N.L. to gain up to 3,500 jobs, $20 billion in royalties from Hebron oil deal
Published Wednesday August 20th, 2008
ST. JOHN'S, N.L. - Premier Danny Williams played to Newfoundland nationalism Wednesday as he signed a final agreement to develop the Hebron offshore oil project, a deal that could provide $20 billion in royalties and 3,500 jobs for the province's residents.
The outspoken premier stressed that the province's decision to secure a 4.9 per cent ownership stake in the multibillion-dollar project represents an historic "breakthrough" for a small province that had given away too much its natural resources in the past.
"Never before in the history of our energy industry have we taken the bold steps that we are taking today," Williams said of the province's fourth development on the Grand Banks, led by a consortium that includes ExxonMobil (NYSE:XON), Chevron (NYSE:CVX), Petro-Canada (TSX:PCA) and Norsk Hydro.
"We, the people of Newfoundland and Labrador, are stepping forward and proudly taking our place as full partners and active participants in energy resource development."
Construction on a giant concrete base for the well is likely to begin in three to four years, and first oil could be pumped by 2017, he said.
The premier said that, assuming an average oil price at $87 per barrel, the royalty take for the province will be roughly double that of the smaller Terra Nova and White Rose offshore oilfields, which are expected to bring in a combined $10 billion over their lifespans.
The cost of a barrel of light, sweet crude closed at US$114.98 on Wednesday.
Williams acknowledged the deal means the province must pay for "its share" of a project that will cost between $5 billion and $7 billion to build.
Earlier in the day, government officials told a technical briefing that rising prices for steel could increase the cost of construction, but Williams brushed aside such concerns, saying the potential benefits far outweighed the costs.
He also said the flow of revenue from the four projects will mean Newfoundland and Labrador is "soon to become a 'have' province," contributing to the coffers of other, larger provinces.
However, the premier's most common theme was that the ownership stake makes the province an industry partner with access to the inner workings of the Calgary-based oil industry.
The Liberal Opposition in Newfoundland and Labrador, along with some industry analysts, have been critical of that claim, suggesting the premier is overstating the province's influence and downplaying the financial risks.
Ian Doig, a Calgary-based industry analyst, recalled that construction of the $5-billion Hibernia oil platform by a consortium of Canadian firms was $1 billion over budget and a year behind schedule by the time it started producing in 1997.
He noted that if there are cost overruns with Hebron, the province will have to shoulder its share of the costs.
"Whether they paid too high a price to get into this project remains to be seen," he said.
As well, the province won't have a veto on the consortium's decisions and will be last in line for insider information, he said.
"The coffee is cold and the donuts are stale by the time information gets down to the end of the table," he said.
Ed Martin, president of the province's energy corporation, noted that the concrete base for the huge Hebron rig - called the gravity based structure - will be built at the Bull Arm fabrication facility in eastern Newfoundland. The Hibernia platform, the province's first offshore project, was built there in the late 1990s.
However, there is a clause in the deal that states three other sections of the new offshore rig can be built outside the province if there are not enough skilled workers to do the job.
Asked if the province's local industry is getting its fair share of the work, Williams said the shipyards and fabrication facilities in the province can only handle so much, given labour shortages.
"This is hardly a giveaway," he said. "You can't work above 100 per cent capacity."
Yvonne Jones, interim Liberal leader, said a large part of the production platform - known as the utilities and production module - is going to international tender.
"This is a significant piece of work that could create millions of person hours of employment," she said.
The oilfield is 310 kilometres southeast of St. John's, and is thought to contain up to 700 million barrels of oil.
Once production ramps up, Hebron is expected to produce up to 200,000 barrels of heavy oil per day.
Despite the good news Wednesday, the Hebron project had been shelved twice since the oilfield was discovered in 1981 - only three years after Hibernia was discovered.
In 2002, the project was put on hold by Chevron because of low oil prices and the challenges of extracting Hebron's heavy oil.
As oil prices rose, there was renewed interest in the project. But those plans were set aside in 2006 as Williams pushed for more benefits.
His demands initially drew fierce criticism from the oilpatch and others who accused him of gambling with the province's future.
But the oil consortium and Williams eventually agreed to compromise on some points and a tentative deal, which included the 4.9 per cent equity stake, was announced last Aug 22.
Also last year, Williams announced Newfoundland would seek a 10 per cent ownership stake in all future oil and gas projects after he secured five per cent of the expanded White Rose project.
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Some facts the Hebron offshore oil project:
What it is: The fourth major offshore oil deposit off the coast of Newfoundland after Hibernia, Terra Nova and White Rose.
Cost: About $7 billion to develop.
Output: Oil production expected to start in 2017 and will produce up to 200,000 barrels of heavy oil per day.
Jobs: 3,500 construction jobs from the project.
Location: about 350 kilometres off the Newfoundland coast.
Partners: ExxonMobil (NYSE:XOM), Chevron Resources (NYSE:CVX), Petro-Canada (TSX:PCA) Norsk Hydro and the Newfoundland government.
Government stake: Newfoundland paid $110 million for its 4.9 per cent equity share in the development and will pay its share of project costs.
Royalties: Newfoundland expects to gain $20 billion in royalties over project life. Ottawa and other provinces are expected to receive more than $8 billion in revenues from the project.
Quote: "With Hebron we are launching a new era of energy projects in which we, the people of Newfoundland and Labrador, are stepping forward and proudly taking our place as full partners and active participants in energy resource development." - Premier Danny Williams at a news conference in St. John's.
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Some of what was said Wednesday about the Hebron offshore oil project:
-"With Hebron we are launching a new era of energy projects in which we, the people of Newfoundland and Labrador, are stepping forward and proudly taking our place as full partners and active participants in energy resource development." - Premier Danny Williams at a news conference at a hotel in downtown St. John's.
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-"The Hebron project is key to our Canada growth strategy and is one of many projects in our global portfolio that will allow us to grow our reserves and production. Moreover, Chevron Canada is also pursuing long-term growth through the development of legacy assets in the Alberta oil sands and northern Canada." - Mark Nelson, president of Calgary-based Chevron Canada, the project's operator.
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- "Chevron's participation in the Hebron Project gives our company a strategic platform for growth on the East Coast of Canada, where we are exploring for impact-sized resources in the Orphan Basin and have a major financial interest in the Hibernia offshore oil project." - James Bates, vice-president of asset development at Chevron Canada and the company's lead negotiator on the project.
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-"We are soon to become a 'have' province, and finally Newfoundland and Labrador is being recognized for the long-standing contributions we have made to the Canadian federation. These contributions will continue and expand as the Hebron project comes on stream." - Williams.
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