Nalcor investing in the future

Moira Baird
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Plowing profits into projects

It may come as a surprise to some, but Nalcor Energy hasn't paid dividends to the provincial government since 2006 - using its profits instead to finance its share in four oil projects.

One of those investments has just started to pay off as first oil flowed May 31 from North Amethyst, the first White Rose expansion field.

It may come as a surprise to some, but Nalcor Energy hasn't paid dividends to the provincial government since 2006 - using its profits instead to finance its share in four oil projects.

One of those investments has just started to pay off as first oil flowed May 31 from North Amethyst, the first White Rose expansion field.

Nalcor said it received revenues the same month, though it's not saying how much that five per cent of oil production is worth.

Suncor Energy, a White Rose partner, is marketing Nalcor's North Amethyst crude.

"They take our oil to market and they will sell it on our behalf as our agent," said Derrick Sturge, Nalcor's vice-president of finance and chief financial officer.

The decision to pay dividends to the province is typically made in the fall as Nalcor sets its budget and capital requirements for the coming year. It's made by the company and its shareholder, the provincial government.

"We have a discussion with the shareholder at that point around dividends and financing and we make those types of decis-ions," Sturge said.

The last time dividends were paid was in 2005, when $55.8 million flowed into the provincial treasury from Newfoundland and Labrador Hydro, a subsidiary of Nalcor.

Between 1995 and 2006, the Crown corporation paid the province $488 million in dividends. None were paid prior to 1995.

Nalcor also holds equity stakes in Hibernia South and Hebron and is leading onshore oil and gas exploration at Parsons Pond on the Northern Peninsula.

Last year and in 2008, the company spent a combined $543 million on equity investments. To help pay for this, Nalcor has received $360 million in provincial equity contributions since 2008.

Future dividends to the province will depend on Nalcor's investment plans.

"If you look at the way we're planning to invest right now, we're going to be investing in the Lower Churchill significantly for another seven or eight years," Sturge said.

"I can't say we won't pay dividends during that period.

"But typically, if you look at a company when they're making the type of investments that we would be making over that period, the prudent thing, typically, would be to say, 'Let's not pay dividends. Let's use that cash to fund growth.'"

The Lower Churchill project won't be the only hydro investment the company will be making in future.

Aging Hydro assets, such as tranmission lines, turbines and diesel plants that are more than 40 years old, need to be refurbished or replaced. To do this, the company has a 20-year plan.

"There's no issues where if we don't do them tomorrow the system's in jeopardy," Sturge said.

"What we've done is we've gone back and put a 20-year plan in place ... what do we need to do to keep those assets in top shape and ensure we deliver reliable service?

"It will result in higher annual capital expenditures because now what we're doing is we're rebuilding assets that we've already paid for once."

This year, Hydro's capital program includes a continuation of its three-year, $20-million upgrade of the distribution system in Labrador West and the replacement of $7-million worth of equipment at the Bay d'Espoir generating station.

Churchill Falls (Labrador) Corp., which sells a majority of its electricity to Hydro-QuÉbec at lopsided prices, has its own aging assets in need of replacing.

Sturge said Nalcor is looking ahead to 2041, the year the Upper Churchill power contract expires.

"It's in everybody's best interests that in 2041 that we can look back and say we've done everything to make sure that plant is still one of the best plants in the world in 2041."

mbaird@thetelegram.com

Organizations: Suncor Energy, Newfoundland and Labrador Hydro, Hydro-QuÉbec

Geographic location: North Amethyst, White Rose, Hibernia South Hebron Parsons Pond Labrador West

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Recent comments

  • Manny
    July 20, 2010 - 13:02

    I hope I'm wrong with my assessment of this whole Churchill Falls fiasco, but, here goes.
    Given HQ past record in dealing with NL, don't get to optimistic about a better deal in 2041. HQ will most likely have more of their own power on the grid by then and will demand another lop-sided deal from NL. My suggestion to Nalcor is: look at the worst possible scenario and prepare, prepare.

  • Randy
    July 20, 2010 - 13:02

    What a pile of crap--nalcor didn;t pay the taxpayers of nl.one cent.when the peaple of nl created this tax-payer sucking company.Bet ya Danny appointed board of directors got millions