First the story on Tuesday that contained little in the way of new information and missed a great deal of other stuff. There's a Bond commentary with a link to the first Globe story.
Now on Wednesday a piece focusing on Hydro chief executive Ed Martin and his supposed role of building bridges between the major oil companies and the provincial government.
The Globe parses the core issue reasonably well: there are two different perspectives with two contending objectives.
The role attributed to Martin is difficult to confirm. Certainly, he is an experienced oil and gas industry executive and he can certainly understand how the industry operates. How much he is able to do in building any bridges between the two perspectives is less clear. As NOIA's outgoing president Ted Howell put it in the Globe piece:
"He knows how the companies evaluate projects, and he brings that to the table with government. But ultimately, it is going to be the Premier's call in terms of what he feels is the appropriate deal for the people of Newfoundland and Labrador."The main problem in building the bridge may well be determining how wide is the span that needs to be built. The Globe story gets it monumentally wrong.
Industry officials warn that, if the province insists on making unrealistic demands, the international oil companies will simply not explore or develop in the waters off Newfoundland. In a nutshell, the message is: Five per cent of nothing equals nothing.The equity position demand is more like 10%, not five. The government has stated - and as the Globe reported on Tuesday - that the equity demand in the forthcoming energy plan will be more than 5%.
More importantly, though, there appears to be a fundamental disagreement between industry and government over what shape the equity takes. That point is found only in the last paragraph of the story: the oil companies would expect that a state-owned enterprise would farm in, that is, buy in and take the risks everyone else takes.
That's essentially what occurs in some other places, like Norway, where the government's oil and gas company Statoil operates in the private sector like all the other companies in the business. Statoil, now merged with Norsk Hydro, has been able to expand its operations outside Norway and works globally with private sector companies and other state-owned oil and gas enterprises.
The alternative - the one that appears to be government's intention - is to add the equity position onto government's royalty regime. That's where the problem starts and it is at the core of why the Hebron deal failed.
As Bond Papers has noted previously, one of the major philosophical divides between the parties on Hebron centred on Ed Martin's conflicting roles as the chief tax and benefits negotiator for the province on the one hand and then his position as a potential business partner on the other.
The two interests are fundamentally incompatible, to some minds. As an operator, the concern would be about controlling costs and maximizing profitability. As the government's agent, the goal would be to maximize local benefits through royalties, jobs and - as in government's original Hebron demand - expensive capital projects that may not be required except to meet the political demand.
The Globe missed that entirely, except for what can read into the comments from Ed Martin:
"So from a strategic perspective the province is crystal clear: Premier Williams wants to make sure he gets this right in terms of how these developments occur for the benefit of the province. And for that, you need a seat at the table."The Globe also missed the obvious: for all the talk about a seat at the table and the strategic importance of oil and gas, the provincial government still hasn't figured out exactly what role Martin's new energy company will fill or how that so-called seat at the table will be acquired.
Ask Ed Martin or Danny Williams whether the energy company will acquire licenses and operate like any other oil business and you'll likely hear the reply that that option hasn't been ruled out.
Ask about farming in - that is, buying the equity stake - and you'll hear that government intends to pay for its share. There has not been any indication of how it intends to pay for the share. Buying in occurs all the time. It's a straight-up business transaction and it needn't be limited formally to five percent, 10% or any specific level.
It's just plain odd that government would insist on any specific amount in every project. On that level, government's demand looks like the sort of stuff one gets from developing countries where oil and gas is a political issue, a nationalist issue. It isn't about how the state-owned oil and gas company can get into the industry, make cash and then return the benefit of that cash to the owner in just the same way that a private sector company returns profit to its shareholders.
One way follows the Norwegian approach. The other way is the Venezuelan one.
Resolving that confusion would likely do more to re-start the Hebron talks than any supposed back channel discussions between Ed Martin and his former colleagues at Petro-Canada.
Maybe the answer will be in the energy plan.
Then again, as the energy plan becomes more of a political document than a business one, maybe it won't.
-srbp-
