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Illustration of Canoe Financial founder and oil patch investor Bruce Chernoff. (ANTHONY JENKINS/THE GLOBE AND MAIL)
Illustration of Canoe Financial founder and oil patch investor Bruce Chernoff. (ANTHONY JENKINS/THE GLOBE AND MAIL)

THE LUNCH

Bruce Chernoff: The comeback kid of the oil patch Add to ...

The trading, mostly in mining stocks, bought him a nice car and stereo on graduation, but he has never used his degree in a direct way. He does not regret the four years: He views engineering as a good analytical building block for a lot of careers. After Queen’s, he spent a year in Toronto as a commodity trader. Missing the West and the mountains – he was a ski racer as a kid – he went out to work with his father, who had acquired a little mining shell company in Vancouver.

The Chernoffs converted the shell into a shallow gas producer called Pacalta, and Bruce learned the business under his father’s tutelage. He had trouble finding oil and gas talent on the West Coast, so he came back to Calgary to set up shop.

Pacalta also had a chance to acquire some intriguing oil and gas properties in Ecuador, and Mr. Chernoff decided he had little to lose. He enlisted a petroleum engineer named John Wright to run the company in Ecuador and the two of them collaborated in forming yet another company called Petrobank. Those Ecuadoran assets became highly coveted, and in 1999, the Chernoffs sold Pacalta to Alberta Energy Co. (later known as Encana) in a $1-billion deal – a number that owed much to the spade work of Brett Wilson, who was then running FirstEnergy Capital in Calgary.

The Pacalta windfall set Mr. Chernoff up as a player at age 34. He found that he enjoyed starting companies and putting together the pieces of the puzzle – organizing assets, building management teams, finding the lowest cost of capital. “It is something I love to this day,” he says.

Mr. Chernoff parted company with Mr. Wright, as the latter went off to build Petrobank and its affiliates in South America, as well as Alberta and Saskatchewan. Mr. Chernoff, meanwhile, turned to buying mature – often unloved – conventional oil leases at a time the market was focused on natural gas, and he assembled the land in an income trust called Harvest.

“Harvest was a ton of fun,” he says, and everything was coming together nicely until Halloween, 2006. Harvest was in the middle of financing its Newfoundland refinery when Finance Minister Jim Flaherty pulled the plug on income trusts’ tax breaks. The financing fell apart, Harvest lost its edge in cost of capital, and was up to its neck in debt before the South Koreans rode to the rescue.

At one point, Mr. Chernoff became concerned about being personally overinvested in oil and gas, and decided to diversify by buying management of the EnerVest funds. He assumed he could bring a new growth model, and paid $185-million for the management contracts, which he realizes in retrospect was far too much. With the flagship EnerVest Diversified Income Trust, he figured: “I was buying a management fee on the market and so how bad could the market get?”

Real bad, it turned out. Who knew that in the 2008-2009 meltdown, the fund would lose 60 per cent of its value? It was the darkest time of his investing life and the only option was: Suck it up. “You run out the hard helmets and flak jackets, and you kick your boots up, tie your laces and stabilize the business. The world wasn’t going to end, and you had to stay in the game. ”

Now he and Mr. Wilson are working at being players in the hotly competitive world of mutual funds, as well as its traditional line of closed-end products. “We’re not trying to take over the world,” he says, but Canoe aims to be a high-end niche player with good value and service. A unique selling feature is its Calgary base and strong energy-industry insights in the investment team, he says.

Besides Canoe, and his oil and gas assets, he is involved in power generation, and has invested in a rail venture that, in the short term, would help to break the transportation logjam for Alberta crude. But rail is essentially a stop-gap until the pipelines get built. “It is a piece of the puzzle,” he says.

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