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Newfoundland lands second equity deal By Gary Park For Petroleum News
Newfoundland Premier Danny Williams carries a very self-satisfied look these days, having landed a tentative agreement that gives his province its second ownership stake in an offshore oil project.
A memorandum of understanding with partners in the Hibernia South project to develop an estimated 220 million barrels (of which 170 million barrels will be produced using a subsea tieback to the main Hibernia platform) gives the government a 10 percent equity stake for C$30 million.
Earlier industry and government forecasts have set peak production at 50,000 barrels per day after a scheduled startup in 2012.
Although a final pact will take the next few months to conclude, Williams told an industry gathering June 16 that the deal gives his government an “unprecedented royalty rate and equity interest.”
He estimated the new field will generate C$10 billion over its operating life for Newfoundland, while the Canadian government will collect C$3.5 billion.
The Hibernia South partners are ExxonMobil Canada, Petro-Canada, Chevron, StatoilHydro and Nalcor Energy Oil and Gas, representing the Newfoundland government.
The Canadian government’s Canada Hibernia Holding Corp. and Murphy Oil are additional partners in the existing Hibernia project.
Hibernia: 670M barrels so far The Hibernia field has so far produced 670 million barrels since coming on stream in 1997, almost half the field’s estimated 1.24 billion barrels, which includes Hibernia South.
Williams estimated his government will collect another C$13 billion from the main field now that the project has covered its capital costs and royalties are at 30 percent of net revenues.
In addition to the 10 percent stake in Hibernia South, three new super-royalty areas are covered by the memorandum of understanding — two of them carrying a top royalty rate of 50 percent when oil prices reach $70 per barrel WTI and 42.5 percent for a third license area.
The Newfoundland government sidetracked plans for Hibernia South in January 2007, including regulatory approval, as Williams waged a battle with the industry over his determination to secure a 10 percent equity stake in all new and expanded offshore projects.
As well, he wanted a more robust development program and information on future plans to develop stranded natural gas reserves in the oil fields.
Williams achieved his major breakthrough with the revival of the Hebron project by securing a 4.9 percent government equity stake.
There has been a growing sense of urgency to settle the government-industry differences because of estimates that the three operating projects are headed for a 21 percent decline in total production this year to 98.5 million barrels, slipping to 84 million barrels in 2011.
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