04 September 2007

Show me the oil money!

Here's another story on the Hebron deal from Embassy. The story discusses the recent Hebron announcement in the wider context of a policy debate in Alberta over royalty regimes.

There are some interesting comments in the story, coming from natural resources minister Kathy Dunderdale.
"It [the first round of talks] fell off the rails around equity, super-royalties and secondary processing," Newfoundland Natural Resources Minister Kathy Dunderdale said of the negotiations in an interview Monday. "The premier [Danny Williams] said at the time we were prepared to let some things go, but not the equity or the super-royalties.
Not exactly.

Premier Williams made two different sets of three demands. In April 2005, he said the province was looking for two of the three of:

- better royalties (undefined);

- better local benefits; and,

- local processing.

The Premier took the refinery off the list as soon as a consortium announced they were exploring a second refinery for Placentia Bay.

A year later, the Premier had three different demands:

- better local benefits;

- a super-royalty, to kick in when oil traded above a certain price per barrel; and,

- an "equity" stake.

The super-royalty was never clearly defined; indeed, not much of the list was defined in any measurable way.

When the talks fell apart, there were essentially two issues:

1. The companies could not agree among themselves on the equity request, reduced apparently from 10% to 4.9% to avoid involving any management decision-making powers; and,

2. A request by the companies for tax concessions which the province was not willing to consider.

In the memorandum of understanding, the issues were resolved such that the companies got a royalty break in lieu of the other tax concessions. The province got two other items but the details of how those work are still secret.

That's what makes discussion of the equity stake in the context of the Embassy story a little odd. There are some references - including here at Bond - to operating a state-owned oil company as in other countries. In truth, the thing may turn out to be nothing more than shares handled by an operating company as with the Canada Hibernia Holding Company.

How the shares are handled and what the energy company turns out to be will affect the net value of the thing to the province as a whole. Notice that the minister refers to the vague concept of having a window on the industry from the standpoint of developers. It certainly isn't clear what that means and how it may benefit the province in any way at all.