Transcript: Dawn Chafe, executive editor, Atlantic Business Magazine interviews Ed Martin, president & CEO, Nalcor Energy
October 19, 2015
Oppidan restaurant, Sheraton hotel
St. John’s, NL
Dawn Chafe: Let’s start with Muskrat Falls. It seems like you’re having trouble containing costs, staying on time and budget. At what point does the project become uneconomical?
Ed Martin: Some costs have increased. There have also been some savings that have occurred. Our financing has come in much stronger than even we had believed at the time. That’s been something that’s offset some of those costs.
Also, excess sales.We have some power to spare for a period of time. Since we sanctioned the project we’ve done an arrangement with Emera that gives us an additional market for some of that power. We picked up another $300 million in value there. We picked up an extra $500 million in financing value over and above what we expected and an extra $300 million in sales of excess energy that we weren’t planning for initially. So while we have some cost issues on one side, we have had some offsets on the other. We’re still in a very good spot with this project.
DC: Do you ever feel the pressure to not be “that guy”, the guy who delivers another bad deal for the province like Churchill Falls?
EM: I think the difference this time is that we own and control it. We have a situation where, for a period of time, Hydro Quebec as part of that deal, they get the benefit of all that power, they get the low price. For 40 years at least they’re calling the shots in terms of where the power goes and what happens. The province took a small portion of the profits and basically let someone else drive that for us. It’s entirely different here. First off, we own and operate the plant at Muskrat Falls so the people of the province own it outright. We’re financing this ourselves and it’s going to be paid off in its entirety in 35 or 40 years. And all of the power is here for us. What we’re not using, we’re selling. We fully control this, top to bottom.
Compare that to Churchill Falls… For the past 40 years we’ve given 95 per cent of the benefits of Churchill Falls to Quebec and kept five per cent. On this project we have 100 per cent of it staying here with us.
It’s buy versus rent. It’s the difference between renting a house for life at $1,000 a month and buying a house at $800 a month and owning it in 35 or 40 years. That’s what we are doing here. We’re owning it.
DC: How do you respond to critics who seem to think you are hiding something from the people of the province, that you’re trying to push it through at all costs?
EM: Consistently, we’ve had tremendous support for the project every time it’s been polled independently by CRA or somebody. Sixty to 65 per cent of the people support the project. Twenty per cent are against it. And the remainder are undecided. We know people are generally in favour of it. Apart from that, I don’t know how people think. Change is never easy. But we’re all Newfoundlanders and Labradorians and all of our children live here. We’re all doing it for the same reasons. The thought that someone in our company knew that we were doing something that wasn’t for the right reasons long term for the children, I guess we just don’t get it.
We ask the same questions. I don’t think there’s anything to hide. Every number is out there. We’re the most transparent company in the world. We’ve got thousands of pages of documents in the public, we answer hundreds of queries every year. I’m certainly accessible to the public, explaining what’s happening. We’ve had independent review after independent review. At a certain point, you’ve just got to keep moving.
DC: Why did you take this job? You came from a business where you didn’t have to be accountable to the public. Why take a position where you have no privacy?
EM: It’s been a bit of a surprise. It’s not something I enjoy a lot. I like the business part of it, but… but it’s evolved and certain decisions have to be taken. I happen to be in a role where making those decisions can’t be avoided. Making no decision is a decision, right. Being out in the public eye is part of the job right now and it’s just something I have to do.
DC: You have 11 years in – do you see yourself here for another 11 years?
EM: No, not in 11 years. I think every organization has to be refreshed over time. A time for change at the top comes every period of time. I don’t have a date or a time on it. After 10 or 12 or 13 years, I think you have to think about change for the good of the company. Just to refresh it at a certain point. I look at the quality of young people we have in the company and in Newfoundland and Labrador, people who I think are highly experienced, highly educated, highly equipped to take over at the top. I think the main thing that we can give them right now is the confidence. And I think we’ve done that. I look at who’s coming up through the company right now and the quality of the men and the women who are there… I think we’re in good shape. They’re confident. I’ve watched them deal with people from around the world internationally and they’re taking more and more responsibility for everything. They’re good at it. I think there comes a time for every organization to refresh and I think I have a responsibility to see through these oil developments and Muskrat now, but at a certain point it’s going to be someone else’s turn and I have to be ready to step aside and let that happen. I’m in no rush either way. As I said, there comes a time for refreshment and newer, younger, smarter people to come in and take over. It’s coming.
DC: How old are you?
EM: I’m 57. I don’t think I’ll ever retire. But I do believe an organization needs fresh blood as you go along. The time is coming over the next several years.
DC: What’s a good age for you to start your next adventure?
EM: I don’t know. But with grandchildren, it’s the first time I’ve thought about doing something different. I think, now this (spending time with grandkids) is something I want to do. But I don’t have a time to retire. I’m more driven now to execute these projects that we are in the middle of – the oil and gas exploration program, Muskrat Falls, the rebuild of Hydro, the rebuild of Churchill Falls and also dealing with the Upper Churchill. We’re laying a lot of groundwork right now in our dealings with Quebec. That’s all going to happen in a reasonably near time frame, I think. All that is driving me more. I feel accountable to get those things to a certain point. Then it’s my responsibility to step aside and pass it off to young people to carry it further. It’s not a date as much as it is ensuring a series of things are in place. And we’re getting there.
To go back to our offshore for a second, when I first came into the role, I looked at the situation in Norway and the United Kingdom. They started in the business around the same time that we did. They’ve drilled over 4,000 exploration wells and their production has gone through the roof. We’ve only drilled a couple of hundred and our production is sort of… okay, but nowhere near what they’re doing. There are reasons for that, and a lot of it was the federal/provincial dispute over the offshore. Well, that was sorted out and exploration is still sort of slow. And people have said to me, what about exploration incentives? We said, well, look worldwide and there’s a series of building blocks that every successful offshore exploration regime has and we don’t have them. One of those was a regulatory land management – what we call scheduled licensed rounds. We allowed the oil companies to come in and say, we want to bid on this land next year. Is that okay? And our people say okay. And they get their information in. Other jurisdictions, they schedule. They break their land into blocks, and they say we’re going to do this this year, and that next year. The first thing we needed to do was take control of our bidding system. The second thing we had to do was we had to prepare a huge amount of information to give the oil companies, to create competition. The third thing was on fiscal terms and royalty rates and those things. We’ve done all that. That’s what we spent the last five or six or seven years at.
That’s probably one of the most important things that this province has ever done. We have a land sale in November. It’ll be an exciting one. It’s our first scheduled land sale where we have all the information out there, attracting many companies to come in and bid. We’re hoping to get higher multiple bids on a series of properties that will drive more drilling exploration. Next year we’re going to do the same. And the next year after that we’re going to do the same. I expect we’re going to see a cascading effect, there’s going to be a lot more exploration activity, that’s going to drive finding more oil, that’s going to drive more drilling, more developments. I look at Bay du Nord, I think the difference we have there is that instead of us just saying, what about the next project? I think we’re going to see multiple projects happening at the same time. It’s not going to be like it was in the past. Hibernia, take a break. Terra Nova, take a break. White Rose, take a break. I think it’s going to start to stack up like it did in Norway, like it did in the UK.
DC: Where do you get that confidence? What is it based on?
EM: The work that Nalcor did. We partnered with two Norwegian companies, we did the geotechnical perspective, we did the 2D and 3D seismic offshore. Between us, all three entities, we’ve invested about a quarter of a billion dollars on offshore seismic work. What we’re seeing in that seismic is tremendously exciting in terms of size and scale. You take that information, you marry it with the scheduled license rounds, and you bid a portion of that, take control of it, give all this information to the oil companies — I predict you’re going to see a constant drilling program which will yield multiple finds which will lead to multiple projects. I can see it out there, and it’s the same type of process that other successful countries have taken. The information we’re seeing supports it.
DC: When those projects do come on stream, will Nalcor have an equity stake in those similar to Hebron?
EM: Exactly the same. The requirement that the government has put out there is a 10 per cent equity stake for Nalcor on behalf of the province. If you look worldwide right now, energy is so strategic now. Over 85 per cent of the world’s oil and gas is controlled by countries. Only 12 to 15 per cent is owned by private companies right now. You look at Newfoundland and Labrador. We have 500,000 people. We’re sitting on some of the most massive oil and gas reserves in the world. Sitting on a huge amount of electricity which, we don’t really need all of it. Not by a long shot. Only 27 per cent of Churchill Falls power was used in the province last year. We’re going to be a massive exporter of electricity, oil and gas. You take those numbers and divide that by 500,000 people, we’ll be one of the wealthiest provinces or areas in the world per capita – if we get this right. That’s why it’s important for a province like this, for future generations to have the right amount of control over how those developments happen. We need to have the expertise, we need to control it, we need to drive it. How do you do that? There are several levers. Make sure you have the right regulations in place, so you can oversee them. Make sure that you have a good benefits program in place so that you’re extracting what you need and you’re controlling what’s going to be built, what’s not going to be built – short and long term. The other piece is to have a strong royalty system so the oil companies understand what the split is and the province is getting its fair share. The other piece is an equity stake so that you’re at the table all the time, participating in the decisions and not just standing back. Put four of those elements together and that’s what drives a proper level of control and ensures success for the future.
DC: You’ve talked about the importance of getting this right. What stands in the way of getting this right?
EM: I think we’ve addressed that and that’s what we’ve been doing for the past 10 years, putting those things in place. From the electricity side of things, it’s a matter of understanding we need the power. Finding the low cost option. Building routes both ways so we can have transmission for the first time in history through and outside of Quebec. Strategically getting ourselves structured so we’re building hydro and paying it off for the long term so we know it’s always going to be successful. And anything else that we build, that we make sure we maintain control of it. On the oil and gas side of things, it’s about having those four levers in place that we talked about. We have all that in place right now, so we finally have all the elements we need. Now, we just have to stick to it. Change… we’ve been going through it for 10 years. We have everything laid out where it should be. As a province we have to act more like other jurisdictions so we all pull together. Stick with the program.
DC: It’s curious that you say that we, as a province, have to act like other jurisdictions when so many of those other jurisdictions are countries. They have the decision-making authority of national sovereignty, national ownership. Sometimes we have had to battle our own national government over ownership issues, royalties, benefits… How does that play into your job? And the province’s energy future?
EM: That’s a really good question. I’ll start with the oil and gas first. I do believe that we have found our way through that for the most part. Having gone through the court cases and negotiations of the past 30 years with the federal government for joint management of the offshore, that’s handled through the CNLOPB. That’s been laid out in legislation – what’s the province is responsible for, what the feds are responsible for. I think that’s been helpful, but it’s a framework. I do think we have to act and think as a separate jurisdiction because no one else is going to do it for us. Having sorted that out with the federal government, that’s where I come back to thinking of Newfoundland and Labrador first. You have to take control. Who else is going to do it for us? At Nalcor, we have put the expertise together under one roof. And we have seized, on behalf of the province, we have attained control … put the regulatory system in place, put the royalty system in place, all of this stuff has been happening. We put the benefits packages in place and equity. Now we’re poised for the offshore to take off. No one else is going to do that for us. On the electricity side, we don’t have a strong, central electricity regulator in this country. We’ve always struggled to get transmission through Quebec and it’s held us up. We’ve taken a different tack on it. We have to take control of that. The regulatory system is the regulatory system. Quebec has open access. We’re working our way through getting open access. We are demonstrating that we can go around, in a different direction, with Quebec. It’s a successful project we are doing it with. It’s all working as we speak. If you look at the next generation coming up, younger people, their turn is coming. But at least we’re leaving them a legacy of we can do it, it is under our control, we have to seize control and be in the lead. Newfoundland and Labrador is one of the top echelons in the country right now. We can’t relinquish that. All of the things we’re doing right now, all of the investments we’re making, it’s put us in the driver’s seat. We’re well respected across the country right now. We’ve just got to make sure we keep it going.
DC: When you go home in the evening, does your wife forbid you from talking about anything related to work?
EM: She knows a lot about it. It’s different for the family because we never really thought we’d be into this kind of publicity. That has been quite the eye opener. It’s not something that we enjoy.
DC: Is your wife from Newfoundland as well?
EM: Yes, she’s from Grand Falls. She’s a nurse. We’re high school sweethearts. We’ll be married 38 years in April coming. We’re a good team, no question about that. My youngest son is 26. The oldest is 36. I have one in St. John’s. One in Halifax. He’s married. I have two sons in Toronto, one of them is married.
DC: What do you do to unwind after a day in the office?
EM: I usually go to the gym. That’s what I do. My wife is a bridge player and a golfer. I don’t golf. Never golfed. When the boys were small, I was heavily involved with their minor hockey. I don’t play myself. I played basketball. But they were hockey players. I was a great gate opener. Between hockey and soccer, that was pretty much it (spare time) when you have four sons playing sports. Golf or anything else wasn’t on the radar screen.
DC: Family vacations?
EM: Two weeks in Florida every year, same spot. Never miss that. I don’t take much vacation other than that. But recently, we’ve taken to visiting the grandchild. He’s 18 months. Every chance we get, we’re up to visit or we bring them home. Now my second son is also married, so you can see what’s going to happen here. That’s where we would prefer to spend our time. That’s the only thing I like better than work I think.
DC: A typical work day … what time do you start?
EM: I probably get in around 8:00 or 8:30, and I stay late. I got into that habit years ago, when I worked out west. I usually get home around 7:00 or so.
DC: Is there a time of the day, or a day of the week that’s your day – when no one is allowed to interrupt you with work?
EM: You’re on 24/7, that’s for sure. There’s no downtime like that. I go to the gym, I guess that’s my time for an hour. I like to go alone.
DC: Cardio or weights?
EM: Cardio. I like to be there alone when I’m working out.
And salmon fishing, fly fishing. That’s the other thing I like to do. I don’t get out as much as I’d like, but I do enjoy that. One of my sons likes to fish, so I like to get out with him. And I like to get out with my friends as well. Probably twice a year, a couple of weekends. Pretty boring, isn’t it? Wife, family, work, workout, salmon fish… that’s pretty much it, in that order.
DC: Do you read a lot?
EM: I like to read biographies of historical people. I find that interesting.
DC: What’s your go-to place for business lunches?
EM: I don’t usually go to business lunches. Very infrequently. I’d rather meet people at the office and have a coffee. It’s primarily the food. I’ve been really making an effort to stay reasonably fit. So I just prefer to have people in for a light lunch at the office or just meet. I pretty much avoid going out to lunch if I can. I like the company, I’d just rather not do it over lunch.
DC: What’s changed over the years about the business lunch?
EM: I find there’s more and more pure business focus and less and less socialization. Fewer people look to go to lunch these days. And I prefer it that way.
DC: Does anyone ever ask you if you play poker?
EM: (laughs) No, can’t say that they do. But it’s very interesting to be asked these types of questions, I must say. I lead a very simple life. It’s all about my wife and my family. And I like work. I really do.
DC: Is this where you anticipated your career leading, when you first started working?
EM: It’s been a privilege, being in this role. There’s lots of things where you might say, oh my god – what am I doing? But put aside all that stuff – I love the energy business. I loved the oil and gas business. I was very happy there. I’d still be there, but a role like this where you have a chance to make a difference, make some key decisions, it’s a great privilege to be able to do that. I never really expected to be doing something like this but when you get this kind of opportunity, you have to take it. Make sure you do it to the best of your ability, make sure you get the right people around you, assist you with the decisions, but I have to say, it is a privilege.
DC: What are your priorities at Nalcor for the next few years?
EM: I look at my role at Nalcor in five categories. Number one is safety. We have made huge strides in our safety culture in the past 10 years. Last year we had our first year with no lost time incidents. Every morning I wake up, that’s a huge focus for me. That’s number one. The second thing is from an environmental perspective. We have made some huge decisions there as well which have been very good. We have cleaned up the Holyrood generating station emissions issue. And we will complete that with Muskrat Falls. We did it early with the particulates and the SOx and the NOx emissions. We’ll be 100 per cent free from GHG from an electricity perspective. Plus our overall environmental performance has improved significantly. We’ve made huge strides in those two licenses to operate – safety of our people and the environment – and I want to keep that going. I want to maintain a focus on that. Safety is number one; environment is 1-a. It has to be that way. If you don’t protect the people and the environment, nothing less than that would stand the test of time. Continuing to focus on those two things will continue to be my top two priorities. Following that, we do a lot of work with our people. I think the continued ability to invest in our people, get the right people and keep them motivated. To get the younger people ready to succeed into these roles. Just think how important that is. Say a group of us is getting ready to retire, and that’s going to happen – what would happen if we don’t have a group ready to take over? That would be a nightmare. So that’s a priority. Coming down into the actual business side of things, by 2018 we will have grown the company from about $2 billion in assets to about $14 billion in assets. Income will have grown from $60-$70 million to $350-$500 million a year. Our balance sheet has gone from one of the worst in the country to pretty strong in that time frame. To maintain that, we have to complete Muskrat Falls. The Labrador-Maritime Link, we’ve got to get that done. And we have to continue to invest in the offshore on the exploration side of things. And keep driving the exploration program. The final thing is the reinvestment in Newfoundland and Labrador Hydro and Churchill Falls. When I got into this role, the first thing I look at is the age of the assets of those two facilities. Most of those assets were about 35 years old at the time. They’re now 45. Thirty-five years is usually the useful life for some of these big assets. I’d say the useful life for a car is probably 10 years. For these big assets it’s probably 35. I looked at these assets and said, they need to be refurbished, replaced. There’s never been enough money put into them. We’re behind. It’s like having a car that’s 10 years old and you’ve delayed all of your rebuilding and replacement that should have started in year six. We’ve put a massive asset management plan in place. And we’ve increased expenditures by 250 to 300 per cent in Newfoundland and Labrador Hydro and Churchill Falls. Massive capital program undergoing now. It should have been started way earlier. So be it. We have a good plan in place now. We are reinvesting in our assets. We have made the decision to replace Holyrood. Muskrat Falls. All those things had to happen. Transmission lines. All the work in Baie d’Espoir. All the combustion turbines. All of the other hydro, all of the transmission. It all has to be refurbed. We have a plan in place and we’re executing it now. We have to keep doing that. That’s my final priority for the next several years.
DC: Favourite meal?
EM: My wife’s chicken or turkey dinner. She’s a great cook.
DC: How about when you go out? What’s your go-to item that you’ll always order?
EM: That’s easy. Steak.
DC: Favourite restaurant?
EM: We don’t go out that much. I’m the barbequer at home. That’s Friday night for us. I put the barbeque on, I do the cooking Friday night usually. I prefer to stay in and eat at home. When we do go out, I like this place (Oppidan). It’s quiet and parking isn’t an issue like it is with a lot of restaurants downtown.
DC: Wine or beer?
EM: Actually, I prefer Scotch.
EM: I don’t do dessert. It’s wasted calories. You’re up there, busting your you-know-what on one of those machines and throwing it away on dessert.
DC: Sounds like exercise is really important to you.
EM: Oh yeah. I’ve been up and down over the years, but the last few years I’ve gotten back into the routine. Mentally, it’s invaluable.
DC: How do you find the time to fit it into your day?
EM: Night time. Normally around 8:30 or 9:00. I go to the Y. Wherever I’ve been, I’ve always gone to the Y. I like the atmosphere. It’s community based, really nice people. Kids running around on the weekend. I just really like the environment.
DC: Mentors – anyone you would credit with your professional growth, someone you’ve tried to emulate over the years?
EM: My father. He was an executive director of hospitals, in Grand Falls for years. Alex Martin. Back in ’67, ’68 to ’74. He did the same with hospitals throughout the country. He was just a principled, common sense guy. Lots of good advice.
DC: Was your mom at stay-at-home mom, or did she work outside the home?
EM: She was a stay-at-home mom. She was a huge factor in my life. I had five brothers and sisters. She was the go-to person, organized the home, very strong personality, very honest. We never had to think twice about what she was thinking. Always treated everyone exactly the same.
DC: I have to ask: why the scar? (small, faint scar along his nose)
EM: Goodness, you’re very observant. It’s from years ago. I fell down. Hit by a branch or something. Nothing exciting.
DC: Any hidden talents? Interests or hobbies that would surprise people?
EM: No, I’m a pretty plain person, pretty vanilla person.
DC: Tell the truth – you’re deep into Heavy Metal, aren’t you?
EM: No!! (laughs) I like a lot of the old jazz stuff from the ‘50s and ‘60s. Quieter stuff.
DC: Is your grandson named after you?
EM: No, he’s named after my father – Alexander. I’m named after my grandfather as well – Edmund.
[Interview finishes with exchange of grandbaby photos.]