14 December 2009

Hebron changes: uncertainty over implications of work cancellation

Under questioning in the House of Assembly on Monday, natural resources minister Kathy Dunderdale couldn’t point to a section of the benefits agreement that allowed a replacement of work cancelled by the Hebron partners in September.

Dunderdale could only say that there was an unspecified “sub-agreement”. 

She’ll probably have trouble finding the magic clause she thinks is there.  The benefits agreement is specifically identified as a stand-alone document that isn’t affected by other parts of the overall deal except as provided within the benefits agreement.  There’s no section that refers to offsets for cancelled work.

Dunderdale told the legislature the provincial government was represented through NALCOR Energy as the equity partner when the decision was made to chop the “sub-sea drilling template and the components of the field mooring system and positioning and docking system.”

However, when asked about the potential impact on communities like Marystown, Dunderdale answered as if the provincial government didn’t have an equity stake:

Mr. Speaker, some of these questions are better put to the operators to explain the scope of work, the magnitude of work, the kind of expertise that is required and the kind of services that are going to be required to do this work. All we can do, as a government, is negotiate an offshore oil and gas project with specific benefits around the kind of work that is required to construct. In this case, Mr. Speaker, modification needs to be made in order to reduce delays and proper execution.

She’s right, of course.  The 4.9% stake amounts to exactly nothing when it comes to substantive decisions if the government acts as an oil company/partner. The Big Players needed to “reduce delays and [ensure] proper execution” and the provincial government – apparently reduced to a bit player -  simply followed along.

That evident lack of control exercised by the provincial government is the opposite of what people were told when the equity stake idea was being sold politically. But it is consistent with the spirit of a section of the financial agreement that obliges the provincial government to back the oil companies on any regulatory issues as the oil companies see fit.

The Hebron partners were originally supposed to submit a development application this month to the offshore regulatory.  However, the changes made to the fabrication program a year after final agreements were signed points to the potential for further delays.

The Hebron project is not yet sanctioned by the partners.  Under the agreement with the provincial government, they do not have to sanction the project – that is approve it for development – at all.  They don’t have to green-light the development even if the project clears regulatory approval.

The final agreements signed in 2008 provided for less oil and possibly fewer local benefits than the 2007 memorandum of understanding.