Low oil price may hurt bottom line

Ashley Fitzpatrick
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Province watching Brent; dispute over Hebron module continues

Premier Kathy Dunderdale speaks to media following her speech at the 2012 NOIA conference at the St. John's Convention Centre.— Photo by Keith Gosse/The Telegram

Newfoundland and Labrador is more dependent on its oil and gas sector than any other province in Canada.

“Approximately one-third of provincial revenue is derived directly from our petroleum sector,” Premier Kathy Dunderdale said in a speech opening the Newfoundland and Labrador Oil and Gas Industries Association (NOIA) 2012 conference Tuesday.

It means a drop in the price of oil can hit the province hard financially — something the premier acknowledged outside the St. John’s Convention Centre conference room.

Brent crude closed trading at $95.67 per barrel Tuesday and has been below the province’s predicted price for months.

The government has based its budget on an average price of $124.12.

“We'll have to wait until we get further into the year and just see how things play out,” Dunderdale said when pressed on the price issue later in the day at the House of Assembly.

“(The price) changes all the time, but if oil prices were to stay where they are today, then at the end of the fiscal year we will be several hundred million dollars more in debt than we are at the moment.”

That said, she praised the contributions of the province’s oil and gas industry to the provincial economy.

 

The sector not only provides direct employment for more than 3,000 people, Dunderdale said, but fuels indirect jobs for thousands more.

It is supporting more than 500 supply and service firms directly, and drawing investment dollars that are fuelling research and development and other enterprises, Dunderdale said.

 

Pushing for Hebron module

The province is currently involved in a major dispute within the sector. The premier took questions on the issue — the debate over how much of the Hebron project platform can be built in-province.

Echoing statements made when Hebron was given final approvals, Dunderdale said the province is expecting the drilling equipment set module to be built at Bull Arm.

The Hebron partners, led by ExxonMobil Canada, have stated that work could not be completed here — that Bull Arm was already full up with work on Hebron.

Dunderdale told reporters following her speech that both sides continue to discuss the issue, but the province has engaged an international consultant out of the United Kingdom, Ian Wright, who has evaluated what can be done.

He has come out in support of the provincial government's stance, according to government.

A brief resume for Wright including, notably, “23 years involvement in major offshore oil and gas projects, featuring management of multi-disciplined teams, on both fixed and floating facilities,” was circulated to reporters.

The premier was asked about a resolution to the Hebron dispute.

“There are penalties under the contract,” she said. “We would rather not apply — go to a process where penalties are applied. We would rather have the work for Newfoundlanders and Labradorians.”

NOIA’s Robert Cadigan said getting independent assessment of what might be done at Bull Arm was a good idea.

“We share the premier’s view that the (module) can be done here,” he said.

“So we’re hopeful we’ll see — between the province and ExxonMobil and its partners — a solution that will result in the drilling equipment set being done here in the province.”

As well, “I think our members pretty well would echo the kind of comments the premier has made in terms of development of the industry. For all of us, I think, the long-term sustainability of the industry in the supply and service sector is what’s really important.”

The Telegram continues coverage of the NOIA conference today with updates at thetelegram.com.

You can also follow the news minute by minute on Twitter by searching #NOIA2012.

 

afitzpatrick@thetelegram.com

Organizations: NOIA, Newfoundland and Labrador Oil and Gas Industries Association, Convention Centre ExxonMobil

Geographic location: Hebron, Newfoundland and Labrador, Canada United Kingdom

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Recent comments

  • David
    June 21, 2012 - 17:51

    Thank goodness we were smart enough to prioritize our needs and pay down a big chunk of our crushing provincial debt when it was as easy as falling off a log! Oh....wait....

  • Dan
    June 20, 2012 - 11:57

    Sure we might be a little tight this year but oil fields will be producing back to a normal (higher level) next year. This is normally pondering in the first year of a mandate by government. Just watch the unions slow the negotiations down now and wait until next year when the returns are higher.

  • Donald Duck
    June 20, 2012 - 10:59

    Is not our Oil Sweet Crude? If so, it trades higher than the $95. barrell. Oil.. Speak the truth please..

  • Maurice E. Adams
    June 20, 2012 - 10:55

    A possible $1 billion deficit? And debt servicing and operating costs alone for Muskrat Falls is about $15 billion over the next "50" years --- about $300 million each year...... All for high cost power, very little power, unexportable power, no profit power, unreliable power, IRRATIONAL and UNNEEDED power.....

  • Brad Cabana
    June 20, 2012 - 10:03

    The drop in oil prices combined with the drop in oil production, end of the federal offset payments for the Atlantic Accord, and public sector wage negotiations (that there is not one cent budgetted for) means Newfoundland and Labrador will be in a large deficit position by the end of the year. Atleast $800 mil - $1 bil. Course that means no money to add to the Muskrat Falls downpayment which begs the question on how this thing is going to be financed. The bigger point has been though that this thing should never be financed, and laid to rest.

  • Scott Free
    June 20, 2012 - 09:29

    A hallmark of our recent Tory regimes have been pandering to big oil as benefactors of the oil and gouge industry; keeping prices up at the pump while the value of the barrel is tumbling gloabally. And, it's high time to abolish the sleepy CNLOPB; it regulates nothing, is accountable for nothing, it denies jurisdiction over industry safety; it simply caters to big oil and serves as a buffer to government regulation and policy. The CNOLPB is too close to the oil and gouge industry and by accepting free lunches and trips at industry expense, it's obligation is to protect the interests of big oil and not the province's resources or the offshore safety of its workers.

  • fabian connors
    June 20, 2012 - 09:03

    look what most of you fail to do is see the big picture ,the provincial oil profit was negotiated at a certain price ,at $124.00 is the price where n.l starts to make any profif ,what fool ever negotiated that high figure must have been livning in a dream world . the bottom line thing has to be renegotiated with the oil companies , unless the previous goverment did a joey smallwood ,and locked thst price in for 50 years fabian connors

  • Cold Future
    June 20, 2012 - 08:46

    The brakes have been coming on petroleum products for some time now. The players in western Canada have been bracing for $70 oil in the near future.Gas is very cheap and is in abundance in western Canada. Maybe a gas fired plant at Holyrood is a very reasonable thing to do. While this is all going on, it should not be to late for NL to put in place a heritage fund to provide for the inevitable rainy days when the oil flows and prices are down.With the pending closure of the Corner Brook mill and the escalating price of Muskrat, it is high time it was put beyond the back burner and off the stove altogether.

  • donald squires
    June 20, 2012 - 08:10

    I would wonder why the province would place their budget on a projection of oil being over 124$ per barrel when it has been holding 100 to 110$ for last while ,and now showing a decrease. could this be another attempt by this government to show that they are not able to properly govern, was there a mistake made in the choice of leader, i myself would not have based a whole budget on price which was not even at the time there. Basing the lives of the people and management of their provinces capital on this is poor judgement and truly not smart.

  • David
    June 20, 2012 - 07:39

    The economy of St. John's (errr...Newfoundland) consists of one thing ---- oil. Despite the obvious and precarious situation of being entirely dependent on one single, very volatile commodity, and this from a portfolio of just two producing reservioirs, the governemnt decided our future was assured, that we could start eagerly poking sticks in the eyes of the feds, that we should have a series of parties across the province advertising our superiority. Our inability to keep things in perspective and manage our first taste of financial good fortune in a couple of centuries was truly embarrassing. Which brings us to where we are....a government "budget" based on $124 oil !? There's not an oil company in the world so reckless and oozing of hubris that would ever use such a figure for it's budgeting. They might hope for it, and they would have budget contingencies in place to take financial advantage of it, but they would never put themselves at such excessive financial risk as to expect and depend on what amounts to 'black swan' oil prices. I guess they're just not as smart as we are here....every dime out the window, and as fast as possible. Saving for a rainy day is only smart if you think it might rain.

  • I was so happy yesterday when I finally heard Premier Dunderdale admit that we have no control over the price of Oil and it will seek its own level of gravity with the World Economy being in a very sick state.
    June 20, 2012 - 07:09

    I was so happy yesterday when I finally heard Premier Dunderdale admit that we have no control over the price of Oil and it will seek its own level of gravity with the World Economy being in a very sick state. She kept saying up until then that Oil was going to be be going higher, and higher and that would make the Muskrat Falls Project very viable. I am wondering are we now stuck in a position with the Muskrat Fall Project where we are doomed with a price per kilowatt hour of electricity that will be the based on the price that Oil peaked at, in order to make the stars align for the approval of financing for the project?

  • Anon
    June 20, 2012 - 06:28

    the days of cheap oil are gone. There will be no trouble for any oil company operating in our waters to make an obscene profit this year.