Plug gets pulled on Hebron project

Angry Newfoundland premier fingers ExxonMobil as guilty party; says it should ‘get out of Dodge’ if it doesn’t plan to develop

Gary Park

For Petroleum News

A fight that has been brewing over the past four months since Newfoundland’s feisty Premier Danny Williams started making a case for direct government participation in province’s offshore oil development has boiled over.

For the second time in five years, a Chevron-led consortium has halted work on the Hebron Ben Nevis project and is disbanding teams working on the C$11 billion venture, citing a breakdown in negotiations with Williams’ government.

Regardless of assurances by spokesmen for the partners — ExxonMobil 37.9 percent, Chevron 28 percent, Petro-Canada 23.9 percent and Norsk Hydro Canada 10.2 percent — Hebron is not dead and that they still want to develop the possible 700 million barrel field there is a widespread conclusion that the hopes of Newfoundland’s fourth offshore project have crumbled and will take years to reassemble.

Bristling with frustration, Williams wasted no time going on the offensive, accusing ExxonMobil of being the stumbling block and telling the Irving, Texas, giant, that if they don’t want to use the assets on terms that are fair to his province they should “get out of Dodge and go somewhere else.”

Williams threatens legislation

He said Newfoundland has no intention of letting any company “hold up these reserves indefinitely.”

“We have every indication from Norsk Hydro, from Petro-Canada and from Chevron that they want to do this project,” Williams said.

He said talks seemed to be moving smoothly until late March 30 when the companies asked for tax credits and exemptions on fuel totaling as much as C$500 million — a request Williams said was a “non-starter.”

A spokesman for Chevron said that had Hebron proceeded it would have “surpassed the fiscal and industrial benefits of any (offshore) project to date,” estimating it would have generated about C$8 billion-$10 billion in direct revenues for Newfoundland over an operating life of 20 to 25 years.

Much of the C$11 billion in development costs would have ended up in Newfoundland, where the production platform was to have been built.

Williams wants bigger chunk of returns

“Our goal is to become an energy warehouse,” he said last year.

He has estimated that since the Hibernia field started production in 1997, his government has collected C$700 million, while the companies (now producing from three fields) have pocketed up to C$16 billion.

To redress what he sees as an imbalance, Williams wants an equity role for Newfoundland in projects, starting with the Canadian government’s 8.5 percent stake in Hibernia, now pumping more than 200,000 bpd, and has proposed a role for the government in exploration.

Exxon: selling ‘not an option’

It also said an equity proposal for the government was considered by all of the partners and “we fundamentally could not agree on the terms.”

A new energy policy, scheduled for release this summer, might propose changes to Newfoundland’s land tenure system, by setting a deadline for companies to develop resources or lose their rights.

Williams said the Newfoundland government is seeking legal opinions on whether it can scrap rights that are now held in perpetuity and is trying to enlist backing from the Canadian government.

The partners have cautioned from the outset that Hebron poses technical challenges, with 75-80 percent of the reserves rated at a heavy API 20 grade.

They proposed a sliding scale of royalties of 1-7.5 percent until capital costs had been covered, followed by 20 percent after an allowed 5 percent equity return with a further 10 percent on equity returns above 15 percent.