Managing your oil money

Ashley
Ashley Fitzpatrick
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How Nalcor Energy is handling province’s stake

\When Nalcor president and CEO Ed Martin laid out the Crown corporation’s financial situation at this year’s annual general meeting, Nalcor Oil and Gas was pegged as a corporate arm with profit numbers ready to run upwards.

A subsidiary of Nalcor Energy, Nalcor Oil and Gas is charged with encouraging exploration and managing the provincial stake in the Hibernia Southern Extension project (10 per cent), the White Rose Extension project (5 per cent) and the Hebron project (4.9 per cent).

Stake in an offshore project is not simply a cut of the oil produced. Partners pay a share of development costs as well, equivalent to their stake.

For Nalcor Oil and Gas, with stake in projects just up and running or still under development, with subsea work at Hibernia and Hebron yet to get underway, the real financial benefit of offshore partnerships have yet to be felt.

“There is still significant capital investments we’re making,” Nalcor Oil and Gas head Jim Keating said of the projects, speaking with The Telegram Friday in St. John’s.

That said, depending on oil prices and how project work progresses, Nalcor Oil and Gas is forecast to see a positive net cash flow about 2015. As of 2017-2020, it is set to be clearing “hundreds of millions” from oil, Keating said.

The total brought in from Nalcor’s oil in 2011 was $88.5 million, up from $15.3 million in 2010. Net income of $39.1 million was up from a loss of $2.5 million in 2010, due to an increase in production year over year and better prices. In 2011, first oil was celebrated at the Hibernia Southern Extension.

Where the money goes

As the dollars roll in, a little surplus is kept for any jams down the road. Consistent, additional surplus is kicked up as a dividend to the parent company, Nalcor Energy.

The management and board of the parent company, including Martin, then decide where the oil money is re-invested. It might go towards Newfoundland and Labrador Hydro, to help replace aging transformers, or towards a new renewable energy development.

Those large capital costs would otherwise — if unable to be paid from Nalcor’s other revenue streams — have Nalcor Energy seeking an injection of funds from the provincial government.

“In a case such as this, when I go to partner project meetings and we talk about different development concepts, I know always first and foremost I’m thinking what’s in the best interests of the province and what my government will be looking to achieve,” Keating said.

“Success has to be, at the end of the day, the province getting its needs fulfilled, and the proponent achieving at its end and having its needs fulfilled.”

Control and response

Keating said Nalcor Oil and Gas works with policy-makers and regulators, but has a very different role than both.

“We’re able to participate at the company level,” he said, adding participation benefits both the pro­vince and the oil companies.

Having a seat at the table can be important when disputes arise, he said, “to understand what truly is a problem and what are real, possible solutions.”

Conversations at the project table stay within Nalcor Oil and Gas. Legal agreements and agreed roles insulate Nalcor’s oil representative, keeping confidential project information from even, say, the Nalcor subsidiary responsible for managing Bull Arm.

It also keeps Nalcor Oil and Gas from sharing confidential information on reserves without the blessing of the project partners.

“We don’t often come into difficult situations. The province is supportive of the oil and gas industry. The oil and gas industry has been good to the province,” Keating said.

As for equity stakes, Keating said oil companies have gone from an initial resistance to equity participation, to “where we’re participating and providing value to the partners.”

“In the world, 75-80 per cent of the world’s oil is managed or contracted or owned by state-run oil companies,” he said, explaining the arrangements here are not far out in left field.

“There’s a range of state oil companies in terms of how embedded they are. Some look like a government department. Others, at the other end of the spectrum, look like private sector, a stock-listed company. There’s a range, then, in the culture and the attitudes and the approaches. … We fit somewhere in that paradigm.”

afitzpatrick@thetelegram.com

Organizations: Nalcor Energy, Hibernia, Newfoundland and Labrador Hydro

Geographic location: Hebron, Hibernia Southern

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Recent comments

  • Abu Simbal
    June 12, 2012 - 09:06

    I wonder DAVID, how you can even get out of bed in the morning. Your comments generally read like a whos who out of the "Tired and Contrary Gazette". You must split your time equally between the "Cynic" and "Pessimist" columns.....lighten up! Having said that, your comments also generally have merit but you must limit yourself to the issue at hand and not let yourself be transported by angst and venom.

    • David
      June 12, 2012 - 18:34

      Alarm goes off, I wake up. It's not rocket surgery. "Lightening up" is interesting advice....look what a population of humourists with fatalistic, carefree attitudes has gotten us since confederation. And but for the efforts of Chevron Canada in 1979, ST. Johgn's would be nothing but empty, ACOA-funded comedy clubs.

    • arnold cuz
      June 14, 2012 - 20:37

      They must ship all the oil of Newfoundland to the middle East never heard of any in eastern Canada .

  • John Smith
    June 09, 2012 - 16:08

    David b'y...you could not be more wrong. Ed Martin and Gil Bennet have been involved in the oil and gas industry for years. Ed martin oversaw the construction and delivery of the Hibernia platform, just one example. The Liberals whined and complained when Mr. Williams bought NL into the oil play here, it has proven to be a very wise move. You sound so ignorant and uneducated when you make statements about bankruptcy etc... you obviously don't have a clue, and like many others just have a chip on your shoulder. Why don't you get out of mommy's basement b'y and move to Alberta, where people like you belong...

    • David
      June 09, 2012 - 21:51

      You cannot...cannot....be serious. If you think those few pathetically picayune 'credentials' (urrrpp) bring any credibility, clout or even relevance in the offshore oil game, you are the complete hillbilly that one would presume you to be. Building rigs and platforms is operations management, not strategic executive. Another tip...you won't find any rainmakers living in an "executive McMansion" in St. John's either. Gotta go...mom's calling.

    • David
      June 09, 2012 - 21:56

      Sorry..I didn't fully appreciate your perspective when I first responded,. Of course, when you're looking up from the dirt cellar, even the porch floor looks like the penthouse suite. The Hibernia platform constructiuon project looks really, really important to you, hey? Changed the world, didn't it? Yes.

  • David
    June 09, 2012 - 09:13

    "....Having a seat at the table can be important....." This is true. It can. But only if the party sitting in that seat has enough of a clue about what's being discussed to have some input on the conversation. NALCOR does not have anyone with the career resume, project experience, or the plain old guts to speak up. They will simply sit in the back, listen to the 'men' talk, write some notes, and scarf down some very good sandwiches, The one true fact about the "seat at the table" is this...it costs a fortune. Upfront. And if you don't know enough about what you've done by buying one, or how to get your fair share of benefits from it after you've paid, and what liabilities you've taken on, you should never, never, NEVER have done so. Either get serious about this NALCOR thing or get rid of it.....with its current makeup and plan, it will simply be the conduit that arranges for our province's bankruptcy.