Hibernia 20

To mark the 20th anniversary of the development for the Hibernia project, cbc.ca/nl put together a special page of video clips from the time. It’s a great site and a great reminder of one of the most significant events in the province’s long history.

There are so many aspects to the Hibernia story (and the CBC vids) worth noting:

• There’s the signing ceremony with all the Premiers since Confederation to that time in attendance.
• There’s the caution from Clyde Wells that offshore oil and gas would not solve all the province’s economic problems. That one pissed off a lot of people in the oil industry but he was right.
• There’s the warning from Wade Locke about the project would cost the province its precious Equalization hand-outs and as such would be a bad thing. Locke wasn’t alone in his pessimism and unfortunately the thirst for federal hand-outs proved to be a major policy initiative of the current administration.  Thankfully, Locke  and the others were and the provincial government is now off Equalization despite the best efforts of the current administration.  The Premiers who worked to bring the Hibernia project to the province got their wish instead.
• The forecast was for $4.0 billion in revenue based on oil prices at the time.  Change oil prices and the amount coming from Hibernia will be more like nine times that amount.
• By contrast, the equity stakes secured at great price by the current administration from Hebron, White Rose and Hibernia South will be only a tiny fraction of the royalties from that original project based on the royalty regime put in place in 1990 and revised in 2000. 
• Construction on the project began almost immediately.  Construction on Hebron, by contrast, is not expected to begin until four years after the partners signed the development deal.

- srbp -

Hibernia benefits overestimated: economics prof

“The oil industry success we enjoy today is not what many expected… many people could not believe in the vision of Newfoundland and Labrador as a successful oil producing province.”

Whoever wrote those words for Kathy Dunderdale to read at the re-announcement of the Hibernia South project could hardly know the truth of them.

Nor could the writer likely understand how close to home some of those negative nellies were.

As managing editor of the Telegram in 1992, Bill Callahan believed the project was best scrapped since it represented “large-scale exploitation of non-renewable petroleum resources without adequate or perhaps any return.”

Then there was Peter Fenwick. The former New Democratic Party leader lambasted Hibernia in 1992 as a “give away”:

The money we taxpayers are throwing away on Hibernia is equal to a hundred Sprung greenhouses.  In future, Brian Peckford, Clyde Wells and Rex Gibbons will be vilified by generations of Newfoundlanders for the enormous waste of taxpayers’ money.  Unfortunately we, and the rest of Canada will be stuck with paying for it with our tax dollars.

None, though, could match the pessimism, negativity and sheer crap about Hibernia coming from none other than Wade Locke. 

Yes, that’s right:  Wade Locke,  the same Memorial University economist who is the darling of the current provincial government administration and who was, it should be said, looked on rather favourably by their Tory forefathers in their day too.

As Locke told The Telegram’s Pat Doyle in September 1990, only a few days before Wells, Gibbons, John Crosbie and others signed the final agreements in St. John’s that started the Hibernia project rolling:

"While it may be true that the sun will shine one day, it does not appear that 'have-not' will be no more because of Hiber­nia."

Those words by Wade Locke, an assistant professor of economics at Memorial University, appear to sum up the realistic view now held by experienced observers on the potential benefits of the large offshore project.

But that wasn’t all. 

Locke was extremely pessimistic about the revenue likely to come from the project:

"That is, each dollar of offshore oil revenue going to the provincial trea­sury will result in an increase in the province's ability to spend by two to three cents," Mr. Locke said.

Provincial government estimates suggest the equalization payments would fall by somewhere in the range of 90 to 95 cents.

Mr. Locke said using his calcula­tions, if the project were to generate 13.8 billion In direct revenue for the treasury, for example, after adjust­ing for equalization losses and equali­zation offset grants, the province's net fiscal position would have changed between 176 million and $114 million over the life of the project or an average of $3 million to $4 million in net revenue a year over the 26-year project.

To put that in perspective, Mr. Locke noted the province expects to spend $3.3 billion In the current fiscal year.

“This means that the average net revenue from Hibernia is equivalent to about one tenth of one per cent of the 1990 projected government expen­diture,” said [Locke in] the paper [printed in the Newfoundland Quarterly.]

"Thus, one should not expect that the provincial government will, as a result of Hibernia, have an enhanced ability to improve our road system, education services, health services or any other government services that are of primary concern to the aver­age Newfoundlander."

Yes, when you read stuff like that you just have to chuckle at all the Kreskins who took turns peeing all over the Hibernia project. Heck even Dunderdale and her boss used to refer to it as a massive give-away.  Used to, that is, until they used the deal as the basis for their own negotiations over the extension project.  The old Hibernia deal actually delivers the largest bulk of the cash they claim will come from the extension.  Honesty would prevent Dunderdale and her crowd from doing anything but acknowledging the old deal for its value.

Meanwhile Locke now gets invited to speak in glowing terms about the great offshore oil industry at an event marking the 25th anniversary of the deal on which it is all based:  the 1985 Atlantic Accord.

And that original Hibernia deal they all loved to hate? 

Well, based on the same numbers used by the provincial government and quoted by CBC in the supper-hour news tonight, that 1990 deal will produce more money for the people of Newfoundland and Labrador than Hebron, the White Rose extension and Hibernia South combined.

And it exists today, unlike the Lower Churchill dams or mythical aluminum smelters drawing power from them.

The billions coming from Hibernia will continue for more than another decade to pay for road improvements, education services, health services and any other government services that are of primary concerns to ordinary Newfoundlanders and Labradorians. 

The money from Hibernia has helped wean Newfoundland and Labrador from its financial dependence on hand-outs from Ottawa. The dignity and self-respect that comes from that accomplishment alone was worth the gamble. The only people who seem to lament that fundamental change in the province and its people are those who never did  - deep in their hearts - look forward to the day when the hand-outs stopped. How laughable that some of those people get credit for a change they fought against.

The creation of a new industry and the transformation of a people.

That’s not too bad for a project whose benefits an expert told us were overestimated.

-srbp-

Pick a position, any position

Over at nottawa, Mark draws attention to the most recent provincial government position on the federal shares in Hibernia, namely that the provincial government would be willing to pay cash for them.

This, Mark notes, is in stark contrast to the government’s original position, which he cites in a letter dated in 2008.

And indeed it is.

Like Sands Through the Hour Glass…

But in 2005, the provincial government’s letter to Santa put it differently:

The paragraph preceding that specific question puts some other colour in it.  The provincial government recognizes that the federal government had recovered its initial investment.  The provincial government expected anything beyond that to accrue to the provincial government.

But that question refers to the whole silly business of being “kept whole”.  In effect, such a phrase commits the province to ensuring the federal government recovers not only its investment but what they anticipated getting back as well.  it’s a bit of a nebulous idea but there should be no doubt about it:  If the reserves have grown  - as expected - and the potential federal return on investment has grown – as expected – the the question actually lays claim to zilch.

And as a consequence there wouldn’t be any purchase of shares.  Indeed, there would be no claim to the shares in the first place.

… so shifts the Demand of the Day

Now the rather quaint convention of meaning what you say and saying what you mean has always been no never mind for the current provincial administration.  Take for example, the varying positions on Equalization. One day the provincial government wanted 100% inclusion of natural resources revenues.  The next day, it demanded 100% exclusion.  One November, it was great to province that was not getting any Equalization.  Two months later, not getting hundreds of millions in Equalization that year and the year after was a betrayal of historic proportions.

Or for that matter the political racket that wound up with the one-time transfer of federal cash to the provincial government.  The provincial government’s initial position would have produced that single amount in one year.  Ultimately they caved and said yes to way less than they originally demanded.

Whatever position the government took before or takes now actually doesn’t really mean very much of anything at all. 

So right now there’s talk of paying cash for the shares.

What comes out the other end of the process – if anything comes out at all – may wind up looking a lot different from whatever has been said or written until now.

-srbp-

CHHC pays off for provincial government

Even without owning it, the Government of Newfoundland and Labrador will likely earn more from the federal government’s 8.5% share in Hibernia than it will from its own 10% stake in Hibernia South.

That’s because the Canada Hibernia Holding Corporation (CHHC) pays royalties to the provincial government like any offshore interest holder and with Hibernia in payout, the royalty jumps this year from 5% to the current 30%.

CHHC’s stake covers an 8.5% interest in the remaining oil in Hibernia, including Hibernia South.  The total remaining oil could be as much as  1.2 billion barrels which would work out to the equivalent of about 100 million barrels for CHHC.

NALCOR Energy – the provincial government’s energy corporation  - owns a 10% interest in Hibernia South.  That works out to about 17 million barrels in the approximately 170 million barrels of the extension project in which NALCOR holds an interest.

Assuming an average price $50 per barrel, the NALCOR interest in Hibernia South would generate $850 million in gross revenue over the life of that project, less royalties that might be paid to the provincial government, as well as development and operating costs. The royalty on $850 million would be $255 million, assuming only 30% royalty.

But, using the same price,  the royalty paid by CHHC to the provincial government on the federal stake remaining in Hibernia – including Hibernia South  - would work out to roughly $1.53 billion.  That royalty comes with no deductions.

That’s not a bad return considering the provincial government took virtually no financial risk in Hibernia by acquiring an operating interest.

Between 2000  - the first year royalty payments were made - and 2008, CHHC paid the provincial government a total of $104.8 million according to figures released to Bond Papers by the federal finance department.

Table:  CHHC Hibernia Royalty

Year	Royalty Amount
2008	22,536,000
2007	15,576,000
2006	17,902,000
2005	20,582,000
2004	11,308,000
2003	6,254,000
2002	4,436,000
2001	2,205,000
2000	4,040,000
Total	$104,839,000

-srbp-

Hibernia clarification clarification

The provincial natural resources department issued a “clarification” today on some figures contained in its news release last week.

Seems they gave incorrect figures for production from the existing Hibernia field.

The original release quoted the Premier himself as saying that:

“The original Hibernia field has produced 670 million barrels to date and the provincial treasury has seen $3.9 billion from that production.”

The exact same phrase turned up in the Premier’s speaking notes for NOIA, by the way.

The “clarified” version is:

The correct figures are approximately 630 million barrels with revenue valued at $1.9 billion.

Both figures are supposed to represent cumulative oil production from first oil in 1997 up to the end of March 2009. The mistake is described as a “transcription error”.

According to the “clarification” – not a correction – this is the only error and “does not affect any other numbers in the news release or any other publications.”

Here’s the real number: up to the end of April, 2009, the Hibernia/Avalon field had produced 636,957, 170 barrels of oil. Hibernia produced a little over 605 million barrels p to the end of April 2009.

That figure was readily available - at the time the release was issued last week - from the Canada-Newfoundland and Labrador Offshore Petroleum Board.

Hmmmm.

Makes you wonder though if some of the other numbers might be off just a wee bit.

Like say this one from the same quoted attributed to the Premier:

“We expect a further $13 billion from the remaining main field production…”.

That was based on an assumed price of oil of US$80 a barrel, as the Premier indicated in subsequent interviews.

Okay.

The offshore board gives three estimates of the reserves at Hibernia: proven; prove and probable; and proven, probable and possible. Let’s call them P1, P2 and P3 for simplicity sake. We’ll also knock off the Hibernia South Extension oil since that is apparently included in the totals for Hibernia.

Here’s the way it works out. The figures are in millions of barrels:

	P1	P2	P3
	782	1244	1916
Less production to end Apr 09	636	636	636
Sub-total	46	608	1280
Less Hibernia South Extension*	46	220	220
Total remaining	0	388	1060
Low royalty (30%)		$ 9.312 billion	$25.44 billion
High royalty (42.5%)*	$1.56 billion	$13.192 billion	$36.04 billion

* Note - Approximately 50 million barrels of the extension come from the original Hibernia production license. That corresponds roughly to what remains in Hibernia based on CNLOPB figures and allowing that the provincial figures are a month older than the CNLOPB ones. Since the government news release indicated the 50 million was being produced at the 42.5% royalty, it’s pretty clearly working under the original Hibernia Tier 2 royalty regime.

Here’s where things get a wee bit interesting.

Once you do a little simple math, it’s pretty clear the provincial government news release deliberately chose the least volume of remaining oil when calculating the potential return from Hibernia now that pay-out is achieved. They put that together with the Tier 1 and Tier 2 super-royalty from the original Hibernia agreement (1990/2000) since that is what oil at US$80 a barrel would deliver.

That’s not bad for a project that wasn’t supposed to pay-out - ever - and that Danny Williams and others have trashed as one of the great give-aways of the past.

Even without going a step farther, those figures pretty much demolish the idea that Hibernia was a give-away. Not only will Hibernia deliver in spades from here on out but the royalty regime developed in 1990 and amended in 2000 is the basis for the Hibernia South agreement. There can’t be much higher an endorsement than to have the old deal used as the basis for the new one negotiated by the guy who, supposedly, is fighting relentlessly against any more give-aways.

Incidentally, using the same oil price assumption, the Hibernia South extension would deliver $8.8 billion in royalties (at the high end assumption of 50%). The oil company share would produce $1.7 billion, without accounting for any development, production or decommissioning costs.

Just scan across to those P3 figures, though, and try not to let your eyes pop out. The figure can’t be discounted. In fact, when natural resources minister Kathy Dunderdale vetoed the Hibernia South extension plan in January 2007, she cited that high-end reserve estimate in her letter to the offshore board:

That P3 figure would mean that what remains of the original Hibernia deal would yield more in royalty alone than the “White Rose extension, Hebron and Hibernia South” in royalty and “revenue”.

Now there are a few more curious or questionable statements from the speech and news release last week, besides that one about Hibernia production.

For example, in the Premier’s NOIA speech we get this pair of paragraphs that came back-to-back just as they are presented here:

I am also extremely pleased to confirm today that after nearly 12 years of production, the Hibernia project is now in "payout" meaning the province is now receiving a royalty of 30 per cent.

When you consider the agreements reached by our government in terms of oil and gas development I think you will agree that although we had some critics and skeptics along the way, we have delivered for the people and for the industry in this province.

As the release makes plain – if you go back and check the facts - Hibernia in payout delivers 42.5% from the original royalty deal not 30%.

The second paragraph, though, appears to take credit for both Hibernia hitting pay-out and for delivering the massive royalties. Both those are a direct result of a deal negotiated almost 20 years ago.

It all makes you wonder when might we expect some further “clarifications” – they should really be corrections to factual mistakes and misleading claims - from last week’s announcement?

-srbp-

Hibernia Southern Extension MOU Assessment, Part II: Equity and industrial benefits

[Part I  Royalty]

Equity

According to the backgrounder released on Tuesday, the provincial government’s oil company will acquire a 10% interest in only that portion of the extension to be developed through tie-backs. 

That has been described as covering 170 million barrels, however, as with Hebron that figure may become smaller in the final agreement.

The acquisition price is $30 million however the backgrounder provided no estimates the development costs, operating costs or other costs associated with the project.

According to some sources, part of the delay in reaching the memorandum of understanding came from re-unitizing the existing licenses, especially EL 1093.  There are seven interest-holders in that license with four of them having less than 10%.

As with Hebron, details of the acquisition agreement will not be made public.  As with Hebron, information crucial to a thorough assessment of the acquisition and the provincial government’s share will remain hidden from public scrutiny.

Industrial and local benefits

Aside from existing benefits arrangements under the Hibernia development plan and offshore regulatory board regulations, no new or enhanced local benefits are contained in the backgrounder.

The project will be developed using a combination of slant drilling from the existing Hibernia platform (50 million barrels) and sub-sea tie-backs to the platform.  This was not a part of the 2006 application. 

However, planned expansion of the Hibernia GBS appears to have been shelved. This significantly reduces the potential amount of local work available.  The project is smaller than what was suggested last June when the Premier indicated a Hibernia South deal would be in place by the end of 2008. 

"We fully expect Hibernia South to be concluded by the end of this calendar year," Williams told more than 700 people attending the annual offshore conference hosted by the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).

As it turned out, the MOU was signed in mid 2009 and final agreements are not expected until early 2010. That would be three years after the provincial government vetoed the development and two years after the oil companies originally planned to start production.

Local companies already have demonstrated expertise in supply and in fabrication of sub-sea components.  Thus, local companies should be able to secure fabrication and related work on the project.

This is particular interesting since two of the four reasons given for vetoing the development plan in 2007 related to local benefits:

• The province needs more information on what options exist for other modes of development to extract the oil from Hibernia South. This may have implications for overall benefits.
• The lack of a Benefits Plan Amendment. This is a departure from the normal process and the CNLOPB did not require it in the "interest of expediency."

Through the MOU, the provincial government also accepts the offshore board’s position in the voted application with respect to local benefits (affirmative action, research and development and education and training). 

This is significant since these aspects of local benefits were cited as an area of concern for the provincial government  with the board’s approval of the plan.  In a subsequent exchange of correspondence energy minister Kathy Dunderdale accused the offshore board of failing in its responsibilities for local benefits yet it appears the government has ultimately accepted what the companies initially proposed and board approved. 

-srbp-

Hibernia Southern Extension MOU Assessment, Part I: Royalty - some potential added cash plus a cap

While Danny William’s radio tirade/meltdown is rapidly eclipsing his own good news announcement nationally, there is interest in assessing the details of the Hibernia South Extension memorandum of understanding based on the official news release and news reports on the day of the announcement.

Caveats

As with Hebron, the final agreement may yield some details which were not readily apparent when the MOU was announced.   As well, and as with Hebron, key portions of the deal are likely to be hidden from public view.   With that said, we still have enough information to make some observations about the proposed development deal.  In this first post, we will look at the royalty regime.

General

Overall, this agreement represents a transformation from Williams Mod 1 to Williams Mod 2 in the government’s approach to offshore oil development.

Williams Mod 1 (pre-2o06) was essentially a variation pre-1984 provincial government thinking and emphasised:

• increasing local benefits especially through forced development of refining and downstream production;
• some additional revenue from federal transfers, and
• an undefined “equity” interest which is essentially analogous to the old petroleum corporation.

Williams Mod 2 (post- 2006) places the greatest emphasis on additional government revenue through the most obvious source:  enhanced royalties. This is especially clear in the Simms encounter where the Premier states:

The reason we’re caught up in the oil, it’s not the oil, it’s the black gold that’s out there, it’s not the petroleum, it’s not the oil and gas, it’s the revenue that it brings to us, so that we can deal with problems in the fishery, so that we can take care of the Abitibi workers, so that we can build new hospitals and new long terms care facilities, so that we can build new schools, so that we can lead the country in poverty reduction, and it goes on and on and on. Surely you – presumably – run a municipality. You must know the importance of revenue, and where that revenue comes from – if it comes from business, whatever form of business it is, or if it comes from residential real estate, it goes into your coffers now so you can do all the wonderful things that need to be done. [Emphasis added]

Government-induced infrastructure has been effectively abandoned as evident in both Hebron and Hibernia South and the equity portion has also been capped artificially at 10%.  In Hibernia South, the second GBS or other production facility has been discarded for the most economical production method (slant drilling from the original GBS and tie-backs to the original GBS).

This effectively adopts the philosophy that guided resource development after 1985 and is best seen in the 1990 Hibernia agreement and in the subsequent developments at White Rose and Terra Nova.

As much as Danny Williams may like to complain about those who offer alternative views to his own, this basic approach has been noted before – including in this corner – as an alternative to Williams Mod 1. 

The easiest, most efficient means of enhancing government revenue is through adjustments to the royalty regime.   Revenue is needed to meet the demands for program spending and infrastructure development today. Regular readers of Bond Papers will recognise the refrain.

Hibernia Southern Extension Royalty Regime

The base for the three-part royalty is the existing Hibernia royalty regime as concluded in 1990 and modified in 2000. 

This sets the rate after simple payout (achieved a few months early) at 30% Tier 1 royalty with a further 12.5% Tier 2 royalty triggered by profitability.

This is the royalty rate – 42.5% -  that produces the bulk of the cash.

The royalty regime for the southern extension is cut into three parts.  There is no explanation as to why the rate is structured this way. The backgrounder provided with the news release does not explain the structure clearly.

Part I:    For the 50 million barrels or so that will be drilled directly from the Hibernia gravity base structure, there is the 42.5%  that already exists in the Hibernia royalty regime established in 1990 and modified in 2000.

There is no price trigger for this since the original royalty regime did not tie provincial government revenues to oil prices directly.

Part II:  For the portion of the project that is under the original production License 1001 (PL 1001), the basis is the original Hibernia royalty regime (maximum 42.5%, not tied to price).

In addition there is a further 7.5% royalty when prices for West Texas Intermediate (WTI) are above US$50.  Above WTI at US$70 there is an additional 5%. 

There is a cap on the royalty however: 

Should supplementary royalty payout be achieved under the terms of the original Hibernia contract be achieved, the top rate will be 50 per cent.

It would appear that once the project has triggered the Tier 1 and Tier 2 royalties (42.5%),  only an additional 7.5% is available beyond that irrespective of price. 

Part III:   There is a similar 50% cap in the new areas, i.e. the ones covered by PL 1005 and Exploration License 1093 (EL 1093).  The cap is achieved by reducing the incremental royalty tied to price (WTI at US$50) from 7.5% to 2.5%.

Observations

Overall, this represents a complex arrangement that modifies the existing royalty regime slightly. The complexity may be due in part to the highly diversified interests in the three licenses, especially EL1093.

In many pricing scenarios, then, the maximum available royalty from what is described here as Part II of the regime  would appear to be the same as under the existing Hibernia regime, i.e. 42.5%.

On the face of it, the Part II and Part III royalty structures offer an identical outcome.  Additional information would be needed to explain how the structure works and why it is in place.

The provincial government revenue figure offered in the announcement  - $10 billion – is apparently derived almost entirely by applying the existing Hibernia Royalty Regime to an environment in which oil prices are considerably above the average price that existing during the initial phase of the project.

-srbp-

Money Update:  Premier Danny Williams told CBC’s David Cochrane today that the estimate of $10 billion of provincial revenue from Hibernia South is based on an estimated average oil price of $83 over the next decade.

There is something suspicious about the government calculation though since Williams claimed on Tuesday that five times as much oil left in Hibernia as in Hibernia South would net the province only slightly less cash than Hibernia proper even though both projects use essentially the same royalty regime:

We expect a further $13 billion from the remaining main field production and this extension adds an estimated $10 billion more in revenue for the province…

Offshore royalty audits “Behind, big time”: Dunderdale

In July 2006 when Danny Williams accused ExxonMobil of denying the provincial government access to the books for the Hibernia project there was a lot more to the story either than what he said or than just his fit of pique at the failure of talks to develop Hebron.

Williams put it in another context altogether at the time, claiming the company had reneged on a commitment to “audit process to validate statements by the company that the Hibernia project was not meeting the owners’ expectations.”

As it turns out, the reality – revealed almost three years later by the province’s auditor general in his annual report for 2007 (year ending 31 March 2008) -  is that the provincial government was and is behind in its own audits of offshore oils project reports:

… At October 2008 [sic], there were 87 annual royalty and eligible project cost submissions made by project
owners for which the Department has not started any audit work. No royalty or eligible project cost audits have been conducted on the Terra Nova or White Rose projects since production started in 2002 and 2005 respectively.

On top of that the department’s audit manual was approved in 2000 but hasn’t been updated in the intervening seven years.

The auditor general also revealed that the department had quietly dropped its 2006 demand for access to the Hibernia books claiming they could adequately assess the issues without the company’s documents.

Each of the 15 companies operating offshore are required to file monthly and yearly operating reports with the provincial government.  They must also file an audited financial report annually on project costs.  All these are used to calculate royalties paid to the provincial government’s royalties and benefits division of the natural resources department.

The majority of the outstanding audits, shown in the chart at left taken from the auditor general’s report,  are for the period after 2003.

In early 2006  - the year Williams made his accusations against ExxonMobil and the year before the one audited by Noseworthy – then natural resources minister Ed Byrne told a House of Assembly committee that his department was experiencing staff problems in the division of his department responsible for the royalty and cost audits. 

MR. E. BYRNE: Difficult not only to attract, difficult to maintain. A lot of this, too, is part and parcel of the energy policy review that is ongoing and the dedicated resources we put to that. Within the Department of Natural Resources, the energy division is most challenged, more than any other division within the department, on not only recruiting but maintaining.

We had senior petroleum auditors who left for double the salary. We recently had an ADM who took a job in Calgary. I do not know what his salary was or what he was offered. He was making a competitive salary here, but it was a significant offer. Those are issues that the deputy and government struggle with everyday. Anyway, that is part and parcel of the change in direction there.

Within the local oil patch the migration of senior, experienced public servants to the private sector caused a great deal of chatter.

The problem hasn’t gone away.  Last May, natural resources minister Kathy Dunderdale told the House of Assembly’s Resources Committee that there had been a number of vacancies in the audit division and that the department was hiring outside contractors to take up the slack. She said the audits were “Behind, big time.”

The department’s deputy minister  - Chris Kieley - told the committee:

For those three projects [Hibernia, Terra Nova and White Rose], and with the increased activity, every year we are doing audits but, because of the turnover in staff, because of the resources that were assigned to that particular piece in previous years, the audits were behind; so, this past year and the year before we have made a particular effort to get those audits up to date and we have used outside assistance through auditing firms to help us do some of those audits. So, we have a combination now of outside accounting firms helping us get the audits up to date and we have our own staff working on the audits as well. We are working on a number of different audits now with all our projects at this point.

Kieley also insisted in May that

“[w]e are within the timelines prescribed by legislation (inaudible) the Hibernia royalty contract, but we are behind and we are putting extra effort into this whole piece to get caught up. When I say behind, we have not lost any ability to audit these. What we are saying is that we would like to get them up to a closer time frame.”

Auditor General John Noseworthy noted in his report that the Hibernia audits completed had revealed $8.66 million owed to the provincial government.  In her testimony to the resource committee, natural resources minister Kathy Dunderdale insisted, however,  that “there has been nothing earth-shattering that we have come across to this point.”  The completed audits done in May 2008 are almost identical to the ones listed as finished by the auditor general in his report.

Noseworthy also noted that the department had committed to completing all outstanding audits by 2010. At the same time, though noted that even the 2008 schedule was off, largely due to staffing problems within the natural resources department.

In 2008, the work plan was amended to move 2400 hours of work scheduled for White Rose to 2009 as a result of audit work done for Hebron.  As of October 2008 – half way through the fiscal year - an external contract for an auditor had not be let for 2008.

The 2008 audit plan was based on 1400 hours for four staff positions supposed to be filled by the start of the fiscal year.  By October 2008, one position was still vacant.  Another was filled in July and only two of the original four planned were in place in April 2008. Associate deputy minister Pierre Tobin gave the resource committee a different version at the committee hearings in May.  Rather than disclose that two audit positions were vacant, he left the committee with the impression the division was “almost fully staffed”:

That would be, in the past year, a number of auditors, but those positions have since been filled for the most part. There would also have been a couple of development officers and a couple of economists. We are almost fully staffed, particularly in the royalty audit section. We are down one person out of upwards to a dozen, I guess; we are doing really well there. [Emphasis added]

-srbp-