it take the 320 that you at one time produced in 1988? Mr. Sadl er: If I could refer to my me ssage of the '87 report, the la st paragraph unde r the first column, at 42 that point in time , as you may re call a year ago, we were encourage d by the prices.

The y were, I thin k, a year ago in the vicinity of $21 toward the end of the year, and I made this statement that the corporation is confide nt that we could continue to find, de velop, and produce oil ec onomically at $20 per barrel . In othe r words, I feel that is the thresh old for a company of this nature in Manitoba to achie ve, if you li ke, a break -even position at what we saw was the vol ume s that we thought we could ge t to. Again, I want to reite rate that the re is a big difference between $20 or $21 a barrel and what we are presen tly ge tting, $14 to $15. Mr. John Angus (St. Norbert): Mr.

Chairperso n, I would just like the Minister or the members of the manageme nt team to indicate whether or not the y have any pl ans for broaden ing the windo w on the marke tpla ce by any acquisitions into re tail sale s or any other acquisitions to perhaps put the company in a better position, both to make it more viable an opera tion and/ or perhaps to make it even more attractive to a future invest or. Mr. Downey: No, Mr. Chairman.

As I indicated ea rlie r, the direct ion tha t has been given to the board has been to work towards the divest iture of the Manitoba Oil and Gas Company , not to take on further acquisitions. Mr. Angus: Okay, thank you. Mr.

Kozak: Without criticizing the genuine attem pts of the Minister and staff of the Manitoba Oil and Gas Corporation to hone stly and le gitimately fore cast the future pe rformance of the corporation based on the perf ormance of oil and natural gas prices, I would like the chairman of the corporation to express his comme nt on my vie w, as someone who has been fam il iar with this ind ustry over a period of 20 years, that absolut ely none of the fore casts of oil and gas prices I have seen in the la st 20 years has come to fruition, that most of them have been absolutely laughable within a year to two years of their issue , and that any attempt-and it is his resp onsi bility to make an attem pt-to forecast oil and gas prices over the ne xt short term or long term at this point in time is subject to similar inaccuracy to that that we have seen over the last 20 yea rs.

Mr. Oborne: I agree 100 percent. I agree the fore cast for energy pricing in the last 15 years of-1 do not think anybody has been right and I suspe ct that will probably continue in the future but, at any given time, you have to make a busine ss de cision on some form of fo recast with a vie w to pote ntial upside and pote ntial downside , exam ine those, we igh it, put probabilit ies on those ext reme cases, and try and chart a course that make s sense to you. I can offer my per sonal vie w on energy pricing but that is all it woul d be, would be pers onal.

There are vie ws as ext reme as sayi ng down to $5, some where between $5 and $10 a barrel and sitting there for some period of time . There are othe r vie ws that we may be back into the 20s. My own vie w would be the re is a conside rable risk of the 10 to 15 envir on ment for one to five years and maybe a $15 to $20 en vironme nt for three to eight years, but it is very difficult to make a case the se days.

Thursday, December 8, 1988 A lo t of changes have taken place in the last five years and that re la tes to the operating costs that oil companies have gone through. They have done a tremen dous job in lowering their operating costs. Energy consumption in North America for the. first time in five years increased, I think, in 1988 in real terms.

These are some positives, but the best case that I have been able to determine is that the stranglehold that OPEC had on the world in the early Sevent ies is unl ikely to ri!peat itsel f in the near future. lt may repeat itse lf in the next century but not in the near future. Given that we may see an increase in price greater than the rate of inflation at some point in the ne xt five years but we may well be faced with that energy pricing is not going to increase faster than infla tion for the foresee able future. Nr. Downer.

I would just like to make a comment because I think it is important to just touch on it as well, and the forecasting is somet hing that the Member is quite accurate in his indication that there are so many world events, so many other things that impact on the price of oil and the price of commodit ies that we deal with in this country.

I, as the Minister, and I believe I have to put it very clearly on the record, do not feel that it is a priority to use the taxpayers' money to be in that kind of speculative arena and so would hope that, in our en deavours to divest of the Manito ba Oil and Gas Corporation, having exposed it to the greatest people in the business, having done everything proper to divest of it that, when that decision is made, we can count on good, positive discussions on it. Criticism certa inly , if no t ha ndled prop erly , but everything has gone into it to try to make the best decision.

Let me say, as well, that I think it is important to note that if individuals, if Manitoba citizens, want to invest in the oil and gas busine ss in this province that they are quite free to go to the marketplace and buy shares In any oil company of their choice. So I think that is a philosophical thing that we want to make sure is cle ar. •

(1050) I have to say, with the greatest respect to my colleagues from the New Democratic Party, it was in my estimation a belief of theirs, and the y can correct me if I am wrong, that they should ha ve visibility in the oil fiel d. There was action taking place. There was quite a bit of activity and they felt they wan ted to be part of that action as a philosophical be nt. Well, I am not hung up, Mr. Chairman. I can te ll you that for the num ber of oil well s that Manitoba Oil and Gas have, lo ts of private companies do it with one or two operators sitting out at Virden, Manitoba.

We have a major floor of a major building in Winnipeg rented with a fuU ad mi n istrative st aff at the top end geologists. That is fine . I am not saying that maybe it was not necessary if you were going to be operating a lot larger company but we reall y and truly, as far as the efficie ncy of the op erat ion , we are some what overvisible as far as what we were do ing. I can tel l you that if the number of well s-and I know by comparison, 43 the Memb er for Flin Flo n (Mr.

Storie) visited Virden, talk ed to many smaller producers who were probably producing a lot more oil than we were with more wells, with a lo t less staff and overhead. lt is possible to do, and I say with the greatest of respect, it appeared to me that they wanted higher visibility in the oil business with their Government. That is fine. They had the mandate to do that. The Government changed and now the mandate is to carry out the activities that we are carrying out. Mr.

Kozak: I would reiterate that my role here today is not to cast any doubt on the position of the Official Opposition rega rding the dive stiture of the Manitoba Oil and Gas Corporation. lt is not my objective to confuse anyone with regard to our position. My objective here today is to state that while the oil and gas industry is cer tainl y out of favour among investors this mon th, there is absolut ely no certainty based on historical precedence that this situation wil l be the case next mon th.

I refer once again to an uninterrupted 20-year period of absurdity in the forecasts that I have seen regarding oil and gas price performance. I feel we can have no assurance, regardless of our best intenti ons and best efforts, that any forecast any one of us produces will obtain next month, rather than being an object of humour. I am, therefore, limi ting my role today to examining the hard data that we do have before us. That hard data is limited to the 1987 Annual Report of the corporation.

In concludin g my remarks, I would like to reiterate my statem ent that the positive cash flow of the corporation is encourag ing. The add itions to reserves of the corporation more than offset depletion charged to the corporation's profits-1987 was not a bad year for this company. If this were an ind ustrial company, operat ing under different accounting rules from the oil and gas industry, we would be lo oking at a profit of at le ast $2 milli on. Mr.

Downey: I stil l am not qui te clear ho w the Honourable Me mber would treat the $12. 8 mil lio n the sharehold ers have invested, of which they are not getting any return of any kind on it . Mr. Kozak: I would li ke to thank the Minister for his que sti on. I will cert ainly res pon d to it by simp ly reasserting that the Official Opposition does not dispute that the $12.8 milli on invested by the taxpayer in this corporation could in all like li hood be employed more productively else where.

The on ly point where it is possible I will take issue with the Minister and his staff is the point where we look at a pote ntial sale price for the corporation. I feel this is a company that is profitable and extremely attractive under the accounting practices of its ind ustry. I feel that it sh ows a lo ss, as do other oil companies, la rgely for tax purposes. I feel that is prudent on the part of this company and other oil and gas compan ies. My one concern is that we get fair value and recoup as much of the $12. 8 million as possible, if not make a profit. Mr.

Storie: I am fol lo wing up again on my friend from Transcon a's comments. My question is to the Minister.

Thursday, December 8, 1988 Given his phil osophical orie ntation, do es this me an that we are going to sel l this corporation at any cost? Can the Minister give us some ind ication of what value he anticipates to receive from a sale , a divest iture? Are we tal k ing about recove ring 25 pe rcent of our invest ment, 50 percent of our invest ment, 75 percent of our invest ment or 110 percent of our invest ment?

I think if the Minister has been listen ing to com ments of the committee, the re is an ex pe ctation and a be lie f that a re turn of some thing more than 100 percent of our invest ment is achie vable , is possible . I think the Minister knows, as well as anyone , that the project ions in terms of oil prices can be wildl y errat ic.

Is the Ministe r prepared to sel l this corporation at a time when the ind ustr y cer tainly doe s not look at any kind of acquisition favourably unle ss the re is virtually no risk, which me ans that he is going to have to give this company away, as the Tory Gover nme nts ha ve done in the past? Is that his inten tion? Mr. Downey: I could hardly wait until that statement came out of the forme r Minister who is re spon sible for not onl y giving away a bus company that the taxpayers put $100-and -some million in but paid them in excess of $1 mill ion to do so. Let him sit here and be so pious, Mr.

Chairman, as to be so righteous in se lling of companie s. His re cord, I think, is de spicable. Let me tel l you, the sale of the Manitoba Oil and Gas Comp any is being carrie d out in a very re sponsible manne r. The maximum ex posure to the publ ic, to the marke tplace, to those pe ople who are interested in the busine ss, has been carrie d out. There has been an op en public advertisement, offers, bids and tha t exercise is coming to a final conclusion. Let me assure the Membe r, we would more than like to ge t back what they put into it, they being the New Dem ocratic Party.

We would have been better off if the y had not venture d in that area to start with. We did gain nothing but los ses under his administration in Crown corporations, proven daily in all the books that are presented . You can go to the MTX, you can go to Flyer Bus, you can go to any one of them, and his exper ience and our ex perience as taxpayers with thei r inept handling of them . Mr.

Chairma n, let me assure you, this Gove rnme nt is doing every thing, and will do everyt hing to maximize the re turns for the taxpayers of the Province of Manitoba on an ill -ad vise d ven ture that they wen t into some several years ago. I do not know whe the r I can be more- I cannot be polite and continue to say any more to the Me mbe r in my re spon se. You know I think it is important that every thing is being done to maxim ize the return to the taxpayers of Manitoba in the divest iture of the Manitoba Oil and Gas Corporation. We are committed to do that, and will do that. Mr.

Storie: Given that the Minister's interpreta tion of the fiscal re sults of this year and prev ious years, given his, I gather, rather ble ak proje ctions for the poten tial in the future, doe s that mean that Manitobans can expect this Gover nment to give away a corporation that has, as of 1987, assets of $15 mil lio n approximately, a shareho lde r who holds some $13 million eq uity, is the Minis ter go ing to re coup tha t value , what per centage? Is there no bottom line for this Minister in terms of protect ing the invest ment that we have? 44 *

(1100) Mr. Downey: Yes, Mr. Chairman. What I would like to say is that to make sure the Mem ber is cle ar. Whe the r we sel l it or whether we do not, the re will be a major write -do wn in the value of the Manitoba Oil and Gas Company this year. The re will be a major write-do wn eval uation because of the current de pletion of the wel ls that are held by Manitoba Oil and Gas. We are facing that re gardle ss. I will assure him that we will do every thing in our power to divest of this company in a far better and a mo re profitable way the n any divest itures that he took

part in as the forme r admin istration. Mr. Storie: Mr. Chairperso n, if the Minister wants to relive history, the n we just need to re mind the Minister who got the province involved in Flyer in 1966 or in Manfor in 1967-1968. The fact is the record of this Gove rnme nt and this Minister and his involvement is not perfect . The difference between Flyer and the Manitoba Oil and Gas Corporation are significant, including the ind ications toda y that unde r ano ther accounting policy prev alent in the ind ustry that this would be a profitable corporation as of tod ay.

Howe ver, I did not ge t a satisfactory answer from the Minister in terms of what expect ations the re are for a sale. Are we going to ge t close to our invest ment, or a re turn on our invest ment? The Minister says now we see the new policy of the Tory Gove rnme nt is to write down all corporations like Manfor to a dol lar and the n say we are gettin g our value for it. lt is written down to a doll ar, so we got a do lla r back. The fact of the matter is that this corporation is toda y val ue d at some $13. 7 million. That is our eq uity in it. The assets are value d at $14.6 million.

What is this Minister lead ing to? Are we going to start playing game s as we did with Manfor and have this re-eva luated? What is the expectat ion of the Minister in terms of its re-ev aluation? What is going to be the revalued position of MOGC? Can the Minister ind icate to the committe e what the ne xt report will val ue this corporation at or how the ne xt report will value this corporation? Mr. Downey: Mr. Chairman, all I am making reference to, what would be normal accounting proced ures, as far as talking about the write -d own of concern as far as the opera tions of the Mani toba Oil and Gas Corporation.

I have had indicated to me the re will be a major write-down of the value of the corporation. (lnte rject ion) - An Honourable Member: To $1.00.? Mr. Downey: No, Mr. Chairman. Let me tel l the Member that everyt hing is bei ng carrie d out, as I indicated previou sly, to try to maximize the re turn of the sale of the Manitoba Oil and Gas Corporation to the maximum of what we can get for it. That is what our objective is, that is what it has been and, as I said, I will let our record stand against his record any time and le t the pe ople of Manitoba judge.

If it had not have been for he and his Govern me nt's de sire to philo soph ically get

Thursday, December 8, 1988 involved in the Man itoba Oil and Gas Company , then we would not have been here today discussing this very issue and talking about money aga in that we lost in a Crown corporatio n that he and his administration were so bound and bent to get into. Mr. Storie: Well , the accumulated losses of this company are $1.24 million.

That is the accumulated loss, unless of course we have a Government whos e intention is as they did in the case of the divestit ure effort of Manfor to devalue the corporation to $1 for their own purposes to attempt to embarras s and disparage the efforts of other Governments which was a futile effort, an effort which has not gained this Government one shred of additional political credit and is in fact inevitably going to cost the taxpayers money because of the weakened bargaining position. Is the Minister about to embark on the same kind of process with Manitoba Oil and Gas? Mr.

Downey: Let me just put some numbers on the record for the Honourable Member . The actual loss to date for the corporation, Manitoba Oil and Gas, is $1,244,903. When you add to the end of November 30 , 1988 and you add the interest that we are paying on the $12.8 million , it comes to a loss of $4.6 million to the taxpayers and the people of Manitoba. That is what we have got in it as far as our tax money losses accumulated and the carrying charges of $12.8 million , $4.6 million. Now could the Member not find some other area that he would sooner spe nd that money in than carrying an oil and gas company?

Is that his priority? I am saying that it is not our priority and that we feel that the private sector have been. We have the abil ity to tax, to use royalty taxes on the production of those companies that are producing oil in Manitoba , as any other province has. We have a window into the company by looking into what the companies are doing. We know what the drilling activities are. We have Crown owned properties, oil properties that are able to be offered to the private sector for revenue to know what is going on there.

There has not been one - I have not seen one justification for the Manitoba Oil and Gas Company as it was established for the taxpayers in Manitoba. I have not seen one positive thing that has come out of it . Yes, I should not say that. I have had the privilege of meeting Mr. John Sadler , who is a very fine gentlemen, and the staff of the Manitoba Oil and Gas Company and have put every bit of effort into it, very dedicated people. Those are opportunities and advantages and he has contributed to the province in the work that he has done .

I would have to say that as far as the investment is concerned, dollars and cents wise at the end of November, when you calculate the money we have invested, we are at $4.6 million loss . I have other areas that I believe the taxpayers of Manitoba would sooner that we spend the money in. Mr. Storie: Mr. Chairperson , all other things being equal, I would also have liked to have seen a different set of numb ers. Certainly, we would have liked to have seen a corporation that was profitable from Day One. 45 I am no better at predicting nor were my colleagues , nor is Mr.

Sadler at predicting the future of oil prices . For the Minister to say that there has been no benefit , I think is mischievous to say the least. The fact is that we have been a significant player in the industry, contributed to the eco nomic well-being of southwestern Manitoba. The economics that the Minister talks about are not clearly as clear-cut as he would pretend. I guess I have another concern, and that is the attitude of the Minister when it comes to the current operat ions of MOGG, and I have two questions. No. 1, have ther e been any further land acquisitions by MOGG in the last six or eight months?

Mr. Downey: No. Mr. Storie: Could the Minister or could Mr. Sadler or Mr Oborne give us some indic ati on of the exploration activity in 1988 and the expected activity in 1989? Mr. Downey: I am not too clear. There will not be any for the Manitob a Oil and Gas. We drilled, I believe , three wells since we came into office of which two of them are producers. As far as further activity, no, there is not. Mr. Storie: Here we have another example of Tory managemen t. We have a corporati on which is going to be, in effect , run into the ground and devalued under a Tory Government .

We have heard from the general manager of the corporation that in ord er to maintai n the reserves , in order to maintain the corporation in a sound position , we are going to need to continue to explore and develop new wells . Is the Minister 's position that none of that will take place while we have a Conservative Government in office? Mr. Downey : Mr. Chairman , I do not know where the Member is coming from . The reserves are not going to disappear . The reserves are there . They are like the potash that is out in the western region of the province .

It has been there sinc e our creator made this country and the oil has been there for that length of time . We have got deposits of oil that are lying under Crown lands. We have deposits of oil that are part of the negotiations that are now taking place in the proposed divestiture of Manitoba Oil and Gas, which are calculated into the value of the operations . The oil is not going to go away. When it is economical , I am sure that the private sector will move in and produce.

The Government will be able to collect roy alties , which pays for the hospita l beds and the health care and the education systems of this prov ince. We are not turning around , taking those royalties , and specu lating in the oil business and gambling with the ta xpayers ' money. We are using it and using it in essential services where the taxpayers, I believe , want us to use it in. Mr. Chairman: Mr. Storie. *

(1110) Mr. Downey: There will be oil - I am sorry, Mr. Chairman , I am not quite finished. I am sur e there will

Thursday, December 8, 1988 be o il pro duced in Tory time s and I a m sure th at t he climate wh ich is creat ed for th at pro duction is the impo rtant fact or. Mr. Storie: We just heard the general mana ger state that the re is a decl ine in production at the well head over time in Manitoba . The initia l produ ction is f airly high and it declines . To maintain the reserves - and the Minister is quite wrong . If you do not find addit io nal reserves , your reserves are being depleted and, in th is case , 51 ,000 barrels or-pardon me, I am in the wrong . Obviously, we are using 212 ,000 barrels in 1987.

We are depleting our reserves as we go and , if you do not find addit ional reserves which produce initially at least better results , then you are putting the corpo rati on i n a less favourable position for sale clearly . There can be no argument about that. Is this Minister saying now we are going to sto p investing money . We are going to stop doing what we need to do to develop new reserves and to maintain our position as a comp any, we are going to devalu e the company.

In other words, we are doing everything we possibly can to put ourselves in a position wher e we cannot sell this corporation for anything nea r wha t its true valu e is. Is that what he is saying ? Mr. Downey: No, I think the Member should pay atten tion . The bidding has closed ; we have offered the company for sale. The bidding has closed . In the perio d of time in which that was taking place, the managem ent recommended that we drill some additional oil well s and we did that . We did not try to devaluate it. Why would one want to do that with taxpayers ' money?

For goodness sakes , we are Conservatives , not NDP, Mr. Chairman. Mr. Storie: Tell us about Manfor then . Mr. Downey: We did carry out the activities of drilling three more oil wells to carry out a commitment with the partners but also to put us in as good a position as we can . The tenders have closed. We are now in the process of assessing those, Mr. Chairman. So the Member can put all kinds of red herrings on the records that he likes but, I am sorry, it is just - yes, it is red herrings that we are tryin g to drive the Manitoba Oil Gas Company into the ground to make it look bad .

We are trying to maximize our return. We are trying to make the best out of a bad deal that the NDP got us into, another one of the many. Mr. Storie: The Minister is dead wrong when he says he is leaving the corporation in a better position . It is just unbelievable that you can have depletion of 200 ,000 barrels of oil from your reserves and you are leaving us in a better position because you are not - (Interjection)- well , Mr. Chairpe rson , th e Minister 's biases are obvious.

His comments about doing the best they can when it comes to putt ing themselves in a goo d negotiating position , I think, are indicati ve of their lack of understanding of how negotiation s really take place . I had a couple of other questions about the current position . What is the current production , the 1988 production, the average and perhaps the current monthly barrels per day? 46 Mr. Sad ler: We are currently at abou t 225 bar rels a day and I believe our produc ti on for th is y ear is est imated or pro ject ed to be, I believe , in the o rde r of 80,000 barre ls of oil , perhaps a bit more than that .

I think we are project ing about 85,000 bar rels o f oil pro du ced this yea r. Just b y w ay of correc tion to the M emb er, you were right the fir st time in your state ments several statements ago when you talked about 5 1,000 barrels for the year in '87, and it will be abou t 85 ,000 th is year. Mr. Leonard Evans (Bran don East) : I h ave a coupl e of questions of clarifi cation. Perhaps Mr. Sad ler may be in the best position to answer this . How much cash , how much-I think I have some of the answ ers in the report but I want to ask him for clarification.

How much cash has the Government put into th e compan y recently? Has there been any money put in in the last year or two or three? Mr. Sadler: This was touched on earlier . The shor t answer is that the Government would have $12 .8 millio n that we have drawn aga inst shares issued to date. Mr. Leonard Evans: This is what I und erstood . The term $ 12.8 mil lion , that is the tota l accu mu laterl to dat e but my quest ion was , was some of that put in in the last year or two? Mr. Sadler: We did draw $1 .5 million in 1988 and m ost of th at in the first three months .

We had a rath er ambitiou s drilling program in the first three mon ths of this year and so the bulk of that $1.5 mill ion would have been invested during tha t period. Mr. Leonard Evans: I understand now but, at any rate , the cumulative-this is the agreed -u pon fig-,•·e. The amount of money that the Government has ;,,Vt s!ed in th e company is $12 .8 million to date . Another question , in the mandate of the corporation, there is reference to not only being profitable but to be utilized as a development vehicle of the oil and gas industry in Manitoba . I was going to ask Mr.

Sadler, has he seen any positive benefits to the oil and gas industry from the existence of the corporation? Mr. Sadler: The Minister says he will let me answer that. First of all, most all of those funds were spent in this province.

Now, it is true that in the oil industry some of the service companies and so on operate from outside of the province, out of Calgary or Estevan or what ever, but I would say that a very large percentage of all of those funds were spent in the province, eithe r Crown land sales or acquiring mineral rights from freeholders , engaging drilling contractors which were operating within the province . We had at one point , the first of the year, 15 well paid people . The oil industry has in the good years got to the point where they paid people pretty well.

So ther e were some geologists and enginee rs and so on who we had attracted from outside the province who were living here. Also , we had a staff of three in Virden. I guess I would say to you that benefit to the province igur in d

Thursday, December 8, 1988 has been that all of those funds were virtually rei nvested and recycled here in the province. In addition to that, I think in a mode st way we can take credi t for finding some ne w pools of oil here along with partners. I think that while we would have liked to have had a major find during our short exist ence, we were not, I gue ss, fortunate enough to find a major large field. I think that has been beneficial to the province.

In addition to that, for every dollar that the people of the province invested through this corporation, ther e was approximately another dol lar invested by outside investors. In other words, we did end eav our to bring in joint venture partners from either within or outside the province. Mr. leonard Evans: This was a point I was tryi ng to get clarified and that is, has the corporation -a nd Mr. Sadler has partly answered it-s timulated activity in the pri vate sect or in the oil and gas indus try in Manitoba? I gather his answer is yes.

For every dollar spent by ManOil, he estimates tha t probably we encou raged another dolla r to be spent by the private sector. Would you say then, as a re sult, we found more oil in Manitoba and perhaps are producing more than we would otherwise have been able to do? Mr. Downey: I would li ke to add a comment as wel l.

I think it should be fair to put on the record as wel l, if ManOil had not done it, I am sure, given the entrepreneu rial spirit of the oil companies that were interested during good times, that probably would have fl owed from the private sector as we ll as from the Manitoba Oil and Gas Comp any. lt did not necessa rily have to come from the taxpayers. lt may have, and I use the word may, been some additi onal stimula tion. Let us remember tod ay, we are look ing at the bottom line as far as the taxpayers are concerned . We have a lo ss of $4.6 milli on in that stimula tion.

So let us look at the total picture. *

(1120) I know the other day, in McKen zie Seed s, the Memb er has tried to make the case that one can never say the re are not ben efits as far as the expe nd iture of taxpayers. However, one cannot forget that there are costs to those ben efi ts. The decis ion is made that the costs of those ben efits currently outweig h the benefits. if the activity is there, the profitabili ty is there, then the taxation climate particularly is more of a stimulus to the oil industry, the royalty charges are more of a stimulus to the industry than is the forced exp endi ture of taxpayers' mon ey. Let me use an exam ple .

In 1977, when we were elected, the re was virtually no oil activity in the Province of Manitoba. In fact, he and his former adminis tration said it had to be a participation, in every oil wel l dril led that the Province of Manitoba had to participate. There was virtually none. Our royalty taxes were at le ast twice that of Saskatche wan -n o activity. The changing in royalty taxation made the southwest corner of the province boom . I know, I live there, I represe nt that area. They were pleased with the activity from the private sector. 47 The impact that ManOil had was very, very minimal visibility.

Ye s, it did allo w some farmers who could not sell or could not le ase their oil propertie s to some of the other compan ies. ManOil was aggressively looking for land. lt did create some income there as well . I am not of the opinion that one canno t give some credi t where cred it is due. I say the costs of it far outwei gh the benefits , particularly when there are other ways of stimulating that activity. So I respect Mr. Sadler's comments and input. That is ce rtainly his right and privilege and I ask him to do so.

But I say, when asked in my position, when we are looking at all areas of expenditure, I have to make that asses sment. Mr. leonard Evans: Mr. Chairman , of course, we have to look at the costs and benefits. The point is that the costs the Minister is refe rring to are strictly rela ted to the cash input by the Government into the company, wher eas the benefits canno t be measu red by what the company has done. The point is the benefits have to be measured by what has happened in the private sector .

If you have hel ped and enc ouraged the private sec tor to do that which the y might not have done and there were jobs creat ed , ther e was income created or whatever -! am generalizing no w-b ut that has to be taken into account. You cann ot just say, well, we are just going to look at this is the amount of tax money put in it, this is the amount of profit that particular company produced. If that has not covered your invest ment, then it is not a good deal. We are saying the balance sheet is much larger. lt is a provincial-wide balance sheet that we have to look at.

If you have done some thing to encourage private enter prise, then I say- this is the point of the que stion, of c:ourse, is just to find out how much were we respo nsible for in stimulating the private sec tor in the oil and gas in Manitoba that might not have happened otherwise. That is wher e I would li ke to get Mr. Sadler's expert opinion. To what ext ent to you think that we have had private sec tor involvement that we might not have had without the work and involvement of ManOil? Mr. Sadler: We ll, one measure one might use woul d be to look at the number of wells drilled.

We have participated in in excess of 60 well s, and our net participation would be in the order of 50 perc ent. So, in other words, our net we lls would be 30-some wel ls. You could say that our partners then were induced , if you like, to drill a simil ar amount so there are sort of 30 additional we lls there, I guess you could say. In total, it is 60 to 70 we lls. Right now, to put it into context, it is unlik ely that ther e wil l be any more then 70 wells drilled in the province this year, which is of course a very low point because of the low oil prices. Mr. le onard Evans: I would like to ask Mr.

Sadier. referenc e may have been made to this but what price per barrel of oil do we need to be able to sell ManOil and clear it, pay off all of the invest ment, all the accrued inte rest and everyt hing, so that we are selli ng it at a clear profit . What woul d be the magic price per gallon that you need? You see, the point be ing made obviously is that you want to sell when the price is low.

Thursday, December 8, 1988 I ag ree with Mr. Kozak of Transcona an d others who ha ve said tha t who kno ws wha t the futur e holds for the oil and gas indus try. lt is so vola tile. You could have a crisis in the Middle East and have the price of oil double, triple, or wh atever within months. Who kno ws? -(Interjection)- MTX yeah, tha t is right. Ask Donny Orchard about all his activities with Saudi Arabia and, fran kly -(Inter jection)- tha t is right, Mr. Chairman, let us ha ve some control here. The fact is tha t this is an indus try tha t is very difficult to forecast.

In the long run, we kno w tha t oil is a depleting resource. lt is a non-rene wable resou rce, and there is a likelihood-a nd everyone who is in the indu stry today does live on the hope, I guess, that there is a likelihood that the prices will be going up, will be escalating in the fut ure. How long tha t future is, we do not kn ow. But at some point, we believe or people believe in the industr y tha t the price per barrel will be going up.

Just about what level of pricing do we need to be in a position to recoup the monies tha t have been invested, plus accum ulated interest, or wh atever else you want to put into that equation? Mr. Oborne: This is a very difficult exercise obvious ly, because the price that you obtain for the assets of an oil company or a sh are is not dependent entirely on where the price of oil is today. lt is where people think the price of oil is going to be in the future.

If you have a steep curve in terms of tha t expectation as transla ted by engi neering consu ltants, then that is a very favou rable environment to sell an oil company . If you have a less steep curve, which we currently have, the price is going to be less becaus e the future expectation for the price of oil is less. We are not yet at a flat curve but there are people who are talking flat in terms of the real price of energy inflated by CPI or wh atever.

Cu rrently, we still ha ve a sloping cu rve from current pricing, and tha t really is the determina nt for what people would be prepared to pay for an oil company . Now, trying to tran slate that back into your question and this is just a wild gu ess but I guess after the exercise tha t we have gone thr ough for the last thr ee, four mon ths, it is a little less than a wild gue ss. My gu ess would be $25 Cana dian at least and soon . That is not five years from now. That is soon like tomo rrow or next year. Mr. Leonard Evans: In tha t case, why do you say soon if the curve is . . . . Mr.

Oborne: Because your costs are' increasing at wh atever the current inflation is. Fifteen dollars today will equate through inflation to $25 in 19 97. So getting $25 in 19 97 is not going to help -time value of mon ey. * (1 13 0) Mr. Leonard Evans: I will jus t conclude, because I kno w there are a couple of other Members who want to ask questions. I ju st want to say tha t in Manitoba we have to try harder for economic gr owth, economic development.

We have to use every vehicle possible 48 an d, historically, in this province we have used the public ownership of utilities and indeed previous Con servative Go vernments, through the Ma nitoba Development Fund, have spent tens of millions of dolla rs on high risk ventu res.

They were the father of CFI and they meant well, but the fatherhood ended up in a rather odd situation which tu rned out -(Interjection)- Yes, this great private enterprise tha t was funded 10 0 percent or 11 0 percent by the people of Man itoba, thanks to the Roblin or the Weir Government, but the fact is that Governments historically have tried to use different tools of economic development. I wou ld submit tha t ManOil was developed in tha t respect, to try to develop the oil and gas industry at a more favourable rate than wou ld have occurred otherwise and, hopefu lly, in the process to make a return.

There would not be a subsidy. Ultimately, there would be a profitable return to the taxpayers in the process. As my col league for Flin Flon (Mr. Storie) said, we really did hope and thought that this would come about. However, there is no que stion in my mind tha t- and I think this ha s been exp ressed by some other Members-i f you are going to dispose of an asset, you should try to dispose of it at the most favourable time, un der the most favourable conditions. This goes without saying.

There is a que stion in our minds whether this is the most favourable time, because this is a low period. we have seen much better prices in oil in the last several years. This is quite a low period, and it does not seem to me at least tha t this is a favourable time to sell it. Mr. Oborne: The timing question is a prob lem in terms of, if you wait, you have to believe tha t the environment is going to be better. But there are some other problems. One relates to, as the corpora tion now stan ds or as it stood, June 30-and I think it was alluded to tha t there was a reduction in drilling activity.

Coincident, there has also been a reduction in staff. lt is still an operating oil company but with considerably less staff. At some point within the coming year -1 have to be a little careful here because you know we are still in negotiations of sorts. At some point towards the end or the second half of the coming year, a fur ther capital injection would quite likely be required. You know, as I suspe ct tha t you und erstand and Mr. Kozak, oil companies cannot stand sfl l but, for this one in the current pr ice environment, to not stand still means more capi tal.

You have had expressions from the president tha t go back to last year and he ha s effectively said them again today that, un less you are pretty conf.ident tha t the realization is going to be somewhere in the area of $20 plus Canad ian, this is a very difficult proposition as an economic venture. I am only comm enting on the economic nature of the venture, not other thi ngs that may flow from that. Mr. Herold Dreidger (Niakwa): I jus t have a few qu estions, I guess for clarification, so I can get a proper idea of some of the historical changes tha t ha ve occurred here. Mr.

Sadler mention ed earlier when he talked about the current activity, he felt tha t total Man itoba activity would be about 70 wells in 19 .88 .. Mr. Sadler nods l;lis affirmation. Wha t would the kind of activity have been

Thursday, December 8, 1988 in Manitoba, say, in- and I am just asking for a rough guess-1982 and 1983, before ManOil actually came into exist ence? Mr. Downey: Although it may be of gen eral intere st , it is not specif ically de aling with the Manitoba Oil and Gas report. We can ge t that informati on. lt may more properly be asked at Mines and Ene rgy but, if Mr. Sadler has the information , I have no diff iculty in him providing it. Mr. Herold Dr iedger: lt is just to ge t an ide a of a question I wish to ask on the report. Mr.

Sadler: During the 1983 to'85 period , which would have been the most active drilling period in the last two de cade s in Manitoba , and this was taken out of the Manitoba Ene rgy and Mine s information , there were about between 250 and 275 wel ls a year drilled. I would like to ind icate to you though , with my kno wledge of the pe ople who were active, that was during the peri od when Omega Hydr ocarb ons were dr illi ng up the Waskada fiel d. So the re was a very major ex pansion in the activity in the province during that period of drilling up the Waskada fie ld.

That activity now has pretty wel l conclude d. In othe r words, the field is pretty wel l dril led up. That , along with the dramatic drop in prices , has served to see the red uction now to where it ma y be down around 70 wel ls a year . Mr. Herold Dri edger: Actual ly, the num be rs are essential ly what I was asking about, just as a rough es timate becau se , if I look at some of the data that I ha ve here , when ManOil came, actually was incorporated-it began operations in January 1 of 1984. Oil prices at that time were approximately $33 U.S. a barrel . That is the high end of the marke t.

At that time, I think it has been me ntione d here that when you do have a lot of activity already by virtue of the fact that re turns looke d to be good , the n perh aps at that point in time we could- 1 think the Minister referenced this que stion whe the r or not ManOil was necessary to actually ge nerate the kind of activity that it was inte nde d for it to gen erate. But that is not an area I wish to go into at this moment. We are now at the low end of the oil prices. I think that Mr. Sadler mentione d $14.00. He did say Canadian , but I think he me ant U.S. , did you not? Mr. Chair man: Mr. Ob orne ? Mr.

Sad ler? The Honour able Minister . Mr. Downey: Just before the re sponse is made, I had ind icated at the opening of committee that Mr. Oborne had another commitment. If the re are othe r ques tions relating to the chairman , I could take the m as notice and have a re sponse , if that would be satisfactory with the Membe rs, if we cannot de al with it. Is the re an obje ction to the -(In terje ction) - Okay , thank you. Mr. Chairman: Mr. Dried ger, Niakwa, did you have a question to put on the re cord? Mr. Herold Driedger: I would like to just ask Mr.

Sadle r, he did refer ence the fact that toda y the price of oil , 49 on aver age, was about $14 and he said "Cana dian ," and I am thinkin g that is probably "U. S." Mr. Sadler: Yes , you are corre ct. We have seen prices as lo w as $14 Canadian but, as you know in the last couple of wee ks, the re has been some stre ngthening the re , so we are probably up around $15.50 Canadian at Virden. Mr. Herold Dri edger: Thank you. I conside r that to be a correct ion because I actually did not realize the prices had gone that far down.

The y have so the n with this , because you see the report we are looking at which is 1987 which, as has been refer ence d , looks quite positive. lt looks quite he alt hy. We are now in 1988 and the price has actually dropped conside rably from the average price , which was ment ione d in the rep ort , of about $22 Canadian to some thing like $16 Cana dian.

With this fall-out in oil prices and since we are anticipating from the Minister's comme nts the divest iture of Manitoba Oil and Gas Corpor ation , could I the n ask the Minister what this lo wer oil price has done to the num ber of bids that were actually received when Manitoba Oil and Gas Corporation was put on the marke t for divest iture? Mr. Downey: As I have ind icated publicly, there was an initial inte rest of over 100 companie s or ind ividuals. The lo wer oil prices, I am sure, did not help but at this particular point I am not able to disclose spe cificall y what the fina l bid num bers were.

There were more than one, but the re were not 100. I am sorry I cannot be more spe cific. To be hone st , it did have, I am sure, some impact on the num bers of final bids that came in. *

(1140) Mr. Herold Dr iedger: All right the n , actuall y this is the direc tion I wish to start questi oning now esse ntial ly. I did hear the Minister state that the bids from the bidde rs , und isclosed num ber of bidder s , are in , and esse ntially you are now in the ev aluation stage of those. Mr. Downey: That is correc t. Mr. Herold Dr iedger: Is the re any other informa tion that you can give us that you are at li berty to give us with respect to those bids and bidde rs , or are we going to have to simply wait until the proper time later? I re al ize that this is an area whe re we have to look at protocol.

Mr. Downey: I have provide d all the informat ion I thin k that I can. I am not tryi ng to keep any informat ion from the Membe rs , but in the be st inte rests of th e ne gotiations that are curre ntly taking place. Mr. Herold Dreidger: I apprecia te that. Can yo u indicate for the committee when you might be abl e to make a de cision? Mr. Downey: In ligh t of , I think, the best interests of the public and the committe e and the pe ople who we

Thursday, December 8, 1988 are talking to, as quickly as tha t decision can be final ized, the better everyone is. I am pressing have it conclude d as quickly as possible. Mr. Herold Driedger: I recognize the indefiniteness of the ans wer-a s quickly as possible, as soon as you can, yes. I was jus t wondering if you would be able to indicate weeks, months, or something like that. Mr. Downey: Within weeks. Mr. Herold Driedger: Thank you very much, within weeks.

So we will then be able to make decisions with respect to some of the qu estions tha t have been asked here about whether or not the bids tha t are made are in line with some of the expectations we might have, based upon some ol the good things tha t are in the report. I think we mu st recognize that aspect, but I wou ld have to also take into account the fact that oil prices did drop and tha t the activity has slowed down considerably, particularly since there is a slowdown now in tha t sector. They may be lower than we might have anticipated. Mr. Downey: I wou ld say yes.

Ther e is one other thing I should add for the record. In talking about a write down, it is not the Government tha t wou ld be doing any write-down . it is the aud itors of the Man itoba Oil and Gas Com pany who wou ld be carrying out tha t particular activity, not the Government. Mr. Kozak: I will take this opportun ity at this point to reassert the !act tha t the Official Opposition does not dispute the Min ister 's state ments regard ing the accumula ted losses of the Manitoba Oil and Gas Corpora tion.

We do not dispute the Government's sta tement regard ing opportunity costs to the Government as a result of its participation in Manitoba Oil and Gas Corpora tion.

However, to reiterate, we feel tha t many of the losses referred to by the Minister and his staff are bookkeeping losses largely attributable to accou nting pr actices common within the oil and gas indus try, designed in part to minimi ze the tax liabi lity of oil and ga s companies. in addition, we note tha t Manitoba Oil and Gas Corporation has experienced a rap id buildup of assets in the form of additions to proved reserves, which could provide a very attractive return to a long term investor.

The typical long-term investor to which I refer is an operating publi c oil and gas company such as any numb er of those traded on the Toronto Stock Exchange and held widely by investors. We do not dispute that the Government may not be in a position to be such an ideal long-term investor. We do not disput e tha t the Government might benefit from redeploying the capital it has invested in the Man itoba Oil and Gas Corpora tion. However, our top priority is to ensur e a good sale price, a sale price obtained from an appropria te long-term investor tha t kn ows how attractive this company is.

We are extremely anxious tha t the Go vern ment inform itself on the accounting peculiarities of the oil and gas industr y so tha t it can obtain a good pr ice for the public of Manitoba. 50 I note tha t, as of fiscal year-end December 31, 1987, the corpora tion sh owed shareh olders' equ ity in the amount of $13 ,755,097.00. realize tha t in certain respects, in tha t the Govern ment has probably not advanced certain funds that the corporation had reason to expect at fiscal year-end, tha t figure oi thirteen and th ree-q uarter million dolla rs ma y be oversta ted.

However, I feel and reiterate tha t in another respect the shar eholders' equity, the real value of this compa ny, is und ersta ted . The prime area in which this unde rstatement occurs, in my view and in the view of the Official Opposition, is in the area of proved reserves that the company has established over a period of some years now. Therefore, Mr. Chairman, in concluding my portion of the remarks made on behalf of my pa rty, I would like to take the opportunity once again to ur ge the Government to obtain top dollar !or this attractive company on behalf of the people of Manitoba. Mr. Downey: Mr.

Chairman, I think tha t the Member's comme nts I take very serious ly. I know exactly wha t he is referring to. I can assure him tha t the exercise of the board , the exercise of the management, has been put forward and we wou ld be fully prepared to explain and show the exercises tha t have been gone through to make sur e it has been exposed to th ose people who kno w the oil and gas business, who have truly a clear un derstan ding of the oil and gas company accounting. I have every confidence in the world tha t has been done.

However, what I cannot force are people to put money forward tha t they do not feel tha t they are prepared to risk. One is limited in tha t. Being an auc tioneer by profess ion-h e may be an oil bookkeeper by profession-o ne does try to maximize the return whenever they are trying to dispose or divest of a par ticular property, and you go to every exercise possible to do that. I am putting myself in the position of the taxpa yers of Manitoba as a trus tee tha t we have to ende avour to do that. Everything we have done and will do has tha t in mind, to recover to the best of our ability the returns tha t we can.

I appr eciate his suppor t in the exercise of divestiture and I would- there will be another time for the full disclosur e of wha t process we ha ve gone thr oug h, if in fact a sale is accepted. Tha t is the way I leave it. Mr. Bill Uruski (lnterlake): Mr. Kozak was probably very kind in his assess ment of the Go vern ment 's intention in the words tha t he chose, but I wanted to cover an area, although I want to put on the record tha t I am not very fam iliar with the corporation but there is one aspect th at we have not touche d on.

Tha t is the income that the province receives from the Crown land sales and the bidding. Can Mr. Sadler indicate to us, when lands come up in the bidding process, how active has the corporation been in that bidding process? Wha t I am asking, and maybe he can run us through some scenarios, what role had tha t corpora tion played in the bidding process on the land because tha t is one area tha t certainly has not been touched on. • (1 150) Mr. Sadler: As you may be aware, about a third of the petroleum-prone lands in south western Manitoba

Thursday, December 8, 1988 are Crown owne d and about two-thirds are owned by freeh olde rs. The oil indus try ne gotiate direct ly with freeh olde rs on acquiring le ases and, as you point out, the re are se mi-annual land sales conducted for Crown lands. We were very aggre ssive bidde rs for sever al years in the' 84-85 period be cause we were tryi ng to build a company and we had to acquire land. That is the first thing you have to do. After having unde rtaken some geological studie s and so on, the n we ide ntifie d lands that we had posted and bid on them.

Over the course of the short history of the corporation, we acquired in excess of 40,000 ne t acres of land, about 50 percent or 60 percent of which would have been Crown lands. The total outlays that the corporation made in that reg ard at sale s would ha ve been in the orde r of $1.2 milli on on the Crown lands , and we would have probably spent an add itional $100,000 over the period on re ntals to the Crown, and the n of course in addition to that the re are the royal tie s that would go to the Crown . Does that answer your que stion? Mr. Ur uski: Mr. Chairman, it does.

In terms of the 40,000 acres that the corporation acquired , can Mr. Sadle r indicate how many acres were in fact put up for bid in that period of time? What perce ntage of the Crown acres would the corporation have bid on that were in fact put up, or would Mr. Sadl er know? Mr. Sadler: That would be very difficult for me to say with any cer tainty. I know that the re were some sale s where ourselves along with partne rs would have maybe got as much as 30 percent, 40 percent of a particular sale. I am afraid I do not have the information to provide a cle ar answer on that. Mr.

Uruski: Would I be overstat ing my case to ind icate that you would have been a sign ificant player in the en hancement of the value of Crown land that was bei ng put up for te nde r in those areas in terms of the bidding process? Mr. Sadler: I suppose one might say, unde r cert ain conditions, we might have alm ost set a reserve bid on some lands in that, but I can tell you that we approached it from a busine ssl ike and a te chnical vie w where we put our own asse ssment on those lands in the conte xt of what pre vious compe titive bidding had taken place and so on.

So we trie d to be very busine ssl ike about it and not take the advantage of having, if you li ke, taxpayers' funds sort of bidding high, too high on the lands, over, exce ssively . We ende avoured to be very busine sslike on it. Mr. Ur uski: Mr. Chairman, 1-oh, I am sorry. Mr. Downey: My only comment was-! will le t the Me mber finish and the n I have a comment to make on it. Mr. Urusk i: Mr. Chairman, I would have expecte d that the corporation would have bid in terms of what they felt the reserves might be worth at that pe riod of time of course, when oil prices were at an aH-time high. 51 Would Mr.

Sadle r indicate whether the interest was eq ually high in terms of all other bidders, or was the compet ition in fact very keen for the lands that were coming up for bid? Mr. Sadler : I would say that during that high-price period that you would probably characterize it right. The re was intense compe titive activity. There were a numb er of pe ople in the province bidding. Mr .

Uru ski: Then the corporation wou ld have, notwiths tanding, played some fairly significant role in acquiring a portion of the Crown lands that were in fact put up on tend er, of ke eping the compet itiveness to its probably high point, adding a fairly major pla yer into the marke tpl ace. Mr. Sad ler : Yes, that is the likely effect that it would have. Mr. Urusk i: I am not sure that I got the answer from Mr. Sadl er. Does he know as to what percen tage of the total lands that were put up for tender that ManOil would have picked up during that period of time of Crown land, with partne rs or in joint ventu res?

Mr. Sadler: I think it would be certai nl y und er 30 percent during the pe riod tha t we have been in existence. I can check if he would like some thing more accurate. Mr. Ur uski: So that 40,000 acres that he speaks of would be about 30 percent of the total or ther eab outs? Mr. Sadl er: lt could be as low as 15 pe rcent. I am afraid I cannot be more accurate than that. Mr. Uruski: Maybe the Minister or Mr. Sadler kno ws. Would he know the tctal provincial rev enues from those le ases during that entir e Crown land? Would there be an est imate?

Maybe you would know from the figures, and I am not expe cting de finite answers ii we do not kno w what the provincial reve nues wouid be from the land sale s or at le ast the lease sales. Mr. Downey: I have no difficulty in tryi ng to he lp the Me mber out with that information. I! would be easier obtaine d from Mines and Energy .

What we can come closer to what actually the Manitoba Oil and Gas Corporation purchased during the pe riod of time in the report but, to get that information, we can get it provide d from Mine s and Energy , tal king about the totals of land sold and that type of thing would be more appropriate than at this time . That would be an eas ier pla ce to ge t the information. Mr. Uruski: I ve nture to say it would be in the millions that the y were talk ing about.

I gue ss the only point tha t I wante d to lea ve on the record is that this is one area of the operat ions of the corporation that for one, bel ie ve, and I think it has been fairly we il confirr ned, that the competition or at lea st the additional player in the marketplace has add ed to provincial revenues on the other side in terms of the bottom line and has ne ver , never -a nd terms of the annual report , i agree

Thursday, December 8, 1988 it shoul d not play a role but we should re cognize that ha ving an ad di tiona l maj or comp et itor in th e marketplace has like l y-and I am cer tain of that and I think it ha s been confi rmed - stre ngthened the price of the Crown leases that were up for bid. The province, on the other hand, bene fitte d. The que stion is, to what ex tent has that occurred over the years and how would one be able to quantify that if it is quantifiable? Mr. Downey: I gue ss, Mr.

Chairman, followi ng on ML Sadler's comment, bei ng new in the marke tplace tryi ng to buil d themsel ves an oil base and that bei ng some of the. land that was put up for offer , their activity could have we ll had some kind of a minim al impact, alth ough I think Mr. Sadl er said it was more based on the projected reserves that were in the ground rather than anyth ing else, that it was their ambition to get into the oil industry. So the impact that it would have woul d be very hard to mea sure.

To put a dollar on it would be very difficult, if the re was any. lt is an area that would be hard to quant ify, I am sure. *

(1200) Mr. Angus: I apolog ize if this has been answered but, through you to the Minister, I was wonde ring if in terms of the ne gotiations that he had conside red giving fair value to the shares and the n sel ling off a portion of the company , that is 50 percent of the company, and re taining 50 percent? lt is my horse trader's mentality that sugge sts that we maybe have a little bit of a good thing going here and that it might make the company a bit more attractive if the y had a viable sen ior partner and that type of thought. I just wond er, through you, Mr.

Chairperso n, to the Minister , if they have conside red that as an option of divest ing themselves from the organization. Mr. Downey: Mr. Chairman, and I am spe aking just from re coll ect ion, a discussion with the board and with mana gement -a nd Mr. Sadl er may have some thing further to ad d- that there were not any rest rictions put on the type of bidding that we were pre pared to rec ei ve as far as ManOil is conce rned. I am sure if that was a part of a bid that came in for a portion of it, to get to the maximum for the taxpayers, that woul d have been conside red .

I am not aware of every bid that came in. lt may or not have been that way. So I say, I do no t think the re were any res trictions stopping pe ople if the y wanted to buy a portion of it from coming in. lt may not have been spelle d out in that man ner in the bid. I think that particular area probabl y is covered in the way in which it was bid, but I stand to be corrected if in fact that is the case. Mr. Angus: I cer tainl y have not been privy to the deli ber ations of the board. The statements do not seem to ind icate to me a represen tation by share of the value of the organ ization.

At the price that the shares are right now, I might even invest if I was allowed to. it is an und er valued rep res enta tion, just based on the discussion and my limited knowle dge of the corporation. lt also occurs to me, Mr. Chairper son , that both of our

Partie s have been sugge sting al ong the same li ne s that we do not believe we shoul d actively be in this 52 busine ss. Wh ere we ma y dif fer is th e method of dispe nsing or ge tting out of the busine ss in relat ion to the be tterment of Manitob ans. Wh il e we ma y philosophically disagree with the Ne w Democr atic Party on this particular issue as to whether or not we should be in this busine ss, we are very adamant about how we ge t out of this business. I want to be assured that all of the options have been explored. Mr.

Chairper son, sometim es I wish that we had an opportunity, as we do in the city, to discuss items of this nature in came ra. l believe that we have contributing advice or contributing opinions that, when the y are aired publ icly, may in fact je opard ize any ne gotiations that are happe ning. That is an unfortunate set of circumstances for the citizens of Manitoba bec ause the y may not be gett ing the best opportunity to ge t the best re turn on the ir investment.

They may be get ting one particular Minister' s or one particular Govern me nt's or Cabine t's slant on how to do things, not sugge sting that the board is not capable of look ing at all of the aven ue s but quite frankly , Mr. Minister, the y take their marching orde rs from the Minister . When the Minister, whate ver Minister it happens to be in the system we curren tly work under, the y may interp ret what the Ministe r wants and not ade quately ex plore all of the options . I am sure that the y have. I am sure that they have trie d to ex pl ore all of the options and are doing their profess iona l best.

But again, I would like mo re assurance s, I gue ss, from you that all of these options have been le gitima te ly explored and have been leg itimately exercised so that we do give ourselves the best chance of ge tting a good ret urn on invest ment and do not continue , to use the phrase, to give away the farm. Mr. Downey: Just a brie f re sponse to the Me mber, it is absol utely true . The more minds you have, the more kno wledge you have, and they are in a position of Opposition pol itically and have to carry out their role s as critic. I take it as constructive criticism. I think we are all tryi ng to maximize.

I am sure that is what every Me mbe r, whethe r you are a New Democrat or a Liberal or a Con servative in this area, y our objec tives should be the betterment of the province and the use of the taxpayers ' mone y. That is what we are we ighe d on, and that is what we are bei ng judge d on. Every thing that we can do to maximize the input to some exerc ise like this is ext remely important, so I take his comme nts very seri ousl y. The comments that are made on the record he re toda y prior to the conclusion of any final decision will be cer tainly take n into account as wel l.

If th ere were any thing furthe r that I could discuss with the Me mber in camera that was not going to treat one Party differently than the other, the n I would discuss it, as I have with my discussions with the introd uction of the Bill yesterday . I briefly spoke to the Me mber for Fli n Flon (Mr. Storie ), as I spoke to the Me mber for Niakw a (Mr. He rold Dried ger), just briefly as to what the purpose of it was. So I do not disagree with what he is sayi ng. A maximization of the re turn has to be accomplishe d. If othe r minds of othe r

Partie s can be of assistance and

Thursday, December 8, 1988 we can use that without any preju dice of any kind, then I have no difficulty with that. Mr. An gus: Mr. Cha irperso n, through you to the Minister, spe cifically I would like you to, as inexpensiv ely as possi ble, ask the board or outside firms to, as fair and as equitably as possi ble, value the organ ization on a per-share basis and explore the option of sel ling off a portion of it publicly, putting it on a public chopping blo ck to find out wha t net effect that would have in terms of the ov erall sale.

I re cognize that it may be a tad late, espec ially if you are in the final throes of negot iating with someone else, but I would caution the Minister that review will probably be done publicl y. He may be subjected to some criticism and , in preparing hims�lf, he may want to explor e those options. Mr. Downey: I again take those comments seriously . As I said, it has been the exercise of the board -a nd I do not take totally that the board are direc ted . What the board had the manda te to do was to work towards the divest iture of Manitoba Oil and Gas and to do the work.

We will be prepared to lay out precisely the activitie s that we went through and stand by that activity. The board , I am sure, has done every thing, as I again compli ment the management in their willing ness to cooperate. I can say that very sincere ly. There has been a real hard lot of work gone into this, and you are right. We have to stand by the actions we take, as any Gover nment Mem ber does, so again I will review Hansard. Mr.

Storie: I would like just to follo w up on the points that were made by my two colle agues across the table. and that is that cer tainly we respect the right of the Govern ment to proceed with divest iture. I think there were logical reasons for the de velopment, the introduction of MOGC, and I think that in its short history it has done a sound job of prepari ng the groundwork for a stable financial future.

I think that the fact is that the concerns that the Minister is raising at the committee toda y are based on, I think, perhaps the position the Government is taking about the necessity of a sale and obviously the necessity of an immedia te sale. The Minister tells us that perhaps we are within wee ks of a sale. I do not think the Minister is being quite honest with the people of the committee or the peo ple of Manitoba if he says that his concern is with the taxpayers.

I know that if the Minister owned 100 acres of farm land and it was at the worst possible time to sell that farm land when the prospe cts of improved prices were perhaps around the corner , he would not divest himself of that 100 acres. We are at a lo w point in terms of oil prices. I rem ind the Minister that, even at today's oil prices with proven reserves, the value of the corporation is some thing like $15 million. At $14 a barrel, you consider that we have a reserve of 1.3 milli on barrels of oil. My colleague, the accountant from Transcona (Mr. Kozak), has said that this corporation is unde rvalued.

I am concerned that the Minister's agenda not on ly includ es divest iture but dives titure at any cost, and I think tha t it is unseemly 53 haste and I think we requir e due dil ige nce in the dives titure of this enterpris e if we are going to do it all. The Mem ber for St. Nor bert (Mr. Angus) has put some alternativ es on the table that I will cer tainly want to know whether they have been explor ed . I will alsp want to kno w what this divest iture at this point is going to cost Manitobans. *

(1210) The history of this corporation is that the cumulative los ses are $1. 24 milli on. I belie ve that in this Minister's rush and this Government's rush to divest itself of MOGC that the y will be costing the taxpayers many more millions of dolla rs and obviously elimi nating any prospect of some re turn on invest ment as a re sult of opera tions, never mind the sale.

I think that the Minister and his Gover nment are making a mistake, and I hope that he is not going to stampede the board or is not going to allo w himself to be stampeded into a sale which do es not re turn any kind of rate of re turn, does not get a re turn for the people of Manitoba. There is no necessity for sel ling the corporation ne xt we ek. The fact of the matter is that the Minister is failing on two counts. One is his haste is crea ting a problem for him in terms of sel ling it, I belie ve, because of the circumstances of the oil ind ustry.

I also belie ve his actions in terms of discontinuing acquisitions on the part of the corporation and discontinuing explor ation on the part of the corporation is also jeopard izing the likeli hood of a fair re turn to Manitoba. I hope that on both of those counts the Minister may reverse himself and that we may see a more thoughtful process in terms of the dives titure exerc ise. The Minister says, wel l, we will show you that we have contacted every perso n. We ll, if you contacted every person in a buyer's market, it do es not mean that you are going to get a good price for what you are sel ling.

I think we are proceed ing with undue haste, and the timing, even if it were det ermi ned it were ne cessary to sell MOGC because of its fina ncial position or its financial prospects, is unequ ivocally wrong for this exercise. Perhaps the Minister can tell us whether the re has been a Cabinet decision to divest at any particular time. Mr. Downey: Mr. Chairman, I will try and keep my comments brief. The Mem ber kno ws that Cabin et decisions are Cabinet decisions and are not discussed publicly until there is an appropriate time.

What I am going to say is that the Memb er again tries to make reference to any lo ss that may be incurred . Mr. Chairman, the lo sses that may be incurred will come from the decision to enter into this venture to start with. That is wher e the lo ss will incur. The additiona l concerns about the oil tha t is in the ground and the loss of mo ne y from tha t oil -1 mean, the oil is still there. I mean, the provin ce have every ability to ge t a royalty off of that oil. The province does not lose its abil ity to gene rate in come from oil. !t is there, it has been and it will be.

Becaus e we are players in the activity does not do anythi ng to change that particular side of it.

Thur sday, December 8, 1988 You kno w, without getting into a philosophical long term debate, I can assure him tha t everything possible, and the Members of the Liberal Party, will be done to maxim ize the return. I do not sup pose he felt very comfor table- ! give him credit-w hen they had to sell or when they sold Flyer Bus. I mean that was a decision tha t he and his Government made. lt was a loss of millions and millions of dollars. Mr. Chairman, again I do not supp ose he was hap py, but it was a decision he made and it is a process.

I do not kno w whether he directed or his Government directed the board of Flyer Bus or wh oever was in charge of it, but tha t ha d to be done. it was done and he has to live by his decision. We have gone through an exercise in the process tha t we can certainly work to maximizing the return to taxp ayers in the divestiture of Manitoba Oil and Gas, and I do not agree tha t we are being rushed into this.

There is a due process tha t is being carried out and I guess, if one were to carry on and retain it, he is sugges ting tha t it is the job of Cabinet Ministers in Governments to specula te with taxpa yers' money in busine ss. I do not totally- Mr. Storie: I did not say that. Mr. Downey: He jus t said he did not say that. I would say tha t he is saying tha t. lt is a low point of the market. Can he and will his Party and the Members of the Legislature give us the assu rance tha t the oil pr ices are not going to go lower? lt is a 50-50 situation. They can go up or they can go down . Well, the Member for St.

Norb ert says it is a bad time to sell. lt was a bad time to get into it.- (Interjection)- Okay. Thank you for the

part icipation of the committee Members and their comments will be taken very seriously in the activities of Government. Mr. Ch airman: Shall the Annual Report for the Ma nitoba Oil and Gas Corporation ending December- Mr. Storie: No, Mr. Chair person. Mr. Chairman: Okay, Mr. Storie. Mr. Storie: I appr eciate the Minister's final comment. I guess, if the Government is intent on selling at this time, we will have to review the outcome. I hope it is clearly on the record th at the people of this committee view the value of this corporation to be sign ificantly above the stated value in the Annu al Report of 19 87.

The people of Manitoba can do simple arithmetic as easy as the Minister. If you ha ve got reserves of 1. 3 million and the current price is $14 a barrel, it is not very difficult to figur e out about what you should be getting for the corpor ation. The fact of the matter is this Minister and the Government are intent on doing it, regardless of the cost. They are going to make the accusa tion tha t it was another Government's responsi bility tha t got us into this mess.

This Government, if indeed the people 54 of Manitoba do not believe we should have gotten into it, are compounding the problem because they are going to lose additional millions of dollars. The loss for 19 87 was some $244, 000 .00. I can assure the Minister that he is losing millions of dollars by the timing of this sale. I expect tha t this is going to be another giveaway. We will await the outcome. One final ques tion, what is Antler River Resources? Mr.

Downey: The Member is well aware, if he has checked my conflict-of-interest documents, Antler River Resources is a small private oil company of which I am a very small sh areholder. Mr. Storie: Does the Minister see any confl ict, being responsible for a provincially owned corpor ation about which he is now curr ently talking divestiture with his position as a small part owner of an oil company in southwestern Manitoba? Mr. Downey: I do not know wha t kind of a game the Minister is trying to play. No, I do not. I full y disclosed what I have shar es in, in the conflict-of-interest forms no secret to anybody .

They are wide open to anybody . If anybody wants to check it out, they can. As I said, I am a small sh areholder in a small oil company that operates out of Melita. I am not a director, just a small investment. If he sees a conflict, I would ask him to challenge me so tha t we could carry out the proper procedure, or is he ju st playing some kind of a little game here? I do not want to pla y games with tha t kind of sleaze, Mr. Chairman. I have absol utely no conflict.

When I was appointed Minister responsible for it, I offered all my sh ares in writing to the current shareholders to see if they wanted to pur chase it. There were no offers from anyone. it is fully public knowledge what I own . As I say, if he wants to make some accusa tions, let him put them on the record and be man enough to do so right now. Mr. Storie: I have not made any accusa tions. lt is simply a piece of informa tion tha t the Minister is defensive about. The question, it is a simple ques tion. The final qu estion is, has the Minister pla ced his holdings in a blind trust, as the First Minister (Mr.

Filmon) sug gested all of his Cabinet Minister had done? Mr. Downey: No, I have not. The operations of my farm and my shares are fu lly disclosed. My wife operates the farm business, auction busine ss. If he wants to do a full investigation, I wou ld invite him to do so. Mr. Storie: I thank the Minister. Mr. Chairman: Is it the will of the commit tee to pass the ManOil and Gas Corporation Annua l Report, 19 87? (Ag reed) Comm ittee rise. COM MITTEE ROSE AT: 12:17 p.m.

Document details

Collection	Manitoba — Debates (Hansard)
Citation	34-1-ed3
Type	hansard
Volume / chapter	34th 1st hansardpdf ed3.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	61c36392328e4472e4bfc010450d334cca334709

Source file is stored in the law ingest library (pdf).