Wrapping up a 42-year career, a reflective Pat Daniel, CEO of embattled Enbridge Inc., defends his company’s record of safety

It’s ironic that in the early days of Pat Daniel’s career, pipeline companies were considered boring—largely ignored as a dull afterthought to the much more exciting job of exploring for and producing oil and gas.

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Pat Daniel Photo source: Jason Stang

That’s anything but the case today; even minor pipeline incidents catch the headlines, and every word and animated image released by pipeline companies in support of their proposals is raked over the coals by various interest groups.

As landlocked Alberta searches for at least one viable pipeline route to an ocean port in a bid to access world markets for its growing oilsands production, the rhetoric on both sides of the debate has ratcheted up over the years. Two projects in particular—Enbridge Inc.’s $5.5-billion Northern Gateway proposal to Kitimat, B.C., and TransCanada Corporation’s Keysone XL expansion bid to Texas—have galvanized opposing views.

In one corner—in the case of the Northern Gateway proposal—is the oil and gas industry, supported by the federal government, expounding job creation, economic growth and the good of the country. In the other corner are environmental groups, the off-oil movement, the anti-oilsands crusade, British Columbia’s unsettled aboriginal land claims issue and various levels of governmental opposition.

“The biggest challenge now is trying to get the general public to put into perspective our business and recognize the huge value and importance and safety of our oper-ations,” says Daniel, Enbridge’s chief executive officer.

With bridge-building social skills and the lessons of a 42-year career to draw upon, Daniel would seem the ideal person to lead his company through this contentious period. But after 12 years at the helm of Enbridge, overseeing its spectacular growth to become the world’s biggest pipeline system and providing its shareholders top-shelf investment returns, while claiming the best safety record in the industry, and leading the company’s significant expansion into renewable energy and sustainable practices, Daniel won’t be staying on for the ride. This spring the board of directors of Enbridge said Daniel will leave before the end of the year and named Al Monaco, 52, to succeed him, immediately as president and, on Daniel’s retirement, as chief executive officer.

“At 66, you get to the point where we’ve got so many bright young stars in the company that I don’t want to stand in the way of them any longer,” he says. “I love this business and I’ve got lots of energy, but when I consider that I had a chance at their age, it’s time to give them a chance.”

Ladder

Born and raised in small-town Alberta near Edmonton, to a hardware store owner and a schoolteacher, Daniel and his brothers and sister learned the most important family lesson well: the importance of an education.

Daniel’s older brother led the way with a PhD and became a university professor, his two younger brothers earned a master’s and a bachelor’s degree, and his sister, an MBA.

An inspiring twelfth-grade chemistry teacher and advice from his older brother, who was studying electrical engineering, led Daniel to chemical engineering. After graduating from the University of Alberta (U of A), he left for Vancouver where he completed a master of chemical engineering degree at the University of British Columbia in 1970.

Starting as a staff engineer with Oxy Petrochemicals Inc. in Grand Island, New York, Daniel’s master’s degree, which had “a computer science twist to it,” quickly established him as a computer guru at Oxy.

Computers, at the time, were slow-witted behemoths that foraged on data in windowless, chilled back rooms in companies that had deep pockets and some modicum of foresight.

After three years in New York, Daniel and his wife (whom he met at the U of A), wanted to start a family and decided to return to Alberta, where the oil and gas industry was on a hiring spree. Daniel interviewed with Hudson’s Bay Oil and Gas Company Limited—affectionately known back in the day as HBOG—in Toronto, and was hired for its process-engineering group out west. Again, his knowledge of programming would soon divert him to HBOG’s automated systems group, computerizing the company’s field operations and processes.

“Even though I was programming, I considered myself primarily a chemical engineer because you needed to remember all of your theory in order to write your computer programs to simulate distillation columns, do cooling system design, et cetera,” he says. “I really enjoyed that work.”

Daniel was with Hudson’s Bay Oil and Gas for about 10 years when Dome Petroleum Limited acquired it. Dome had a dramatically different culture and he only stayed for about a year to help integrate the computer systems of the two companies before moving to Home Oil Company with Dick Haskayne.

Richard Haskayne, a western business icon who was made an officer of the Order of Canada in 1997 for “his high ethical business standards” and his philanthropic activities, was just building his career in the oilpatch at the time, and Daniel would get to know him very well over the next two decades.

To this day, Daniel considers Haskayne one of his most valuable mentors. They share the same core values of honesty, integrity, transparency and interest in community. Daniel has also benefited from the practical lessons of Haskayne’s leadership.

“If you run into a problem, face it, fix it and get on with it,” Daniel says of Haskayne’s directness and expediency. “He found that immediately after coming to Home Oil that he had a problem around an acquisition done in the [United States] So he faced the issue, got it resolved and moved on. That was very much Dick Haskayne.”

Pipes and deregulation

Early in his career, Daniel’s combination of people skills and education recommended him for supervisory roles among automated systems programmers. He became the manager of information systems at HBOG and then managed the company’s information systems. Eventually, he had business development and corpor-ate planning added to his responsibilities.

Daniel’s entry into the pipeline business came by way of Interprovincial Pipe Line Ltd.’s (IPL) acquisition of Home Oil Ltd. in 1986.

“Dick Haskayne asked me to move up to Edmonton to run the IT and planning functions, which I did,” he says. “Then we split the company apart again and I stayed with the pipe company ever since.”

In 1993, IPL’s single line of business was crude oil transportation, which traced its roots to the 1947 Leduc oil discovery and Imperial Oil’s vision to build a 725-mile oil line from Edmonton, southeast to Regina.

But in 1994, Interprovincial diversified its business, acquiring Consumers’ Gas Company Ltd., the largest natural gas utility in Canada and the premier natural gas distributor to metropolitan Toronto, parts of eastern Ontario, Quebec and New York state.

One driver of that acquisition was the dramatic declines in western Canadian conventional crude oil production. The general consensus of the day was that the oilsands would never become economic enough to make up those declines. An upshot of that was an ongoing shortage in oil–pipeline system capacity because pipeline expansions weren’t being granted.

“The reasoning was, ‘Don’t worry, crude oil is in decline, everything will come into balance in a year or two,” Daniel explains.

Pipelining in the 1990s was a different world than it is today, a monotonous end of the energy business shackled by stifling regulation.

“We couldn’t invest in, or expand, our system without the approval of the producers—our main customers in the crude oil business,” Daniel says. “We would have to go through complex annual hearings to justify every painting on the wall and every dollar we spent…. Producers would say, ‘You shouldn’t have to hire all these people to do this, or you shouldn’t have as many vehicles in the field. It was very antagonistic and the regulator was the referee who decided what your cost of service would be and what your totals would be.”

Coming from the producer end of the business, Brian MacNeill, Interprovincial’s then-president and chief executive officer, and Daniel wanted to change this dysfunctional way of doing business and move towards incentive-based tolling that rewarded entrepreneurial initiative, cost cutting and productivity gains, and, at the same time, reduced the level of regulatory oversight.

“I’ll never forget the day we sat around a Pipeline Association board table,” Daniel recalls. “All the pipeline companies were asked their opinion whether they want to stick with the conventional regulation or get into incentive regulation. Going around the table, everyone said, ‘No.’ We were the last to be asked and we said, ‘Yes.’”

So Interprovincial struck an individual deal in 1995 with the Canadian Association of Petroleum Producers. By the end of 1999, the parties to the agreement shared a pre-tax savings of $117 million. It was the first Incentive Tolling Agreement and marked the beginning of deregu-lation in the crude oil pipeline business.

Enbridge years

Interprovincial Pipe Line’s 1994 acquisition of Consumers’ Gas was one of Daniel’s first major managerial pipeline projects. Once the transaction was complete, MacNeill left Daniel in charge of Interprovicial’s original oil business.

At the end of 2000, MacNeill retired. He named Daniel his successor, saying that Daniel “demonstrated a keen sense for identifying future trends in our business, a valuable trait of a good leader.”

Under Daniel’s leadership, Enbridge grew substantially. It was by far the fastest growing utility in North America. It grew its crude oil and natural gas businesses, and entered into gathering and processing.

“When you are the world’s biggest crude oil pipeline company and you’re hardwired into the second- or third-biggest reserves in the world, in the oilsands, that really drives a good part of the growth,” Daniel notes.

One area of this growth, of which Daniel is particu-larly proud, is Enbridge’s expansion into renewable energy. With eight wind farms, three solar facilities, a geothermal project and a fuel cell facility, Enbridge is a significant renewable-energy producer that uses green power to drive hydrocarbons through its pipes.

Most of Enbridge’s renewables expansion happened during Daniel’s tenure. As with computers in the early days, Daniel sees alternative energy playing a pivotal role in the future.

“I believe very much that we will go through a transition from a hydrocarbon-based economy to a more renewable economy over time,” he says. “That might be a 50-year transition, but just as I sit here thankful to the people who got this company involved in crude oil pipelining 60 years ago, I’m hoping somebody someday will be thankful that we got involved in renewables when we did and didn’t wait too long.”

Right now, Enbridge’s green energy investments may not generate the same level of profitability as the rest of its business, but it is profitable nonetheless, Daniel says. Renewables also reduce the company’s greenhouse gas emissions 21 per cent below 1990 levels and complement its other sustainable practices.

A neutral footprint approach to development has Enbridge plant a tree for every tree it removes to create a right-of-way. For every acre it takes out of service, it conserves an acre through its partnership with The Nature Conservancy of Canada, Canada’s leading land-conservation organization, helping to ensure the natural world remains a home for wildlife and its natural resources unspoiled. And for every kilowatt of energy Enbridge uses to push crude oil or gas through its pipeline system, it generates a kilowatt through alternative energy generation.

“We are on the leading edge of environmental stewardship. Therefore, we don’t consider environment a challenge at all. We fully embrace it,” Daniel says.

Harsh criticism

Lately, however, environmental groups haven’t appeared as embracing of Enbridge’s business interests as Daniel is of their environmental interests. And the public, he says, seems less than willing to acknowledge that upstream of its lifestyle of mobility and consumption lies a complex web of wells and pipelines, connected to a network of refineries, chemical plants, factories and distribution hubs that makes that lifestyle possible.

“People need to realize that pipelines are orders of magnitude safer than the street out front of their houses,” Daniel says.

The public may even concede that pipelining hydrocarbons is safer than trucking it, but ever since BP plc’s Macondo disaster in the Gulf of Mexico, tolerance for spills of any magnitude has narrowed. The U.S. National Transportation Safety Board (NTSB), which in the summer released a report highly critical of Enbridge’s handling of its 2010 Kalamazoo River spill in Michigan, even went as far as name calling, comparing Enbridge to “Keystone Cops,” an obscure reference to American silent-comedy film characters from the early 20th century.

“We made mistakes in our control room. They were honest mistakes, but the characterization used by the NTSB is completely unfair and inappropriate. Why they resorted to name-calling is beyond me,” Daniel says.

The Michigan incident holds lessons for Enbridge and the pipeline industry as a whole, which has recently seen a rash of spills across North America. But to the contention that Enbridge in particular has a training or internal structural issue that needs to be remedied in order to improve the company’s safety record, Daniel adamantly disagrees.

“Our safety culture and training culture are the best in the business,” he says. “First of all, we have a spill rate that is half the industry average and a delivery record that is 99.999 per cent reliable and safe. And we’ve done that for 60 years.”

Further, Enbridge is essentially the sole provider of crude oil transportation services in Alberta, Saskatchewan, Manitoba, all of Ontario and a good part of Quebec, as well as across much of the United States. Without this context, Enbridge’s record of pipeline incidents might seem high to the casual observer, but on an incident-per-kilometre basis, its results are actually superior to industry averages.

“I sure don’t minimize any incident of mechanical failure,” Daniel says. “But it is mechanical system. Just the same as you might have a problem with your car, you can’t expect mechanical equipment to operate perfectly. We strive for perfection, but it’s unrealistic to expect that.”

Decisions

The recognition that pipelines are mechanical systems subject to failure also applies to oil tankers and all the other aspects of the hydrocarbon transportation chain. Add to that the inevitability of human error and you arrive at what is perhaps at the core of the battle over Enbridge’s Northern Gateway proposal.

Business interests cast themselves as the voice of reason in this battle, believing that when hot heads cool down, reason will prevail, pipelines will be built and Canada will secure new markets for its crude. But even calm, informed decisions are rooted not only in reason but also emotion.

In the case of Northern Gateway, environmental interests attach their emotions to the notion of preserving British Columbia’s relatively pristine northern coastline. They advocate for nature wealth because they know that mechanical failure and human error are inevitable, even among the best-run companies.

Business interests attach their emotions to notions of economic progress and man-made wealth, and consider the risks to nature worth taking.

Which side will win this debate and how long it will take, however, is something that Pat Daniel will watch from the sidelines rather than as president and chief executive officer of the central player.

Life after Enbridge for him will entail remaining on the boards of Cenovus Energy Inc. and the Canadian Imperial Bank of Commerce, “assuming they will have me,” as well as taking some time to reflect.

“My son reminded me the other day that I probably haven’t really stopped to think about what I wanted to do since grade school,” Daniel says. “My parents focused on education. I knew I was technical and math-oriented, so I knew I wanted to do engineering. I loved chemistry so I did chemical engineering. I couldn’t afford to go tour the world so I took a job the day after I graduated, and I’ve been working ever since. Now’s my chance to stop and think, I guess.”