|
Newfoundland taxpayers to the rescue Government takes on liabilities to secure sale of province’s only refinery and save jobs; failed refinery ventures litter landscape Gary Park For Petroleum News
There’s a clear message to anyone thinking about building a plant to refine or upgrade crude in Canada: Forget it, unless you have a cast-iron commitment from a government to offer financial help when times get tough.
The latest evidence surfaced Sept. 5 when Korea National Oil Corp. announced a successful conclusion to its months-long effort to find a buyer for Newfoundland’s only refinery.
New York-based SilverRange Financial Partners - a fixed income, insurance and natural resources investment arm of a US$12 billion real estate fund - said it had agreed to buy the 115,000 barrels per day Come by Chance facility from Harvest Oil Operations, KNOC’s Canadian unit.
Terms of the sale were not disclosed, but it appears the deal was cemented by an offer from the Newfoundland government to pay for “pre-existing” liabilities tied to soil, sediment, groundwater and surface water at the plant site.
Natural Resources Minister Derrick Dalley, while insisting there are no further commitments “going forward,” said it was “certainly in our best interests and the best interests of the province to accept these liabilities.”
The alternative, he suggested, was the “likelihood of 600 people being out of work” in an economically-strapped region.
No further liabilities But Dalley said the government will not accept any further liabilities relating to refinery assets and operations.
The plant has a 40-year history of financial, operational and labor ups and downs, including frequent changes of ownership, in what is generally viewed as the petroleum industry’s riskiest sector.
Acquired in 2009 as part of KNOC’s C$1.8 billion takeover of Harvest, Come by Chance is currently struggling through planned and unplanned outages that trimmed average throughout to 95,500 bpd in the first half of 2014, down 7,588 bpd from a year earlier, while its margins have eroded because of its reliance on imports of Brent-priced crude.
In the second quarter, average refining margins - the difference between the cost of crude and the price of wholesale petroleum products - have dropped by 66 percent.
KNOC now plans to use the sale proceeds to finance production growth in Western Canada, where the company netted C$180 million in the first half of 2014 by selling a mix of oil and conventional natural gas properties.
Not for faint of heart But the refinery sector is no place for the faint-hearted.
Atlantic Canada has seen several shutdowns in recent years, with Imperial Oil adding to the list in June by converting its 95-year-old plant in Dartmouth, Nova Scotia, to a storage terminal, citing a glut of capacity in the region and the high cost of imported crude.
The Alberta landscape, despite the provincial government’s desire to keep more of the value-added end of oil sands production within its borders, is littered with the wreckage of a dozen plans to build upgraders and refineries.
Companies that have scrapped or stalled plans include China National Offshore Oil, Suncor Energy, Total, Syncrude Canada, Shell, Statoil, Peace River Oil and Husky Energy, while those targeting the construction of plants in British Columbia to upgrade oil sands bitumen for export to Asia have been thwarted by the refusal of governments to take equity positions, or offer loan guarantees.
But, without the Alberta government’s participation, a joint venture by North West Upgrading and Canadian Natural Resources to press ahead with their C$8.5 billion Redwater project near Edmonton would have run aground.
In addition to pledging a share of the crude bitumen feedstock for the plant, the Alberta government was forced to provide an additional C$300 million loan when the initial project costs for the 50,000 bpd facility soared by C$2.8 billion.
There is also speculation that the government will have to invest about C$2 billion over 30 years through higher tolls to process its bitumen supply, which is acquired from royalties-in-kind.
The message from Rob Anderson, finance spokesman for the Wildrose Party, which is strongly-favored to win the next Alberta election, is that Redwater has put the government “up the creek without a paddle. Governments should not be in the business of backing loans and picking winners and losers.”
| 