29 August 2008

Hebron not sanctioned; may not be sanctioned solely at call of oil companies

The Hebron project has not been sanctioned  and may not be sanctioned, according to the fiscal agreement released on Thursday by the provincial government and only the oil companies can make a decision when - if at all - to develop the project.

That's a huge change in policy for a provincial government that, in the wake of the first Hebron negotiating failure only two years ago, was threatening to legislate development of projects offshore.  The premier and others complained that development could be held up indefinitely by oil companies.

Under the fiscal agreement, the proponents are under no obligation to proceed with the project or any project and that choice remains the sole discretion of the proponents.

2.3   Project Sanction Obligations.

The entering into of this Agreement does not obligate the Proponents to sanction or continue the Hebron Project or any other Development Project, which shall be in the sole discretion of the Proponents.

On top of that, the proponents have at least a decade to decide to sanction the project before the provincial government may terminate the agreements signed this month. However, as with the rest of the agreement that minimum 10 year life span of the agreement could be continued by agreement among the companies and the provincial government. 

2.4 Time Limit for Development.

If, at any time after the tenth anniversary of the Effective Date, the Proponents have not obtained approval from the Board of the Development Plan, absent agreement to the contrary the Province shall have the right to terminate this Agreement on thirty (30) days notice.

While the provincial government released the acknowledgement agreement, the fiscal agreement and the benefit agreement, it withheld two other key agreements.  One is the closing agreement.  The other is the acquisition agreement which presumably covers details of the provincial government's equity interest in the project.

In addition to the points noted above, the fiscal agreement appears to involve a more substantive change to the royalty regime than originally disclosed. There'll be more on the fiscal arrangements and the benefits agreement once your humble e-scribbler has had a chance to go through them in detail.