The Gwyn Morgan File: Rise of a Shale Gas Baron

"In rentier states, economic and political power is especially concentrated, the lines between public and private are very blurred, and rent-seeking as a wealth creation strategy is rampant." -- Terry Karl, Paradox of Plenty

Gwyn Morgan's emergence as a political advisor to BC Liberal leader and premier designate Christy Clark not only reflects the province's growing dependence on shale gas revenue but her party's formidable indebtedness to petro politics.

Morgan's calculated political ascension, which should prick the interest of every British Columbian, also illustrates the growing ambition of the country's petroleum elite.

Morgan, a sort of Canadian version of former U.S. vice president Dick Cheney and a man who admires the "journalism" of former tobacco lobbyist Ezra Levant, also serves as an advisor to Prime Minister Stephen Harper.

As an ideological supporter of Alberta's de facto petro state (it gets 35 per cent of its revenue from hydrocarbons and has been ruled by one party for 40 years), Morgan earnestly endorses the Alberta model of resource development.

Alberta's "give-it-away" model consists of generous profits for corporations, emasculated or captured regulators (B.C.'s Oil and Gas Commission is 100 per cent funded by industry and even seconds EnCana employees for projects), paltry returns for resource owners, low taxes and a petro state crippled by disengaged citizenry with no savings for the future.

Morgan, who retired to a modest $7-million property in North Saanich in 2006, is no stranger to B.C. politics. He not only helped build EnCana's massive holdings in unconventional gas plays in northern British Columbia (more than 3 million hectares of leased land) but also negotiated an "encouraging policy environment" with Premier Gordon Campbell's government.

This unique relationship, rarely analyzed by the press, gave both shale gas and EnCana extensive influence over the province's affairs. Natural gas now drives B.C., not wood.

Morgan, a smiling trustee of the Fraser Institute, is also a promoter of free market causes such as water exports to the United States. He says it's "one of the cleanest ways of creating new investment, jobs and deficit-reducing government revenue."

Morgan pushed integrations with US

But like many of Canada's elites, Morgan, a 65-year Albertan, remains a tight bundle of contradictions. While claiming the humblest of Horatio Alger origins, Morgan actually built his fame and fortune on the strength of public wealth bequeathed to a crown corporation (Alberta Energy Co.) where he began his oil patch career.

Although he sometimes calls himself a "budding Canadian nationalist," Morgan has pushed hard to integrate Canada more deeply into the failing U.S. empire by lobbying for the controversial Security and Prosperity Partnership. The startling plan proposed a North American Union with a single currency.

Despite a sincere and lengthy commitment to improving corporate ethics, the chairman of board of directors for SNC Lavalin, one of the world's largest engineering companies, has no difficulty doing business with a wild variety of petro dictators including Colonel Moammar Gadhafi.

Though a frequent decrier of "inhuman communist totalitarianism," the petroleum engineer also did business with China's state-owned oil company while leading EnCana, one of the continent's largest gas producers.

In fact EnCana just completed a $5-billion dollar deal with Petro China that, if approved, will give that Chinese state-owned company more say over the pace of shale gas developments in the province than ordinary British Columbians.

Pioneer of controversial fracking method

Like many Tory petrolistas, Morgan regards bitumen as "ethical oil" even though EnCana, under Morgan's watch, had to import "unethical" foreign oil from Venezuela and Pakistan in order to dilute the heavy stuff for U.S. pipeline exports due to North American shortages. (Sadly, in the world's great oil complex, there is no such thing as a moral hydrocarbon.)

Although a generous supporter of alternative medicine, acupuncture, fitness and even Tibet's spiritual leader, the Dali Lama, Morgan has been slow to acknowledge the profound health and environmental impacts of industrial natural gas drilling or hydraulic fracturing.

Morgan's company, of course, dutifully paved the way for the controversial practice of fracking for unconventional gas. This brute force technology, which can cause local earthquakes, consists of forcefully blasting apart concrete-like rock formations with millions of gallons of water, chemicals and sand. It's now the subject of intense U.S. federal investigation, moratoriums and widespread public concern across the continent.

Despite Morgan's devotion to good healthy living, his aggressive "resource plays" often left an unhealthy legacy of air pollution, endangered wildlife, fractured communities and water contamination throughout the rural North American west. Since his departure in 2006, the company continues to make uncomfortable headlines about sour gas leaks, bombing campaigns and water pollution in places like Dawson Creek, B.C. and Pavillion, Wyoming.

The farm boy

By his own account the energy czar began life as a central Alberta farm boy who milked the cows and collected the eggs "without cajoling." His Welsh parents taught him an honorable code: "Keep your word. Stay honest. Do your best. If the world deals you a tough blow, buck up and move on."

After completing a degree in petroleum engineering, the short, bespectacled Morgan eventually joined the brand new Alberta Energy Company (AEC) in 1975. Premier Peter Lougheed created the novel crown corporation in order to keep on eye on U.S. multinationals and to give ordinary Albertans a chance to invest in the industry. The province owned half the company and even Morgan sold shares to citizens.

But Morgan's selective accounts of his own success or that of EnCana's give little credit to the crown corporation.

"Exactly half of my life was dedicated to building the company which became known as EnCana Corporation," goes one 2007 speech.

"That quest began in 1975, when a small group came together to issue our first shares -- and a 29-year-old engineer took some of those funds and had the wells drilled which generated our first revenue. Two decades later, that not-so-young-anymore engineer was CEO of a much bigger enterprise, and in 2002, he lead what was Canada's largest ever merger. The new company was called EnCana, a name that my wife, Pat, and I came up with while cross-country skiing in the mountains just before the announcement."

Yet Lougheed gave the Alberta Energy Company some of the best natural gas and oil resources in the province, including the Suffield natural gas field, heavy oil in Cold Lake, oil sands properties and other riches. AEC was a no-fail company and everyone in the industry knows it. It could have been Alberta's version of Statoil, the prosperous Norwegian firm.

"AEC was given so many valuable properties it couldn't miss. It was a cash cow from day one," acknowledged Rowland McFarlane, a former Lougheed aide, several years ago.

The company, of course, flourished. But Premier Ralph Klein, a visionless petro politician and alcoholic with troubling debts, sold off the prosperous crown company in 1993 to balance the provincial books.

Without so much as a public evaluation of the company's true net value, Klein gave away the province's remaining shares for less than $500 million. Tory politicians, who were permitted to own shares in the company, profited handsomely.

Just five years later the company was earning $2 billion a year and was worth more than $6 billion in the market place.

The improbable Ludwig

After slowly rising through the ranks at AEC, Morgan inherited the company's rich public asset base when he became CEO in 1994. Thanks to Klein's low royalties (among the lowest in North America) as well as limited regulations, AEC become one of the country's 10 largest gas producers. Klein and Morgan talked regularly.

Under Morgan's direct and entrepreneurial leadership, the company sold off all non-oil and gas assets and adopted Gumby as a corporate symbol. Every employee even got a Gumby figure to play with. Morgan, who then cited Adam Smith as one of his favorite authors, admired Gumby because of his elasticity and adaptability.

But a massive drilling boom in northeastern Alberta's sour gas fields pitted the elastic CEO against an immoveable adversary and a man as socially conservative as Morgan.

That combative individual was Wiebo Ludwig, the son of a Dutch resistance fighter. When the rapid development of sour gas fields near Hythe, Alberta threatened Ludwig's children and livestock, the fundamentalist Christian preacher first protested by writing civil letters. For several years he even begged officials to intervene.

After AEC proposed to drill on Ludwig's farm in 1996, the landowner, already unnerved by series of sour gas leaks (the gas can be as poisonous as cyanide), openly declared war on the company and its many contractors.

As documented in Saboteurs, the violent struggle (and clash of egos) between Ludwig's family and Morgan's company had no precedent in North America. It ultimately involved drive-by-shootings, bombings, death threats and more than $10 million worth of industrial sabotage or monkey wrenching.

Even after AEC quietly hired a small army of security guards led by retired RCMP officers, the industrial sabotage against oil and pipeline facilities persisted on a boggling scale.

In attempt to end the mayhem and protect his employees, Morgan privately met with Ludwig on Jan. 15, 1998 at Edmonton's Mayfield Inn. Dressed in black, the jaunty executive brought along two burly bodyguards. Ludwig was accompanied with his wife and family friends, the Boonstras.

Neither man really blinked. In Ludwig's account (the family recorded the encounter) Morgan told the saboteur that, "we will act in whatever way to defend ourselves and use all possible components to deal with that."

Ludwig's wife, Mamie then said, "And I will do everything in my power to keep my kids safe."

Ludwig then asked Morgan, "Who is the provocateur?"

"Yes", Mamie interjected, "Who is provoking who?"

Morgan replied, "There's no doubt, definitely not you" and added, "We are the provocateurs!"

The two adversaries even debated climate change. Morgan argued that if Canada reduced emissions, someone else would produce more.

Ludwig disagreed. "I've been in homes where you could hardly walk, the floors were strewn with boxes, loaves of bread, clothes. I don't then go home and say to my wife: 'Oh, honey, don't worry about cleaning our home. I was just over to the neighbours' and their place is such a mess -- why should you bother to clean?'"

At the end of the meeting Morgan promised to address a number of concerns including flaring, the burning of waste gas upwind from homeowners. He also said he would cancel an alarming lawsuit against the entire Ludwig family including a seven year old child. The CEO kept his word.

Sour gas and public relations

But the temporary peace didn't last long. Hostilities soon resumed and eventually resulted in one of the largest and most expensive RCMP investigations in Canadian history. Morgan even supported a police bombing of an EnCana facility in attempt to entrap Ludwig. The bombing terrified the local community and heightened tensions. Morgan later admitted that he was "consciously less than straight up" about the company's involvement.

In the end just about everyone behaved badly in the debacle including Ludwig, the police, regulators and several natural gas companies. To this day the shooting of 16-year old girl on Ludwig's farm remains unresolved. Ludwig eventually served two thirds of a 28-month jail sentence for vandalizing and bombing oil wells. (My account of this unbelievable Canadian story took three years of research and hundreds of interviews.)

Oddly enough neither Ludwig nor Morgan cared much for the content of Saboteurs. (AEC refused to let any company employees speak about the war and later requested that they not read the book. But most gave it a thumbs-up for accuracy.) Morgan then commissioned Calgary journalist Sidney Sharpe to write an EnCana version of events.

Oil patch workers, however, generally dismissed A Patch of Green: Canada's Oil Patch Makes Peace with the Environment as industry propaganda.

One former EnCana employee called it dishonest if not "mediocre marketing fluff." He noted that environmental issues have never been a priority for the industry. "Nothing is done unless it either makes money or it is forced by a regulator. Canada has lower safety standards in regards to sour gas (H2S) and environmental pollution than the U.S., and it shows. Regulation of the industry here in Alberta is a joke."

Tomorrow, the rest of the Morgan file: How the shale gas baron assembled an enormous tract of gas producing land, pioneered 'fracking' methods of forcing gas from the ground, and fought environmentalists who challenged his empire.