TransCanada boss pursues pipe dreams
Growth plans focus on big opportunities
The good times are rolling at Hal Kvisleâ€™s company and thereâ€™s a swagger in the energy industry these days, but itâ€™s apparent the boss of one of Canadaâ€™s most respected corporations hasnâ€™t strayed an inch from his down-to-earth persona. There is nary a sign of bluster in the chief executive of TransCanada Corp.
The home-run hitter of energy deal-making prefers to take a solid stance and keep his eye on the ball.
That kind of sound focus may have something to do with the fact that Kvisle (pronounced Quiz-Lee) has had a front-row seat to one of the oilpatchâ€™s monumental boom-to-bust stories. Kvisle cut his teeth in the oilpatch as a petroleum engineer with Dome Petroleum during its spectacular growth in the 1970s and, after disaster struck the debt-riddled company, he helped swing the complex sale of Dome to Amoco Canada as Domeâ€™s finance manager.
He later engineered a phenomenal growth story as president of Fletcher Challenge Energy Canada, which was sold for $1 billion by the financially strapped parent company, Fletcher Challenge, after his departure.
|Larry MacDougal, Business Edge|
|Hal Kvisle started in the business as a petroleum engineer but rose to become a major deal-maker in the industry.|
Kvisleâ€™s next stop was TransCanada in 1999, another company under financial duress. While in charge of TransCanadaâ€™s non-pipeline businesses, Kvisle played a key role in the companyâ€™s dramatic turnaround, which made him a natural to assume the CEO role in 2001.
Kvisle made his mark immediately as CEO by convincing the board to sell its energy trading business, a sale that closed hours before Enronâ€™s collapse sent the energy trading business into a tailspin.
Today, Kvisle runs a thriving natural gas pipeline and power enterprise boasting a market cap of $14 billion, while keeping his feet firmly planted in Alberta soil at his part-time job.
On the weekends, you can find Kvisle punching cows or pounding fence posts on his Calgary-area farm.
1. What was your dream job as a youngster?
â€œWell, I didnâ€™t really expect to be an engineer. It wasnâ€™t â€™til I was about 18 years old that I had the opportunity to work in a Shell refinery for a summer job (while attending university). I ended up working closely with a bunch of engineers and I just concluded that these guys are doing work that is more interesting and exciting than I had thought. So at that point, I decided I wanted to become an engineer.â€
2. Who was your greatest influence during your boyhood in Innisfail?
â€œIt was probably a bunch of bad guys I hung around with (laughing). Both my parents were very thoughtful people and very sophisticated thinkers, to me anyway. So I benefited a lot from their influence. There were also a lot of interesting people in Innisfail that had an impact on me. One of those was a guy named Oscar Orr, who was the manager of the Shell refinery. He had a sophistication in his thinking. One thing Iâ€™ve observed is, a lot of people think about things in a quick and dirty and simplistic way. Other people try to delve more deeply and understand more of what is really going on. Heâ€™s one of the people that taught me how to do that.â€
3. What was it about the oilpatch that initially appealed to you?
â€œIt was in the early 1970s during the first great period of energy politics and energy activity and development. In the 1970s and 1980s, I was very, very focused on the technology of engineering and operations in the energy sector and I had a great early career both in the natural gas liquids business and as a field engineer living and working in Rocky Mountain House. So making things work and being part of exciting projects that were being built before your eyes were the key things I was interested in while at university, and in the first 10 years of my career.â€
4. What was the most valuable lesson from your years with Dome Petroleum?
â€œThe perils of carrying too much debt in a volatile company. That certainly was one very important lesson, but Iâ€™d be remiss if I didnâ€™t mention the extraordinary group of people I worked with in the engineering, operations and development side of that company. Notwithstanding the difficulties that Dome had on the financial side, it may have been the strongest organization of energy people that ever existed in Canada. Jack (Gallagher, Domeâ€™s CEO) was an extraordinary visionary and he taught us to dream big, really understand what the big picture is and, when you have identified a good idea, figure out how to go for it because big things are possible even for small companies. Dome was a company of 350 people when I joined it in 1975 and had nearly 7,000 people seven years later. It was just an incredible commitment to accomplishing big and great things. Iâ€™d also say that Jack taught us that even great men of his stature can make mistakes and we all have to be careful that we donâ€™t do that. The mistake in his case was just around the financing. People have sometimes said that Dome paid way too much to buy Hudson Bay Oil & Gas and thatâ€™s what did us in. Thatâ€™s not actually true. Hudson Bay was a great acquisition and we did some really superb things with it. Itâ€™s just the way we financed it. We financed it essentially with 100-per-cent debt and that turned out to be not a very good idea.â€
5. How did you wind up with Fletcher Challenge Energy Canada?
â€œLike most of us in 1988, I didnâ€™t have any money and the Toronto financial community wasnâ€™t at all interested in investing in oil and gas, having just been through the bloodbath of 1986 when the oil price collapsed. So thatâ€™s when I met with Fletcher Challenge (a New Zealand company), and spent the next 10 years running and building that enterprise (Fletcher Challenge Energy Canada). I would never have left. It was really a strong performer in the Western Canadian oil and gas business but the writing was on the wall that Fletcher Challenge was in significant trouble, again because the parent company had taken on too much debt and were too aggressive in their financing structures for the volatile businesses they were in. So knowing that they were going to have to sell the energy company in order to live another day, I was interested when I got a call from a headhunter (for TransCanada). Initially, I was approached about coming here to run TransCanadaâ€™s non-regulated businesses and thatâ€™s what I came to do. Within a month or two, we learned that the circumstances were a bit more difficult than anybody had thought. I kept that job of running the non-regulated businesses, but to that was added responsibility for divesting the assets we felt we had to sell to restore our financial position.â€
6. Did you foresee trouble in the energy trading business before the Enron fiasco made it front-page news?
â€œYeah, I did. Well, what I saw was a business that had extraordinarily skinny (profit) margins. The profit margins available on the trades were just minuscule and it required a lot of financial capacity standing behind it, which wasnâ€™t always recognized. We were putting our strong credit rating on the line every day in support of some of these big trades and we were exposing ourselves to a lot of risky business. There was just no money to be made. We were buying and selling $10 billion a year worth of natural gas and other products and in a good year we might make $50 million. And in a bad year, the losses were unlimited. So it just didnâ€™t seem like a business model that made any sense. And the question had to be asked, â€˜Why was a company that would normally be seen as a large, stable and very tightly managed enterprise be engaged in such a risky activity?â€™â€
7. How do you reflect on your impeccable timing in exiting the gas marketing and energy trading business?
â€œWe made that decision in April of 2001 and we immediately went to work attempting to sell the gas marketing and trading (division).
â€œIt took us about 10 months to get a deal together to sell it. At the 11th hour, there were all kinds of complications. We finally closed off on all the checklists on the very last day of November, and on Dec.1 I got up at six in the morning to read the news on the Internet that Enron had gone bankrupt. And we had closed that business about 10 hours earlier. Yeah, we were shocked and we breathed a huge sigh of relief. I mean, we were lucky as hell to get it done because it made it very difficult for the people that we sold it to (Mirant Corp.) to make any money out of it. It was really the death knell of that whole business model.â€
8. What was Enron like to deal with?
â€œI wouldnâ€™t want to comment on that. You can infer from that (what it was like). Having to deal with them was one of the main reasons we wanted to get out of the trading business. Enron was an amazing company, though. There is the other side to the Enron story, that there were a ton of people who did their jobs extremely well and the company went down for reasons that had nothing to do with poor performance on their part.â€
9. Whatâ€™s your long-term growth strategy for TransCanadaâ€™s pipeline business?
â€œFirst of all, we focus on large-scale opportunities in the pipeline business. Thereâ€™s a lot of opportunity to build a little bit of pipe here and a little bit of pipe there to connect new customers to our system, which we do all the time. But the big opportunities on the pipe side are the (proposed) Alaska (pipeline) project, the Mackenzie Valley (pipeline) project and significant opportunities to acquire existing pipelines in the U.S. that fit well with us. We think we already have a significant position here in Canada and, all things considered equal, we would prefer to diversify ourselves by building our U.S. pipe business. So, in terms of acquisitions, weâ€™re very focused on whatâ€™s available in the U.S. and regions and assets where we have unique knowledge and expertise to make sure we donâ€™t do a bad deal. Also, we would hope to close on the transaction for Gas Transmission Northwest (a pipeline from Kingsgate, B.C., to California) in the pretty darn near future. We have about 20 per cent of the market share for gas transmission in North America and weâ€™re the largest gas transmission company in North America. So itâ€™s relatively difficult for us to see how we would increase our market share in a big way in gas transmission.â€
10. How much impact would the proposed Alaska project have on TransCanadaâ€™s future?
â€œWhen it actually occurs, it will be very significant but itâ€™s some distance out into the future and itâ€™s uncertain as to how it will proceed and when it will proceed. One thing we try to do is to cultivate positions that the company can exploit at the right time in the future. You canâ€™t just come to work at TransCanada and say, â€˜Today I think weâ€™ll build the Mackenzie Pipeline.â€™ Weâ€™ve worked on cultivating that opportunity for 30 years and the same would apply on the Alaska project.â€
11. How do you see your power business evolving?
â€œIn power generation, weâ€™ve grown an enterprise that today is worth several billion dollars from a very small base in 1999. Yet even with all of that growth, today we would be less than one per cent of the North American (power) generation capacity. So we could grow our power business very significantly and still not outgrow the opportunities that are available to us. So our growth strategy in power is to recognize that weâ€™re in two core regions, the one in the West centred around Alberta and the other is our eastern region centred around New York, New England and the Great Lakes Region. Our strategy is to focus on those two regions, to rely on our market knowledge about what makes a good deal and work hard to maximize the size of our power business.â€
12. Whatâ€™s your view of the supply shortage in the natural gas sector?
â€œThereâ€™s a supply crisis today. The price of gas has gone from about $1.50 (US mcf) to about $6.50 in the last six or seven years. But every crisis can be handled. Gas supply in North America flattened out about three years ago and we havenâ€™t seen any significant growth in supply in at least three years. So whatâ€™s happening today is that all the new capacity in the power-generation sector has really been gas-fired in the last five years. So as the market demand for electricity picks up and people start to turn those plants on, they require a lot of natural gas. Given that thereâ€™s only so much supply, what you end up with is a battle between the power generators and the industrial consumers. The power generators drive the price of gas to progressively higher levels until the industrial users are driven out of the market. So a lot of industrial users are either shutting down their operations, moving to another country or figuring out how to burn some other kind of fuel.â€
13. So how do you see that issue playing out?
â€œIâ€™m not sure that anything that is happening should be seen as bad. Because gas has been plentiful and dirt cheap in North America, weâ€™ve tended to use it for a lot of things, where in hindsight, maybe it hasnâ€™t been really optimal. So what the high prices do is drive out the inefficient users and make the resource available to those who can afford to pay. Going forward, North America is going to be challenged on the energy supply side for both gas and oil for the foreseeable future and we (North Americans) are going to be importers from foreign sources. But one of the good outcomes from this is that North America is going to learn to be more fuel efficient.â€
14. Whatâ€™s the most daunting challenge in the energy industry?
â€œFrom a North American perspective, the most daunting challenge is how to bring incremental supplies to market when there are so many hurdles and barriers in front of us every time we try. If youâ€™re a producer that wants to conduct some drilling activity in a prospective area, itâ€™s extremely difficult to get permits and authorizations to do that. And if youâ€™re a pipeline company trying to build connecting pipelines to serve new power plants in the more heavily populated parts of North America, itâ€™s just agonizing to try to go through that process and get permits. The governments are the only people that can solve this, but itâ€™s a broad societal issue where everybody wants to burn natural gas and use electric light and yet they donâ€™t want any of the infrastructure anywhere near them.â€
15. If Prime Minister Paul Martin asked you for one piece of advice concerning the energy industry, what would your response be?
â€œI would say that we need to show leadership and we need to be decisive in doing the things that have to be done to make some of these major energy projects move ahead. Iâ€™m hopeful it can happen. Iâ€™m an optimist by nature.
â€œI think the Martin government really does understand the northern projects fairly well. Itâ€™s interesting that we have some very large energy projects here in Alberta and the Alberta government is very committed to making them go ahead effectively. And theyâ€™re also doing it in a way that doesnâ€™t really disadvantage a lot of other people, so I think it can be done. Looking at the way the Alberta government does it sometimes is a good place to start.â€
16. What in your mind makes a great business leader?
â€œFirst, itâ€™s having a real good understanding of the opportunities that are available to the corporation, having the foresight and determination to decide which things a company is going to pursue, then sharing that message with all the people on the team, motivating them and building enthusiasm for that particular course of action. Of course, you also have to be smart enough to make corrections and modifications to that plan. You have to really pull everybody together in terms of going after some significant and value-creating goals for the company.â€
17. What character trait do you believe has had the most to do with your success?
â€œOh, probably just that I work all of the time. It (long hours) is something that I wrestle with a lot, but the reality is that it takes about 55 to 60 hours a week. And I see that (hard work), incidentally, in a lot of my co-workers as well.â€
18. What are your greatest sources of pride from your career in the energy industry?
â€œI suspect my greatest source of pride ultimately will be what gets done here at TransCanada, but I suppose the thing that resonates most with me was starting Fletcher Challenge Energy from scratch where there were literally only two of us, and taking it to be an enterprise worth more than a billion dollars. The difference between that and TransCanada is that the scale at which weâ€™re doing things here is so much larger. We will do some great things here.The greatest accomplishment at TransCanada has been the success weâ€™ve achieved in building a power business. Interestingly, TransCanadaâ€™s power business is three or four times as big as Fletcher Challenge Energy was.â€
19. As a Calgary Flamesâ€™ season-ticket holder and someone accustomed to big-time negotiations, whatâ€™s your advice for NHL commissioner Gary Bettman and NHLPA boss Bob Goodenow in solving the lockout?
â€œI would encourage them to reach an interim agreement that wouldnâ€™t really accomplish anything other than keeping the game on the ice for the next 12 months. Having reached that agreement, then they should get back to work in the negotiating room. Iâ€™m not very sympathetic that thereâ€™s any need to shut the whole sport to create a short-term crisis. They should get the product back on the ice and take the time to figure it out.â€
20. How long do you hope to remain as CEO of TransCanada?
â€œI donâ€™t know. People say that good CEOs can only do the job for five years and yet there are many examples of CEOs who have been good for 10 or 15 years. I donâ€™t foresee myself working when Iâ€™m 68 years old (he is 52) but on the other hand, I donâ€™t plan to leave in the foreseeable future. Beyond this (TransCanada), I just want to learn how to be a good cattleman.â€
(Gyle Konotopetz can be reached at email@example.com)
IN PROFILE: Hal Kvisle
* Title: President/CEO, TransCanada Corporation.
* Born/raised/age: Innisfail, Alta.; 52.
* Education: University of Calgary, MBA; University of Alberta, Bachelor of Science, civil engineering.
* Career: Kvisle was appointed president and CEO of TransCanada in April of 2001, two years after joining the company as executive vice-president, trading and business development. He came to TransCanada from Fletcher Challenge Energy Canada where he was president. Prior to that, he was a petroleum engineer, engineering manager and finance manager with Dome Petroleum, where he played a lead role in the sale of the company to Amoco Canada.
* Moonlighting: Kvisle was recently elected as chairman of the board of the Interstate Natural Gas Association of America and is the first Canadian to hold that title. He is chairman of the board of governors of Mount Royal College and a director of two companies â€“ Prime West Energy Trust and Norske Skog Canada.
* Pastime: Farming.
THE COMPANY: TransCanada Corp.
* Brass: Hal Kvisle, president/CEO; Russell Girling, executive vice-president, corporate development/chief financial officer.
* Profile: TransCanada is a North America energy company providing natural gas transmission and power services to the industry. The company has a network of approximately 38,000 km of pipeline transporting the majority of Western Canadaâ€™s natural gas product to markets in Canada and the U.S. The company also owns, controls or is constructing more than 4,700 megawatts of power, enough to meet the needs of 4.7 million average households. The 53-year-old company employs 2,400 people.
* Accolades: In 2003, TransCanada was recognized as one of Canadaâ€™s Most Respected Corporations through an Ipsos-Reid survey of Canadian CEOs.
* Recent Stock Price (TRP-TSX): $28.50 (year range, $24.76-$29.72).
* Website: www.transcanada.com
* Head Office: 450 1 St. S.W., Calgary T2P 5H1.
* Phone: 403-920-2000, toll-free 800-661-3805; fax 403-920-2200.