Offshore deal worth $16-billion to Newfoundland

COMMENT: "The agreement to develop the Hebron-Ben Nevis offshore oilfield gives the province an equity stake of 4.9% in the project."

CanWest News Service
August 22, 2007

Danny Williams
CREDIT: Tyler Anderson/National Post

Newfoundland and Labrador Premier Danny Williams said Wednesday that an offshore deal reached with four major oil companies represents an unprecedented gain for the province.

The agreement to develop the Hebron-Ben Nevis offshore oilfield gives the province an equity stake of 4.9% in the project, estimated to contain 731 million barrels of recoverable oil.

The equity stake came at a cost of $110-million, but the deal will mean total revenue of $16-billion over the 25-year life of the project for the province. The federal government will earn $7-billion in the same period, Mr. Williams said.

The combative premier and the oil companies broke off negotiations on the project -- Newfoundland's fourth major oil development -- in April, 2006, when they couldn't agree to fiscal terms.

The premier came under severe criticism, both in his home province and in the oil community, for refusing to back down on his demands, which involve heavy provincial involvement and for which he was likened to Venezuela strongman Hugo Chavez.

The premier was in a triumphant mood Wednesday, proclaiming the memo of understanding was "historic" and the first step toward Newfoundland and Labrador "Taking real and meaningful ownership of our resources."

There is also an improved royalty regime tied to the price of oil. When oil rises above US$50 a barrel, the province will receive a super royalty of 6.5% of net revenue.

Construction could begin by 2010.

The Hebron negotiations were suspended by the oil companies in April 2006, but resumed last month. One of the main stumbling blocks had been the province's demand for an equity stake in the heavy oil project.

"Our goal was to surpass benefits of previous agreements," said Mr. Williams, who touted the investment in his province's workforce, including the local construction of the new oil platform. "Determination and strength of conviction has been our government's guide."

The partners in Hebron are Chevron, ExxonMobil Canada, Petro-Canada and Norsk Hydro Canada.

Nfld. strikes Hebron deal

SHAWN MCCARTHY
Globe and Mail
August 22, 2007

The province of Newfoundland and Labrador will pay $110-million to get a 4.9-per-cent stake in the Hebron offshore project, Premier Danny Williams said in announcing a deal with oil companies to proceed with the $5-billion development.

Some 16 months after talks broke down — and six weeks for a provincial election — Mr. Williams on Wednesday released details of the agreement, which includes a heightened royalty regime and guarantees for local content in the construction of the offshore platform.

“Today marks a historic day in Newfoundland and Labrador, as we enter into a new era of offshore oil development with unprecedented benefits to the people of our province including taking real and meaningful ownership of our resources,” the premier told a news conference in St. John's.

Under the agreement signed with the consortium led by Chevron Corp., the province will pay $110-million in cash for its equity stake, and contribute 4.9-per-cent of the estimated $5-billion in construction costs.

With a provincial election less than two months away, Newfoundland and Labrador Premier Danny Williams has clinched a deal with a consortium of oil companies to proceed with the $6-billion Hebron offshore oil project.

With a provincial election less than two months away, Newfoundland and Labrador Premier Danny Williams has clinched a deal with a consortium of oil companies to proceed with the $6-billion Hebron offshore oil project. (CP)

Mr. Williams acknowledged there was some risk involved in taking a direct stake in the project, but said the province would benefit from payout of profits, as well as super royalty scheme that will remain in effect so long as the price of oil remains above $50 (U.S.) per barrel.

James Bates, vice-president at Chevron Canada Ltd., said the deal was a good one, both for the people of Newfoundland, and for the shareholders of the oil companies.

"We dealt with the net expectations in the context of the entire agreement," Mr. Bates said. "When you at it from that perspective, we were able to meet the expectations of the government and our companies."

Mr. Bates would not discuss the details of the agreement, including which partners would sell equity. He said more work needs to be done to hammer out a binding contract. In addition to Chevron with 25 per cent, ExxonMobil Corp owns 37.5 per cent of the Hebron project. Petro-Canada and Norway's state-owned Norsk Hydro ASA are also partners.

The province's equity will be managed by energy arm of Newfoundland and Labrador Hydro, which has been charged with developing the province's oil and gas, as well as electric power assets.

The premier thanked the people of Newfoundland and Labrador for supporting him when critics — in the business community in St. John's and around the country — slammed him for insisting on an equity stake and accused him of driving investment away from the province.

Talks between the government and the oil companies broke down in April 2006 over a number of issues, including Mr. Williams' demand for an ownership stake in Hebron and the companies' insistence on a package of tax credits.

In his news conference this morning, the premier said his government had increased its offer for the equity by $10-million, agreed to reduce its royalty claim by $20-million to $30-million, and extended the royalty payout period.

For its part, the consortium dropped demands for tax credits, and agreed to accept the government as a partner in the project.

Mr. Williams said that, given current oil price projections, the Hebron project — with reserves of up to 700-million barrels — should generate more revenue for the province, and more jobs than the two previous projects combined.

Hebron will be the fourth offshore oil project for the province since the industry got its start with the Hibernia development in the 1980s. It is located some 340 kilometres from St. John's and will use a similar concrete gravity-based structure (GBS) as a drilling platform. That GBS will be fabricated in the province.