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Newfoundland in state of upheaval ExxonMobil Canada head: Atlantic Canada offshore ‘at the balance point;’ warning overshadowed by resignation of energy minister Gary Park For Petroleum News
The Newfoundland government has received a stern warning — either sort out the confusion surrounding its offshore regime or risk watching a fledgling industry crumble.
“We are at the balance point here in Atlantic Canada with the potential to grow the industry or go into decline,” ExxonMobil Canada President Liam Mallon told a Newfoundland Ocean Industries Association conference.
It’s a message that has been anticipated since the collapse in April of negotiations between the Newfoundland government and partners in the Hebron complex put the project on the shelf indefinitely.
But it was quickly smothered in a political crisis that has rocked the province.
Just hours after the speech, Newfoundland Natural Resources Minister Ed Byrne resigned under a cloud, following an audit of financial records for the provincial legislature.
Details were few, but Premier Danny Williams said the investigation related to legislation covering “improper retention, misappropriation of funds, criminal activity or other activity that contravenes any act.”
He said the allegations affect a number of individuals — “it’s single digits, but that’s as far as I’ll go,” he said.
Newfoundland Auditor General John Noseworthy later advised government officials that his audit found Byrne had signed and submitted claims for C$358,142 during the 2003 and 2004 fiscal years, more than 10 times his limit.
He said the concerns were placed before the provincial cabinet after Byrne was unable to give what Noseworthy called a reasonable response to substantiate the claims.
Three months of rising tension The resignation occurred at a delicate stage of Newfoundland’s offshore petroleum history, amid three months of rising tension between the government and industry, overlayered with promises by Williams to introduce “use or lose it” legislation setting a fixed deadline on the development of oil and gas discoveries and his vaguely stated threat to expropriate those resources.
At the time the Hebron plans were folded, Williams had been seeking a 4.9 percent government equity stake in the venture and had accused ExxonMobil of being the “rogue” partner in the proposed C$3.5 billion-$5 billion project and being the cause of last-minute demands for C$50 million in various tax credits and exemptions.
He said ExxonMobil should sell its 38 percent stake to its partners — operator Chevron, Petro-Canada and Norsk Hydro — or the province, or face being removed through legislation.
“Get out of Dodge and go somewhere else,” Williams told ExxonMobil in an interview with the National Post. “But give us an opportunity to develop this.
“We will take you out. We are going to have to find a way to legislate you out, because we are not going to allow a company like ExxonMobil or anybody else to hold up those reserves indefinitely.”
In the face of such provocation, ExxonMobil kept its cool until Mallon conveyed his message that “investment climates must be stable, predictable and foster cooperation between resources owners (the government) and investors.”
“If Newfoundland hopes to see its offshore grow, that depends on finding and developing more offshore resources and developing creative solutions to prolong the life of existing projects,” Mallon said.
Chevron said in April, after its project team had been disbanded and scattered around the globe, that even if fiscal terms could be negotiated it would take two years to restart the venture.
Mallon emphasized that the heavy oil in the Hebron reservoir poses “unique, technical and commercial challenges ... it’s a risky project and it’s high cost.”
“The co-venturers, however, do remain open to the possibility that the project could proceed at a future date. But I can’t say today how much time it will take or what it will take,” he said.
Byrne had said position unchanged Byrne told the same conference that his government’s position is unchanged — it wants fair, long-term and sustainable returns from its oil and gas resources.
He said the government was elected on a “very clear mandate to ensure maximum benefits and that we do not enter into an agreement or a deal for the sake of doing so.”
Byrne said “we are optimistic that the Hebron development will go forward in the short term because it is a good project worthy of capital investment and commitment to this province by the proponents.”
He said recently updated estimates by the Canada-Newfoundland and Labrador Offshore Petroleum Board that boosted proved plus probable Hebron resources to 788 million barrels from 456 million barrels “demonstrate that over time, with improved technology, improved knowledge base, large fields get larger.”
In the meantime, Byrne said he expects a new energy plan for the province will be completed this fall.
Mallon said that in addition to the elements needed to attract investment the industry believes that maximizing benefits for the government must be “balanced against the developer’s return on investment in order to compete with other jurisdictions” and that stimulating exploration “should be a top policy priority.”
Byrne also held out the hope of a royalty regime for Newfoundland’s untapped natural gas resources.
He said “we are very near the end of that process.”
Ruud Zoon, vice president of Husky Energy’s East Coast operations, said that without the regime companies are unable to properly weigh the economics of gas exploration and determine how much gas there is in the Jeanne d’Arc basin, Orphan basin, Laurentian basin and offshore Labrador.
Before companies can negotiate contracts for high-priced, hard-to-find rigs for multi-year programs they require a commitment that is a “very clear, very stable, very predictable fiscal regime,” he said.
Zoon said the industry needs to know Newfoundland’s position on royalties, equity stakes, benefits and secondary processing before it can “assess the viability of future activities.”
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