"[They're] trying to understand the investment climate here in the province. Is it as good as it once was or is it starting to deteriorate? They're taking all that into account before they take future investment decisions."There's no under-estimating the repercussions from the collapse, which appears to have been triggered by Danny Williams' insistence on an equity position in the project. Industry insiders have complained publicly about Williams' efforts to change the rules as the game was being played, including announcing publicly that the equity demand as a deal-breaker only a few weeks before the negotiations collapsed.
Williams offshore vision a personal one
The companies rejected the demand for an equity stake which would have given the province's hydro-electric utility a seat at the operator's table. Hydro has no experience in the oil and gas sector, although Premier Williams has described his wish to get involved in exploration work.
No one should doubt the Premier's deep personal involvement in the oil issue. Asked by the National Post why the province was interested in getting into the oil and gas business with its high cost and high risk, Williams replied by describing his own qualities and characteristics."We are prepared to have a full stake and, if necessary, at some point we will get involved in frontier exploration, whatever the opportunities are," Mr. Williams (Photo, right) said in an interview.
Williams likened his equity goal to having a local Norsk Hydro, but Newfoundland and Labrador Hydro operates more as a government department and less like a private sector corporation.
Conflict of interest a likely problem
Oil company executives may have been concerned about the Hydro company's cozy relationship with the provincial government. Hydro chief executive officer Ed Martin acted as the provincial government's chief negotiator in the Hebron talks on industrial benefits and tax and royalty payments to the provincial government.
Those close ties to government would likely have made the industry nervous that the presence of the state-owned enterprise on its team would compromise confidentiality in any dealings with government on current and, more importantly, future development projects.
There are no signs Williams plans to change that relationship in the near future.
Province's go-slow approach won't help speed investment decisions
Investment decisions are also likely to be adversely affected by the go-slow provincial approach on many things. A gas royalty regime has been in development for some time but Williams has said it will take until the end of 2006 for the government to announce any decisions. Likewise, the province is reviewing its royalty regime for the Laurentian sub-basin. That won't be released until the end of 2006 either, according to Williams.
With that time frame, investors would need time to assess the competitiveness of the regime and then do preliminary calculations on any project they are considering. By the time an operating agreement is negotiated on multi-partner operations, and other preparatory is completed, it would difficult to see any new development deal being signed within the next two to, perhaps three years.
Even a deal signed in 2007 likely wouldn't achieve first production until 201-2011. Offshore production is expected to decline by one third to one half of current levels in that same time frame, lowering with it provincial revenues. Growing oil revenues fueled a 10% increase in government spending this year with promises of tax cuts in 2007, an election year.
No Hebron hurts regions, undermines government's fiscal plans
Some are beginning to wonder how finance minister Loyola Sullivan will be able to afford many of his pre-election spending plans in the absence of a multi-billion cash injection that would have come over time from Hebron. Projected royalties alone from the dead deal were equal to the provinces total consolidated debt. Total revenues, including corporate taxes might have reached as high as $13 billion over the life of the project.
The Conference Board of Canada said in February 2006 what while production at White Rose and the Voisey's Bay nickel mine will boost the provincial economy to grow by 6.4% in 2006, the future looks different. The Board projects growth for 2007 at just 1.5%.
"Until there is another boom in construction or mining activity, the overall prospects are rather moderate to weak," said Marie-Christine Bernard, associate director of the board's provincial outlook.That $13 billion for Hebron doesn't include start-up costs - projected at $5.0 billion - which included building a new gravity-based structure, likely at Bull Arm with portions of the topsides likely built at Marystown. At that price, the Hebron project was slightly smaller than the Hibernia project and approximately the same size as the Premier's pet Lower Churchill construction. Those construction costs represent the sort of boom the Conference Board of Canada was referring to. Without it, economic growth will likely not keep pace with ancticipated government increases in spending coming into the 2007 election year.
In the meantime, the failure of the Hebron project adds to the economic problems in some regions, like the Burin peninsula where plant closures by Fishery Products International and lack of an economic alternative or a government assistance package have left many local residents with as little as one week's unemployment insurance to come.
Residents and community leaders on the province's Burin peninsula told CBC television on Thursday that they cannot remember a time when both the Marystown shipyard and the local fish plants were shut down simultaneously. A year ago, Marystown shipyard finished fabrication work on White Rose, the last oil field to be brought into production. More than 1,200 men and women worked at the yard at the time. Today, it lays mostly idle with 30 workers.
National reaction a clue to damage
Perhaps the most noticeable sign of the province's potential problem in attracting investment comes with the comparisons being made in national media between Danny Williams, Russian president Vladimir Putin and, especially, Venezuelan strongman Hugo Chavez (photo, left). The Hebron story has run for most of the week in both the National Post and the influential Globe and Mail with negative connotations in each story for Danny Williams and Newfoundland and Labrador.The story has also been covered in the the heart of Canada's oil industry, Calgary, where Williams' scolding of Albertan Conservatives over the Ralph Klein leadership vote tweaked more than a few noses. The Calgary Herald ran a commentary this week that said, in part:
When he spoke to Conservative party delegates on the weekend in Calgary, Newfoundland and Labrador Premier Danny Williams offered unsolicited advice to Tories on how they should have voted in Premier Ralph Klein's leadership review.That image - as popular as it may be on the radio call-in shows - does win elections in the short-term.
In that spirit, here is some advice for Williams: Stop acting like a tin pot, banana republic demagogue.
But outside Newfoundland and Labrador, where the investment money will have to come from, and over the longer term, being portrayed like a goon or gangster doesn't help brand Danny Williams as someone with whom the investment community can do business. When Williams identifies the province's goals and his own goals as being identical - as he clearly did in one recent interview - the province wears whatever label Danny gets.
Danny Williams' "youngest and coolest" rebranding initiative looks rapidly like it's becoming a waste of money. Outside the province, the image is becoming set in concrete and it is not about being young or cool.
And that won't put money in the treasury where and when it is needed most.