Industry Committee on July 20th, 2010

[Voices]

Oh, oh!

[Jim Boles]

I'm not trying to be cute this time; I'm saying that more than likely, the inventory requirements of Shell will go down as they get closer to closing, and then they'll be very little.

But let's say it's $400 million. We'll have a working capital financing facility for that. We'll put up $100 million or so of equity, but we'll borrow the other $300 million. There will be some project financing that will go on for this $800 million. Between cashflow from the refinery as the model reflects it and the project financing that's available, as we discussed with these gentlemen, that can be financed.

So if the question was “Can you get the money or are you just here for a trip to Ottawa?”, we can get the money.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

It is perfectly normal for a company to borrow money. Otherwise, the poor banks and credit unions would not be making much money. As I see it, it is normal to borrow money when you're in business.

Based on what I understood the Shell official to have said, we are talking almost exclusively about borrowed money. I believe Shell also borrows money. I can guarantee you that in New Brunswick, the Irving company, which is worth billions, also borrows money.

In any case, that is not a concern for you, since you are able to secure the money.

[Jim Boles]

Was there a question?

[Voices]

Oh, oh!

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Well, I could ask you this one, if it's not clear enough: Could you get the money?

[Jim Boles]

We typically would not spend the kind of money we did on lawyers and engineers and consultants and management time if we didn't feel like we could fund the deal.

[Yvon Godin, NDP, Acadie—Bathurst, NB]

Good.

[The Chair, Conservative, Michael Chong]

Okay, thank you--

[Yvon Godin, NDP, Acadie—Bathurst, NB]

My last question will be very short.

Negotiations on the turnaround get serious: are you a buyer if Shell is ready to sell?

[Jim Boles]

Yes, we have an interest in this refinery. We believe we can put a business plan together that can make it a success. But it's not going to be without pain by all.

[The Chair, Conservative, Michael Chong]

Thank you very much, Mr. Boles.

Merci, Monsieur Godin.

Mr. Van Kesteren.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Thank you, Mr. Chair.

Thank you, gentlemen, for appearing before us.

In my short stint here--I'm going into my fifth year--I think this is unprecedented as far as the attempt made.

Mr. Fortier, you and I had a brief conversation, and you had mentioned that there have been similar attempts when it comes to industries that are in crisis. But I think to this degree, this has got to be a first.

I'm wondering--don't answer my question yet, because I have a series--if we're seeing a trend develop whereby governments will pressure companies to sell, or at least to make that a possibility. I should add, too, that I'm a former businessman.

I would say, Mr. Boles... I must ask, are you from Texas?

[Jim Boles]

I am from Texas, yes.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

I was involved in purchasing my first business, and I attempted to purchase another. I'm an auto dealer, in case you're wondering what I do for a living, and it's complicated. It's an enormous undertaking. I commend you for the time and the patience, because in our second acquisition we backed off. There were just so many...

I wonder if you could answer that first question. Is this something we're going to see as a trend?

The second question would go to Mr. Boles, because although we need people to sell, we also need the buyers. Obviously when you buy something, you're looking for a bargain. You're looking for possibly a fire sale. What would your reaction be if you were to make an acquisition of a company in Canada, if this became a trend, whereby the government would haul you up before a committee to question you about your purchasing practice, whether or not everything was on the up and up--and I'm sure they would be, and that's why we have lawyers--but whereby you'd have to answer all these questions? Would you entertain that, or would you run for the hills?

Mr. Fortier, maybe first you could go.

[Michael M. Fortier]

On the trend, obviously I'd only be guessing here. I remember when GM closed its plant in Quebec, there was a committee that had been struck. I don't remember who was sitting on the committee. I think you will likely only see this when you have scale, and hundreds of people whose jobs depend on the survival of the business. You also need cooperation from the current owner. The current owner needs to say, as Mr. Boles said, “Although we have an alternative to running it as a terminal, we are willing to sell it”, and in this case, this is what we had. So I think you need a combination of scale, interest from the community, and a willing vendor.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Can I interject something here? The thought occurred to me too that in the case of possibly not General Motors, but if we were to talk about the forestry industry, a mill that was closing down and it was an economic decision, in this particular case, this is not necessarily a decision that's being made because the company is in trouble. Far from it. Shell's a very profitable and very successful company. This is a decision that it's no longer profitable, for whatever reasons, and they need to make this decision.

Subsequently, the company that would be making the offer is somewhat at a disadvantage, because if it's not advantageous for Shell to continue that operation, Mr. Boles certainly wouldn't pay the going price and then ever expect to have this as a profitable endeavour as well. So he would have to buy this at a fire sale in order for this to be--

[Michael M. Fortier]

Companies are traded every day. In every business that you can think of there are transactions. As we speak, there have probably been foreclosings. You always have a motivated seller and you've got a motivated buyer. It's not that you're selling because you can't make money with it; you might want to redeploy capital to another part of your global business. But remember that in this case, Shell actually ran its own process to sell this in the third and fourth quarters of 2009. It announced that it had failed to sell it, and then we showed up as a committee and said, “Do you mind if we try?”, and they said “No, go ahead, try, but it's not going to be easy”.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Originally, were they interested in selling the retail as well as the refinery? Because obviously they're in the business to produce gas and then to sell gas. Was that part of the original, or is that something we kind of threw in and discussed?

[Michael M. Fortier]

You should ask them, but I think they told me that they had attempted to sell only the refinery in 2009.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

Am I out of time?

[The Chair, Conservative, Michael Chong]

Just a short question, go ahead.

[Dave Van Kesteren, Conservative, Chatham-Kent—Essex, ON]

That's amazing. My time either flies by very quickly or this side's just that good.

Mr. Boles, could you answer the question that I laid out first, when I talked about--

[Jim Boles]

The short answer is yes. It wouldn't bother me to go in and appear before... If your feet follow your mouth in a deal, then you don't mind sharing whatever you've said, because you're going to perform what you've said you'd do. The precedent's already set for a morphing of laissez-faire to something different from what we've seen. Certainly in the United States, for sure, we have a lot more governmental support of at least the financial industry.

Putting our various feelings on that aside for a second, though, there's not a fire sale price here, and I don't know that you've suggested it. You were dealing in hypothetical. We don't believe $150 million is a fire sale, and we don't believe that's all that's involved here. Don't forget that there's $800 million that needs to get reinvested--or some number. Our folks have said $800 million over a period, we estimate, of ten years. That's a pretty major undertaking. That's a commitment to that business. That's a lot of money. So we don't consider it to be a fire sale, and we're not looking for a fire sale. We don't want to overpay, but we also believe that the best deals are done when people have a fair and commercially reasonable transaction.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Boles, and thank you, Mr. Van Kesteren.

Mr. McTeague.