The Come By Chance Oil Refinery

During the mid-1960s, American entrepreneur John Shaheen, owner of Shaheen Natural Resources Company and various other petrochemical businesses, arranged with Newfoundland and Labrador Premier Joseph Smallwood to construct an oil refinery at Come By Chance, then a small hamlet on Newfoundland’s east coast. The plan, however, was ill-fated and in 1976 caused one of the single largest bankruptcies in Canadian history to that date. It also greatly added to Newfoundland and Labrador’s mounting public debt.

In 1967, however, Shaheen’s proposal seemed straightforward: build the refinery, import crude oil from the Middle East and produce a versatile range of products, including gas, naphtha (a volatile, colorless liquid which helps produce high octane gasoline), kerosene, and diesel fuel. Manufacturers could later transform these products into leaded and unleaded gasoline, jet fuel (a very lucrative product), fuel oil, and asphalt. The refinery would process approximately 100,000 barrels a day for sale in North America and employ up to 1,000 people. Both Shaheen and Smallwood believed Come By Chance was a suitable site for the oil refinery because of its ice-free, deep-water harbour and easy access to a railway, highway, and the world’s shipping lanes.

Financing Questioned

Shaheen, who had previously built an oil refinery at Holyrood in 1960, seemed an ideal candidate for the Come By Chance undertaking and quickly earned Smallwood’s full support. Unlike the Holyrood project, however, which Shaheen built without any loans or guarantees from the province, the Come By Chance refinery required government assistance.

Smallwood announced on April 20, 1967 that the province would float a $30-million loan to help with the construction. When the premier attempted to give Shaheen $5 million in unsecured financing to begin work, two members of his cabinet, John Crosbie and Clyde Wells, objected and consequently crossed the floor to sit as independent Liberals.

The Government of Canada later criticized Smallwood when he arranged for the province to own the refinery through three Crown corporations – the Provincial Building Company, the Provincial Refining Company, and the Provincial Holding Company. The plan provided Come By Chance with a unique economic advantage over other competing refineries, as Crown corporations are exempt from Canadian income tax and provincial taxes. Realizing it stood to lose a great deal of revenue in lost taxes, the federal government introduced legislation in 1968 to prevent similar arrangements from occurring in the future.

Construction Begins

Nonetheless, Ottawa agreed by 1970 to build a $20-million wharf and docking facility at Come By Chance – able to accommodate 320,000-ton oil tankers – which the Provincial Refining Company would repay over a 25-year period. That same year, the British company Procon Limited accepted a $155-million contract to build the refinery. By mid-1972, a crew of some 2,000 labourers had built 8,370 square metres of office space, 27,900 square metres of warehouse space, and two giant storage tanks able to hold more than 600,000 barrels of crude oil. Workers had also laid a spur track to the railway and an access road to the Trans-Canada Highway.

Shaheen, meanwhile, needed a supplier to provide the refinery with crude oil. In 1968, he signed a $480-million contract with oil giant British Petroleum Trading Limited, agreeing to buy 100,000 barrels of crude oil a day for 10 years. To afford this costly endeavour, Shaheen asked for and received credit from Ataka America Incorporated, a subsidiary of a Japanese trading company, which agreed to finance the refinery’s crude oil purchases for a fee of two cents per barrel.

When the refinery produced its first barrel of oil in December 1973, employment at Come By Chance had reached an impressive 100 per cent, with many workers traveling to the small community from surrounding areas. Shaheen predicted the facility would pay for itself in six years; it went bankrupt in half that time.

Troubled Existence

Troubles plagued the refinery from the start. A string of wild-cat strikes interrupted work; machinery and equipment malfunctions greatly reduced production for the first three years; and the existence of other refineries in Eastern Canada caused oil prices to plummet. Moreover, Arab oil producers placed an embargo on petroleum exports to the United States in October 1973, which caused the price of crude oil to skyrocket.

In 1974 alone, the refinery lost $58 million and by 1976 was still not operating at full capacity. That same year, several companies from which Shaheen had borrowed money called in their loans, and in February, Ataka successfully petitioned the Newfoundland Supreme Court to have the Come By Chance refinery placed into receivership. The facility closed within days, with debts totaling approximately $500 million – of this, Shaheen owed the province $42 million and Ottawa $40 million.

Following his failure at Come By Chance, Shaheen became engaged in a complex series of law suits, some of which were brought against him, others which he initiated. In July 1980, the United States Supreme Court upheld a decision that Shaheen, four of his directors, and three of his companies owed a sizeable sum of money to the refinery’s official receiver, Toronto’s Clarkson, Gordon and Company. The court also found that loans Shaheen had arranged in 1974 and 1975 were fraudulent because they were in violation of Canadian commercial law. An embattled Shaheen received further reprimand from a Supreme Court judge for harassing a juror and a junior officer of a bank.

In turn, Shaheen launched a $189-million suit against Procon for faulty construction and engineering, and a multi-billion-dollar suit against various oil companies, claiming they conspired to bankrupt the Come By Chance refinery. Shaheen, for example, accused Mobil Oil of deliberately boycotting Come By Chance and influencing others to do the same. Eventually the suits were dropped.

Refinery Reopens

The refinery, meanwhile, was inactive for four years before federal Crown corporation Petro Canada Exploration Inc. unexpectedly bought it for $10 million in 1980. Upon the sale, Shaheen reportedly commented that Petro Canada had “bought itself the biggest lemon in the world.” Deciding against reactivation, the Crown corporation instead sold the refinery for only $1 to Bermuda-based Newfoundland Energy Limited in 1986, which upgraded and reopened the facility the following year.

However, when Petro Canada sold the refinery, it stipulated that neither Newfoundland Energy nor any subsequent buyer could sell any product it refined at Come By Chance to the Canadian market – with the exception of Newfoundland and Labrador. As a result, the refinery exports up to 90 per cent of its production, primarily to the United States, and sells the remaining 10 per cent in Newfoundland and Labrador.

Despite its troubled start, the Come By Chance refinery has been profitable ever since it reopened in 1987, and is an important contributor to the diversification of Newfoundland and Labrador’s economy. Changes, however, continue to occur, and in 2006, Calgary-based Harvest Energy Trust bought the facility for $1.6 billion. As of 2007, the refinery processes some 115,000 barrels of oil per day, with exports in excess of $2 billion per year.

Article by Jenny Higgins with Melanie Martin. ©2006, Newfoundland and Labrador Heritage Web Site

Updated March, 2008

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