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Giving peace a chance Atlantic Canada antics over as Newfoundland and Nova Scotia win battle for 100 percent share of offshore royalties; resolving impasse needed to restore investor confidence Gary Park Petroleum News Calgary Correspondent
Months of wrangling, capped with the removal of the Canadian flag from Newfoundland government buildings, ended in smiles Jan. 28 with a deal that removes a logjam to oil and gas development in offshore Newfoundland and Nova Scotia.
The Canadian government and the two provinces arrived at a deal to end a scrap that Petro-Canada’s Chief Executive Officer Ron Brenneman said was deterring investment in the region.
Not all the details are yet known, but the basic terms will see the Canadian government return 100 percent of the offshore oil and gas royalties to Newfoundland and Nova Scotia over the next eight years and possibly beyond.
Preliminary calculations indicate Newfoundland will get C$2.6 billion and Nova Scotia, because its gas industry is smaller than Newfoundland’s oil fields, C$830 million.
But federal and provincial officials agreed that, unless commodity prices take a major dive, the agreement could put billions of additional dollars into the provincial coffers. Canadian government had returned 30 cents on the dollar Until now, the Canadian government, which owns the offshore, has returned 30 cents from every $1 in royalties to the provinces.
A sore point for years has boiled over in recent months as feisty Newfoundland Premier Danny Williams accused Prime Minister Paul Martin of not delivering on a deal made in the federal election last June.
To demonstrate his displeasure, Williams stormed out of two rounds of talks and, for two weeks, ordered the Canadian flag to be removed from Newfoundland government buildings.
But that all ended in smiles and handshakes on Jan. 28, with Williams saying Martin had “delivered in full” on his promises and Nova Scotia Premier John Hamm declaring that “Canada can work.”
Martin, while conceding that “there have been hard words spoken and these have been very, very difficult negotiations,” described the settlement as a “great day for Canada.” Investors had been nervous Most importantly for the industry, Brenneman told analysts Jan. 27 the unresolved issues were making “investors a little nervous about putting money into the offshore. And that’s not in the interest of the provinces, or the country or ourselves.”
He said Petro-Canada had taken an active part in encouraging the governments to find a solution.
The jurisdictional impasse was hanging over decisions on reviving the Hebron-Ben Nevis project, a possible C$4 billion venture to exploit 600 million barrels of recoverable oil.
The partners — ExxonMobil 38 percent, operator Chevron Canada Resources 28 percent, Petro-Canada 24 percent and Norsk Hydro 10 percent — have their own challenges arriving at an operating agreement.
But they are also looking to the Canadian and Newfoundland governments to offer tax credits and reduced royalties because 75-80 percent of the field consists of 18-21 degree API oil, making it more difficult to recover. Outlook bright in Newfoundland Although Nova Scotia faces a bleak future as its gas reserves decline, dry holes accumulate and operators surrender exploration licenses, Newfoundland has a bright outlook.
Brenneman added to the upbeat mood by announcing that the Hibernia field, which averaged 204,000 barrels per day in 2004, has gained new reserves. He said another 105 million barrels have brought reserve estimates to 940 million barrels, up from 835 million a year ago and 615 million in 1997.
But Brenneman was unable to predict when the C$5.8 billion project (with Petro-Canada as a 20 percent partner) will reach payout, partly because of the continued development of the field.
In contrast, the Terra Nova field, in which Petro-Canada is the 34 percent operator, achieved payout in 2004 after only 30 months of operation.
Despite an “oil water” spill in December that shut the field down for a month and trimmed Petro-Canada’s fourth-quarter profits by 18 cents a share to C$1.69, the company is targeting an average 110,000-120,000 bpd in 2005, including a four-week maintenance turnaround.
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