Remember Danny Williams? He’s the blustering, bare-knuckles, no-holds-barred premier of Newfoundland who ordered Canadian flags removed from government offices earlier this year when he wasn’t getting his way with Prime Minister Paul Martin in his demands for a larger share of offshore royalties.
With the Martin government in a precarious state, Williams went straight for the throat, squeezing out a commitment to keep all of its royalty revenues, without penalty.
For Newfoundland, the deal is worth C$2.6 billion, not including any new projects.
Seems determined to punish industry
Fresh from that triumph, Williams is back – only now he seems determined to punish the industry that has been responsible for almost half his province’s economic growth since 1997.
He warned energy industry executives that Newfoundland wants to extract even greater royalties from its natural resources.
If tough talk doesn’t work, Williams said he is ready to leave oil, natural gas, minerals and hydro-electric projects on the shelf rather than see them proceed under what he views as bargain-basement arrangements.
“We have sought and achieved a greater return from the federal government based on arguments of fairness and equity and we hope to accomplish the same with the industry,” he told the Atlantic Oil and Gas Summit in Halifax.
“Our oil and gas, our hydro, our minerals are all extremely valuable assets. We should not be of the mindset that developers are doing us all a favor by utilizing them.”
His pledge is to “negotiate fearlessly with the goal of getting a great deal for the province. We are fully prepared to do no deal at all. That was our approach with the federal government and that will be our approach for the industry.”
First target: Hebron-Ben Nevis-West Ben Nevis oil project
The first venture to put this commitment to the test could be the Hebron-Ben Nevis-West Ben Nevis oil project, which is just coming back to life, more than three years after being halted because of shaky economics, complex geology and the heavy nature of the field’s 400-700 million barrels.
Project operator Chevron Canada Resources, with a 28 percent stake, announced two months ago that it had reached a joint utilization and operating agreement with its three partners (ExxonMobil Canada 37.9 percent, Petro-Canada 23.9 percent and Norsk Hydro Canada Oil & Gas 10.2 percent) to restart evaluation of the resource.
Chevron Canada said it has found ways to improve the value of the Hebron-Ben Nevis-West Ben Nevis crude.
If the partners can keep the project moving forward, the first oil could flow as early as 2011, a spokesman said.
But Chevron Canada president Alex Archila said a “significant amount of work” must be completed before regulatory applications can be filed.
If Hebron-Ben Nevis-West Ben Nevis is to join Hibernia, Terra Nova and White Rose as Newfoundland producing fields, the partners have insisted on a “preferred royalty regime.”
That’s a non-starter for Williams. “We don’t see that,” he told reporters.
He said royalties negotiated from Hibernia, which has been producing since 1997 and is now pumping 200,000 barrels per day, were “on the low end … we had to give something in order to get something. I see that as money well spent.”
That overlooked the deal struck with the Hibernia consortium to build a production platform anchored to the sea floor that created hundreds of construction jobs in Newfoundland and pushed capital costs to C$6.2 billion.
By opting for a floating producing, storage and offloading vessel, rather than Hibernia’s gravity base system, the Terra Nova partners incurred capital costs of C$2.5 billion for a slightly smaller project.
Now Williams wants a better return on Newfoundland’s assets by not allowing future projects to proceed at what he views as bargain basement prices.
He even suggested that jurisdictions like Russia and Venezuela are obtaining greater returns through taxation, increased royalties and equity.
“It is time for industry to treat Newfoundland … as partners, not merely suppliers of their needs,” Williams said, declaring that his province is embracing the concept of “share the wealth … as our mantra.”
Uneasy about this new direction, industry spokesmen note that Newfoundland is an expensive area in which to operate, because of its harsh climate and offshore environment, and tougher royalties would have it even less competitive at a time when a lack of exploration success has hurt activity.
In addition to Hebron-Ben Nevis, a partnership of Chevron Canada, Imperial Oil and ExxonMobil has been quietly laying the groundwork for possible exploration of the Orphan Basin after making work commitments of C$673 million for 5.25 million acres which hold four pools each with possible reserves greater than Hibernia’s 884 million barrels.
Other plays on the horizon are the Labrador Shelf, with about 123 million barrels of natural gas liquids and 4.2 trillion cubic feet of gas; the deepwater Flemish Pass, where Petro-Canada has identified five targets each in the 500 million barrel range; and the potential for opening up 50 tcf of gas in the Grand banks area where the producing oil fields are located.
