This article was originally published in Maclean's Magazine on July 1, 1997
Former PM Clark's New Career
Who says business and politics don't mix? For almost seven years, Joe Clark travelled the globe as Canada's foreign minister, winning praise as a trustworthy voice for Canada on the world stage. Nowhere was Clark more respected than in Africa, where as head of the Commonwealth Committee of Foreign Ministers on Southern Africa, he helped spearhead the battle against apartheid in South Africa and delivered economic aid to other struggling African nations. Now, four years after his departure from politics, Clark's high standing with his former African colleagues is a crucial factor in his new role as chairman of Calgary-based Canop International Resource Ventures, a fledgling oil and gas company that this month signed a $20-million development agreement with the East African government of Tanzania.
Canop is one of a growing number of small energy companies that are looking overseas, particularly to Africa, for new opportunities. With declining potential for major finds in the western basin of North America - according to the Alberta Energy and Utilities Board, conventional oil reserves in Alberta could be depleted in 20 years - Canadian companies are turning to high-risk, high-reward regions where oil and gas exploration is in its infancy. And African nations are actively seeking Canadian money. At an oil and gas trade show in Calgary last week, one of the 600 exhibitors was the tiny West African country of Benin, offering six blocks of land with estimated reserves of five billion barrels. "We are anxious for outside investment - it's essential if we are going to develop our potential," said Jean-Jacques Pereira, deputy head of Benin's state-owned oil company.
But doing business in the Third World requires more than money. It helps if there is a sense of trust between the host government and the development company, a dimension Clark brings to the Tanzanian project. "The fact that as foreign minister I was seen to be open to the perspective of African countries made a tremendous difference in terms of trust," says Clark. Two years ago, after setting up a consulting company in Calgary to advise companies on international investments, Clark was approached by former Tory cabinet colleague Harvie Andre with the idea of entering the oil and gas business. Teaming up with oil industry veteran Alan Smith, the trio launched Canop - short for Canadian opportunities - which they intend to list on the Alberta Stock Exchange to raise some of the $20 million needed for the Tanzanian project.
Trading on Clark's friendship with Tanzanian President Benjamin Mkapa - the country's former foreign minister and a member of the Commonwealth committee Clark chaired - Clark and Andre made several trips to Dar es Salaam, culminating in a production-sharing agreement on 15,000 square kilometres of onshore and offshore territory. Andre says that Clark's profile is key to the business strategy: "Joe has a very good reputation and Canada has a very good reputation. When we said we were interested in oil and gas potential, we were treated seriously from Day 1."
If Canop scores a hit, the deal could be a money gusher. Canop's agreement allows it to claim the first 65 per cent of production and split the remaining 35 per cent equally with the Tanzanian government. The company will pay no additional royalties and will not pay corporate tax in Tanzania until it has recouped its capital investment and is earning a 25-per-cent return. Although the project is far from a sure thing, there is reason for Canop to be optimistic. Nearby is a major gas field being developed by Calgary-based Ocelot Energy and TransCanada PipeLines Ltd., which is building a pipeline that will provide ready access to customers in the port city of Dar es Salaam.
Others who are familiar with the international scene say strong personal links are often more valuable than trying to impress governments by throwing money around. "Relationships are extremely important," says Rick Roberge, chairman of the Canadian energy group for Price Waterhouse. "North America is more transaction oriented - 'Let's do a deal and move on.' Over there, you need to build relationships." In its 1997 oil and gas survey, Price Waterhouse notes that Canadian oil and gas companies raised more than $1 billion in 1996 to finance overseas projects. Although international exploration requires patience and often involves economic and political uncertainties, the report notes that "the rewards in this arena can often be worth the risk."
For the 50 or so Canadian companies now operating internationally, the time seems right to look offshore. The average development cost per barrel of oil in North America is between $8 and $10 (U.S.), roughly half the current world price. In contrast, the cost in countries such as Tanzania ranges from $4 to $6. Still, Joe Corrigan of the Canadian Institute for Petroleum Industry Development says that small companies need to be cautious: "They've got to know what they're doing geologically because sometimes they're betting the company."
But as Clark points out, being small can sometimes be an advantage. "You're more fleet of foot because you don't have the layers of decision-making large corporations do," he says. As Canop prepares to begin drilling later this year in Tanzania, his partners clearly believe that having Joe Clark on their side will lessen the risk and increase the reward.
Maclean's July 1, 1997