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| Last updated at 4:15 AM on 25/07/07 |
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The Hibernia production platform on the Grand Banks.— Photo by Moira Baird/The Telegram |
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Oil dividends 
Hibernia partner forecasts oilfield will pay 30 per cent royalty rate in 2009-10
MOIRA BAIRD
The Telegram
Oil production at the Hibernia oilfield is declining, but the project is still paying dividends for the federal government.
It’s also expected to start paying higher royalties to the provincial government in 2009 or 2010, according to the Canada Hibernia Holding Corp. (CHHC). That’s when the Hibernia development costs are paid off and the 30 per cent royalty rate kicks in.
Other forecasts have pegged payout at 2011, depending on world crude oil prices.
“The royalty that we pay to the Newfoundland government will actually go to 30 per cent probably in 2009,” said Murray Todd, president and CEO of the CHHC.
“It may occur in 2009. It might be 2010.”
That depends on the volume of oil produced at Hibernia, world crude prices and the rising value of the Canadian dollar which takes a bite out of export values.
Calgary-based CHHC owns an 8.5 per cent share of the Hibernia oilfield on behalf of the federal government. When Gulf Canada Resources pulled out of the offshore project in 1993, Ottawa, Murphy Oil and Chevron bought in. By 2002, Ottawa’s $430-million investment in Hibernia was repaid.
To date, the federal government has reaped $678 million in profits from the Hibernia oilfield, according to CHHC’s 2006 annual financial report. Last year, the company paid dividends of $174 million to the federal government. That’s down from $231 million in 2005.
CHHC attributes the decline to lower sales revenue and the timing of crude oil cargo shipments. The company is also forecasting federal government dividends will continue to decline this year to about $143 million.
Whether that prediction pans out, says Todd, depends on the volume of oil produced by Hibernia and the price it fetches.
“You’re forecasting a year ahead. … chances are it’ll be higher than the number you’re seeing in that report because the price has been more robust.”
CHHC also expects Hibernia to start paying its first royalties to Ottawa in 2009. That royalty is covered under the federal government’s net profits interest (NPI) agreement with the other Hibernia partners.
It provides for a 10 per cent interest payment to the federal government by all Hibernia owners. So far, no NPI payments have been made. The criteria is based on each owner’s cumulative net sales revenue once eligible capital, operating and transportation costs are deducted.
Hibernia south
Next year, Todd expects the Hibernia partners to submit another application to develop 223 million barrels of oil in the southern part of the field — once they gather the information requested by the province.
“That’s still the status and that’s still several months away. You’d be looking at 2008.”
The provincial government rejected the Hibernia South proposal in January, saying the partners failed to provide sufficient information.
There are two production licences for the Hibernia oilfield, and both have different ownership structures. Hibernia South straddles both licences.
“There’s oil on the original Hibernia lease that they (the province) won’t let us develop because they haven’t approved that development plan,” said Todd. “So we are, CHHC, impacted by that decision.”
Production Licence 1001 includes all six partners — ExxonMobil, Chevron Canada, Petro-Canada, CHHC, Murphy Oil and Norsk Hydro.
PL 1005 is owned by four partners, and CHHC and Murphy Oil aren’t among them. The company’s annual report says approval of Hibernia South will “reduce the rate of decline, but will not bring production back to its peak level.”
mbaird@thetelegram.com
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25/07/07
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