12 April 2006

Hebron Fiasco Week 2: More answers, more questions

1. Elvis has definitely left the building. The Globe and Mail story on Wednesday makes it clear that Hebron is dead. The project office is being demobilised and staff reassigned to other duties.

Chevron spokesman Mark Macleod told CBC television in St. John's it could reasonably take years to re-organize the Hebron team.

The same sentiments are in the Globe piece.

If that wasn't clear enough, check the Financial Post front page.
"I just wanted to make sure that everybody is clear that this thing is over," Mr.[James] Bates [, Hebron chief negotiator] said from St. John's, where he was hosting a goodbye luncheon for Chevron's departing Hebron team
2. Did Chevron call to restart talks?Premier Danny Williams has said several times in the past few days that he has received a contact from the Hebron consortium's chief negotiator. The implication left is that the companies are trying to see if talks can be restarted.

However, in a scrum outside the House of Assembly Monday, Williams gave sufficient detail of the contacts to decipher what really happened.

The chief negotiator called on Sunday, April 2, according to Williams to clarify the issues the province was not willing to budge on - namely the two tax concessions Williams highlighted the next day as being something the government found unacceptable.

Williams told reporters he also received a call the following Wednesday for clarification of Williams' comments on the major issues that had led to the talks breaking down.

There is no reason to believe this represented anything other than what it is - contacts for gaining an accurate understanding of the provincial government's position. There is no reason to believe the companies were seeking to re-start talks, unless there had been a significant misunderstanding. Evidently there wasn't.

In short: Chevron called, but not to restart talks.

Elvis is in the car on the way home.

3. Dazed and confused. But here's the thing about the calls and the clarification: if everything had been written down clearly, there would normally be no need to double check media comments. When the companies reached their decision to suspend talks on the project they ought to have known exactly what the issues were. It's odd that they would find it necessary to call Williams to make sure they understood his comments to news media.

Williams has also stated on several occasions that there was confusion among the companies, that they were not bargaining in good faith and that they needed to sort out their position.

It seems like there was plenty of confusion to go around and the confusion was coming as much from Danny Williams as anyone else. All that tells anyone is that while finding fault and blame here is still not a useful exercise, there is plenty to be learned so the same mistakes don't get repeated again.

4. The best defence is a good offense. That said, much of what Danny Williams (Right/Photo: Peter Redman, National Post) was doing here is masking a provincial government weakness by claiming someone else was suffering from a problem that could just as easily be found in his own back yard.

Danny Williams followed much the same negotiating approach with the Government of Canada in 2004. His position - what he was seeking - shifted dramatically over the course of discussions from January to October 2004. No detailed talks began, in fact, negotiations as most would understand the term, didn't start until November 2004. Then again, the two sides only really started talking once the federal government made it clear how far it was not prepared to go in meeting Williams' vaguely worded demands.

5. To expropriate or not to expropriate? Danny Williams started talking about taking ExxonMobil out of the Hebron project on the same day Chevron announced the project was shelved. He talked about buying out Exxon's share or bringing in legislation to do the same thing. Williams also talked about forcing development either using existing legislation or new rules if Exxon wouldn't sell. [Note: Following this link to bloomberg.com and the unedited interview attached to this story.]

There was no mistaking Williams' threat that if oil companies wouldn't accept government demands, Williams was prepared to find a legislative way to get what he wanted. As Williams told the Financial Post on 05 April:
And if you don't want to sell your interest, you are really leaving us no option than to seriously look at legislation or action to ensure that undeveloped discoveries proceed on a timely basis.
On the same day Chevron announced Hebron was in mothballs, Exxon made it clear its shares were not up for sale. No surprise, therefore, that the oil industry focused on the remaining option and reacted badly to the thought of legislative action. Some news media have lately taken to calling this "expropriation". Business writers across North America compared Williams to Venezuelan president Hugo Chavez.

Williams has kept up the issue by answering questions about so-called "fallow field" legislation, or in the scrum linked above from this week, talking about sections of the federal Accord implementation act that might be used.

Did Williams threaten expropriation? Strictly speaking, he may not have said or meant that. However, Williams hasn't taken a single step to dispel that notion unequivocally. Instead, he has been talking about it openly.

6. Does Williams have the legal option of forcing development on Hebron? At the outset, let's make it clear; I am not a lawyer, nor do I play one on television. But I can read plain English and I can talk to knowledgeable people in the oil and gas industry.

Under the sections of the federal Accord implementation act Williams cited recently - s.34 to s. 41 - it's pretty clear the sections refer to the offshore board ordering development and production in times of national emergency or when there is a shortage of feedstock for existing refineries in the country.

Under s. 79, the offshore board may order production, but that is expressly related to s. 31-41, namely the terms that refer to security of supply. Aside from that, before the board would issue such an order and largely to cover its own backside, the board would need written instruction from both orders of government before taking such a decision.

Beyond those circumstances, there are no current legislative regime in which companies can unequivocally be forced to develop a project.

There certainly isn't a clear regime whereby government or the offshore board could order development of a project like Hebron in the circumstances at hand. The companies are ready and willing to cut a deal, but not at any price. Any effort to force development under those circumstances would almost certainly bring expensive legal challenges. What's more, according to one international trade expert quoted by national media, expropriation would trigger provisions of the North American Free Trade Agreement (NAFTA)

Undoubtedly there is a lawyer out there who will give a contrary opinion, but while he or she will collect considerable billable hours, I wouldn't want to be the one arguing the case on a contingency basis. The chances of winning are remote.

Danny Williams has also talked about new legislation covering so-called fallow fields. There'll be more on that in an upcoming post.

7. It's not a retreat. Seriously. It's just a tactical redeployment.

Premier Danny Williams talked to Prime Minister Stephen Harper about the failed Hebron talks today and the need for legislative changes to give Williams the power to order development in some cases. On Monday, it was a big issue.

But, in a scrum yesterday outside the legislature, Williams said that fallow field legislation and other efforts to expropriate ExxonMobil's share in the Hebron project were moved far down the agenda of the meeting.

Top of the list? Early retirement help for workers from Fishery Products International. That's an issue the government has struggled to avoid discussing since last December when FPI first briefed the Premier and fish minister Tom Rideout on the company's plans.

Williams talked about having to exhaust other options first, such as buying out the Exxon shares. That's a whole lot different from the message he was sending as recently as Monday.

It's amazing what changes come when there's a bad headline in the Globe's business section the day before you meet the Prime Minister.

Maybe someone from Harper's office made a phone call.