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Hal Kvisle's legacy of diversification and growth

TransCanada CEO Hal Kvisle

This Wednesday will be Hal Kvisle's last day as chief executive officer of TransCanada a North American pipeline giant and rising force in power generation. Mr. Kvisle, 57, the CEO for nine years, plans to stick around for another two months to ease the transition to his successor, Russ Girling. Meanwhile, Mr. Kvisle has some parting thoughts on environmental activism, the state of the industry, and his legacy in a company that he has greatly strengthened, but which he leaves at a time of looming challenges.

Will you get a chance to do the things you've always wanted to do?

I have outside interests like the Nature Conservancy of Canada. There is this perception that corporations generally, and corporate leaders in particular, don't give a darn about the environment - that we simply want to make money and environmental consequences be damned.

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But growing up here as a young engineer, I was very impressed with how companies like Dome Petroleum drilled wells without damaging the environment. There is no other industrial activity that mankind does that generates more wealth and good for humanity with less impact on the environment than oil and gas. You have a well that's worth $10-million and takes up a quarter of an acre. That's incredible.

But that's just looking at the ratio of financial wealth to footprint.

And there are things we can do better. As oil and gas footprints get bigger, we can do more to conserve and protect alternative areas. For example, as the footprint in northeast Alberta grows bigger as oil development picks up, maybe we should conserve more of the Foothills' front ranges of the Rockies or different parts of northwest Alberta.

Should there be a specific ratio of exploited to conserved land?

I don't have a prescribed ratio in mind, but the principle is that we conserve offsetting acreage for the parts we exploit and develop. Then, we do what we have to do to reclaim oil- and gas-activity lands - to at least as good a shape as before the industry arrived. That's the stuff I'd like to help people understand and get them to commit to.

Will the BP spill spur a shift of opinion in favour of the oil sands, whose environmental issues the world at least knows?

I'd say the world doesn't really know the environmental risks of the oil sands. They've been greatly exaggerated and overblown by activist organizations, who have different agendas on the go. Even with our friends at the Pembina Institute, it is very disappointing to see how they have devolved into just an arm of various U.S. organizations. These parties, such as Natural Resources Defence Council and Greenpeace, make statements about the oil sands that mostly aren't true.

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If you really know the situation in northeast Alberta, you'd appreciate hydrocarbons have been leaking into the Athabasca River as long as the oil sands have been there, and as long as the river has been cutting through them. You'd recognize the boreal forest, which they have so much praise for, is actually quite an insignificant forest in that part of the world. You'd understand the footprint of the oil sands is not as big as Florida, but, in fact, a lot smaller.

Once you cut through all the misinformation and realize the oil sands are a great, stable long-term source of crude, the only real concern we have is that they are high on the cost curve. That's the real problem - the simple old economic risk. But as long as corporations are prepared to take that risk, we ought to make sure the oil sands are a big part of the supply mix.

But don't the oil sands spawn very high carbon emissions?

The fact is if we want to reduce emissions, we need to dramatically reduce hydrocarbon consumption per capita in all parts of the world. The total emissions from Fort McMurray are about 3 per cent of Canada's CO2 emissions, compared with the coal-fired power generation sector, which would be about 10 per cent. The highway system of greater Toronto has much higher CO2 emissions that the entire oil sands operation. So how bad is the footprint?

So in the end, does the Gulf spill improve the oil sands' outlook?

At first, it actually puts the whole energy production sector in the spotlight. In fact, the difficulties offshore in the Gulf Coast might have a negative impact on oil sands development and on things such as gas out of the Mackenzie Delta. You could see people saying, 'We've just got to cut back. We don't care if the price of hydrocarbons doubles, but we've got to do a lot less drilling and a lot less development.' But looking longer-term, as it becomes more difficult and expensive to do offshore activity, the oil sands might look relatively better. I can't predict [with certainty] but additional layers of regulation and more scrutiny for the offshore industry are not going to make it cheaper and easier.

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What's your biggest achievement at TransCanada?

The biggest was to diversify beyond the Canadian regulated gas pipeline business. We were very much a one-trick pony. In the 1990s, attempts were made to diversify to South America, into the mid-stream energy business, and to build a bigger gas marketing and trading business. A number of those efforts proved inconsequential or inappropriate. Starting in 2000, we refocused again on what kind of a company we wanted to be. Digging a little deeper, it meant building this big power business.

The second achievement was extending our gas pipeline business into the U.S. so we are now one of the largest gas pipeline companies there. Third, and maybe ultimately the most successful, is the oil pipeline business. Keystone [which extends to the U.S. Midwest and ultimately to the Gulf]is an extraordinary project.

Is Alberta undermining you by advocating more upgrading here, instead of having TransCanada ship raw bitumen to the U.S.?

I don't think the government would ever want to say, 'We don't want you to upgrade' … but they need to consider the consequences. Let's say producing diluted bitumen has a cost structure of $45 a barrel, but producing upgraded synthetic crude costs $85 a barrel. Then if the oil price goes to a lower level, at least you still have an economic bitumen operation.

Remember that for the first 20 years of their lives, Great Canadian Oil Sands [now Suncor]and Syncrude were uneconomic operations. They never made a dime on a cumulative basis. So you have to consider the economic questions - not only what is the higher apparent value in the near term, but the most stable over the long term?

And what are the employment consequences? If you upgrade everything, and you're going to add two million barrels a day of oil sands production, that will take a huge work force. Is that in Alberta's best interests - to have 10,000 people come here to build the stuff and then have no jobs for them?

And the environmental cost?

The CO2 emissions from an upgrading activity are twice as high as if you just produced the bitumen and ran it through an existing refinery.

Still, I don't feel let down by Alberta. Our pipeline from Alberta to Houston would be even happier [in outcome]if it were shipping all synthetic crude. Synthetic crude is less viscous and we can move more barrels per day and make more money than just shipping bitumen. Even if it is synthetic crude, you have to find a market and the biggest market in North America for synthetic crude is the Gulf Coast. So we're not worried.

Was there a dark moment?

It was very dark when I took the job [in 2001]when it was clear the Canadian [gas]main line all of a sudden had a lot of competition. The industry ramped up pipeline capacity just as production growth levelled off. For the first time in my career, people were talking about a death spiral on the Canadian main line. But we did manage to sustain it and get through that 10-year period.

If we figured out a model to keep the main line relatively full, and operating at economic levels till about 2010, we expected things would be okay because Mackenzie gas would come on and provide a much needed shot. So here we are in 2010 and we haven't even finished the [Mackenzie Valley pipeline] regulatory process.

So that would be a gloomy moment - that it's so difficult, almost impossible, to get a project done that is clearly in the national interest and which the aboriginal people of the North support.

What about the economics of gas?

We've seen this decline in production out of Western Canada, which I think will be offset pretty quickly by the growth in shale production out of northeast B.C. - ultimately, out of all Western Canada. But we are going to go through a difficult two- to three-year period. I didn't like to see it at the start of my tenure and I don't like to see it at the end.

How do you define a difficult period?

It comes whenever the gas flowing through the pipeline is quite a bit less than the capacity. The day the Alliance Pipeline came on [in late 2000]our volumes went down by that amount. Now here we are, 10 years later, and because of low prices, conventional production down and the shale hasn't come along yet, we're going to go through another dip. But we'll work through it - we always do.


Title: President and CEO, TransCanada Corp., Calgary.

Born: Oct. 20, 1952, Innisfail, Alta.

Education: Engineering degree, University of Alberta, 1975; MBA, University of Calgary, 1982

Career highlights:

1975: Joined Dome Petroleum Ltd.

1987-88: Played key role in Dome's sale to Amoco Canada.

1988: Went to Fletcher Challenge Energy as a senior executive.

1999: Recruited as executive vice-president, trading and business development, for TransCanada

2001: Became TransCanada's president and CEO.

July 1, 2010: Officially retires as CEO.

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