While little had been said of the negotiations coming down to the April 1 deadline, some had expected Williams to sign a deal. Instead, it appears Williams stood by his demand for an equity position. The companies were known not to favour involving the provincial government in management decisions on the project, even after Williams lowered the percentage he sought.
Williams singled out ExxonMobil as opposing the equity position, however it is likely several of the project partners had difficulty with Williams' demand. This was based on their experience with government involvement in the costly Hibernia project.
In an interview with CBC television's Here and Now, Memorial University economist Wade Locke described the royalties from Hebron - estimated at upwards of $10 billion over the life of the project - as being greater than the provincial government royalties from the other three fields in production combined.
Based on oil at US$50 per barrel, the 700 million barrel Hebron-West Ben Nevis-Ben Nevis development would be worth US$35 billion. The provincial royalty position Williams rejected represents 28% of the project's total potential revenues.
According to lead partner Chevron Canada, Hebron would have been the second largest development offshore Newfoundland and Labrador. Reserves are estimated at 400 to 700 million barrels, with development costs to first oil estimated to range as high as $5.2 billion. Under the operating agreement, the Hebron partners committed to use a gravity-based structure as the production mode. The fractured nature of the fields coupled with the heavy nature of the oil combined with the needed production mode to increase development costs.
NOIA, which represents the province's service and supply sector, predicted downsizing and shifts to business outside the province in the wake of today's decision.
"With a Hebron project delay," said Deirdre Robinson Greene, NOIA's director of communications and policy. "NOIA members have told us that they see reduced business opportunity and activity in their own back yard. If they are to continue operating, they have to look to other markets. That could mean anything from re-tooling for export, to re-locating, to perhaps re-deploying resources and workforce elsewhere. That all translates into less business and fewer jobs here in Newfoundland and Labrador."In a scrum with reporters today, Williams accused the oil companies of not bargaining in good faith. He said the negotiations collapsed when the proponents sought an investment tax credit of 15% which Williams called unprecedented, as well as a tax exemption for fuel used on the project. Williams estimated the total value of these exemptions at $400 million.
If this figure represents a total cost versus an annual cost, there is no indication why Williams found this amount unacceptable while later in the same media scrum, Williams said the government was willing to spend the same amount to "take out" ExxonMobil from the project.
Williams repeated similar comments in the House of Assembly. He compared the province's demand for an equity position to the 8.5% stake that the Government of Canada purchased in the Hibernia project in the early 1990s. it is unclear whether Williams was prepared to purchase an equity position as the Government of Canada had done.
There is, however, an inconsistency in Williams' contention that one one hand the province was unwilling to forego less than half a billion in revenue in exchange for $10 billion while later claiming the provincial government was willing to purchase ExxonMobil's interest for the same amount. ExxonMobil owns 38% of the Hebron project, a share worth considerably more on the face of it than $500 million.
At no point has Williams described his goal in achieving a so-called equity position, nor has he indicated the benefits that would accrue to the province from an equity position, versus increased royalties. Williams has not indicated if his version of "equity" consisted entirely of cash or if it involved management rights.
Under the Atlantic Accord (1985), the Government of Newfoundland and Labrador collects revenues from offshore oil and gas as if the resources were on land. Williams did not explain today why he was prepared to reject $10 billion in royalties, plus billions in start-up construction benefits apparently for a cost of $400-$500 million in tax concessions.