22 June 2012

Looking beyond the Hebron sandbox #nlpoli

ExxonMobil drew a line in the sand this morning, and the minister and I are here to draw another line in the sand, as far as this project is concerned.

Premier Kathy Dunderdale, 21 June 2012

Premier Kathy Dunderdale and natural resources minister Jerome Kennedy spent more than a half hour meeting with reporters on Thursday to talk about the provincial government’s position that a major module for the Hebron project must be built in the province.

Take a look at the scrum video.  There is a lot of talk.  There is a whole lot of talk.  Some of it tough-sounding.  There are threats.

But there is so much talk, and so much rambling, and so many threats that most of the talk is unconvincing.

A closer look at the history and the agreements pulls you toward the same conclusion.

At the centre of the controversy are topsides modules.  The Hebron Benefits agreement establishes very clearly at Section 5.5 , subsections B and C, that the work on the modules will be carried out in the province “subject to the provisions of Section 2 of
Exhibit ‘F’”.

Exhibit F is secret.

The background document issued with a 2007 news release on the Hebron deal described one of the features of the framework agreement this way:

All fabrication work will be completed in the province*, with the exception of the fabrication of the Utilities/Process Module. (*subject to reasonable capacity and human resource availability).

A representative of ExxonMobil, as the lead partner for the Hebron project, told the NOIA offshore oil and gas conference earlier in the day that the partners planned to build the module outside the province.

As CBC reported:

“Our studies indicate that attempting to build the third large module in-province would prolong the project schedule, with no ability to recover,” Geoff Parker, vice-president of ExxonMobil Canada and senior project manager for Hebron, told delegates to NOIA’s annual conference.

“That would have significant financial implications for the co-venturers and the province.”

The announcement for the 2008 final agreement describe the modules and work commitments this way:

  • Topsides drilling support module*

  • Topsides drilling derrick *

  • Accommodations module*

… (*Subject to reasonable physical capacity and human resource availability.)

There is a dispute resolution procedure in the agreement, as both Dunderdale and Kennedy noted.  It consists of negotiation, mediation and finally arbitration.  For disputes involving Section 2 of Exhibit F, though, the timelines are much tighter than for anything else.  The potential compensation for the provincial government is set down in two sections of the secret Exhibit F.

When the Premier and her minister smile and smirk at the potential size of the award, you might want to take it all with a grain of salt.  If they had such an airtight case, then they’d be doing all their talking in court, not in front of the cameras for such a lengthy – and repetitious – period.

Then there’s the original intention of the agreement.  The Premier made much of the long hard negotiation on the original deal.  Well, those who wish to remember will know it was not about local benefits.  The problems in the agreement were all about the equity stake that Dunderdale and her boss at the time wanted in order to fund the Lower Churchill.

When it came time for benefits, they settled for what the company had on the table for them:  the gravity base structure and a few bits of manufacturing.

Danny Williams talked about the local benefits in August 2008.  Here’s how the Telegram reported it at the time:

As well, three topsides modules - drilling support, drilling derrick and accommodations - will only be built in the province if there's enough skilled labour and capacity in local fabrication yards to carry out the work.

"You can't work above 100 per cent capacity," said Williams in a Wednesday morning briefing with reporters.

"There's a significant amount of work here - as much as we can handle and more.

Nalcor boss Ed Martin who was – unlike Kathy Dunderdale -  directly involved in the negotiations, turned up in the Telly saying this:

"We've focused on ... the eight to 10 components that really fit our long-term strategy, and can be built here in our yards and can be moved around effectively.

"We think we've structured this in a fashion ... to get as much work and experience as we can in our available yards and infrastructure, as well as protecting the economics of the project."

The eight to 10 components were things like the flare boom.  They were pretty cheap and easy and, as Martin noted, he and the negotiators structured the agreement so that it would also protect “the economics of the project”.

As for the secret parts of the deal, the bits that determine whether the Hebron team would build the topsides in the province, Williams said something that may prove to be telling of the provincial government’s intent at the time:

If we're going to be full partners in the industry, then you have to behave like partners.

That’s pretty much along the same lines as what Martin said.  And it’s what you’d expect given the fundamental conflict of interest Martin and Williams operated with.  They tried to be both the regulator/owner and a oil company at the same time.  You can’t be both:  one interest had to suffer.

We might find out the cost of being Big Oil’s L’il Buddy.