|
Newfoundland ready for test of wills Williams: Hebron partners won’t get better offer; set to demand equity stake of at least 5 percent in all new offshore projects Gary Park For Petroleum News
Premier Danny Williams is immensely popular in his home province of Newfoundland, where the polls indicate he is a prohibitive favorite for re-election in October. But he’s immensely unpopular with oil producers who are the leading contributors to his government’s treasury.
Having taken the industry to the mat a year ago and lost out in his bid for an equity stake and enhanced royalties from the Chevron Canada-led Hebron project, he seems about to find out who is the irresistible force and who is the immovable object.
The Williams’ government filed legislation in early June creating a new energy corporation, backed by C$600 million of provincial borrowing power, to invest in the development of oil and gas, hydroelectric power and wind power. The corporation will be fully functional Jan. 1, 2008 after the transfer of assets, employees and contracts.
By then the government will have unveiled a revised energy plan that is expected to insist on a provincial equity stake of at least 5 percent in all future offshore developments – more than the 4.9 percent Williams demanded before negotiations with the Hebron consortium collapsed.
Wants to join ranks of state-run oil companies The office of Natural Resources Minister Kathy Dunderdale confirmed remarks she made that Newfoundland wants to join the league of state-run corporations such as Norway’s Norsk Hydro who are full partners in projects.
Norsk, in fact, has interests in two of Newfoundland’s three producing offshore oilfields – 5 percent of Hibernia and 15 percent of Terra Nova.
Dunderdale said that is what the Hebron partners will have to accept if they have any notion of reopening negotiations on fiscal terms and proceeding with what was once an C$11 billion undertaking – by Chevron 28 percent, ExxonMobil 37.9 percent, Petro-Canada 23.9 percent and Norsk Hydro 10.2 percent — to develop estimated proved and probable reserves of 731 million barrels.
Government will demand more in fall She even suggested that the consortium would be better off resuming negotiations – even though the project team has been disbanded – rather than waiting until the new rules are announced this fall.
By then, the government will be demanding an equity stake larger than the 4.9 percent it sought from Hebron, “so it’s probably in their best interest to get the matter settled before the plan is released,” Dunderdale said.
Williams had already suggested the industry would be well advised to accept the current terms or face much tougher conditions.
Province got C$1B of $17B in profits Dunderdale indicated an underlying reason for Newfoundland’s determination to get a better shake out of its offshore is the return it has received so far under a federal-provincial accord that specified the province was to be the principle beneficiary of offshore development.
Instead, she said, it has received only C$1 billion of the C$17 billion in profits generated by the three producing fields, while the companies have pocketed C$11 billion and the Canadian government has collected C$5 billion.
But the accord gives Newfoundland the right to establish royalty and other fiscal terms, including equity participation. Dunderdale does not believe that pursuing that objective will drive investment away, but she does expect “some resistance.”
She said the companies benefiting from Newfoundland’s “world class” opportunities operate “in most parts of the world” under rules similar to those being drafted by her government.
Must share in risk, says CAPP Paul Barnes, with the Canadian Association of Petroleum Producers, told the Globe and Mail that the industry is open to having the province as a partner provided it puts up the capital and takes on some of the risk.
But he said Williams can expect strong opposition if he seeks both equity and royalties.
Barnes said the breakdown in Hebron negotiations has left the industry “uncomfortable” with the Newfoundland government’s strategy, causing a hiatus in exploration.
What isn’t clear from the government is whether it intends to follow through with a Williams’ threat to impose “use it or lose it” legislation, under which leases will be forfeited unless development proceeds within a specified timeframe.
In an effort to reinvigorate activity, the government has offered C$5 million for a two-year exploration enhancement program to boost onshore oil and gas exploration.
The plan will help companies obtain geoscientific information in exchange for an equity position in future projects.
The program will invest in seismic surveys that will give the province and its exploration partners a “clearer indication of the opportunities that lie beneath the surface of our onshore lands,” Dunderdale said in a statement.
It is designed to give a lift to exploration by providing funding for provincially owned Newfoundland and Labrador Hydro to strategically invest in geoscientific activities.
| 