Danny Williams, the tough-talking, brawling premier of Newfoundland, has achieved his own version of an Olympic gold medal.
And, more importantly for the petroleum industry, the East Coast offshore will apparently live to fight another day.
In signing a landmark agreement August 20, the Williams government and a Chevron Canada-led consortium, have set the stage for initial production from the Hebron/Ben Nevis oilfield in the 2016-2018 period, peaking at 150,000 barrels per day from reserves of about 700 million barrels.
The government will take a 4.9 percent equity stake in the project for an upfront payment of C$110 million and a contribution to its share of pre-production and construction costs, estimated last year at C$5.8 billion.
That will leave Chevron with 26.63 percent, ExxonMobil Canada with 36.04 percent, Petro-Canada with 22.73 percent and Norway’s StatoilHydro Oil & Gas 9.7 percent.
As a result, Petro-Canada will have a stake in all four of Newfoundland’s producing fields — 20 percent of Hibernia, 34 percent of Terra Nova (where it is operator) and 27.5 percent of White Rose.
Never hesitant about trumpeting his successes, real or imagined, Williams, who brought development of Hibernia to a screeching halt more than two years ago is now proclaiming a new era of industry-government partnership.
The consortium has made guarantees of local contracting, which Newfoundland hopes will see a return of construction workers from the Alberta oil sands to join a work force expected to reach 3,000.
“This really is a win-win,” he told a news conference. “We are soon to become a ‘have’ province as master of our own destiny. This is a day that all (Newfoundland residents) can take pride in and celebrates. The signing of this agreement reflects a bold new era of partnership … it marks our emergence as a full participant on the global energy stage …” he said.
The taxpayers of Newfoundland, who are now part of the industry gamble, have reason to hope he is right.
To reassure them, Williams said the partners could count on generous profits even if oil prices fall back from current levels.
Based on average oil prices of $87 per barrel, Newfoundland would collect C$20 billion in royalties, corporate income tax and return on equity over Hebron’s 25-year operating life. The Canadian government and other provinces could receive more than C$8 billion.
Newfoundland’s existing generic oil royalty regime will apply with some modifications. It provides for an additional super royalty of 6.5 percent on top of existing rates any time after net royalty payout where the price of West Texas Intermediate exceeds $50 per barrel. This results in a top royalty rate of 36.5 percent.
The basic royalty remains at 1 percent of gross revenue until project costs are recovered. Conceding the wrangling that has taken place, Williams said: “We had to play tough to up the ante … there were some tough things said and we went through some tough times.”
As oil prices started rising last year, Williams said “both sides just said let’s get on with it.”
At the height of the furor, he blamed ExxonMobil for blocking his bid for a government equity stake and accused the super-major of holding his province to ransom.
Chevron Canada President Mark Nelson said the construction and production phases will “deliver significant benefits to the people of Newfoundland, generate a competitive rate of return for Chevron and our co-venture companies … and provide additional energy supplies for the North American marketplace.”
The pact is accompanies by the most positive trends in many years for the Newfoundland offshore.
Transocean’s dullish Henry Goodrich has arrived in the region under a two-year contract with Husky Energy, StatoilHydro and Petro-Canada to drill a series of exploration and delineation wells in areas where the three companies are active.
StatoilHydro will move the drillship to the Flemish pass basin in about 1,100 meters of water later this year to test the unexplored Mizzen prospect in partnership with Husky, which can acquire an interest of up to 35 percent.
ExxonMobil has contracted for a rig to drill a second exploration well in the deepwater Orphan Basin and ConocoPhillips is gearing up for an exploration program in the gas-prone Laurentian Basin.
In all cases, the companies are aware that the Williams government, under its new energy policy, will insist on a 5 percent stake if commercial oil or natural gas is discovered.
Wade Locke, an economist at Newfoundland’s Memorial University, said that if the Hebron negotiations had failed for a second time the offshore would have lost its fresh momentum.
He said the deal is “extremely important (because) it reconfirms that there is an industry going forward here for the next 30 or 40 years.”
Paul Barnes, Atlantic Canada manager for the Canadian Association of Petroleum Producers, welcomed the two latest pacts — with Hebron and with Husky to expand its White Rose development, as a “very positive signal for the industry.”