22 August 2008

Risky business: prov gov to increase public debt to pay for Hebron





Funding source


Equity interest

$110 million

Paid from FY 2007 general revenue


Capital  Expenditure

4.9% X $6.0 billion

$294 million

Increased public debt


Operating Expenditure

4.9% X $10 billion

$490 million

Likely increased public debt,  at least until sometime after first oil


Liability guarantee

Construction phase only

$250 million

Increased public debt?



Sum 1 - 4

$1.193 billion




Operational phase


Increased public debt


Notes (Information on news release, plus media coverage):

  • Capital expenditure (capex: construction phase costs) to be undertaken by subsidiary of Ener Corp - called OilCo in government materials - through borrowing guaranteed by public treasury.
  • Actual capex is currently unknown, but estimated to be between $4.0 and $6.0 billion.
  • The government backgrounder makes no mention of operations expenditures (opex: post first oil operating costs). Presumably these costs will be met through increased public debt.  (Government Ener Corp borrowing, with government guarantee.)
  • Original equity interest purchased out of government general revenue. The most likely source of cash to meet all other costs is government-backed borrowing.
  • Construction to begin "as early as" 2012 (Premier's remarks to media).  This is a minimum, not a maximum.  Construction may be delayed for currently unknown reasons.  Company representatives discussed firming up capex estimates over next few years.
  • The term liability guarantee is unusual in the context of referring to a maximum cost of $250 million. It is unclear what this means. It does not necessarily mean that somehow OilCo and the provincial government have a limited liaibility for costs. If that was the case, then the backgrounder would have stated that the liability was limited to a maximum of $250 million.  This appears to be less an issue of liability than a promise that liability will be assumed/accepted by government, along with some associated fee, deposit or other sum that signifies the guarantee or a fee for providing the guarantee (Oilco to prov gov). 
  • Whatever it is, the figure of $250 million is not the only amount associated with liability. The government backgrounder gives very little discussion of liability at all. For example, there is no discussion of liability exposure during the operational phase, for example.