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Financial Post (Canada): Change nothing new for Turcotte; Western Oil Sands Chairman Turns To New Ventures

Published: Aug 14, 2007

Imagine you recently closed a deal that made you a multimillionaire at 45, then you get a call from a group of soon-to-be-unemployed miners who’d like you to lead their new venture and raise in excess of $100-million.

Instead of doing the sensible thing — hang up — Guy Turcotte took the group under his wing, pitched in $25-million of his own cash and, in mid-1999, when oil prices were weak and the Athabasca oilsands deposits unknown, launched Western Oil Sands Inc.

Two weeks ago, the company, a 20% partner in the Athabasca Oil Sands Project and the first of Canada’s swelling flock of pure oilsands startups, was sold to Marathon Oil Corp. of Houston for $6.5-billion.

In a rare interview, the shy entrepreneur with a knack for turning big ideas into big profits is already turning his attention to new ventures: He is single-handedly developing a $1-billion resort near Canmore, Alta., with glorious vistas of the Rocky Mountains, inspired by the Tuscan hilltop village of San Gimignano. It’s part of the SilverTip Golf resort, which he also owns.

He will also participate fully in WesternZagros, the controversial company looking for oil in northern Iraq that is being spun out from Western as part of the sale to Marathon. While Mr. Turcotte will only be involved as a shareholder, rather than as an executive or board member, he believes the upside could be big if the country stabilizes.

Tuscan villages in the Rockies? Iraqi oil? You may question his judgment, yet his track record inspires. Mr. Turcotte, the largest individual shareholder in Western, walks away from its sale with a cool $220-million — likely one of the biggest paycheques in the Canadian sector this year.

The 20 former mining employees of Australia’s Broken Hill Proprietary Co. Ltd. turned their $15-million initial contribution — money scraped together from company pension plans and severance payments — into about $400-million. (For the most part, they held on to their founders’ shares).

Now 55,Mr. Turcotte said West-ern’s founding group is happy with the company’s ending, though it was not its choice.

The catalyst for the sale came when Western was advised about a year ago by the AOSP’s leading partner, Royal Dutch Shell PLC, that it would no longer be included in future upgrading projects, he said. Western’s move into Iraq around the same time, while irritating some investors because of its higher risk profile, was overplayed in the media as the main reason Western was pushed into a sale process, he said.

“We had a significant issue to solve, and that is an upgrading issue. That put us in a situation where we had to look for an alternative,” he said. “Western was going to be selling bitumen [rather than upgraded synthetic oil], and I don’t think these projects really work unless they are integrated.”

There have been rumblings that the deal, to be put to a shareholders’ vote next month, may still be scuttled by a higher offer from Shell, the AOSP’s other partner, Chevron Corp., or others. But Mr. Turcotte, who stepped aside as CEO of Western two years ago and is now the company’s chairman, said that’s unlikely.

Western is the third energy venture built by Mr. Turcotte, a father of four who grew up on a farm in Southern Alberta. A chemical engineer with an MBA, Mr. Turcotte had sold Chauvco Resources Ltd., which he founded in 1981, for $1.3-billion when he was invited by the miners to lead Western. He earned $36-million from that deal, while shareholders pocketed an annual return of 43%.

Mr. Turcotte was also instrumental in building the Alliance natural-gas pipeline, which broke TransCanada Corp.’s grip on the natural-gas transmission business in Western Canada. He continues to serve as chairman of Fort Chicago Energy Partners LP, which owns 20% of the project, built for $4.6-billion at the end of the last decade.

He said he accepted the overture from the miners, who had worked with Shell for two years on a feasibility study for the AOSP, because he was taken with their international expertise and their eagerness to put up their own cash, and Shell’s willingness to continue to work with them, rather than look for a new mining partner, after BHP’s decision to back out of the oilsands in early 1999 and lay off the group.

While his gumption paid off, his job at Western had many setbacks. The first IPO, at the height of the dot.com boom, failed. A second attempt was successful but raised a smaller amount than the company needed.

All told, Western had to do 26 financings over a three-year period, raising about $1.2-billion in debt and equity, as costs for the oilsands project escalated from an initial estimate of $3-billion to a final bill of $5.6-billion.

After all that, Mr. Turcotte now finds himself sitting out the oilsands frenzy he helped create, even though dozens of oilsands companies are trying to emulate Western’s model.

“I think the oilsands will continue to evolve into a phenomenal resource for this country and for the world, because we are now getting the technology in many fronts, to develop it, and $70 oil helps a lot,” he said. “But I think we still have to figure out a way to bring the capital and operating costs down.”

Indeed, those conditions make it hard for anyone in the oilsands today to replicate Western’s story. But Mr. Turcotte is convinced his Tuscan village can.

“With the amount of wealth being created in the world today, people are looking for nice places,” he said, noting he expects demand for his luxury homes and hotels to come from every corner of the globe — as well as from Alberta’s new oilsands money.

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