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Newfoundland, Hebron partners cut deal Memorandum of understanding signed between province, Chevron-Canada led offshore oil consortium; details of MOU confidential Gary Park For Petroleum News
To paraphrase Winston Churchill, this is not the beginning of the beginning, or the end of the end, but it does appear to be the end of the beginning.
With talk of a “spirit of cooperation and good faith,” and a “fair and reasonable deal” flowing from his lips, Newfoundland Premier Danny Williams proclaimed victory for his government and his province Aug. 22 in announcing a memorandum of understanding with the Chevron-Canada led Hebron-Ben Nevis offshore oil consortium.
Even James Bates, chief negotiator for Chevron, was happy to characterize the deal as a “win for both sides.”
But there were signs that the industry partners are not quite ready to forgive and forget after being scorned and threatened by Williams over the 16 months since the first attempt to strike an MOU folded amid acrimony.
Chevron did not send a representative to the news conference in St. John’s, Newfoundland.
Williams put that down to “logistical” problems, telling reporters: “Don’t read anything into it.”
Whatever differences might still linger, it seems the two sides might have realized time was running out.
Williams noted that Newfoundland is about to enter a decade of major construction work.
On the table are plans for a C$1 billion LNG transshipment and storage terminal by Newfoundland LNG; a C$4 billion, 600,000 barrel per day refinery by Newfoundland and Labrador Refining; and the mammoth Lower Churchill hydroelectric scheme which could cost C$9 billion.
He said the demands those undertakings will place on Newfoundland’s manpower and manufacturing resources may have brought the Hebron partners back to the negotiating table and hastened the decision making.
Details of MOU confidential But Williams and Bates tiptoed around the details of the MOU, citing a confidentiality agreement.
Bates said the two sides have been able to “bridge the gaps” that led to the negotiating breakdown last year.
He described the MOU as an “essential first step, but it’s just a first step to get this project back on track.”
Many matters “still need to be covered in a formal agreement,” he said.
Williams indicated that front-end engineering and design work could start within 18 months, leading to a start of construction in 2010 on the C$5 billion project.
Given that the Newfoundland government estimates Hebron could produce for 25 years to 2040 that points to a possible startup in 2015.
The Newfoundland government also said the owners expect to achieve peak production of 150,000 to 170,000 barrels per day.
Bates declined to confirm any of those numbers, saying a construction schedule will have to await a final agreement.
He said updated technical work puts Hebron’s resources at 400 million to 700 million barrels, but the consortium is a long way from projecting peak output numbers.
For confidential reasons, Bates could not say how the Hebron ownership structure would line up if the project goes ahead with Newfoundland as an equity partner.
When the project team was disbanded, the partners were Chevron 28 percent, ExxonMobil 37.9 percent, Petro-Canada 23.9 percent and Norsk Hydro Canada 10.2 percent.
Newfoundland can earn equity What has emerged from the MOU deal is that Newfoundland can earn a 4.9 percent equity stake and that the pieces are in place for a royalty regime that will ensure the province earns a greater share of proceeds than from the existing Hibernia, Terra Nova and White Rose projects.
The major potential benefit stems from a “super royalty” of 6.5 percent when oil prices climb above a monthly average of US$50 per barrel and after net royalty payout occurs.
But Williams conceded there were “three major gives” by his government, including an increase of C$10 million in its equity purchase price to C$110 million, a reduction in its royalty claim by C$20 million to C$30 million and an extended royalty payout period.
However, he said the risk was necessary to put Newfoundland on a path to the “economic self-reliance to which we have long aspired.”
Williams said the province is now ready to enter a “new era of offshore oil development with unprecedented benefits to the people of our province, including taking real and meaningful ownership of our resources.”
One of the next steps will be the government’s unveiling of a new energy plan before an Oct. 9 election when it is expected to mandate a specific government ownership position for all future offshore projects.
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