04 May 2009

Hebron deal: Big Oil’s new L’il Buddy

A curious extract from the financial agreement that was part of the Hebron development deal:

5.1 Support of Province.

The Province shall, on the request of the Proponents:

(A) assist and support each of the Proponents in seeking modifications for federal fiscal enhancements to the extent that such enhancements do not, in the opinion of the Province, have a negative financial impact on the Province, or where such enhancements do have a negative financial impact, they have been offset to the satisfaction of the Province by the Proponents;

(B) use all reasonable efforts to assist the Proponents in securing commitments from Canada and municipal governments in the Province regarding the legal and regulatory framework applicable to a Development Project; and

(C) support the efforts of the Proponents in responding to any future legislative and regulatory changes that may be proposed by Canada or a municipal government in the Province that might adversely affect any Development Project, provided such action does not negatively impact the Province or require the Province to take any legislative or regulatory action respecting municipalities.

Talk about your little gem of a concession to the oil companies.

This section commits the provincial to support any or all of the proponents on any action taken by the Government of Canada that “might adversely affect any” development project on any of the lands covered by the agreement.

What might we be talking about here?

Well, it’s pretty wide open. If you look up the definition of “Development Project” in the agreement you’ll see it’s broad enough to cover every aspect of the project from start to finish, including environmental considerations. If the proponents think the idea is bad, then the province is obliged to help out. It doesn’t have an option; if the proponents ask, the “Province shall.”

And before you note the little provisos there about the Province and the conditions under which it doesn’t have to lend support, bear in mind that the definition of the Province in the agreement is also pretty tight and tidy:

“Province" means the Province of Newfoundland and Labrador, Her Majesty the Queen in Right of the Province of Newfoundland and Labrador, or the geographical territory of the Province of Newfoundland and Labrador, as the context may require.

Now this gets even more squirrely when you consider that the provincial government co-manages the offshore with the federal government through the Canada-Newfoundland and Labrador Offshore Petroleum Board. The sort of regulatory changes we are talking here are ones that are most likely to come through the offshore board.

Environmental regulations, shipping regulations, changes to safety requirements, that sort of thing: all covered through federal legislation since the offshore is legally in federal jurisdiction.

Even fallow field is covered by this provision. If a future federal government wanted to change land tenure in such a way that it would affect lands covered by Hebron, the provincial government would likely be obliged to toe Big Oil’s line. If the proposed federal regulatory “enhancements” actually worked out well for the provincial government, the Proponents can cut a side deal under this clause to secure their support to fight the “enhancements”.

Not a bad little clause.

Well, not bad for the oil companies, anyway.

This provision is even more squirrely because the provincial government – through the minister of natural resources (Kathy Dunderdale) and the provincial representatives on the offshore regulatory board – will not only carry on all this lobbying at the behest of and on behalf of Big Oil in the first place, they can do it from behind closed doors.

There isn’t a single clause there that would oblige the provincial government to disclose its lobbying on behalf of the oil companies; no disclosure to the public and indeed no disclosure to anyone.

Seems like a pretty big conflict of interest, but not one that should come as any surprise given that government’s policy is to be both a regulator and an operator simultaneously.

That’s pretty much the definition of conflict of interest as we’ve discussed here before, particularly when the talks broke off in 2006. We also raised the issue given the Premier’s curious claim after the recent helicopter crash that – despite the fairly obvious – the provincial government didn’t have a regulatory role in the offshore.

It also shouldn’t come as a surprise given that the Hebron deal sets the local research and development below the levels set by the offshore regulator. Government accepted that low amount - and the pledge to back Big Oil - after the offshore board won a court case against Big Oil over just those sorts of levies set retroactively by the offshore board. Next time out, Kathy Dunderdale or her successor will be working to make sure the regulatory changes don’t get out of the board in the first place.

All of that pales in comparison to the clause in a fiscal deal that obliges the provincial government to back the oil companies whenever the companies ask.



Anonymous said...

Ed, interesting post. But have you not jumped the hypothetical shark on this one while missing the "out" that is provided by the last parts of a and c above.

In some cases, the province might actually side with "big oil" as suggested in your post. But your logic is flawed and presumtious to suggest that the province is going to be some lackey in this agreement as it appears from your post (ie a,b.c section)they are provided some measure of protection and flexibility in supporting big oil's position.

Edward G. Hollett said...

Thanks for the feedback, Anonymous 1309. (BTW, that always sounds Orwellian)

As I noted, you have to look at the sorts of provisos involved and what the words of the clause say.

The provisos you point to are ones I noted. We have to test these against likely scenarios.

Let's try an environmental regulation which would enhance the level of monitoring, for example
and increase the cost to the operators as a result.

That's a federal regulation that doesn't trigger either of the provisos or conditions. If the operator asks, "the Province shall...".

How about a change to the Transport Canada regulations governing helicopter immersion suits mandating a new, more expensive survival suit be provided, custom fitted to each worker?

I am thinking the provisos or conditions wouldn't apply there either.

Even the regulation on local research and development spending would seem to me to fall within the scope of this clause and the provincial government wouldn't have much choice.

There's another aspect to this as well. Let's say the operators decide they would like a huge federal tax credit along the lines of the old PIP system.

Regardless of whether or not the provincial government agrees with such an idea as a matter of public policy, they'd be obliged to lobby the feds for such a system since it falls entirely within the scope of subsection (a).

But leaving even all that to one side, I find it highly dubious that there is any clause at all in any aspect of this agreement that requires the provincial government to lobby on behalf of the operators under any circumstances.

As a matter of principle, this clause compromises the position of the provincial government as the de facto resource owner with a broad public policy interest in the offshore and gives it an obligation it should not have accepted; that is, should not have accepted if it were following a Norwegian style of management.

Simply put: the provincial government ought not to be or be seen to be siding with Big Oil at all.

That's not the role government should have. Unfortunately, that is exactly the compromised position in which current government policy places in government with the effect that the public interest is no longer adequately protected in all respects.

We could get into a whole discussion about the philosophy behind the current policy but suffice it to say, this is the sort of thing you get into when one views government as an emerging oil company with the goal of getting government into the oil business, as opposed to be government that already owns the oil in the first place.