05 September 2006

Chevron hits oil...in Gulf of Mexico

Chevron announced Tuesday that it has found what appears to be commercially viable quantities of oil from a field in deep water in the Gulf of Mexico.

Exploration in the Gulf of Mexico has flourished in the past decade owing in many respects to American government policies that promote exploration and reduce the costs of developing wells in challenging offshore regions.

The United States Congress recently approved release for exploration of 8.5 million acres of lands in the Gulf of Mexico that are estimated to hold as much oil as the Hibernia project and natural gas of over six trillion cubic feet (tcf). Total natural gas reserves off Newfoundland and Labrador are about 10 tcf.

One of the partners in the latest discovery project is Norway's Statoil, owned in part by the Government of Norway. Reporting to a local radio call-in show on his recent trip to Norway and Iceland, Premier Danny Williams incorrectly stated that Statoil is owned 100% by the Norwegian government. Decisions taken within the past two years by the Government of Norway have reduced its interest in the oil company to about 70%. The Norwegian Crown holds a 43% interest in another Norwegian oil company, Norsk Hydro.

Williams appeared to be whining about the success of other areas in securing development and benefits of offshore oil and gas. He gave no indication of what policies he might implement to stimulate the province's exploration sector or to promote development of existing fields. Williams noted the tax and royalty regime in Norway but gave no indication that his administration is considering significant changes to the local tax and royalty regime even though the provincial government has full control of its own revenue setting.

Williams did complain that the federal government has refused to discussed Williams' proposal to use legislation to force oil companies to develop oil and gas fields. Williams did not tell listeners that so-called fallow-field legislation - one idea he has proposed previously - would not necessarily change the situation offshore Newfoundland and Labrador where technical challenges and other considerations make development costly.

Talks to develop the province's fourth oil field collapsed in April when the province insisted on an ownership stake the project proponents could not agree on and the proponents asked for $500 million in tax concessions which Williams was not willing to consider. The total estimated provincial revenue from the project was $10 billion over its lifespan. Subsequent development of two other fields associated with the project - not included in the talks - would have increased provincial revenues significantly beyond the estimate for Hebron alone.