Succession or hard times? Motive behind possible sale of Irving Oil stumps industry watchers

Irving Oil's motives remain a mystery to many industry watchers, including David Campbell, an economic development consultant and a former chief economist for the New Brunswick government.

On Wednesday, the Saint John-based company announced a strategic review that would contemplate a "full or partial sale."

Campbell said the announcement was "kind of strange."

He said privately held companies such as Irving Oil have to conduct strategic reviews "on a regular basis, so to announce it sounded a little out of the ordinary."

With such a tight-lipped privately held company, Campbell said he has "no idea what the motivation would be" to raise the spectre of a sale, but he has a hunch.

"We do know that over the next 20 or 30 years, there's going to be less oil refined, and so they need to figure out strategically what their role is."

With all the uncertainty around refining, perhaps they want to get out while the going's good, said Campbell.

And they may want to use the capital built up in the company for another venture.

"One of the options that many of us were hoping they would do is deploy that capital in other energy-related sectors like hydrogen … [or] other new energy-related opportunities, and maybe they still would do that."

Because of the size of Irving Oil and the hefty price tag that it will command, Campbell said potential buyers are likely not going to be Canadian-based.

Irving Oil has about 4,000 employees and operates Canada's largest refinery, which processes 320,000 barrels a day.

Such a sale, he said, would have ripple effects throughout New Brunswick's economy. First of all, any outside buyer would likely move the head office, which means a loss of all of those jobs.

Could be like NBTel

"So you remember what happened to NBTel in Saint John? That's exactly what's going to happen with Irving Oil — that all of the head office jobs, back office jobs, the support jobs, the supply chain, almost all of that disappears."

Founded in 1888, the New Brunswick Telephone Company was based in Saint John until it merged with other communications companies in Atlantic Canada in 1999. It's now known as Bell Aliant and is headquartered in Halifax.

Obviously, said Campbell, Irving Oil's refinery would have to remain where it is, so those jobs would be safe.

Campbell said it's also difficult to estimate the value of a privately held company. Normally one would estimate the value of the assets, but those aren't known with Irving Oil.

"I think the price will be set based on the discounted value of future profits."

The company imports roughly $8 billion of raw crude each year and exports $10 billion worth of product, he said.

"So they're not worth $10 billion to the economy, but they're worth $2 billion to the economy," explained Campbell.

"I think the public needs to understand the economic contribution of a large company like that, but they also need to understand that businesses are trying to make a return on the capital they invest."

But, he added, "it is a shame when a locally owned business sells to a foreign or externally owned business because the decisions now are made outside the region, the profits tend to go outside the region."

A succession issue?

Contemplating a sale might also be a succession issue, said Tom Cooper, a business professor at Memorial University in St. John's.

After all, Arthur Irving, the head of Irving Oil, is 93.

"At some point, somebody has to decide who's going to take over," said Cooper.

Arthur's daughter Sarah Irving, who's in her late 30s, is currently executive vice-president of Irving Oil.

"And maybe the other children want their inheritance and they're thinking about selling it," said Cooper.

"When you're a billionaire like Arthur Irving and his brother, you're not just giving money to your children, you're giving money to your great grandchildren, if it's handled well. So a really good question is when do you exit? And this may be one of the strategic decisions that they're making."

With more restrictions on emissions, a shift away from fossil fuels to electric vehicles and other greener technology, said Cooper, "this may be a good time to get out."

He said there are some long-term trends that "are not favourable to companies that are involved in the oil and gas industry.

Insurance companies, for example, aren't looking favourably on the sector.

"Allianz, which is the big European German insurer, has said that as of 2035, they will no longer insure companies involved in fossil fuels. So that's one big trend and there's other big trends around regulation, both nationally and internationally, which may make this a good time to sell."