11 April 2006

Hebron Fiasco Week 2: Notes and numbers

1. I've got a gun... "Williams wants expropriation tools"

If Danny Williams wants to attract greater investment in Newfoundland and Labrador, this headline from the front page of today's Globe and Mail business section is decidedly not the way to go.

Investors are already jittery about Newfoundland and Labrador in the wake of the Williams' administration's handling of investment files ranging from oil and gas to forestry to fishing. Knowing that Williams is looking for the legal tools to expropriate investor holdings will just confirm in their minds, rightly or wrongly, that while Williams might not be exactly like Hugo Chavez right now, he is headed in the same direction.

It's not that Williams is likely to get his wish mind you. The Globe story originated in Calgary, home of the Canadian oil industry and one of prime Minister Stephen Harper's bases of support. Harper won't look kindly on this latest of Williams' ideas anyway. Given that the expropriation threat is so blatantly linked to Williams' inability to sign a deal with the Hebron consortium, Harper will be doubly set against giving Danny Williams a loaded gun for him to use at his leisure.

For investors, though, the problem is that Williams went looking for a Chavez-like big stick in the first place.

2. Who owns the oil anyway? Lost in the entire Hebron fiasco and Danny Williams' threats and bluster is a simple reality: the Government of Newfoundland and Labrador has no legislative jurisdiction over offshore oil and gas, except for the areas specifically assigned to the provincial government in the Atlantic Accord (1985).

Brian Peckford pushed the matter to the limit in the early 1980s despite having sound legal advice that he would lose any court cases. Peckford declined the opportunity to sign a deal with Ottawa, as Nova Scotia had done, preferring instead to go for the whole schmeer. Peckford's administration referred a question to the Newfoundland and Labrador Supreme Court, Court of Appeal. At the same time, the Government of Canada asked the Supreme Court of Canada to rule on a similar reference.

The Court of Appeal ruled that Ottawa had legislative jurisdiction over the offshore. The Supreme Court of Canada concurred, when the case was appealed to it. In the direct reference from the Government of Canada, the Supreme Court of Canada reached the same conclusion.

Bottom line: Newfoundland and Labrador cannot unilaterally legislate fallow fields, expropriation or anything else of the sort in relation to offshore oil and gas. That right rests with the Government of Canada.

3. "I'm delighted we're getting that reaction [criticism] from the national press." Premier Danny Williams quoted in The Telegram, Sunday, 09 April 2006, page A1.

Of course, he's happy.


Tickled pink.

The more the mainlanders crap on him, the higher his stock rises in opinion polls and among the Bill Rowes, Sues and Moonmen of the local radio call-in shows.

Danny Williams' strategy isn't aimed at anything except maximizing his support - poll results and then election results - in Newfoundland and Labrador. What the mainlanders think is irrelevant, unless they suddenly started to ignore him.

Like Brian Peckford on whom much of Williams' offshore policy is modeled, Williams' blaming the province's problems and major setbacks on a foreign enemy is a deliberate government policy.

That's what makes Memorial University professor Chris Dunn's assessment of the offshore deal superficial and, ultimately, wrong. Dunn argued that waging war on Ottawa, as Williams did in the offshore revenue fight in 2004, was a popular piece of local political theatre.

Popular it may seem, but only Williams and Peckford use the "foreign wolf" card as a conscious act of policy. Other premiers - Smallwood, Moores, Wells and Tobin - did their fair share of fighting over issues. But people not from Newfoundland and Labrador were not always the scapegoats.

Those of us who lived through The Crazy Days in the early 1980s remember it all too well.

4. Danny can still claim victory in a Hebron deal. While there is every indication the Hebron deal is dead, Danny Williams can still pull off an Atlantic Accord-style victory thanks to the rising price of oil.

Williams January 2005 deal was essentially what had been negotiated in the fall of 2004, with some minor changes. The major difference was in the lump sum cash settlement Williams took. in October it was $1.4 billion; in January, it was $2.0 billion. Williams likes to toss those figures out as proof he didn't settle too soon. He hung on and got a "better" deal.

Well not really. The original quantum was based on a price per barrel of oil as it was at the time. The January lump sum was calculated using a higher price.

Danny walked away from a Hebron deal that was worth at least $8 to $10 billion in royalties and hundreds of millions if not billions of construction spending. The quoted value of the deal also didn't include provincial corporate taxes. Put that number in the billions as well over the life of the deal, even if the province had forgiven about $500 million in taxes during the construction phase of the Hebron project.

But that number on royalties was based on an assumed price for a barrel of oil and the province's royalty regime. That royalty regime gives the province a percentage of the price of a barrel of oil. Oil goes up; the province gets more cash.

Since Danny balked at the Hebron deal, oil prices have spiked upwards to around US$69.

Sign a deal today and he can claim "victory" even though there isn't any substantial change in the deal.

5. Stunned is... Anyone notice that it is only the supporters of the saviour of the moment who tell us how stunned - naive, stupid, foolish - we have collectively been in the past? Bill Rowe is the latest one to try this argument on over Hebron. One of his favourite callers chimed in yesterday telling us we were "weak".

It's an odd strategy that those who wish to boost our collective self-confidence spend all their time telling Newfoundlanders and Labradorians how weak and stupid they are before launching into their prescription for fixing all the ills. This isn't a case of setting up a strawman to burn; it borders on psychological abuse.

But for some strange reason only those claiming to want to build Newfoundland and Labrador into some great paradise - of course following their specific prescription - spend so much time telling us, as Rowe put it, that we have had "habitually agreeable, lackadaisical ways."

What's next? Bill and Sue telling us all we are "dumb newfies"?