Remember that chart from yesterday?
Well the red line on top labelled "commitment" was supposed to indicate what the Prime Minister's commitment supposedly had been in June. See some earlier posts to clarify that point.
Actually, that number is the provincial government's own estimates of direct offshore revenues (royalties plus corporate taxes), based on what they called the "high price assumption" for oil. Some people have suggested to me this "high price" could be as low as US$35 per barrel, but since I can't confirm that let's just take it as the figures they worked with. It's good enough for the purposes here. The numbers below are approximations based on the chart; goodness knows the provincial government would never release the actual numbers.
Now bear in mind, that under the Atlantic Accord, the Government of Newfoundland and Labrador collects every single nickel of these amounts and doesn't lose even the teensiest bit. Remember too that this figure does not include any offsets at all. To get the figure including the current deal, add $250 million to each figure.
2004: $320 million
2005: $400 million
2006: $600 million
2007: $820 million
2008: $680 million
2009: $650 million
2010: $600 million
2011: $480 million
2012: $390 million
Total: $4.94 billion
Now for some perspective. Based on these figures, and assuming the current Equalization standards and nil economic growth, the provincial government wouldn't qualify for Equalization in 2007. However, it would qualify for Equalization in every other year. As such, it would almost certainly qualify for the second eight-year phase of offsets.
There are some problems with that set of assumptions, though.
First, the national economy will grow, as will the provincial one. The relative rates of growth will affect what it would take to put the provincial government over the threshold so that it no longer qualifies for Equalization.
Second, if this estimate from October is based on oil prices at $35 per barrel, then these figures need to be higher by some amount. Oil in October was running at US$51 per bbl and currently is in the range of US$45 per bbl. It is more likely that the provincial government will be off Equalization faster and stay off for more than one year than the numbers above would suggest. For example, if we assume a 15% increase in those revnues based on higher oil prices, the province would cross the Equalization threshold within two years (as estimated by the Premier late last year) and would stay off Equalization beyond 2012 if one includes the other economic growth noted below.
Third, this scenario does not include any other growth in the local economy. We know that Voisey's Bay will be onstream before 2008 and therefore will be generating significant revenue. As well, we can anticipate development of Hebron-Ben Nevis well within the first eight years of the new offset agreement. While the proponents have not discussed royalties with the province yet, we would have to add on to the revenue figures given above. Again, if the province didn't go off Equalization as in the second point above, Hebron-Ben Nevis would almost surely push it over.
Fourth, we don't know if the provincial officials included changes to the White Rose and Terra Nova royalty regimes in these estimates. Terra Nova is moving to Tier 2 royalties, which brings more money for the provincial government, since the project is now considered to have recovered its start-up costs. Under the same conditions, White Rose will likely cross the same threshold before 2010, thereby increasing provincial government revenue.
For those who are counting, the value of the offsets under the new deal is about half the actual direct revenues using the estimates of oil at prices about 25% to 30% below current prices.
Taken all together, this is the "most likely scenario" referred to in previous posts.
