04 August 2006

Williams' Hebron folly more plain

While The Telegram editorial today softpedals the issue, let's make it clear:

By rejecting the Hebron development last spring, Premier Danny Williams gambled with a major public policy issue and lost.



Williams gave up upwards of $10 billion in oil royalties, plus considerably more in related construction and job benefits because the deal didn't include his last-minute add-on of an "equity position" that he valued at a mere $1.5 billion over the life of the Hebron project.

Williams has never explained what was so important about the "equity position".

The United States Senate voted on Tuesday to open 8.3 million acres of offshore land in the Gulf of Mexico for exploration and development. Reserves in the land parcels are estimated to be 5.8 trillion cubic feet of natural gas and 1.3 billion barrels of oil.

To put that in perspective, the oil reserves are the size of the Hibernia field and more than double the size of Hebron. The gas reserves are more than the total reserves and resources offshore Newfoundland and about two thirds of the total offshore gas when Labrador is included.

A congressional conference committee will now reconcile differences between bills on the offshore lands policies passed separately by the House of Representatives and the Senate.

The Telegram notes that stability - one of the main attractions of the local offshore - has just been undermined by the opening of oil and gas resources in American waters. The Telly-torialist is right.

What they didn't note is that this week's development is further evidence that there are plenty of oil and gas development opportunities around the world and that the Premier's gambit was foolish as a consequence. The Telly also didn't admit that this same point was made previously by the Globe and Mail in articles and editorials the Telly criticized previously.

There are two consequences for Newfoundland and Labrador from this week's developments in the United States.

If - and that is a big if - Williams could theoretically re-start negotiations on Hebron, he will have to give up considerable revenues or forego considerable guaranteed local benefits to make Hebron attractive. The Gulf of Mexico is a well-established area and with its considerable infrastructure, any discoveries in the new parcels can be brought on line far more quickly and at much lower cost than anything offshore Newfoundland and Labrador. They are also far closer to refining and to markets.

If Williams could even get ExxonMobil to return his telephone calls any time soon, getting $10 billion in royalties and thousands of jobs for a mere $500 million in short-term tax concessions will seem like a fantasy.

The other consequence, a far more likely consequence, is that interest in the Newfoundland and Labrador offshore will diminish significantly for the remainder of Williams' tenure as Premier. The oil companies have better plays than Newfoundland and Labrador. Even if Williams lives up to his promise (threat?) to stay in office longer than Joe Smallwood, the oil companies won't be expressing too much interest in Newfoundland and Labrador.

Williams can't develop the resources himself because even if by some miracle he persuades Steve Harper to hand him the legal hammer to beat a field into production, Williams lacks the cash to go-it-alone through the newly minted Hydra oil and gas, hydro electricity and everything else under the sun corporation. Middle-eastern money or Asian money wouldn't change that situation much either, since those investors all have better plays elsewhere.

It's painful to be pessimistic about offshore oil and gas that only a few short months ago was finally becoming the cash cow it had been so long been heralded as being.

But now, after a few rash decisions, the oil and gas industry in the province in well and truly in the slings.

Premier Williams may like to talk tough and puff up his chest when talking of taking big risks.

Perhaps he would do well to remember that he is taking risks with our money, public money.

Perhaps we would do well to remember the same when he comes courting our votes next year. After all, if we want to know who is ultimately responsible for the state our province is in, we need only look in the mirror.