Industry Committee on July 20th, 2010

[Denis Coderre, Liberal, Bourassa, QC]

Mr. Boles, if it is not dismantled, so it is not a closed refinery, are you willing, sir, to put up an offer and acquire Shell's Montreal East refinery?

[Jim Boles]

The short answer is yes.

[Denis Coderre, Liberal, Bourassa, QC]

Did you or did you not respect their term sheet by putting up at the beginning the $150 million to $200 million for the refinery?

[Jim Boles]

Well, we offered $150 million in writing ultimately for the business. We're not in the market to buy scrap iron, so what was important to us was the business. The refinery is a vehicle to get to the customers. You said the refinery; to me, we're buying a business, not without customers.

[Denis Coderre, Liberal, Bourassa, QC]

Is it true that you asked to buy the gas stations, or did Shell offer you all those gas stations and the retail from Quebec and the Maritimes?

[Jim Boles]

Let me answer that this way, if I may. The asset purchase agreement that's in Shell's virtual data room has a section that requires that the retail locations be purchased. Now, when I originally discussed this with Mr. Charles Marion at Shell, we were late to the process. So we agreed that we would work very hard to attempt to try to get to a deal on the refinery and then we would address the retail stations.

[Denis Coderre, Liberal, Bourassa, QC]

So the bottom line, for the sake of our discussion—and this is my last question—for Montreal, for Quebec, for our own national security, is that Delek US would be ready today, since the refinery is not dismantled, to go back and is still willing to buy that refinery.

[Jim Boles]

We're willing to buy the business and we're willing to buy the retail stations, so we're willing to buy everything that Shell wanted to sell.

I would like to clarify one thing, and that is that Shell has waived our appearance and all the matters under the confidentiality agreement for us to be able to speak today.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Coderre.

We'll now go to Monsieur Laframboise.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Thank you very much.

Gentlemen, thank you for being here today.

My first question is addressed to you, Mr. Fortier. First of all, we had a seller who wanted to sell—you told us that you enquired about this on a number of occasions—a buyer that wanted to buy and a follow-up committee, of which you were the chair, which was recognized by Shell. Knowing you, as I think I do, you certainly met with its officers to discuss the framework and all the details. However, by the end, you were no longer a party to these discussions, and you were asked to withdraw. Did you find that a little… I would like to hear your comments in that regard.

[Michael M. Fortier]

In my opinion, Mr. Laframboise, it was perfectly appropriate that I not be a party to the negotiations. We are talking about a company selling its own assets and another company that wants to buy those assets. I was not bringing any value to the process. So, as I see it, it was perfectly normal for the two companies to negotiate on their own.

The reason I asked the committee to wind up its activities—something we did in mid-June—is that I realized, through my discussions with Shell officials, and even in the letters they began to send me, that we were becoming a problem for them, and I did not want to be a problem. The committee's aim was to act as facilitator. So I had no desire to have the opposite effect.

The fact is that we had completed our work: we had found, not one potential buyer, but several potential buyers. One of them is here today, because that particular buyer is the one that went furthest in the negotiating process with Shell. So, the committee, including Claude and myself, had found potential buyers and had done its work. We therefore decided to wind up our activities. Was that really necessary? No, but I had the sense that this was becoming very important to Shell, and I did not want to make an issue of it. I therefore agreed to have the committee wind up its activities.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

And that was after receiving a letter from Shell's lawyers, I believe?

[Michael M. Fortier]

Yes.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

My next question is for Mr. Boles. You own other refineries. Are there several of them?

[Jim Boles]

We own one refinery, two terminals, and a pipeline.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

You had the necessary expertise, and even Shell acknowledged that you did. There was some doubt about your financial wherewithal, but that seems a little more understandable.

Did the negotiations unfold as you expected? Were you overtaken by events at a certain point?

[Jim Boles]

I don't believe we were side-swiped, to use your term. It was a very quick negotiation. We explored matters as we went along. We entered the process in late April, early May. We had a June 1 deadline, and we were trying to do as much raw due diligence work as we possibly could and discuss negotiation matters as we went along.

Through that process we became aware of things we were surprised about, but I don' t think there was any ill intention on Shell's part in that regard. It's just a wholesale business, and in our mind we were buying the business, we weren't buying iron. They had a different view of that, and that came up. There were things like that, and they just happened in the process of negotiations.

None of it bothered me. This is what I do.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Shell officials tell us that approximately $600 million was invested in the refinery and that one of the issues was your ability to secure the necessary funds to properly equip it. You said earlier that the refinery was not in good condition. So, you were aware of that.

Did you have the financial wherewithal to restore and refurbish it? Were you in a position to secure the necessary working capital to meet your commitments and serve both Quebec and Eastern Canada?

[Jim Boles]

The short answer is yes, definitely.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

When you see that a seller is anxious to sell but is starting to have doubts about whether the buyer has the money… It is important to determine whether the buyer is credible or not, and I think your credibility is well established.

I believe that Mr. Fortier had secured government assistance. I thought I understood that there had been discussions with the governments of both Quebec and Canada in that regard. Is that correct?

[Michael M. Fortier]

There were discussions with governments regarding the possibilities, but they never made any official commitments. They wanted to meet with the potential buyer first, enquire about the buyer's intentions regarding the assets and also see a business plan, which is perfectly natural. However, there are a certain number of standardized programs, particularly in Quebec, which are well known to investors, who make regular use of them. So, they would have been available to a potential buyer.

[Mario Laframboise, Bloc, Argenteuil—Papineau—Mirabel, QC]

Was that satisfactory as far as Shell was concerned, in your opinion? M. Oblath didn't seem to be sure of that. Twice he mentioned that a buyer coming forward with government money could be problematic.

[Michael M. Fortier]

When a company that size shuts down—and this is unfortunately not the only closure to have affected the country or certain regions of the country, either in this or any other industry—when large groups shut down a plant which has hundreds of employees and survival committees such as my own are struck and begin lobbying potential buyers, those buyers know at that point that both governments and municipalities are anxious to see the company survive. So, it is perfectly normal for those buyers to ascertain whether public money will be available. That is part of the process.

The fact that Delek US Holdings may have been interested in securing significant government money as part of the operation doesn't shock me at all. Had I been in their position, I would have done exactly the same.

[The Chair, Conservative, Michael Chong]

Thank you, Mr. Fortier and Mr. Laframboise.

Mr. Wallace.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I want to thank our witnesses for coming here today.

Because this is a public meeting, and people may be tuning in and have no idea what we are talking about, Mr. Fortier, could you give me a brief understanding of how the follow-up committee was formed, its mandate, who was on it, was it ever done before?

I'm from Burlington, and we had a Petro-Canada refinery close, right next door. I was a city councillor at the time, and my ward bounced right up against it. I don't recall any discussion in 2005 of this. Shell closed before that. I know Mr. McTeague lives in Oakville, but there was a Petro-Canada refinery and a Shell refinery, and the Shell refinery closed first.

What is the mandate of your committee and its make-up?