New Hope for Hebron

Moira Baird & Terry Roberts
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Williams fuels offshore optimism

The opening day of an oil and gas conference in St. John's Tuesday signalled the return of "optimism and confidence" to the industry in this province, says Ted Howell.

The president and CEO of the Newfoundland Ocean Industries Association (NOIA) was reacting to word from Premier Danny Williams that three major projects appear to be back on track.

Premier Danny Williams gives the opening address at the Newfoundland Offshore Industries Association conference in St. John's Tuesday. Photo by Gary Hebbard/The Telegram

The opening day of an oil and gas conference in St. John's Tuesday signalled the return of "optimism and confidence" to the industry in this province, says Ted Howell.

The president and CEO of the Newfoundland Ocean Industries Association (NOIA) was reacting to word from Premier Danny Williams that three major projects appear to be back on track.

Williams announced during a speech to delegates at NOIA's annual conference that formal talks on an agreement for the development of the Hebron-Ben Nevis offshore oil project could resume this summer, and a formal deal could come soon after.

Williams added that plans for the extension of the White Rose and Hibernia oilfields are moving forward.

"The premier shared some ideas with us this morning that will go a long ways toward achieving the goal of our conference," Howell said, referring to the need to bring optimism and confidence back to the industry.

Negotiations between the provincial government and the consortium hoping to develop Hebron, which includes Chevron and ExxonMobil, collapsed April 2006. One of the main stumbling blocks was a demand by the province for a 4.9 per cent equity stake in the project.

During a 25-minute speech, Williams gave new hope to the project.

"It is my hope that full-scale negotiations can resume sooner rather than later, certainly this summer, and that a negotiated agreement is not much farther down the road," Williams stated.

Williams added that preparatory talks, aimed at clarifying "outstanding issues," are underway.

He described these talks as "true cause for optimism."

Despite the upbeat tenor of Williams' speech, he received only a lukewarm applause from the several hundred delegates at the St. John's Convention Centre.

Williams has come under fire from some in the industry for his tough negotiating style, and has not always had a rosy relationship with NOIA.

Last year, for example, Williams suggested during a radio interview that the organization should change its name to "Annoy-a, because that's basically what they're doing to me."

Reaction at the convention centre was mixed as delegates mingled after Williams' speech.

Chevron Canada revealed few specifics about the Hebron talks at the NOIA conference Tuesday.

"There are no negotiations ongoing. There's certainly no project team in place, but the lines of communication are open between Chevron and the province and the regulator," said Tim Murphy, government and public affairs adviser for Chevron in St. John's.

"We can't say at what stage and how long it may take to get back to negotiations. But, again, the lines of communications are open."

Murphy would not provide details about what communications those lines might be carrying.

"We're not going to get into specific issues."

Chevron is carrying out some Hebron studies.

"We do have a limited work plan in place at the present time, and we are focusing on updating our costs associated with the project.

"We're looking at freshening our understanding of capacity in the province from a labour and industrial capacity perspective."

Murphy said the Hebron partners' current cost information is more than a year old.

Petro-Canada, one of the Hebron partners, also spoke about the talks in a National Post story Tuesday.

"We are in the middle of restarting those discussions," Peter Kallos, executive vice-president of Petro-Canada's international and offshore business units, told the Post.

"The authorities in Newfoundland are clearly hoping that this energy plan will make things happen. We are hoping that things will happen. I am optimistic. I think it's worth getting a deal and, as with any deal, it will be done when the time is right."

Kallos is responsible for Petro-Canada's operations off Newfoundland, the North Sea, Libya and Syria, and Trinidad and Tobago.

Williams emphasized, however, that the government will not move on its demand for a stake in the project.

He said issues related to equity and royalties are "entrenched principles" that will be reinforced in the government's long-awaited energy plan, which is due to be released prior to the Oct. 9 general election.

"They are clearly a condition precedent for moving forward," Williams said.

Williams said the province is not asking for anything extraordinary by seeking an equity position in Hebron. He said the federal government owns an 8.5 per cent stake in Hibernia, and is a perfect example of how government partnership in an offshore oil project can work.

"This percentage in no way impedes the private operating partners' ability to reap large profits from this project," Williams said.

And in order to make wise decisions, he added, the province must have a seat at the table.

"The most effective way to do that is through participation," Williams said.

And the province is not looking for a free ride, he added.

"We are prepared to be a contributing partner."

Williams acknowledged an "enormous" amount of work is required before a final deal is reached.

He noted that the availability of labour and fabrication sites in the province is another key factor in the negotiations. With several other major industrial projects in the offing, including a nickel processing facility, an oil refinery, the Lower Churchill hydro-electric project and others, Williams said timing is critical for the Hebron project.

"It is critically important that we factor the Hebron work into the schedule or there maybe no facility available in the near future," Williams said.

troberts@thetelegram.com mbaird@thetelegram.com

Organizations: Newfoundland Ocean Industries Association, New Hope, Petro-Canada ExxonMobil St. John's Convention Centre National Post

Geographic location: Hebron, St. John's, White Rose Newfoundland North Sea Libya Syria Trinidad and Tobago

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Recent comments

  • X.
    July 02, 2010 - 13:34

    Premier Danny Williams has done nothing but good for this Province

    It's easy to do nothing bad when you do nothing.

  • W
    July 02, 2010 - 13:34

    Jarrod, do you apply the same healthy skepticism to, say, the Sayings of Chairman Dan? Too many people seem to accept something as being something solely on his say-so.

  • W
    July 02, 2010 - 13:33

    Jarrod says and asks, I like to try and form an opinion on things by asking questions. Which I thought is what I was doing. What good is a comments section if everyone sees things the same way? -- in that respect, then, we are on the same wavelength. I do hope you, and others, will use those capacities to be just as skeptical of claims made by Danny Williams as you would be of those made by anyone else.

  • Jarrod
    July 02, 2010 - 13:32

    Thanks again Mark. I don't think I'm quite convinced but I'm having a better understanding of your side of the argument. I also understand your sense of urgency to get home too. I spent a number of years in Toronto before making my way back. I know it's not quite as extreme as Dubai but its still not home. As Newfoundlanders we do what we have to do. Hopefully that will change though! Cheers!

  • Newfoundlander
    July 02, 2010 - 13:32

    A few general comments
    1. I see nothing for optimism in Premier Williams comments. The Hebron team was disbanded and are now all doing other projects. They are NOT sitting around waiting for the call to come back. Its also telling that Chevron's studies are not fully updated since that would be a number of MONTHS of work before that can even talk seriously. If the premier really thinks he can get a deal now when he couldn't attain one when there was a project team rarin' to go with space already rented in St. John's-- what has changed
    2. At Jarrod-- what is a fair share ? This is a serious question. Premier Williams says it is 4.9% equity on TOP of royalties that are already higher than companies pay in Alberta (after payout) on oilsands projects ( which are much less risky)
    3. On costs-- They have skyrocketed for steel, concrete etc (partially since energy costs are up)-- THis impacts a Hebron and large oilsands projects way way more than conventional onshore drilling. A number of oilsands projects have been put on hold ( search Synenco as one example) because of rising costs. I don't have a source on rig rates but I know offshore rig rates are way up too.
    4. Its laughable to cite Hibernia as an example for Hebron. Gulf gace up their interest in Hibernia for NOTHING because they thought the project was too risky. Chevron and Mobil took on small additional shares and Murphy took a piece as well but 8.5% remained that they could find no one willing to take. The province turned it down. Finally the Canadian government took the share, solely to kick start the industry and paid 8.5% of costs on a go-forward basis.
    THis shows two things--First, the province asking for this share is convenient revisionism. Second, the Hibernia deal that has worked out so well was not seen as such a sweet deal by the oil companies at the time. But you win some and lose some. From Mobil's point of view, the did great at Hibernia but Sable (offshore NS) has been a huge disappointment.
    To cite a government stepping in when no one else would as some example why another government should force their way in when they were not needed

    5. Lastly @ Dan O'Brien
    If you can find a reputable economist that can show any time in the 1970s and 1980s where Hebron could have been a viable project based on the information and technology that was available at the time, I'll eat my hat. It was not until a series of deliniation wells were drilled in the late 90s that they even had a accurate assessment of the size of the pool. And to this day, Hebron is NOT light crude. Its a far heavier product that commands a lower price and requires far more wells and more sophisiticated depletion planning than a Hibernia
    and yes I am in the oil industry but that does not change the fact that I will always be a Newfoundlander first. Its just I have a few facts behind my opinions. I have worked this industry for about 10 years now but that does not make me forget my roots. IT does however let me see when a politician is blowing smoke

  • Jarrod
    July 02, 2010 - 13:30

    Oh, and excuse me if I don't accept something as being unfair just because big oil companies say so.

  • Newfoundlander
    July 02, 2010 - 13:30

    Hey, let's be fair about this - Dangling whatever before an election - Premier Danny Williams has done nothing but good for this Province. It's the ones before him that should be to blame for the out migration, fish plants closing, papermills closing, etc.

  • John
    July 02, 2010 - 13:30

    I am an xpat. I live in AB but work rotation in China, but from NL
    I am thankfully that we finally have a Premier that is looking after the long term interest of the Province. We have seen how the federal government has no respect for NL. They ruined the fisher for us.. They would not force Quebec, to allow us a condor to ship our hydro power to market, so we had to give it away. It was ok to give Albert full rights to their oil, not NL. Now they want us to give the oil away. I am sick of us giving everything away for a few temporary jobs. A few crumbs. All those people who want to give away the oil, so that they can move back home and in a few years they can watch there children move away. The oil can stay in the ground ! Jarrod where are you getting your information from? I worked for Petro-Canada for 6 years on the Terra Nova. The FPSO was paid for in 3 years. Do you know what the lifting cost for them is? To get the oil out of the ground and into the oil Tanker is costing them $2.25 a BARREL. Hibernia. Is even lower at, $1.70 per Barrel. Now @ $60 that makes for a nice profit! The oil sands they are hoping to get there lifting cost down to $12.00 per barrel. If NL cannot get its fair share, Keep it in the ground. Sooner then later, Big oil will be knocking! Keep up the good work Danny!

  • Jarrod
    July 02, 2010 - 13:30

    Thanks for the reply Mark. But I'm having difficulty equating how this is a stumbling block to the stalled negotiations.

    I'll accept that logistically things are tight right now. But wouldn't these bottle necks still occur even if a less than favorable deal was struck last year? Wouldn't they have just occurred much sooner and the industry would be in the same situation or perhaps worse at this point. I don't see how this is an argument against holding out for a better deal.

    The fact that our industry is already operating at or near capacity sort of suggests that taking on a project the size of Hebron wouldn't be possible. But we both know our capacity will grow to meet the demand. There's simply too much money and opportunity up for grabs for it not to. Which kind of makes this whole discussion moot doesn't it?

  • Newfoundlander
    July 02, 2010 - 13:26

    Final comment

    From my view Danny Williams has seemed downright hostile to the oil industry. Consider this

    1. Attempts to make Andy Wells the CHAIR of the CNLOPB. The chair has to be a fair- HAS TO-- its a big part of the job. You may love Andy but can anyone say he is fair and balanced when it comes to the oil industry

    2. The premier then ignored legislation that set out how a chair was to be picked and the poor guy had to sue to get his job. I think the court that reviewed this said the governments conduct was unconscionable

    3. Vetoing decisions of the CNLOPB. They always consult government extensively before making decisions but now they get vetoed. My personal view was Danny was peeved he didn't get his way on appointing the Chair of the CNLOPB and he wanted to show who was boss

    4. Hebron-- here it might have been lack of knowledge rather than hostility. Premier Williams sisn't seem to understand that the oil folks meant what they said. He seemed shocked that they actually pulled the plug last year. Perhaps its all his years as a personal injury lawyer where deadlines to make a deal are never real. In the oil industry they are real. Heck the project manager for Hebron was in Australia on another project FOUR days after the decsion to disband the team was announced ( and frankly it took a big effort to keep the team as long as they did with no progress)

    I have meet Premier Williams many times and I do not doubt his intelligence. But I am equally certain of his ego and arrogance. MY biggest fear is that opportunities for the province are being lost because we have a premier who doesn't really understand the oil industry that well but who has too much ego to see anything other than the things that he wants.

    Can someone tell me that thats not within the realm of possibility?

  • Newfoundlander
    July 02, 2010 - 13:25

    Regarding Jarrods comment (#2)

    Keep up the tough stance. Any argument about this project being risky or potentially unprofitable is ridiculous. After all, the companies involved here have posted record profits in recent years. In fact, their combined yearly profits dwarf the budget of this province. Why shouldn't we demand our fair share?

    My response

    1. Why do profits elsewhere in the world have anything to do with how profitable Hebron would be? The project needs to be assess on its own merits whether the proponents are stinking rich or just getting by.

    2. All of the major have had projects which were failures over the last few years. In doing these big projects, the big successes (Hibernia) are offset by the failures ( Sable has been a big disappointment)

    3. Newfoundland SHOULD get a fair share. But what is fair? Danny Williams seems to have plucked 4.9% equity out of the air as a fair number. No other province in Canada takes an equity share like that . .. They all take royalties.

    4. In Alberta there were concerns that the province might not be getting a fair share particularly on oilsands. The government commissioned a review of royalties and appointed a number of people to tour the province and report back. While that was happening, a number of oilsands projects have been shelved due to rising costs. Some of them are BILLION barrell projects!!


    So demand a fair share. Just excuse me if I don't accept something as fair just because Premier Williams says so.

    Bottom line-- Oil companies have only so many people available and they do the best projects. Hebron gets done by BIGOIL when it is better to do than the other projects they have available. It likely would have been done but additional government demands made it less favourable than other available projects. Every business in the world operates this way so I see nothing offensive or sinister about it

  • Mark
    July 02, 2010 - 13:24

    In response to Jarrod I can say that Newfoundlander from Texas is correct , we have just awarded a pipeline contract after much negotiation & the bids were not competitive .
    We have under estimated the costs for this part of the project due to a higher increase in Material prices & lack of bidders as the companies invited to Tender just cant fit it into there busy schedule & we still havent tied down a vessel for pipelay & not convinced that the pipe coating schedule can be met , the list of problems go on and on .
    Meantime the construction for the offshore platforms are still on schedule and within the budget , but this contract was awarded just over a year ago.
    We have seriously under estimated the cost for the pipeline & as a result the project team has come under pressure from other partners & shareholders , we have now got to go through a shareholder audit in the next couple of months as a result.
    I have had quite a number of years experience with subsea work & like everyone else in the business well aware of the increasing costs but wasnt expecting this .

  • Dave
    July 02, 2010 - 13:21

    Recently, I've heard (and read) this premier continue to refer to the 8.5% stake the federal government has in Hibernia, and uses that fact to suggest that his demanding of 4.9% of Hebron is justified. Why doesn't the media and the industry explain this apples and oranges comparison. I'm sure the majority of Danny's loyal sheep either forgot, don't know or don't wish to know that the fed's 8.5% equity stake in Hibernia was purchased from Gulf Canada who had decided to pull out of the consortium, thus threatening the project. After several failed attempts by the remaining partners to find a buyer for Gulf Canada's stake, and since neither of the remaining partners were interested in increasing their stake, the Government of Canada stepped in and purchased it so that the project would be able to proceed. That is vastly different from the premier's demand that the Hebron partners, who have already assumed 100% of the risks and exploration costs, simply surrender to the province a percentage of their stakes.

  • Stephen
    July 02, 2010 - 13:21

    To: Newfoundlander in Houston

    If costs are increasing wouldn't the actual price on the market do so as well to compensate? Payout won't come any later unless the oil companies do something they wouldn't do and not charge more for their oil.

  • Mike
    July 02, 2010 - 13:21

    I find it interesting that most of the derogatory comments towards Premier Williams are from people living away and also with vested interests in the oil business. Higher profits, higher pay. I've lived here all my life, 50 plus years and I can state with conviction our current Government has done more in the past few years than all the others before. The facts speak for themselves. Outmigration has been going on for as long as I remember, while the downturn in the larger industries such as paper and the fishery have been sliding down for many years. These are the results of poor world markets, and mismanagement by both the federal and provincial governments for the past 30 to 40 years. To even think that Williams would make an upbeat speech to gain political points is the most absurd comment I've ever heard. This current government could be mute and in hiding for the next three months and still win the next election by a landslide. Full marks for someone whio finally has both the courage and brains to realize that we Newfoundlanders are not second class to the rest of Canada, nor anyone else in this world. If one can't see our accomplishments that have been made on the world stage in all avenues over the years then perhaps hearing aids and braille reading lessons should be on your agendas. Stand Tall, Danny and perhaps, just perhaps our children or grandchildren might reap the benefits of your diligent efforts. Ireland was once the Newfoundland of the United Kingdom and is now enjoying the fruits of excellent foresight and proper planning for its future generations. Wake up people.

  • Robert
    July 02, 2010 - 13:20

    Talks about having talks? Expected to start in August you say? Uncanny timing, considering that the election is in October. I'll hold my applause until the province has something substantial to announce.

  • Eric
    July 02, 2010 - 13:20

    As an oil industry worker presently living in Newfoundland and working in the Gulf of Mexico, I agree with Danny's stand for an equity stake in future offshore projects, as painful as that is to the local industry. I don't agree with his confrontational style though. Hopefully he can tone that down and get a good deal done on Hebron.

    With regards to Dave in St. John's comment that the oil companies took 100% of the risk in discovering Hebron, I worked in the oil industry in Eastern Canada in the 80's and all of the currently discovered oil & gas pools were discovered under the PIP program whereby the companies got tax writeoffs to cover their expenses. We, the taxpayers of Canada, paid for the discoveries.

  • Newfoundlander
    July 02, 2010 - 13:19

    I too enjoy the exchange and I am always ready to change my opinions when presented with new facts. Believe me I don't think oil companies are in this for the good of Newfoundland-- They are simply out to make money-- nothing else.

    Were Premier Williams demands unreasonable? Frankly I don't know. Its probably beyond the ability of anyone in the general public to assess (complicated financial data in the billions).

    Premier Williams says it was reasonable and we have his word on that. The oil companies don't talk about whether its reasonable . . They just say it was not feasible at this time-- ON that we have THEIR word, plus their willingness to walk away when a project team was in place. They might very well both be partly correct.

  • Newfoundlander
    July 02, 2010 - 13:19

    @ Jarrod

    There are many reasons why the oil companies side isn't out there more.

    1. They are oil companies. A certain segment of the population will hate them no matter what. They make billions so screw em!!

    2. The big oil companies usually do not negotiate in public. They see no point in angering, embarrassing or confronting elected officials.

    3. It takes a while to explain the business side of things and clear up so many misconceptions. The time required is more than most people will listen on the issue. See point 1. BUt notice how many people in and around the industry are hesitant about the premier's positions. We are still Newfoundlanders--

    4. Premier Williams is on the side of right and goodness. Who can argue with anyone that says Newfoundland should get more?? I would love for Newfoundland to get more, who wouldn't ? His position is simple, easy to express and something no Newfoundlander I know would oppose.
    I don't blame the Liberals on this-- I have had this discussion with my parents and it took THEM forever to see what I was trying to say. For a politician it would be election suicide. I remember on NTV premier Williams ridiculing the Liberals for even asking questions..


    My fear is that Newfoundland will get something someday that looks like more but is actually much much less. Did you know that if delayed long enough, it makes sense to produce Hebron form the Hibernia platform? That could be a bonanza of royalties since payout would happen much sooner but not many construction jobs-- maybe thats Williams'endgame (but is something he cannot say) I just don't know

  • Dan
    July 02, 2010 - 13:18

    Iwill not got into the specifics of the past political or legal battles, but in 1979, Chevron ANNOUNCED the discovery of Hibernia. Oil during that period was trading at US $36 a barrel or about US $85 at current real values.
    Since that time, ONLY 3 projects have been brought on stream. This is not an example of an industry,aggressive/progressive by an stretch.

    The past has passed, but Newfoundland had better started considering in its staegies what is taking place now in the world and in the very NEAR future. Many high profile politicians and industrialists are seriously expending both with monetary and political capital in the issue of climate change .
    In a couple of years, it will be very difficult to rationalize signing onto reducing worldwide emmissions and at the same time trying to initiate the development of new oil fields and building new oil refineries.

    I am a Newfoundlander who has worked in the oil industry since 1979. Although, I am currently outside of the province, I continue to pay my taxes as I have done for the past 40 years.
    This is the first time that I have ever written a newspaper. I hope it is not addictive.

  • Jarrod
    July 02, 2010 - 13:18

    To W. McLean, I'm as skeptical as the next person when it comes to our elected officials. I like to try and form an opinion on things by asking questions. Which I thought is what I was doing. What good is a comments section if everyone sees things the same way?

    To Newfoundlander in Calgary, I appreciate the responses youve given. I sort of apologize for the excuse me comment. I couldn't resist. But the arguments you're putting out here are valid. Particularly your response to point 3. What I can't understand then is why those arguments arent publicized more? If I were you I'd be equally upset by our Liberal opposition as opposed to only focusing on Dan.

    As you know, the vast majority of Newfoundlanders are weary of simply giving away our resources to be taken elsewhere for processing in exchange for a few jobs. Given our track record its understandable.

    Anyway, Ive enjoyed the exchange. Im still not completely convinced but, between you and Mark, Ive moved on my position. Cheers!

  • Jarrod
    July 02, 2010 - 13:17

    Again, solid points. I heard that part of the reason for the ridiculous cost of Hebron is that there were discussions about building another GBS like Hibernia. Is there any truth to that? It seems a little crazy to me if a solution like the FPSO would be just as effective. Not to mention the fact that when the job is done we aren't left with a 700,000 ton navigation hazard. Are one off construction jobs really that important with this much at stake? Again, I stress the point that this is something I heard.

    Regarding the success of Terra Nova, I did a little research. That project was estimated to pay for itself in 5 years at ~60$ a barrel. But since oil prices went up it managed to pay for itself in just under 4 years. So my understanding is that the rest is pretty well gravy. I'd call that pretty successful. Even if it did take the full 5 years, I'd still call that a successful venture. But I don't know what the standards are for success in the oil business.

    I havent had a chance to look at those royalty links you posted but I will.

  • Newfoundlander
    July 02, 2010 - 13:17

    Good comments and questions

    1. THe projected development mode for Hebron was a GBS but one that was much much smaller than the Hibernia one. Now that they have some years of ice management on the Grand Banks, it is thought that Hibernia is over-designed for iceberg hazards that never actually occurr. I understand that a FPSO was rejected due to the technical requirements of producing far heavier oil. I don't claim to understand it all but I think it was that they needed more types of equipment than the FPSO could handle. . . not sure about that though. I do know that people are concerned generally about how well FPSO's will perform out there and the Terra Nova experience isn't giving people any comfort. Lastly Hebron needs more wells to drain the heavy oil and with costs for drill rigs so high these days, it might have been better/cheaper to have your own drill rig on the GBS

    But for certain the oil companies would go with a cheaper option if they thought it was viable. There is no advantage to them in spending more than they need to. The jobs for Newfoundland would have just been a nice bonus but if they selected a GBS it would have been because they thought they could make a nice chunk of dough afterward

    Oh and a GBS need not ever be a navigation hazard. Worldwide they have sometimes become research stations or search and rescue landing sites. I believe a couple may have been sunk in deep water .

    2. Terra Nova

    I doubt that anyone was using 60 dollar oil estimates when they built Terra Nova. Production began on Terra Nova in January 2002. The price of oil then (average price in US dollars) was $22.51 ( 23.78 in 2006 dollars). During the planning and construction stages, oil prices hit a low average in 1998 of 10.87 ( 12.66 adjusted) So no one was projecting the fast payout that happened.

    The price of oil has made almost all projects that are in the peak production now wildly profitable. I would never dispute that. Terra NOva will make a lot of money.(and ther province will get 30% of most of it )

    BUt compared to other projects, Terra Nova doesn't rank that well from what I hear. ALL projects worldwide get the benefit of the high oil prices. So despite the fact that it is really successful in one sense, the large amount of maintenance downtime and what I understand to be not so stellar results in finding additional fields mean that it has been a disappointment in its operational performance

    This high oil price environment has resulted in windfall profits on projects which were done based on economics projecting far lower prices, thats true. THat doesn't change the fact that projects that projects( either in operation or planned) are assessed against each other. Changes in the price of oil tends to balance out.

    3. Royalties

    I'll be curious what you think. The oilsands and offshore are very similar in that both require the expenditure of large sums over several years before ANY production comes.

  • quincy
    July 02, 2010 - 13:17

    Oil companies in ab. spend billions just to make crude, billions on maintaince
    worn out pipes,pumps, cokers plugged with coke etc.Then they have to pump it to market thousands of km. Then they have to spend hundreds of millions on site reclaimation. They still make record profits.

    In Nfld they are getting light sweet crude very low percentage of sulphur compared to Ab. 5 to 7 percent

  • Jarrod
    July 02, 2010 - 13:17

    Keep up the tough stance. Any argument about this project being risky or potentially unprofitable is ridiculous. After all, the companies involved here have posted record profits in recent years. In fact, their combined yearly profits dwarf the budget of this province. Why shouldn't we demand our fair share?

  • Jarrod
    July 02, 2010 - 13:16

    I don't see how the woes of the fishing industry or the closure of a paper mill has anything to do with the policies of this conservative government. Aside from diminished fish stocks, there are plenty of other outside factors that prevent the fishery from bouncing back to anything near what it used to be. As for the paper mill, the first half of this decade saw some of the lowest paper prices ever and it's only recently begun to come back around. I worked in the publishing industry during this period and I know quite well how low paper prices were (http://www.conferenceboard.ca/press/2004/cios_paper.asp). I don't see how provincial government policy could have done anything about that.

    I have reservations about the Newfoundlander from Texas who states a 20-30% inflation rate. Please post some links or information that can support this. A nameless poster from Texas who I assume is involved in the oil industry doesnt really cut it. I can't find much about it on the web. Im not claiming to know anything about it either. However it is information Id like to know as it would help me form a complete picture on this issue.

    I think Newfoundlanders are exceedingly weary of making deals that end up more to the benefit of someone else. Churchill Falls? If the governments demands are so outrageous then why doesn't anyone provide the general public with more detailed information to the contrary? I like complaining about government policy as much as the next tax payer but I haven't seen a single convincing argument that can make me see things the other way on this.

    So again, why shouldn't we demand a fair stake in this?

  • Mark
    July 02, 2010 - 13:16

    Jarrod before you get to the negotiation stage of a year ago the company has to cost the project , they will have to start again with this process which is a lengthy process . If the project looked too expensive last year it wont be looking any better next year . The expectation is that it will cost more than Hibernia which was a $5+ billion project , this is a massive amount of money . To put it in perspective a couple of years ago we installed an new platform of the West Coast of Shetland for $650 million , granted the field is not quite as big as the Hebron Ben Nevis but it not a great deal smaller . It is a fair point that this might not be a good time for this type of project , company resources are stretched & refineries around the world are working to maximum capacity .

    Mike I have to go where the work is , Oil & Gas is all I know . I have a wife and kid still living in St.Johns but next year were moving to the UK . I want a normal 9 to 5 job where I can come home to a cooked meal and spend some quality time & actually my young boy grow up .Im not a big buddy to big oil , there has been plenty ups and downs but Ive done very well out of them and right now Ive never had it so good.

    It should be good times in the Province right now , it is a golden opportunity missed . Danny Williams has done nothing , he is a disaster for the Province & one day people will wake up and realize that but it will be too late.
    You only know what Danny tells you , dont believe him he is very economical with the truth.

  • David
    July 02, 2010 - 13:14

    I'm tired of talk. Let's see some action. For some reason Eastern Canadian projects take a month of Sundays to get off the ground.

    Many of us would like to return to Nfld to work, but we can't survive on promises. Politics has put a strangle hold on too many projects.

    Premier Williams needs to put aside his ego and entice business to invest in our province.

  • Mark
    July 02, 2010 - 13:13

    Having worked on offshore projects for the last 15 years including a couple of years in St.Johns I know for a fact that the risk is high , its the most challenging environment to develop a field . Its not just the operator who decides , share holders and the banks need to be onboard or the project cant be financed . Fields can be developed elsewhere for a fraction of the cost . The Province has everything to gain and nothing to lose if this goes ahead , but realistically I think this is just Danny Williams dangling a carrot for the voters.

  • Newfoundlander
    July 02, 2010 - 13:13

    For reference (search Generic Royalty regime Newfoundland and this is one of the top two hiots on yahoo.

    The generic royalty rate in place is

    1 to 7.5% until the owners get paid back their investment

    Then after the owners get a reasonable profit (long term government bond rate plus 5%) the royalty rate goes to 20%.

    After the owners are into a good profit stage(bond rate plus 15%) the royalty rate goes up to 30%

    I also hear that the Hebron owners were willing to accept even higher royalties in the good profit situation.

    Is this fair ? I have no idea. I am still waiting for someone, anyone to tell me how you even begin to assess fairness of this type of stuff.

    It is similar to Alberta though

    see http://www.energy.gov.ab.ca/1911.asp#new (the stuff below is pasted directly from that site.

    The generic oil sands royalty regime applies to new investment in developing Alberta's oil sands, and the expansion of existing projects. The basic elements of the regime include:

    A minimum 1% royalty payable on all production;
    Royalty on production equivalent to 25% of net project revenues after the developer has recovered all project costs, including research and development costs, and a return allowance (after payout );


    Me again-- IN alberta the base royalty stays at 1% longer-- Then they get to payout quicker and jump to a 25% rate but then never go above that. It seems on the middling projects you would pay more in Alberta but on the wildly successful projects ( or terribly unsuccessful ones) you would pay more in Newfoundland.

    Overall very very comparable though.

    Can anyone tell me if its a fair share or not? NO sarcasm, I really don't know. If this is not fair, what is, and why ??

  • Jarrod
    July 02, 2010 - 13:13

    Ive numbered my responses to match you post:

    1.A companys profitability says quite a bit, regardless of where they do business. Its how they lure investors. Striking it rich is something oil companies seem to do very well which would indicate that their rate of success is much greater than their rate of failure. The parties involved wouldnt be interested in Hebron if there wasnt an above average possibility that Hebron will pay out.
    2.I disagree. They clearly arent offsetting as that would seem to indicate a balance. Please refer to my earlier post about record profits. Got any numbers regarding the fail rate? You named one. I know three which seem to be doing quite well. Hibernia, White Rose, and Terra Nova.
    3.What is fair? You tell me. I wasnt aware that there was a set of rules or proper etiquette involved when negotiating with oil companies. Why are the oil companies so averse to giving up less than one twentieth (1/20) of the pie? Certainly cant be because theyre unwilling to let someone else pick up 5% of the risk. It can only be interpreted as more for them, less for us.
    4.Do you really think those BILLION barrel projects will be shelved forever? Our gluttonous dependence on oil isnt going away over night. Not to mention that the US is keen on getting even more Canadian oil. Besides, arent there already massive bottlenecks in Alberta in terms of man power and other resources? Ever think that the rising costs of those projects werent directly caused by the increased strain they placed on a labor force and infrastructure that is working at its capacity? Maybe that was you point? What was your point here anyway?

    You are correct in that this is how companies do business the world over. They will also pay a little more if they want it bad enough. In case youre wondering, I think they do want it that badly.

  • Newfoundlander in Houston
    July 02, 2010 - 13:13

    The lukewarm applause described in this article is very telling. NOIA participants are being polite at best to even try to clap. The local industry in Newfoundland knows Danny is doing them no favors. During a period where Oil and Gas Companies are stretched for personnel and human resources to complete projects, they will work first on the sure bets and most economic. What is also telling in the article is that Chevrons cost estimates are over a year old. Oilfield inflation in this market is now running 20-30%. Capital costs are rising and Hebrons payout point is getting pushed further in the future. That means Newfoundlands actual royalty potential is probably shrinking both in a real and nominal money terms. The average Newfoundland reader is thinking Danny is great and he is the fighter and savior of Newfoundland. I will give him credit as he is a master of the political system, but his approach to the oil and gas business in Newfoundland is doing the province no favors.

  • Tom
    July 02, 2010 - 13:13

    I agree with comments from Newfoundlander from Houston Texas and Martin from Doha, Qatar.

    It will take years to repair the damage Dan Williams has inflected upon this province.....out migration at it's highest ever, fish plants closing, papermill closing, local Buisness scared to speak out in fear of loosing Government work etc,

    Fighting with everyone will get us no where.....slow down Dan, try a less confrontational approach.....uh uh God forbit, should one critize Dan Williams.

  • Newfoundlander
    July 02, 2010 - 13:11

    @ jarrod

    Responding to your responses

    1. I still don't see how worldwide profitability is relevant. A project is good or bad on its own regardless of how profitable the proponent. Hebron is obviously good enough to possibly proceed but not so great that they wanted to proceed in the face of the demands.

    2. Hibernia has been a stellar success. Terra Nova has been rescued by the high oil prices since performance of the facility (far too much downtime) and potential new reserve finds have been disappointing. White Rose will probably be very successful since it came on stream JUST as oil prices spiked (and was built when costs were much lower. Hebron ?? If its done soon, we are talking the current high costs and first oil probably by 2015-- prices may be higher or lower than now- people forgetthat they hit 12 bucks in 1998 .

    3. Fair is your term, not mine. I have no idea what a fair share is-- Half ? a quarter? Oil companies deal with what is competitive and economic.

    Etiquette ?????Where did that come from?


    On Hebron, the four companies negotiated a deal between them based on 4 partners-- IT took years to negotiate. I have not seen it but I have seen many agreements for similar projects and there are typically very detailed provisions on decision making. Certain things require unanimity (rare) while others might require 3 out of 4 partners making up some percentage of ownership. Its often complicated and hard fought. There are usually provisions that preclude or severely limit right to sell. So adding a 5th party isn't necessarily that simple. Would the province accept its provisions? Would the partners be ok with losing a say if their ownership fell below certain thresholds?

    I still have no heard a compelling reason for the government to take equity. If you want more money, increase the royalty after payout. A 4.9 % stake doesn't give you any control (unless there are decisions that require unanimity). On benefits, government should deal with that as government.

    If you do want to talk fair . .. The oil companies have spent hundreds of millions to find, delineate and plan for a Hebron project. They did it under a set of rules that was in place for 2 projects before (Hibernia was a one-off). Then when they were pretty much ready to go, they hear that the rules are radically changed. If it was a royalty change, that would probably have been fine but with equity you are talking a seat at their table. Who would he have appointed as his representative, Andy Wells?? I know this is wasted breath since no one will ever sympathyze with an oil company.

    Bottom line is equity required a rejig of everything and would have delayed things again. The project was ready to go on a certain timeline and even pushing that back a year means everything has to be reassessed.


    4. My point was that projects don't get done for lots of reasons and the mere fact that oil companies have made a lot of money lately doesn't mean they will go ahead with a project that doesn't meet the grade. Even a HUGE project may be uneconomic. My assumption is that Hebron was uneconomic with the new demands. For a project to be economic it muct be better than other projects available that could be done.

    My second point was that the Alberta government decided to study things and seek public input ( and that is ongoing) before they changed the rules for development. That allowed them to let some time pass. ITs now unlikely that royalties will rise . . . Alberta probably doesn't mind some delayed projects (to reduce the bottleneck you cite) but they don't want to go so far as to stall them all.

    Conclusion

    Did you ever wonder why most people that have worked in and around the oil industry have some issues withPremier Williams approach on this? WE are not brainwashed or zombiefied by BIGOIL. WE are all still proud Newfoundlanders regardless of where we work now. But we understand how oil companies work too. Like Mark from Dubai I have had my ups and downs with them.

    But I always love Newfoundland. Thats why I am so worried about this. WE had an opportunity for the continuation of the industry, a positive story and tons and tons of cash from royalties. If Hebron is started 10-20 years from now, I don't know that there will be that much of an industry left. Even if the province gets 5% equity, they might still end up with far less net benefit

  • X.
    July 01, 2010 - 20:24

    Premier Danny Williams has done nothing but good for this Province

    It's easy to do nothing bad when you do nothing.

  • W
    July 01, 2010 - 20:24

    Jarrod, do you apply the same healthy skepticism to, say, the Sayings of Chairman Dan? Too many people seem to accept something as being something solely on his say-so.

  • W
    July 01, 2010 - 20:22

    Jarrod says and asks, I like to try and form an opinion on things by asking questions. Which I thought is what I was doing. What good is a comments section if everyone sees things the same way? -- in that respect, then, we are on the same wavelength. I do hope you, and others, will use those capacities to be just as skeptical of claims made by Danny Williams as you would be of those made by anyone else.

  • Jarrod
    July 01, 2010 - 20:21

    Thanks again Mark. I don't think I'm quite convinced but I'm having a better understanding of your side of the argument. I also understand your sense of urgency to get home too. I spent a number of years in Toronto before making my way back. I know it's not quite as extreme as Dubai but its still not home. As Newfoundlanders we do what we have to do. Hopefully that will change though! Cheers!

  • Newfoundlander
    July 01, 2010 - 20:21

    A few general comments
    1. I see nothing for optimism in Premier Williams comments. The Hebron team was disbanded and are now all doing other projects. They are NOT sitting around waiting for the call to come back. Its also telling that Chevron's studies are not fully updated since that would be a number of MONTHS of work before that can even talk seriously. If the premier really thinks he can get a deal now when he couldn't attain one when there was a project team rarin' to go with space already rented in St. John's-- what has changed
    2. At Jarrod-- what is a fair share ? This is a serious question. Premier Williams says it is 4.9% equity on TOP of royalties that are already higher than companies pay in Alberta (after payout) on oilsands projects ( which are much less risky)
    3. On costs-- They have skyrocketed for steel, concrete etc (partially since energy costs are up)-- THis impacts a Hebron and large oilsands projects way way more than conventional onshore drilling. A number of oilsands projects have been put on hold ( search Synenco as one example) because of rising costs. I don't have a source on rig rates but I know offshore rig rates are way up too.
    4. Its laughable to cite Hibernia as an example for Hebron. Gulf gace up their interest in Hibernia for NOTHING because they thought the project was too risky. Chevron and Mobil took on small additional shares and Murphy took a piece as well but 8.5% remained that they could find no one willing to take. The province turned it down. Finally the Canadian government took the share, solely to kick start the industry and paid 8.5% of costs on a go-forward basis.
    THis shows two things--First, the province asking for this share is convenient revisionism. Second, the Hibernia deal that has worked out so well was not seen as such a sweet deal by the oil companies at the time. But you win some and lose some. From Mobil's point of view, the did great at Hibernia but Sable (offshore NS) has been a huge disappointment.
    To cite a government stepping in when no one else would as some example why another government should force their way in when they were not needed

    5. Lastly @ Dan O'Brien
    If you can find a reputable economist that can show any time in the 1970s and 1980s where Hebron could have been a viable project based on the information and technology that was available at the time, I'll eat my hat. It was not until a series of deliniation wells were drilled in the late 90s that they even had a accurate assessment of the size of the pool. And to this day, Hebron is NOT light crude. Its a far heavier product that commands a lower price and requires far more wells and more sophisiticated depletion planning than a Hibernia
    and yes I am in the oil industry but that does not change the fact that I will always be a Newfoundlander first. Its just I have a few facts behind my opinions. I have worked this industry for about 10 years now but that does not make me forget my roots. IT does however let me see when a politician is blowing smoke

  • Jarrod
    July 01, 2010 - 20:18

    Oh, and excuse me if I don't accept something as being unfair just because big oil companies say so.

  • Newfoundlander
    July 01, 2010 - 20:18

    Hey, let's be fair about this - Dangling whatever before an election - Premier Danny Williams has done nothing but good for this Province. It's the ones before him that should be to blame for the out migration, fish plants closing, papermills closing, etc.

  • John
    July 01, 2010 - 20:18

    I am an xpat. I live in AB but work rotation in China, but from NL
    I am thankfully that we finally have a Premier that is looking after the long term interest of the Province. We have seen how the federal government has no respect for NL. They ruined the fisher for us.. They would not force Quebec, to allow us a condor to ship our hydro power to market, so we had to give it away. It was ok to give Albert full rights to their oil, not NL. Now they want us to give the oil away. I am sick of us giving everything away for a few temporary jobs. A few crumbs. All those people who want to give away the oil, so that they can move back home and in a few years they can watch there children move away. The oil can stay in the ground ! Jarrod where are you getting your information from? I worked for Petro-Canada for 6 years on the Terra Nova. The FPSO was paid for in 3 years. Do you know what the lifting cost for them is? To get the oil out of the ground and into the oil Tanker is costing them $2.25 a BARREL. Hibernia. Is even lower at, $1.70 per Barrel. Now @ $60 that makes for a nice profit! The oil sands they are hoping to get there lifting cost down to $12.00 per barrel. If NL cannot get its fair share, Keep it in the ground. Sooner then later, Big oil will be knocking! Keep up the good work Danny!

  • Jarrod
    July 01, 2010 - 20:17

    Thanks for the reply Mark. But I'm having difficulty equating how this is a stumbling block to the stalled negotiations.

    I'll accept that logistically things are tight right now. But wouldn't these bottle necks still occur even if a less than favorable deal was struck last year? Wouldn't they have just occurred much sooner and the industry would be in the same situation or perhaps worse at this point. I don't see how this is an argument against holding out for a better deal.

    The fact that our industry is already operating at or near capacity sort of suggests that taking on a project the size of Hebron wouldn't be possible. But we both know our capacity will grow to meet the demand. There's simply too much money and opportunity up for grabs for it not to. Which kind of makes this whole discussion moot doesn't it?

  • Newfoundlander
    July 01, 2010 - 20:13

    Final comment

    From my view Danny Williams has seemed downright hostile to the oil industry. Consider this

    1. Attempts to make Andy Wells the CHAIR of the CNLOPB. The chair has to be a fair- HAS TO-- its a big part of the job. You may love Andy but can anyone say he is fair and balanced when it comes to the oil industry

    2. The premier then ignored legislation that set out how a chair was to be picked and the poor guy had to sue to get his job. I think the court that reviewed this said the governments conduct was unconscionable

    3. Vetoing decisions of the CNLOPB. They always consult government extensively before making decisions but now they get vetoed. My personal view was Danny was peeved he didn't get his way on appointing the Chair of the CNLOPB and he wanted to show who was boss

    4. Hebron-- here it might have been lack of knowledge rather than hostility. Premier Williams sisn't seem to understand that the oil folks meant what they said. He seemed shocked that they actually pulled the plug last year. Perhaps its all his years as a personal injury lawyer where deadlines to make a deal are never real. In the oil industry they are real. Heck the project manager for Hebron was in Australia on another project FOUR days after the decsion to disband the team was announced ( and frankly it took a big effort to keep the team as long as they did with no progress)

    I have meet Premier Williams many times and I do not doubt his intelligence. But I am equally certain of his ego and arrogance. MY biggest fear is that opportunities for the province are being lost because we have a premier who doesn't really understand the oil industry that well but who has too much ego to see anything other than the things that he wants.

    Can someone tell me that thats not within the realm of possibility?

  • Newfoundlander
    July 01, 2010 - 20:10

    Regarding Jarrods comment (#2)

    Keep up the tough stance. Any argument about this project being risky or potentially unprofitable is ridiculous. After all, the companies involved here have posted record profits in recent years. In fact, their combined yearly profits dwarf the budget of this province. Why shouldn't we demand our fair share?

    My response

    1. Why do profits elsewhere in the world have anything to do with how profitable Hebron would be? The project needs to be assess on its own merits whether the proponents are stinking rich or just getting by.

    2. All of the major have had projects which were failures over the last few years. In doing these big projects, the big successes (Hibernia) are offset by the failures ( Sable has been a big disappointment)

    3. Newfoundland SHOULD get a fair share. But what is fair? Danny Williams seems to have plucked 4.9% equity out of the air as a fair number. No other province in Canada takes an equity share like that . .. They all take royalties.

    4. In Alberta there were concerns that the province might not be getting a fair share particularly on oilsands. The government commissioned a review of royalties and appointed a number of people to tour the province and report back. While that was happening, a number of oilsands projects have been shelved due to rising costs. Some of them are BILLION barrell projects!!


    So demand a fair share. Just excuse me if I don't accept something as fair just because Premier Williams says so.

    Bottom line-- Oil companies have only so many people available and they do the best projects. Hebron gets done by BIGOIL when it is better to do than the other projects they have available. It likely would have been done but additional government demands made it less favourable than other available projects. Every business in the world operates this way so I see nothing offensive or sinister about it

  • Mark
    July 01, 2010 - 20:10

    In response to Jarrod I can say that Newfoundlander from Texas is correct , we have just awarded a pipeline contract after much negotiation & the bids were not competitive .
    We have under estimated the costs for this part of the project due to a higher increase in Material prices & lack of bidders as the companies invited to Tender just cant fit it into there busy schedule & we still havent tied down a vessel for pipelay & not convinced that the pipe coating schedule can be met , the list of problems go on and on .
    Meantime the construction for the offshore platforms are still on schedule and within the budget , but this contract was awarded just over a year ago.
    We have seriously under estimated the cost for the pipeline & as a result the project team has come under pressure from other partners & shareholders , we have now got to go through a shareholder audit in the next couple of months as a result.
    I have had quite a number of years experience with subsea work & like everyone else in the business well aware of the increasing costs but wasnt expecting this .

  • Dave
    July 01, 2010 - 20:05

    Recently, I've heard (and read) this premier continue to refer to the 8.5% stake the federal government has in Hibernia, and uses that fact to suggest that his demanding of 4.9% of Hebron is justified. Why doesn't the media and the industry explain this apples and oranges comparison. I'm sure the majority of Danny's loyal sheep either forgot, don't know or don't wish to know that the fed's 8.5% equity stake in Hibernia was purchased from Gulf Canada who had decided to pull out of the consortium, thus threatening the project. After several failed attempts by the remaining partners to find a buyer for Gulf Canada's stake, and since neither of the remaining partners were interested in increasing their stake, the Government of Canada stepped in and purchased it so that the project would be able to proceed. That is vastly different from the premier's demand that the Hebron partners, who have already assumed 100% of the risks and exploration costs, simply surrender to the province a percentage of their stakes.

  • Stephen
    July 01, 2010 - 20:05

    To: Newfoundlander in Houston

    If costs are increasing wouldn't the actual price on the market do so as well to compensate? Payout won't come any later unless the oil companies do something they wouldn't do and not charge more for their oil.

  • Mike
    July 01, 2010 - 20:04

    I find it interesting that most of the derogatory comments towards Premier Williams are from people living away and also with vested interests in the oil business. Higher profits, higher pay. I've lived here all my life, 50 plus years and I can state with conviction our current Government has done more in the past few years than all the others before. The facts speak for themselves. Outmigration has been going on for as long as I remember, while the downturn in the larger industries such as paper and the fishery have been sliding down for many years. These are the results of poor world markets, and mismanagement by both the federal and provincial governments for the past 30 to 40 years. To even think that Williams would make an upbeat speech to gain political points is the most absurd comment I've ever heard. This current government could be mute and in hiding for the next three months and still win the next election by a landslide. Full marks for someone whio finally has both the courage and brains to realize that we Newfoundlanders are not second class to the rest of Canada, nor anyone else in this world. If one can't see our accomplishments that have been made on the world stage in all avenues over the years then perhaps hearing aids and braille reading lessons should be on your agendas. Stand Tall, Danny and perhaps, just perhaps our children or grandchildren might reap the benefits of your diligent efforts. Ireland was once the Newfoundland of the United Kingdom and is now enjoying the fruits of excellent foresight and proper planning for its future generations. Wake up people.

  • Robert
    July 01, 2010 - 20:03

    Talks about having talks? Expected to start in August you say? Uncanny timing, considering that the election is in October. I'll hold my applause until the province has something substantial to announce.

  • Eric
    July 01, 2010 - 20:02

    As an oil industry worker presently living in Newfoundland and working in the Gulf of Mexico, I agree with Danny's stand for an equity stake in future offshore projects, as painful as that is to the local industry. I don't agree with his confrontational style though. Hopefully he can tone that down and get a good deal done on Hebron.

    With regards to Dave in St. John's comment that the oil companies took 100% of the risk in discovering Hebron, I worked in the oil industry in Eastern Canada in the 80's and all of the currently discovered oil & gas pools were discovered under the PIP program whereby the companies got tax writeoffs to cover their expenses. We, the taxpayers of Canada, paid for the discoveries.

  • Newfoundlander
    July 01, 2010 - 20:02

    I too enjoy the exchange and I am always ready to change my opinions when presented with new facts. Believe me I don't think oil companies are in this for the good of Newfoundland-- They are simply out to make money-- nothing else.

    Were Premier Williams demands unreasonable? Frankly I don't know. Its probably beyond the ability of anyone in the general public to assess (complicated financial data in the billions).

    Premier Williams says it was reasonable and we have his word on that. The oil companies don't talk about whether its reasonable . . They just say it was not feasible at this time-- ON that we have THEIR word, plus their willingness to walk away when a project team was in place. They might very well both be partly correct.

  • Newfoundlander
    July 01, 2010 - 20:01

    @ Jarrod

    There are many reasons why the oil companies side isn't out there more.

    1. They are oil companies. A certain segment of the population will hate them no matter what. They make billions so screw em!!

    2. The big oil companies usually do not negotiate in public. They see no point in angering, embarrassing or confronting elected officials.

    3. It takes a while to explain the business side of things and clear up so many misconceptions. The time required is more than most people will listen on the issue. See point 1. BUt notice how many people in and around the industry are hesitant about the premier's positions. We are still Newfoundlanders--

    4. Premier Williams is on the side of right and goodness. Who can argue with anyone that says Newfoundland should get more?? I would love for Newfoundland to get more, who wouldn't ? His position is simple, easy to express and something no Newfoundlander I know would oppose.
    I don't blame the Liberals on this-- I have had this discussion with my parents and it took THEM forever to see what I was trying to say. For a politician it would be election suicide. I remember on NTV premier Williams ridiculing the Liberals for even asking questions..


    My fear is that Newfoundland will get something someday that looks like more but is actually much much less. Did you know that if delayed long enough, it makes sense to produce Hebron form the Hibernia platform? That could be a bonanza of royalties since payout would happen much sooner but not many construction jobs-- maybe thats Williams'endgame (but is something he cannot say) I just don't know

  • Dan
    July 01, 2010 - 19:59

    Iwill not got into the specifics of the past political or legal battles, but in 1979, Chevron ANNOUNCED the discovery of Hibernia. Oil during that period was trading at US $36 a barrel or about US $85 at current real values.
    Since that time, ONLY 3 projects have been brought on stream. This is not an example of an industry,aggressive/progressive by an stretch.

    The past has passed, but Newfoundland had better started considering in its staegies what is taking place now in the world and in the very NEAR future. Many high profile politicians and industrialists are seriously expending both with monetary and political capital in the issue of climate change .
    In a couple of years, it will be very difficult to rationalize signing onto reducing worldwide emmissions and at the same time trying to initiate the development of new oil fields and building new oil refineries.

    I am a Newfoundlander who has worked in the oil industry since 1979. Although, I am currently outside of the province, I continue to pay my taxes as I have done for the past 40 years.
    This is the first time that I have ever written a newspaper. I hope it is not addictive.

  • Jarrod
    July 01, 2010 - 19:59

    To W. McLean, I'm as skeptical as the next person when it comes to our elected officials. I like to try and form an opinion on things by asking questions. Which I thought is what I was doing. What good is a comments section if everyone sees things the same way?

    To Newfoundlander in Calgary, I appreciate the responses youve given. I sort of apologize for the excuse me comment. I couldn't resist. But the arguments you're putting out here are valid. Particularly your response to point 3. What I can't understand then is why those arguments arent publicized more? If I were you I'd be equally upset by our Liberal opposition as opposed to only focusing on Dan.

    As you know, the vast majority of Newfoundlanders are weary of simply giving away our resources to be taken elsewhere for processing in exchange for a few jobs. Given our track record its understandable.

    Anyway, Ive enjoyed the exchange. Im still not completely convinced but, between you and Mark, Ive moved on my position. Cheers!

  • Jarrod
    July 01, 2010 - 19:58

    Again, solid points. I heard that part of the reason for the ridiculous cost of Hebron is that there were discussions about building another GBS like Hibernia. Is there any truth to that? It seems a little crazy to me if a solution like the FPSO would be just as effective. Not to mention the fact that when the job is done we aren't left with a 700,000 ton navigation hazard. Are one off construction jobs really that important with this much at stake? Again, I stress the point that this is something I heard.

    Regarding the success of Terra Nova, I did a little research. That project was estimated to pay for itself in 5 years at ~60$ a barrel. But since oil prices went up it managed to pay for itself in just under 4 years. So my understanding is that the rest is pretty well gravy. I'd call that pretty successful. Even if it did take the full 5 years, I'd still call that a successful venture. But I don't know what the standards are for success in the oil business.

    I havent had a chance to look at those royalty links you posted but I will.

  • Newfoundlander
    July 01, 2010 - 19:58

    Good comments and questions

    1. THe projected development mode for Hebron was a GBS but one that was much much smaller than the Hibernia one. Now that they have some years of ice management on the Grand Banks, it is thought that Hibernia is over-designed for iceberg hazards that never actually occurr. I understand that a FPSO was rejected due to the technical requirements of producing far heavier oil. I don't claim to understand it all but I think it was that they needed more types of equipment than the FPSO could handle. . . not sure about that though. I do know that people are concerned generally about how well FPSO's will perform out there and the Terra Nova experience isn't giving people any comfort. Lastly Hebron needs more wells to drain the heavy oil and with costs for drill rigs so high these days, it might have been better/cheaper to have your own drill rig on the GBS

    But for certain the oil companies would go with a cheaper option if they thought it was viable. There is no advantage to them in spending more than they need to. The jobs for Newfoundland would have just been a nice bonus but if they selected a GBS it would have been because they thought they could make a nice chunk of dough afterward

    Oh and a GBS need not ever be a navigation hazard. Worldwide they have sometimes become research stations or search and rescue landing sites. I believe a couple may have been sunk in deep water .

    2. Terra Nova

    I doubt that anyone was using 60 dollar oil estimates when they built Terra Nova. Production began on Terra Nova in January 2002. The price of oil then (average price in US dollars) was $22.51 ( 23.78 in 2006 dollars). During the planning and construction stages, oil prices hit a low average in 1998 of 10.87 ( 12.66 adjusted) So no one was projecting the fast payout that happened.

    The price of oil has made almost all projects that are in the peak production now wildly profitable. I would never dispute that. Terra NOva will make a lot of money.(and ther province will get 30% of most of it )

    BUt compared to other projects, Terra Nova doesn't rank that well from what I hear. ALL projects worldwide get the benefit of the high oil prices. So despite the fact that it is really successful in one sense, the large amount of maintenance downtime and what I understand to be not so stellar results in finding additional fields mean that it has been a disappointment in its operational performance

    This high oil price environment has resulted in windfall profits on projects which were done based on economics projecting far lower prices, thats true. THat doesn't change the fact that projects that projects( either in operation or planned) are assessed against each other. Changes in the price of oil tends to balance out.

    3. Royalties

    I'll be curious what you think. The oilsands and offshore are very similar in that both require the expenditure of large sums over several years before ANY production comes.

  • quincy
    July 01, 2010 - 19:58

    Oil companies in ab. spend billions just to make crude, billions on maintaince
    worn out pipes,pumps, cokers plugged with coke etc.Then they have to pump it to market thousands of km. Then they have to spend hundreds of millions on site reclaimation. They still make record profits.

    In Nfld they are getting light sweet crude very low percentage of sulphur compared to Ab. 5 to 7 percent

  • Jarrod
    July 01, 2010 - 19:57

    Keep up the tough stance. Any argument about this project being risky or potentially unprofitable is ridiculous. After all, the companies involved here have posted record profits in recent years. In fact, their combined yearly profits dwarf the budget of this province. Why shouldn't we demand our fair share?

  • Jarrod
    July 01, 2010 - 19:56

    I don't see how the woes of the fishing industry or the closure of a paper mill has anything to do with the policies of this conservative government. Aside from diminished fish stocks, there are plenty of other outside factors that prevent the fishery from bouncing back to anything near what it used to be. As for the paper mill, the first half of this decade saw some of the lowest paper prices ever and it's only recently begun to come back around. I worked in the publishing industry during this period and I know quite well how low paper prices were (http://www.conferenceboard.ca/press/2004/cios_paper.asp). I don't see how provincial government policy could have done anything about that.

    I have reservations about the Newfoundlander from Texas who states a 20-30% inflation rate. Please post some links or information that can support this. A nameless poster from Texas who I assume is involved in the oil industry doesnt really cut it. I can't find much about it on the web. Im not claiming to know anything about it either. However it is information Id like to know as it would help me form a complete picture on this issue.

    I think Newfoundlanders are exceedingly weary of making deals that end up more to the benefit of someone else. Churchill Falls? If the governments demands are so outrageous then why doesn't anyone provide the general public with more detailed information to the contrary? I like complaining about government policy as much as the next tax payer but I haven't seen a single convincing argument that can make me see things the other way on this.

    So again, why shouldn't we demand a fair stake in this?

  • Mark
    July 01, 2010 - 19:56

    Jarrod before you get to the negotiation stage of a year ago the company has to cost the project , they will have to start again with this process which is a lengthy process . If the project looked too expensive last year it wont be looking any better next year . The expectation is that it will cost more than Hibernia which was a $5+ billion project , this is a massive amount of money . To put it in perspective a couple of years ago we installed an new platform of the West Coast of Shetland for $650 million , granted the field is not quite as big as the Hebron Ben Nevis but it not a great deal smaller . It is a fair point that this might not be a good time for this type of project , company resources are stretched & refineries around the world are working to maximum capacity .

    Mike I have to go where the work is , Oil & Gas is all I know . I have a wife and kid still living in St.Johns but next year were moving to the UK . I want a normal 9 to 5 job where I can come home to a cooked meal and spend some quality time & actually my young boy grow up .Im not a big buddy to big oil , there has been plenty ups and downs but Ive done very well out of them and right now Ive never had it so good.

    It should be good times in the Province right now , it is a golden opportunity missed . Danny Williams has done nothing , he is a disaster for the Province & one day people will wake up and realize that but it will be too late.
    You only know what Danny tells you , dont believe him he is very economical with the truth.

  • David
    July 01, 2010 - 19:53

    I'm tired of talk. Let's see some action. For some reason Eastern Canadian projects take a month of Sundays to get off the ground.

    Many of us would like to return to Nfld to work, but we can't survive on promises. Politics has put a strangle hold on too many projects.

    Premier Williams needs to put aside his ego and entice business to invest in our province.

  • Mark
    July 01, 2010 - 19:51

    Having worked on offshore projects for the last 15 years including a couple of years in St.Johns I know for a fact that the risk is high , its the most challenging environment to develop a field . Its not just the operator who decides , share holders and the banks need to be onboard or the project cant be financed . Fields can be developed elsewhere for a fraction of the cost . The Province has everything to gain and nothing to lose if this goes ahead , but realistically I think this is just Danny Williams dangling a carrot for the voters.

  • Newfoundlander
    July 01, 2010 - 19:51

    For reference (search Generic Royalty regime Newfoundland and this is one of the top two hiots on yahoo.

    The generic royalty rate in place is

    1 to 7.5% until the owners get paid back their investment

    Then after the owners get a reasonable profit (long term government bond rate plus 5%) the royalty rate goes to 20%.

    After the owners are into a good profit stage(bond rate plus 15%) the royalty rate goes up to 30%

    I also hear that the Hebron owners were willing to accept even higher royalties in the good profit situation.

    Is this fair ? I have no idea. I am still waiting for someone, anyone to tell me how you even begin to assess fairness of this type of stuff.

    It is similar to Alberta though

    see http://www.energy.gov.ab.ca/1911.asp#new (the stuff below is pasted directly from that site.

    The generic oil sands royalty regime applies to new investment in developing Alberta's oil sands, and the expansion of existing projects. The basic elements of the regime include:

    A minimum 1% royalty payable on all production;
    Royalty on production equivalent to 25% of net project revenues after the developer has recovered all project costs, including research and development costs, and a return allowance (after payout );


    Me again-- IN alberta the base royalty stays at 1% longer-- Then they get to payout quicker and jump to a 25% rate but then never go above that. It seems on the middling projects you would pay more in Alberta but on the wildly successful projects ( or terribly unsuccessful ones) you would pay more in Newfoundland.

    Overall very very comparable though.

    Can anyone tell me if its a fair share or not? NO sarcasm, I really don't know. If this is not fair, what is, and why ??

  • Jarrod
    July 01, 2010 - 19:51

    Ive numbered my responses to match you post:

    1.A companys profitability says quite a bit, regardless of where they do business. Its how they lure investors. Striking it rich is something oil companies seem to do very well which would indicate that their rate of success is much greater than their rate of failure. The parties involved wouldnt be interested in Hebron if there wasnt an above average possibility that Hebron will pay out.
    2.I disagree. They clearly arent offsetting as that would seem to indicate a balance. Please refer to my earlier post about record profits. Got any numbers regarding the fail rate? You named one. I know three which seem to be doing quite well. Hibernia, White Rose, and Terra Nova.
    3.What is fair? You tell me. I wasnt aware that there was a set of rules or proper etiquette involved when negotiating with oil companies. Why are the oil companies so averse to giving up less than one twentieth (1/20) of the pie? Certainly cant be because theyre unwilling to let someone else pick up 5% of the risk. It can only be interpreted as more for them, less for us.
    4.Do you really think those BILLION barrel projects will be shelved forever? Our gluttonous dependence on oil isnt going away over night. Not to mention that the US is keen on getting even more Canadian oil. Besides, arent there already massive bottlenecks in Alberta in terms of man power and other resources? Ever think that the rising costs of those projects werent directly caused by the increased strain they placed on a labor force and infrastructure that is working at its capacity? Maybe that was you point? What was your point here anyway?

    You are correct in that this is how companies do business the world over. They will also pay a little more if they want it bad enough. In case youre wondering, I think they do want it that badly.

  • Newfoundlander in Houston
    July 01, 2010 - 19:51

    The lukewarm applause described in this article is very telling. NOIA participants are being polite at best to even try to clap. The local industry in Newfoundland knows Danny is doing them no favors. During a period where Oil and Gas Companies are stretched for personnel and human resources to complete projects, they will work first on the sure bets and most economic. What is also telling in the article is that Chevrons cost estimates are over a year old. Oilfield inflation in this market is now running 20-30%. Capital costs are rising and Hebrons payout point is getting pushed further in the future. That means Newfoundlands actual royalty potential is probably shrinking both in a real and nominal money terms. The average Newfoundland reader is thinking Danny is great and he is the fighter and savior of Newfoundland. I will give him credit as he is a master of the political system, but his approach to the oil and gas business in Newfoundland is doing the province no favors.

  • Tom
    July 01, 2010 - 19:50

    I agree with comments from Newfoundlander from Houston Texas and Martin from Doha, Qatar.

    It will take years to repair the damage Dan Williams has inflected upon this province.....out migration at it's highest ever, fish plants closing, papermill closing, local Buisness scared to speak out in fear of loosing Government work etc,

    Fighting with everyone will get us no where.....slow down Dan, try a less confrontational approach.....uh uh God forbit, should one critize Dan Williams.

  • Newfoundlander
    July 01, 2010 - 19:47

    @ jarrod

    Responding to your responses

    1. I still don't see how worldwide profitability is relevant. A project is good or bad on its own regardless of how profitable the proponent. Hebron is obviously good enough to possibly proceed but not so great that they wanted to proceed in the face of the demands.

    2. Hibernia has been a stellar success. Terra Nova has been rescued by the high oil prices since performance of the facility (far too much downtime) and potential new reserve finds have been disappointing. White Rose will probably be very successful since it came on stream JUST as oil prices spiked (and was built when costs were much lower. Hebron ?? If its done soon, we are talking the current high costs and first oil probably by 2015-- prices may be higher or lower than now- people forgetthat they hit 12 bucks in 1998 .

    3. Fair is your term, not mine. I have no idea what a fair share is-- Half ? a quarter? Oil companies deal with what is competitive and economic.

    Etiquette ?????Where did that come from?


    On Hebron, the four companies negotiated a deal between them based on 4 partners-- IT took years to negotiate. I have not seen it but I have seen many agreements for similar projects and there are typically very detailed provisions on decision making. Certain things require unanimity (rare) while others might require 3 out of 4 partners making up some percentage of ownership. Its often complicated and hard fought. There are usually provisions that preclude or severely limit right to sell. So adding a 5th party isn't necessarily that simple. Would the province accept its provisions? Would the partners be ok with losing a say if their ownership fell below certain thresholds?

    I still have no heard a compelling reason for the government to take equity. If you want more money, increase the royalty after payout. A 4.9 % stake doesn't give you any control (unless there are decisions that require unanimity). On benefits, government should deal with that as government.

    If you do want to talk fair . .. The oil companies have spent hundreds of millions to find, delineate and plan for a Hebron project. They did it under a set of rules that was in place for 2 projects before (Hibernia was a one-off). Then when they were pretty much ready to go, they hear that the rules are radically changed. If it was a royalty change, that would probably have been fine but with equity you are talking a seat at their table. Who would he have appointed as his representative, Andy Wells?? I know this is wasted breath since no one will ever sympathyze with an oil company.

    Bottom line is equity required a rejig of everything and would have delayed things again. The project was ready to go on a certain timeline and even pushing that back a year means everything has to be reassessed.


    4. My point was that projects don't get done for lots of reasons and the mere fact that oil companies have made a lot of money lately doesn't mean they will go ahead with a project that doesn't meet the grade. Even a HUGE project may be uneconomic. My assumption is that Hebron was uneconomic with the new demands. For a project to be economic it muct be better than other projects available that could be done.

    My second point was that the Alberta government decided to study things and seek public input ( and that is ongoing) before they changed the rules for development. That allowed them to let some time pass. ITs now unlikely that royalties will rise . . . Alberta probably doesn't mind some delayed projects (to reduce the bottleneck you cite) but they don't want to go so far as to stall them all.

    Conclusion

    Did you ever wonder why most people that have worked in and around the oil industry have some issues withPremier Williams approach on this? WE are not brainwashed or zombiefied by BIGOIL. WE are all still proud Newfoundlanders regardless of where we work now. But we understand how oil companies work too. Like Mark from Dubai I have had my ups and downs with them.

    But I always love Newfoundland. Thats why I am so worried about this. WE had an opportunity for the continuation of the industry, a positive story and tons and tons of cash from royalties. If Hebron is started 10-20 years from now, I don't know that there will be that much of an industry left. Even if the province gets 5% equity, they might still end up with far less net benefit