Born on a farm in Carstairs some 35 miles northwest of Calgary, Gwyn Morgan grew up not so much counting chickens, but natural gas wells in the surrounding Alberta countryside. When he received his bachelor's of science in petroleum engineering from the University of Alberta in Edmonton in 1967, Morgan wasn't sure whether he wanted to attend medical school, accept an offer from Boeing to become an airplane designer in Seattle, or work in the Alberta oil patch. "I think the fact that I had worked summers in college as a field operator for Imperial Oil-and saw a very broad array of opportunities-steered me toward the Patch," says Morgan. The year he graduated, he joined an oil and gas regulatory agency in Alberta as a rig inspector. Three years later, he became manager of operations and engineering for The Consolidated Cos., the Canadian upstream subsidiary of Northern Natural Gas of Omaha, a Nebraska utility. Then in the fall of 1975, he hired on as director of oil and gas for Alberta Energy Co. Ltd. , a then-diversified natural resources company going public on the Toronto Stock Exchange as AEC. "It was an opportunity to get in on the ground floor of a brand new company that was formerly 100% owned by the government of Alberta," says Morgan, a running and skiing enthusiast. "At that time, there were very few publicly traded, Canadian-owned independents that were developing oil and gas resources in the Western Sedimentary Basin. This company, which had virtually no production at the time, had a vision of becoming one of the biggest independents. That was compelling." During the next 25 years, as the company shed its forest product, coal, steel and petrochemical assets and focused more on growing its oil and gas base, it became not just one of the biggest independent producers in Canada, but one of the biggest in North America-with an enterprise value of about C$12 billion. But that's only the beginning of the tale for Alberta Energy, which is now also listed on the New York Stock Exchange as AOG. Says Morgan, who in 1994 became AEC's president and chief executive officer, "What Bay Street and Wall Street may not fully appreciate yet is that we're in the process of becoming a global super-independent." Investor When you took the reins of AEC six years ago, what was the challenge then? Morgan It was like having to cross a lake in a sailboat without being able to see the other side because of rough waters. First, we had to finish the sale of all our non-oil and gas assets, which we did in 1994 and 1995. The good news was that we wound up with a solid balance sheet and a good set of growth properties. The bad news was that the market hadn't then gotten to the point where it believed that our management would do what we said we'd do: transform AEC into a high-performance oil and gas producer. That brought about the second problem. As the result of our low stock price during that period, we faced the threat of being taken over. The only reason we survived is that we kept making moves faster than the companies that wanted to knock us off. These moves included the late 1995 acquisition of Conwest Exploration Co., which positively affected our asset value. Investor And once you did set sail, what was your strategic vision? Morgan To transform Alberta Energy from a midlevel, asset-rich, underperforming oil and gas company to a top-quartile-performance upstream and midstream operator. To that end, we established five-year stretch targets of 15% annual growth in production, reserves, cash flow and earnings. Investor And did you hit those targets? Morgan During the 1995-99 period, we nearly tripled production and reserves-not doubled them as we had expected-achieving a 20% to 30% average compound annual growth rate. At year-end 1999, we ranked first in natural gas production among Canadian independents, with gas sales of 904 million cubic feet per day, and first in gas reserves, with proven and probable reserves of 4.2 trillion cubic feet. Liquids production, meanwhile, rose from 42,000 barrels per day to 96,000 barrels. During the same period, we saw cash flow and earnings grow by 37% and 34%, respectively. This was due, in part, to the fact that we replaced reserves at competitive costs. Last year, for instance, we replaced 484% of conventional production at a cost of C$4.86 per equivalent barrel. In addition, we became the largest independent Canadian gas storage operator, with storage capacity of 109 billion cubic feet. Year to date, operating cash flow from our midstream activities has increased by 30% from the same 1999 period. Investor How did you manage to exceed virtually all your five-year targets? Morgan In 1995, we decided to transform Alberta Energy into a decentralized business-unit organization, whereby each unit acts as an individual oil and gas subsidiary. Our thinking was that by creating a smaller, less bureaucratic head office and growing a group of smaller, entrepreneurial business units-each with high-growth targets-AEC would become a much larger, better-performing company. And it has-more than we expected. Investor Since 1995, you've completed the acquisition of Conwest , Amber Energy , Pacalta Resources and McMurry Oil . How have they contributed to your strategic plan for growth? Morgan Prior to these acquisitions, we had been predominantly a plains player in Canada's Western Sedimentary Basin. However, in the early 1990s, we began to explore in the deeper, multizone gas plays in western Alberta and Northeast British Columbia. For the most part, the acquisitions we've made since 1995 have taken us further in that direction, in terms of adding to our asset base in the deeper, gassier part of the basin. The Conwest merger certainly did that, putting more gas into our reserve mix. The Amber acquisition, done at the bottom of the oil-price cycle in 1998, not only gave us exposure to heavy oil assets at Pelican Lake in Alberta, but also added 100 million cubic feet per day of gas production from that province. On the other hand, the Pacalta buy in 1999 added to our growing portfolio of international assets. It gave us 40,000-plus barrels per day of existing oil production in Ecuador, a lot more shut-in oil awaiting pipeline hookup there, and quality exploration prospects. The purchase of McMurry in May falls more in line with our strategic focus on growing gas production and reserves. Through this transaction, we acquired a major interest in the Jonah Field in Wyoming, which adds an estimated 1.2 trillion cubic feet equivalent of proved and probable reserves to our asset base. For us, it's a new platform for growth in the northern U.S. Rockies-an area we think has the highest-quality gas assets currently available in onshore North America. Production decline rates in the Jonah Field are only 7% per year. Investor Why so much emphasis on growing natural gas assets? Morgan As far back as 1995, we had a vision that Canadian natural gas was going to become an increasingly valuable commodity-and we were right. For the first time, there's now sufficient natural gas pipeline export capacity to accommodate western Canada's gas production base. Gas pipeline transportation space, formerly in short supply and commanding a premium price, has become a surplus commodity, trading on the open market at a discount. As a result, the differential between Nymex-based gas prices and our own AECO-C Hub prices [the Canadian benchmark] has decreased dramatically-from an average of $1.14 per thousand cubic feet in 1998 to 42 cents per Mcf in 1999. We believe this shift is a permanent structural change in the Canadian gas markets. Furthermore, we see an even more positive picture for prices as the gap between North American gas supply and demand tightens. There continues to be a lot of infill drilling and very little exploration for gas in North America. In fact, only 5% of all the gas wells drilled in the U.S. last year were exploration wells. So, without reserve replacement, we believe we're headed for a crunch, particularly as gas demand for power generation continues to rise. This could mean gas prices north of C$4 per thousand cubic feet during the near term. Investor Your outlook for oil prices? Morgan During the past 10 years, nominal oil prices, not adjusted for inflation, have averaged US$20.50 per barrel. But during the next 10 years, we think they'll average higher than that, given higher demand and a lot more OPEC production than non-OPEC output. Investor At a recent investment symposium in Calgary, you talked about another, newer kind of vision for Alberta Energy. Morgan We're trying to create a global upstream and midstream company much the same way we've grown our domestic operations during the past five years. In the international arena, we're again setting a target of doubling production and reserves during the next five years-with 10% to 15% growth per annum. Investor Presumably, Ecuador would play a prime role. Morgan That's right. We have drilling rights on 567,000 acres in the Oriente Basin, one of the most prolific oil basins in the world. There, the wildcat success rate is more than 50%, with wells averaging 1,000 barrels per day of production. This year, we plan to spend $150 million in this region, with the goal of increasing average annual production to 48,000 barrels per day-once additional pipeline capacity comes on stream. We also have a business unit in Argentina, where there are growing natural gas markets and where we hold exploration rights on 609,000 acres-including plays in the western part of the Neuquen Basin. Also, through our new ventures group, we're involved in western Australia, where we're beginning development of an onshore gas discovery and appraising an offshore oil discovery in the Timor Sea; in Azerbaijan, where we have a 3-D seismic program under way; and in Colombia, where we've recently acquired 824,000 acres of exploration land. Investor Looking at your entire portfolio of assets, which are the main platforms for near-term growth? Morgan Western Canada, the Northern U.S. Rockies and Ecuador-without taking into account the results of exploration in any of the other countries. Investor How much will you spend this year on all your global growth opportunities? Morgan We've just increased our core capital expenditure program for 2000 to C$1.7 billion, 75% for domestic operations; 25% for international opportunities. However, look for international spending to increase going forward. Investor Alberta Energy is the second-largest owner in the Syncrude Project. What's the outlook for Canadian oil sands production? Morgan Syncrude announced in 1998 a 10-year plan to double oil sands production. With our 14% interest in the project, we should see our net daily oil production from Syncrude climb from about 30,000 barrels in 1998 to 58,000 barrels by 2007. We also expect by that time to see daily oil production from our nearby SAGD (Steam-Assisted Gravity Drainage) project rise to 100,000 barrels from 20,000 barrels in 2002. This is in addition to near-term growth in daily oil production, from 96,000 barrels in 1999 to 140,000 barrels by 2001, principally at Pelican Lake and Suffield, also located in Alberta. Investor In a speech this past spring in Toronto, you told Canadian energy executives that Houston is a better place to run an oil company than Calgary. Was that offered tongue-in-cheek or do you actually believe that? Morgan What I meant by that remark is that under the current onerous personal and corporate tax regime in Canada, Houston would definitely be a better place to headquarter an oil company. The total tax load on Canadians is simply draining the ability of our domestic economy to provide the investment capital necessary to fuel a strong, free-market economy. Investor What's the biggest challenge facing AEC today? Morgan We've got to show more results internationally, in line with the growth we've demonstrated domestically in the past five years. Investor What was your return on equity last year? Morgan Only 6%. But we expect it this year to be double-digit-near 15%-due to the fact that our earnings are so hugely leveraged to strong natural gas prices, improved gas-price differentials and higher gas volumes. Investor What's your access to capital like? Morgan When we were putting together the C$910-million deal for the Jonah Field, we received within one day a C$1-billion line of credit from Scotia Capital. Investor What could the financial community better understand about Alberta Energy? Morgan It should be looking at us not as a Canadian oil and gas company, but as a global independent.