Expatriate Canadian Howie Mandell hosts a new American television network game show called "Deal or No Deal" in which contestants pick cases hoping to win a million dollars.
At stages in the game, contestants are offered other settlements. The game rests on the contestant's ability to know when to quit and take the cash in front of him or her rather than go bust.
The drama of the show for viewers comes from the contestant's miscalculations. They continue to press on despite the odds shifting against him or her and viewers scream at the television set. We wonder how people could be so stunned as to turn down a half a million dollars when they would likely go bust long before the last case is opened.
Too many of them are hypnotized by the top prize that is really just an illusion. They push and push and wind up with a pittance or worse still wind up with the briefcase containing a cent.
Miscalculations are a feature of Newfoundland and Labrador politics. Premier Danny Williams likes to focus on the times when his predecessors supposedly quit too soon and settled for too little. Sometimes that happened. Sometimes it didn't.
Danny Williams and others who share his view don't like to talk about the times when the miscalculation was in gambling on the big prize despite having a good offer in plain view and losing most everything in the end. They forget that sometimes "All" can be the enemy of "pretty damned good".
Brian Peckford did the same thing on the offshore. While Nova Scotia settled for an arrangement with Ottawa that left begging the question of ownership but jump started their industry, Peckford ignored the legal advice that he would lose court references on ownership. Instead, he pressed on, picking first the Supreme Court of Newfoundland briefcase and then later the Supreme Court of Canada package. Peckford and his advisors were also hypnotized by promises of ever-escalating oil prices that mirror almost exactly the predictions being made today. Experience is a painful teacher and Newfoundland governments have plenty of such experience.
He lost both.
Badly.
And by the time Hebron was discovered, the same year Peckford lost big, oil prices ha plummeted to the point where the Hebron find - second biggest of the Big Four to date - was not commercially viable.
Were it not for Brian Mulroney, who in a truly remarkable act, signed the Atlantic Accord (1985), Newfoundland and Labrador today would be staring at nothing from offshore revenues. The most recent budget with its billion dollars of oil revenue in a single year simply wouldn't exist. We wouldn't even have the briefcase with the penny in it.
Leap forward to Danny Williams.
The Premier appears to have made fundamental miscalculations in negotiating with the Hebron partners.
First, he miscalculated the proponent companies' collective opposition to having a neophyte Crown corporation with no oil expertise sit at the table making fundamental decisions on a massive and complex oil project.
Second, he miscalculated the willingness of these partners to simply close down the Hebron project and put it on the shelf. He misjudged their willingness to move to larger, less cumbersome projects from a project that was only made more problematic and more costly by the premier's demands.
Third, and flowing from that, the Premier fundamentally miscalculated the extent to which the Newfoundland and Labrador offshore must be globally competitive. He seems to have been infected by the old view from Peckford's time that we would somehow be able to dictate to multi-national oil companies based on nothing other than our bluster.
Newfoundland and Labrador has oil and gas assets which are valuable, but we have smaller proven assets than many places on the globe. In Venezuela, for example, the assets are considerably greater. The importance of those assets to important markets like the United States are such that the companies are prepared to accept the posturing of local strongmen to get the oil out of the ground. Oil companies are prepared to work with all manner of regimes around the globe; Danny Williams inability to get a deal seems odd in comparison.
Right: "We got it!". Venezuelan President Hugo Chavez has earned praise at home and caused disruption in the international oil markets through his forceful policies with multi-national oil companies. Is Chavez the model for Williams' policies on offshore revenues?
Fourth, Williams miscalculated the impact of foisting new demands into the negotiations toward the end of the process. Williams claims he made the government position clear early on. Publicly, he only said he wanted a refinery and larger benefits and royalties. The equity position emerged within the last few weeks. The Premier himself took the refinery demand off the table when he announced a third party consortium would examine the feasibility of building a second refinery.
The Premier's initial comments on the Hebron failure suggest that he is aware of the miscalculations. When the Premier is threatened or under pressure, the intensity of his rhetoric and the range of options or threats he poses escalates, even if the options are mutually exclusive or not viable. Consider that during talks with Abitibi, for example, the Premier threatened the company with expropriation; no action has been taken and none would be taken. More importantly though, Williams was prepared to pay Abitibi more in an annual grant of public money than he made in tax and royalty revenue merely to keep the mill going with its 282 jobs.
Williams has threatened to "take out" ExxonMobil. His own comments undermine this position. If $500 million in tax concessions were too rich to acquire a five percent stake in Hebron, then surely ExxonMobil's share - 38% - would be eight times too rich for the Premier, even if he could find the billions to pay for the share.
Similarly, the Premier has threatened fallow field legislation in the same breath and to accomplish the same purpose. Under such an approach license holders would have a fixed time in which to develop a field or have the license be cancelled. Unfortunately, the Premier cannot introduce this legislation on his own; he must have the co-operation of the federal government to change an issue such as the issuing of licenses. Given the Harper administration's commitment to free enterprise and its base of support in Alberta's oil patch, it would take quite a leap to expect Stephen Harper to co-operate with an approach that to some will appear to be modeled on that of Hugo Chavez's Venezuela.
Likewise, the Premier has insisted as recently as this morning that Hebron's failure would have no impact on the province's oil and gas industry beyond the immediate loss of potential for the development. Again, one would be foolhardy to expect that ExxonMobil and the other partners in Hibernia South would bring forward a development proposal to the Williams administration having just gone through the Hebron experience.
He also points to gas potential which would supposedly offset the Hebron loss. It may. But in order for gas to be developed Williams has to deal with many of the same players he has just worked so hard to frustrate. Experience is indeed a harsh teacher.
Williams also does not have a royalty regime which describes even for planning purposes the likely costs of development. Faced with the Hebron example and the uncertainty of the gas regime, no one should expect imminent development of any gas resources.
On top of that he has made comments in the past about not wanting to see gas exported in "some goddamn boat". As much as Williams' energy minister Ed Byrne has tried to calm industry fears no one can be assured that Williams did not mean exactly what he said, even if the technology is locally developed, would create local jobs and benefits and produce the ability to also start a secondary gas processing industry here. Uncertainty is great in the oil and gas business these days and the industry will need some concerted calming by the provincial government before all is back to where it was.
Williams has also gone so far as to raise the spectre of the Upper Churchill contract in defense of his decision to help shelve Hebron. "No more give-aways" is his cry. Williams knows this is nonsense. His Abitibi deal should be proof enough that give-aways can rear their head even under his administration.
In this instance, though, Williams knows that the Upper Churchill power purchase agreement fixes the price of power at pennies per unit over the life of the deal. By contrast the province's generic oil royalty regime bases its calculation of provincial rent as a percentage of the price per barrel of oil. As prices go up, so too does the province's cut. If that were not enough, the regime contains tiers of royalties. Once the project costs are recovered the province's share jumps again by an order of magnitude. It jumps once again to a third tier - so-called super royalties - that are paid if other conditions are met. Unless Williams abandoned that approach - and there is no sign he has - then his comparison of Hebron to the Upper Churchill is specious, to put it mildly.
The Hebron proposal is now dead, apparently based on serious miscalculations by the provincial government. There will be repercussions. Anyone who believes otherwise is misinformed.
Part of the difficulty in soundly assessing what is going on is that Premier Williams has never explained what he means by "equity position" and why it is so valuable that $10 billion and substantive local benefits were not enough to pay $500 million to acquire. More detail and fact is needed. More accountability is mandatory.
It's not like Williams and his predecessor Brian Peckford have not led the province down this same path before.
It's not like we haven't seen leaders claim we got it when they didn't, accuse others of selling the shop or of shooting for the million and coming up with considerably less than what was in front of them a move or two ago in the offshore game.