The oil sands’ grand aim for co-operation

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It was, in many ways, the signing of a corporate peace treaty. On March 1, 2012, the heads of 12 of the largest energy companies in Canada sat on a downtown Calgary stage and agreed to a legal détente. No longer would they fight each other in court over patents or intellectual property on matters related to the environmental performance in the Fort McMurray area.

Instead, they would agree to work hand-in-hand on ways to make the oil sands cleaner and greener. It was, they said, quite likely the most important collaboration agreement between competitors in any industry, anywhere. It may be their single best chance to beat back a sea of criticism that threatens the very existence of their industry.

What got less mention was that the splashy signing ceremony – complete with a big-screen live-video feed of each executive signing documents – had settled little of the big issues. And no one mentioned that the months ahead would be filled with painful meetings, with a dozen companies each sending legal teams for multiple weekly meetings to sort out how, precisely, they would establish a détente that went against the instinct of most people in the room. Nor did they predict that nearly a year later, some of the thorniest questions confronting the oil sands would remain unresolved, like how high the industry should aim its ambitions to prune its dirtiest excesses.

Yet behind the scenes, the man tasked with quietly making progress – a man who arguably has one of the most delicate jobs in all of Calgary – said he is surprised at what Big Oil is accomplishing.

"In the old paradigm, people probably would have said that what we were trying to do on the timelines we were trying to do – it can't be done," said Dan Wicklum, the former CFL linebacker who is chief executive officer of Canada's Oil Sands Innovation Alliance (COSIA), a kind of consortium of co-operation in which 14 oil sands companies have agreed to work together on environmental improvement. "Given the new paradigm of COSIA and collaboration, I think we're probably even surprising ourselves on how quickly we're being able to progress this."

They have succeeded in creating a legal structure – hardly a simple task. But they're fighting against a broader corporate culture. A recent survey by General Electric Co. placed Canada among the top countries in corporate desire to collaborate – but at the bottom of 25 surveyed countries in executive willingness "to share the resulting risks and rewards."

COSIA finds itself caught between those impulses. It has been 10 months since COSIA was formally unveiled – and even late into last fall, it remained very much a work in progress: In the organization's new downtown office, rows of chairs were stacked against a wall of windows, awaiting the boardroom table they would one day surround.

Months later, the table is set up, but the talk around it remains unfinished. Although they have settled on certain "frameworks," companies must still settle on hard targets – or goals, or objectives, since even agreeing to language has been difficult – for reducing their damage to air, water and land. What they decide stands to define what the oil sands will be for decades to come, since COSIA has promised to make public its goals and its progress toward them.

"This isn't about effort. It's about effort toward a specific end, which is accelerating the pace of environmental performance," Mr. Wicklum said.

But there are skeptics. Ed Whittingham, executive director of the Pembina Institute, an Alberta-based environmental consultancy and advocacy group, said "there doesn't seem to be a clear mechanism for accountability." And the companies themselves disagree over how to set standards. Some believe industry should aim for rigid specific numbers around the energy used to produce a single barrel of oil, for example. Others want broader targets.

"I don't know if there is an end goal, but the goal is continuous improvement," said Steve Laut, president of Canadian Natural Resources Ltd. Setting hard targets could too narrowly constrain how money is invested, he said.

There remain, however, the high hopes that drove the initial creation of COSIA: "We simply had to do better. ... Our performance needed to visibly improve," said Steve Williams, CEO of Suncor Energy Inc.

That's why all of the major oil sands bosses, including, Mr. Williams, personally signed the initial documents forming COSIA.

That said, it will take years to figure out whether it has worked, and critics have chafed at the time it has taken to see results. Even Rick George, the former Suncor CEO who strongly supports the idea, said there are potential weaknesses.

COSIA could struggle "if you get companies who either withhold key data or they don't fully participate or they don't put their best people on it," he said. "Those are all challenges in a system like that. We're, in lots of ways, in uncharted waters. Yet for all the uncertainty, there remains so much optimism that COSIA will help the oil sands that some are already plotting how to expand it.

Mr. Williams said companies are "already having the debate" about how to double down on co-operation. "Does it make sense for companies to compete on how they work with communities, or would a cohesive integrated strategy ... be much better for those communities? And we think there's a lot to be said for that."

He pointed to examples like tree planting, helping with education or providing opportunities to local businesses – all activities that could be done jointly.

"What's the limit on this thing? We're still discovering," Mr. Williams said. "We've got plenty to do on the environment for the moment. But I'm optimistic that we'll be able to push it into other areas in the long run as well."

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How COSIA works

Canada's Oil Sands Innovation Alliance exists in binders filled with legal agreements, an underpinning of paper that is meant to govern how Alberta's largest industry shares ways to extract oil with a lighter environmental touch.

Legally, COSIA is a series of joint ventures between companies that are, in normal circumstances, competitors. In simple terms, it creates a ring around the oil sands, and mandates that any innovation that helps the environmental performance there be shared among member companies – even if that innovation is pioneered elsewhere.

It also creates a system designed to incentivize companies to contribute. Each technological solution is valued according to out-of-pocket costs, under the principle that even money spent on flawed ideas is worth something, because it prevents others from heading down blind alleys. That spending is then tabulated, with the requirement that each company contribute equitably, based on a formula weighted to how many barrels a day of approved production they have – a measure that means hefty spending requirements even for companies like Total SA, which are preparing for major new output but have little current oil flow.

Companies that have not contributed enough have five years to catch up – but they're chasing a moving target because the contribution expectations are calculated not just on past spending. They're recalculated every year. So one heavy-spending company can essentially force others to spend more, which some hope will create a "race to the top" in innovation.

Nathan VanderKlippe