Thinking about the Unthinkable #nlpoli

Only a decade ago, voters turfed Roger Grimes and the Liberals from office as punishment for – among other things – signing a deal to develop a nickel mine even though it was a really good deal.

[Not one teaspoon, they said, echoing a line Brian Tobin used.  Better to leave the ore in the ground than do a deal that involved any ore leaving the province unprocessed]

But leave the oil in the ground rather than pump it out?

Unthinkable. 

That’s curious because leaving the oil in the ground is a valid policy choice for any government, including one in Newfoundland and Labrador.

White Rose field may get GBS

According to the Telegram, the White Rose partners are looking at using a concrete gravity base structure or GBS.

The concrete well-head unit would support a drilling rig.  Oil from the wellhead would be pumped to the existing SeaRose floating production, storage and offloading vessel and from there to tankers to take it to market.

“We’re looking at a whole range of different concepts,” said Paul McCloskey, Husky’s East Coast vice-president

“One of the opportunities that we are considering is the installation of a very skinny GBS.

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Crude supplies sufficient to meet decade’s demand

Crude supplies available through OPEC will be sufficient to meet global demand through to the year 2020 according to international energy consultants Purvin & Gertz. 

“Robust supply increases from non-OPEC producers such as Russia, Kazakhstan, Canada, and Brazil will be mirrored by expected large production capacity increases from Angola, Nigeria, and Iraq,” Purvin & Gertz said. This will result in no appreciable change in OPEC's market share until after 2015. [from Penn Energy]

That growth in supply from Canada would be coming from Newfoundland and Labrador.

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Crude at US$60 in 2011: forecast

Now there’s a thought sure to frighten the bejeebers out of any ruling political party headed toward an election and a leadership racket, planning on spending voters into a stupor along the way and knowing the oil production on which it depends for revenue is also on the downward slope.

It’s only one projection mind you. 

Capital Economics forecast that crude prices will head downward in 2011 as the Untied States economy recovers.

The National Post reported at the end of October:

Julian Jessop, analyst with the London-based firm, predicts the price of a barrel of oil will slide to US$60 a barrel by the end of 2011 as the U.S. dollar recovers and global demand disappoints. This would be the same level as prices in the first half of 2007, before oil went into a bubble that touched highs of almost US$150 a barrel in the summer of 2008.

Interesting thought, that.

Very interesting indeed.

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Math problem: oil production, oil prices and oil royalties

“Back of the envelope calculations”,  a recent Telegram story assured us all, “put royalties for the first three months of the [current] fiscal year on pace with government’s $2.1-billion target.”

But, the Telegram headline says, that’s because “surging production” is offsetting “softer” prices.

Unfortunately, the Telegram didn’t see fit to show us the back of the envelope so no one can tell exactly how they came to that conclusion. It must be a provincial government envelope, though because the numbers don’t quite add up.

As forecast

As it looks,  revenue projections are likely to be on target with the forecast.

The provincial government’s oil royalty is a function of oil prices and production. The Telegram reported  - quite rightly - that the provincial government forecast oil royalties of $2.1 billion based on total production of 90 million barrels and and average price of oil at US$83 a barrel.  The provincial government also allowed the Canadian dollar would be close enough to the American dollar that there wouldn’t be any sizeable windfall from a cheap Canadian dollar.

The Telegram also reported that oil production is on track to come in around 101 million barrels.  The offshore regulatory board’s actual figures for the first four months of 2010 (April to August) show oil on track to hit 99 million barrels. Still, that’s 10% above the government’s spring forecast.

As for crude oil prices, they have not averaged US$83.  The Telegram puts the average price of Brent crude at US$80 a barrel the week the story appeared. This is where it gets interesting.

For the first four months of the current fiscal year, Brent crude has averaged US$77.71 a barrel. That’s about six percent below forecast.  If you take out the April average of $84.98 – because it is the only month averaging above $80 dollars this year – you get an average price about 10% below the government’s forecast average.

With production above and price below, the one pretty much cancels out the other.

No surge

Production isn’t actually surging, though.  In fact, production at about 100 million barrels is only slightly above last year’s production total of around 97 million barrels. As for price, there’s no surge there either.  The average currently showing in 2010  - including April - is only about a dollar above the 2009 fiscal year average.

In other words, everything is tracking to bring in the same average price and the same yearly production as 2009. The provincial government forecast an increase in royalties to $2.1 billion from $1.8 billion. 

All three fields should be in payout and according to the pre-2003 royalty deals, that means they’d be paying more to the provincial treasury.  Hibernia didn’t hit payout until June last year, so it appears the extra cash is solely the result of having the big field paying higher royalties for a whole year instead of just part of it.

That means that the slightly higher royalties are coming from old development deals, not from something happening to oil prices and production.

Still on track for another big cash deficit

And what does that mean for the provincial budget? if you relied only on the  Telegram story you might be fooled into believing that the provincial government might balance its books this year.  It might do so using accrual accounting, but there won’t likely be a balanced budget on a cash basis.

In fact, the current fiscal year looks a lot like the last one, including the fact everything is on track for another whopper of a cash shortfall.

For some unfathomable reason, the Telegram decided you didn’t need to know that the provincial government’s budget forecasts a cash deficit of nearly a billion dollars. Nor did they mention that last year the provincial government had a cash deficit of about $500 million. 

Instead, they left you with the Pollyanna-ish view that everything is looking great.

Maybe it is, but one thing is for sure:  it has nothing to do with “surging” oil production or “soft” oil prices.

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Brazil to expand oil production

From UPI:

RIO DE JANEIRO, June 22 (UPI) -- Brazil will spend $224 billion in five years on doubling its capacity for oil production and export despite cautious business optimism on the future global outlook for crude prices.

State-run Petrobras oil giant unveiled the spending plans as Chief Executive Officer Sergio Gabrielli set out the company's strategy to build capacity in the run-up to 2020, when Brazil will have doubled its production to 5.4 million barrels a day from 2.7 million barrels a day at present.

[more]

Anti-Rubinesque Update:  Peak oil, Schmeak Oil:

But crude oil itself has already peaked – at least five times since 1950, Prof. Boyce says – without beginning to approach the demise of oil anticipated by peak oil theory’s famous Bell curve. Indeed, crude oil reserves have doubled roughly every 15 years since 1850 and the world now has more proven reserves than it has ever had in the ensuing 150 years.

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That’s gotta hurt, too: oil prices edition

The provincial government’s 2010 budget – due to pass the House of Assembly by next Monday – is based, in part, on crude oil average about US$83 a barrel for the entire year.

Just to make sure everyone is keeping a sharp eye on the unsustainable Tory financial ball, the budget forecasts a cash deficit of about $1.0 billion. That would eat up just about all the surplus cash on hand.  As a result, the net debt, which was hidden from prying eyes by all the surplus cash would spring back into full view in all its $10 to $12 billion splendour.

And if the following year’s budget needed some propping up, the provincial government would be back in the markets looking for some bank will to see the public debt balloon even larger.

But oil is trading this past week down in the neighbourhood of US$70 an the dollar is still pretty close to par.  Production is slightly below last year’s so there doesn’t seem to be much hope extra production would generate extra cash.

Oil is now the major source of provincial government income by quite a margin.  It’s about twice the amount the government gets from federal transfers which  - when piled together is the next biggest source of income at about $1.2 billion.  Oil royalties, forecast at $2.1 billion is about two and a half what personal income tax, the next largest provincial government’s own revenue source, brings in.

There are a couple of things to take away from all this.

First of all, when Danny Williams talks about putting the province’s finances in order such that there is less dependence on Ottawa, he’s pretty much jerking everyone in the province around. 

Nothing – and let’s say that again for good measure – n-o-t-h-i-n-g, not a single, solitary, flipping thing Danny Williams and his cabinet have done in provincial government spending since 2003 has put the provincial government on a secure financial footing.  To the contrary, they have put the provincial government in an incredibly precarious financial position even compared to when they took office.

The facts on this speak eloquently for themselves in both the fragility of the economy and unsustainable level of public spending. When he announced in early March that balanced budgets were no longer a target for his administration he pretty much confirmed that none of his claims about sound fiscal management were close to being accurate.

Second of all, bear in mind if oil stays at current prices, the cash deficit is more likely than not going to be about $1.0 billion and we are yet again staring at the prospect of one of the largest if not the largest cash deficits in provincial history.

Put all the faith you want in people who forecast triple digit oil prices as the way of the future.   Oil is not going to be the saviour of this province if its government keeps spending the way it has been spending.

It’s that simple.

So as all things out there go sour for the current administration, as it faces the prospect of hundreds of millions of dollars in costs from the Abitibi expropriation fiasco, as investment interest in the province dries up, the parlous dependence of the provincial budget on oil prices just adds to the pressure.

Imagine what things will be like a year and a bit from now when voters troop to the polls.

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Offshore oil production remained down in February

Oil production offshore Newfoundland and Labrador continued to trend lower in February 2010, despite continued high oil prices.

Total production from the Hibernia, Terra Nova and White Rose fields hit 8,213,115 barrels according to figures produced by the Canada-Newfoundland and Labrador Offshore Regulatory Board.

That’s down from 9.5 million barrels in February 2009 and 10.1 million barrels in February 2008.

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Significant Digits – oil production

In 2009, the Canadian Association of Petroleum Producers forecast a steady decline in local oil production. 

The decline is forecast to end around 2017 as new production from Hebron comes on stream, but the increased production only lasts for a couple of years before the decline sets in again

The peak once Hebron comes on stream is forecast to be about the same level as the forecast shows for 2012.  That’s slightly above 80 million barrels.

 

But hang on a sec.

Production for the current year – 2010 – is forecast by government officials at 86 million barrels.

Yessirree, that’s right.  And production last year was 97 million barrels, again a figure CAPP had down for 2011.

In other words, the decline is about two years ahead of forecast. We also know that Hebron is behind schedule as well.  How much behind schedule isn’t clear but it could be as much as a year later than the optimistic projections when the deal was announced or when it was re-announced.

So that period in the low-production trough could well be longer than CAPP’s forecast shows and the rise back up after Hebron could be much slighter.

In other words, when finance minister Tom Marshall admits that oil production is on the down-slide, he’s acknowledging that he already knows exactly what the implications are from that CAPP graph.

Let’s put it this way:  this year, if oil averages around $83 a barrel as the provincial government believes, the total value of oil production offshore will be about $7.1 billion ($83 X 86 million)

In order for the provincial treasury to bring in the same royalty as it forecasts for this year - $2.1 billion – with production at 40 million barrels (i.e. the bottom of the trough) – oil would have to average $178 dollars per barrel in that year.

No sweat, says you, oil got to $147 a couple of years ago.

Yes it did, sez your humble e-scribbler.  And look what happened right afterward.  Oil didn’t average that price:  it hit the number and then fell off quickly.

If that isn’t enough for you, consider that oil prices averaging $178 a barrel would be more than double the average price ($83) the provincial government forecast for oil this year.

So in order for the provincial government to do exactly what they are doing in 2010 in that mythical year we will call 2014 (remember everything is two years ahead of schedule) oil would have to be almost $180 a barrel all year.

For those keeping track, and just to show you how soon this is, just bear in mind that 2014 is one year beyond the period of continuing deficits forecast in the spring provincial government budget.

And just remember, as well, that this year the budget is forecast to be short by almost a billion dollars of cash.

Not only is there not enough of a cash reserve to cover that sort of a shortfall in 2014, there wouldn’t be enough cash in any secret government pockets to handle a deficit half that big.

And that’s without thinking of what tremendous pressures there’d be for higher wages and higher costs and higher priced everything else in a world where the price of oil doubled in a mere four years. 

Yes, gentle reader, that little scenario assumed spending stayed where it is predicted to be in 2010.  But as we all know, if oil prices were to shoot up that way, spending would have to go up just as radically.  The only problem is that spending would shoot up but – as we know – the major source of provincial government revenue would only come in at the level for 2010.

When oil was forecast to be half the price.

Increase your spending dramatically while holding your revenue about the same.

That’s the definition of “unsustainable”.

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Oil production remains lower than forecast

Provincial government oil production forecast remains way off track.

Budget 2009 predicted oil production would total 98 million barrels in 2009.  In December, the financial update raised the forecast to 101 million barrels.

But as of the end of November the offshore had produced only 59 million barrels and with only four months left in the fiscal year, it would take a miracle to hit the spring projection let alone the December number forecast by the provincial finance department.

Offshore oil production in October 2009 was 32% below the same month in 2008 and November production was down by 28.4%, according to actual production figures from the offshore regulatory board.  BP presented earlier figures in November.

To give a sense of of how far down current oil production is compared to previous years, take a look at this chart that compares April to November for each of the past three fiscal years.  The grey bars are 2007.  The back is 2008 and the red is 2009.

In order to meet the provincial government’s Budget 2009 target, oil production in the last four months of the current fiscal year would have to run higher than April 2009 in each month.

To hit the December projection, production would have to run at levels of about 10.5 million barrels a month, and that’s a figure the offshore hasn’t hit this fiscal year at all. 

Overall, if production is running below forecasts, it will be that much harder for the provincial government to hit its revenue forecasts. After all, even the finance minister admitted in a year end interview that virtually every major sector of the provincial economy – he didn’t really mention oil - was in decline.

“The recession, particularly the way it hit the U.S., impacted their ability to buy products from us and that hurt the fishing industry, that hurt the pulp and paper industry in a major way, and it hurt the mining industry,” the MHA for Humber East told The Western Star.

He said the major losses of revenue from those sectors, combined with losses of personal income tax and sales tax, impacts government’s ability to spend in other areas such as education and health care.

Of course, regular BP readers have a better sense of what’s going on with oil production than the anything the finance minister has said.

And just think about it for a second:  if the finance department’s offshore production forecasts are so far out of whack with actual production, what else in the December forecast was off in a bad way as well?

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September oil royalties 60% below budget forecast average

High prices and better royalty rates on Hibernia didn’t offset oil production declines in September for the Newfoundland and Labrador offshore.

According to figures released to Bond Papers by Natural Resources Canada, Newfoundland and Labrador’s oil royalties for September were $40, 290, 252.18. 

That’s only 40% of the $105 million monthly average needed to meet projections in the spring budget. The provincial government  forecast oil royalties of $1.262 billion for Fiscal 2009, or about $105 million per month.

As reported in November,  figures obtained from Natural Resources Canada showed provincial oil royalties were down almost 60% [on average] so far in 2009 compared to 2008 and were running [on average] 15% below provincial budget forecasts released in March of 2009. [In September alone, revenues dropped to 40% of the average needed to meet 2009 budget projections]

Oil production is down about 29% from last year. September oil production from Hibernia, Terra Nova and White Rose totalled 6,164, 839 barrels of light crude according to the offshore regulatory board.  October production was slightly more than 6.9 million barrels, about the same as May 2009 and continuing the trend thus far for the new year.

If those trends continue for the rest of the fiscal year, oil royalties for 2009 will come in at less than $1.0 billion. Without cuts to spending or increased revenue from other sources, the provincial government will have a hard time not to exceed its record forecast deficit of $1.3 billion on a cash basis.

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[Words and a sentence added for clarity]

Oil production down by almost 29% in first half of FY 2009

Oil production in Fiscal Year 2009 (Apr 09 – Mar 10) is on track to fall below even the low-ball estimates used in the spring provincial budget. 

The provincial government estimated oil production in 2009 would be 98 million barrels.  That’s 21% below 2008, based on the production for Calendar Year 2008 (Jan to Dec) of 125.3 million barrels.*

Actual production in the first half of the fiscal year was 44.5 million barrels (mbbls), according to figures available from the Canada-Newfoundland and Labrador Offshore Petroleum Board.  Average monthly production has been 7.42 mbbls.

By comparison, in the first six months of FY 2008, production was 62.5 mbbls with a monthly average of 10.41 mbbls.

Oil production from the three fields offshore was down 41% in August 2009 compared to August 2008.  There was also 39% less oil pumped in May 2009 and 34% less in September 2009 on a year over year comparison.

Total oil production in FY 2008 was 123.4 mbbls.  That means that production in the second half of 2008 was actually below production in the first half of the year.

While it isn’t inconceivable that production will ramp up between September and March, it seems unlikely to hit the 2008 average production level of 10.41 mbbls per month. 

That’s about what would be needed to generate any significant oil revenues above the budget projections, and using current prices.

	FY 2008	FY 2009	% +/-
Apr	10, 616, 444	9, 116, 213	-14
May	11, 403, 549	6, 915, 304	-39
Jun	8, 978, 865	7, 374, 739	-18
Jul	11, 288, 144	8, 629, 918	-24
Aug	11, 085, 392	6, 537, 149	-41
Sep	9, 400, 105	6, 164, 639	-34
Cumul 6 mo	62.5 mbbls	44.5 mbbls	-28.8
Avg per mo	10.41 mbbls	7.42 mbbls	-28.7

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*  21% of the actual fiscal year production would be 97 million barrels.

Blooms and roses

News reports about a climb in the number of jobs across the country buried a key aspect of the story, as in this example from the Globe.

But there was a catch. Much of the private sector has yet to start hiring again. The job growth was due to 36,000 positions added in the public sector, while the private sector shed 17,100 jobs, in sectors such as transportation, professional services and accommodation. Private sector employment has dropped 3.9 per cent over the past year.

That was paragraph four, long after the stuff about huge gains and ones bigger than expected.

Now this is a rather interesting revelation in light of economic developments in Newfoundland and Labrador.

You see the boom on the northeast Avalon isn’t being fuelled by the offshore.  It’s coming entirely from massive increases in public sector hiring, public sector wage increases and a huge jump in public sector spending.

The most recent round of ‘stimulus’ spending for capital works is just more cash in on top of the gigantic increases in public spending over the past four years. That would be the “unsustainable” ones for those who missed the drama of the past few weeks.

Incidentally, the guy who revelled in boosting spending beyond the levels that the economy could support is back in charge of the cash box.  He proudly noted for listeners of one local call-in show that the province currently outspends Alberta on a per person basis just as it has done for most of the past decade and a half.

Yet for all that, the province just shed 4200 full-time jobs between August and September 2009 and there are 3100 fewer full-times jobs this September compared to last.

All this should lead people to be a bit cautious about predicting the end of the recession and the quick return to happier times. 

Here in this province, the current provincial economy is sustained by huge levels of public sector spending.  But that just isn’t going to work given the anticipated drop in oil production over the next four years.  Even if the global economy rebounds, crude oil prices aren’t likely to hit levels double and triple what they are today:  that’s the sort of prices the provincial government would need to keep up its current spending.

No one should be surprised, therefore, that the premier and his new health minister – the guy who used to be finance minister – just headed out to a by-election and pulled a fast one on the locals.

Come help us figure out cuts to the building cost, they said, so you can keep lab and x-ray services.  What they didn’t point out is that the savings needed are not the $200,000 in annual operating costs but the millions in construction costs.

In Lewisporte, for example, estimated costs for the new combination seniors home and acute care clinic skyrocketed from $22 million to $42 million before they even got to thinking about putting the first shovel in the ground.  In order to contain costs, government scrapped the acute care bit for a saving of $10 million.

But do the math. 

In order to restore the acute care centre and its anticipated cost of $10 million, the locals in Lewisporte will have to cut out one third of the beds – at least – in the new chronic care centre in order to get laboratory and x-ray service back.

So where are those old people supposed to go?

That’s a very good question.

Too bad the current administration doesn’t have an answer even though the problem and a viable solution have been available  - but ignored - for over a decade.

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Lack of royalty regime hampers further oil development

Not surprisingly, some people attending the NOIA conference in St. John’s are wondering what is next on the horizon.

As CBC reports, there is much talk of developing smaller fields in the Jeanne d’Arc basin.

There is also the recent announcement by StatoilHydro of a significant oil find at its Mizzen property, farther offshore than the three existing projects and Hibernia South and Hebron both under development.

Regardless of its size, Mizzen poses a number of challenges, not the least of which is the cost and technical issues of developing a field – even one of upwards of three billion barrels of oil – in deep water.

There are at least two others.

One is the impact of the United Nations Convention on the Law of the Sea (UNCLOS). Mizzen is well outside the 200 mile exclusive economic zone but may not lie outside the definition of the continental shelf.   If this is the case, the coastal state – namely Canada – would be required to set aside a portion of the revenue (maximum seven percent) from any development for distribution to the other states which are party to the convention.

Article 82

…

2. The payments and contributions shall be made annually with respect to all production at a site after the first five years of production at that site. For the sixth year, the rate of payment or contribution shall be 1 per cent of the value or volume of production at the site. The rate shall increase by 1 per cent for each subsequent year until the twelfth year and shall remain at 7 per cent thereafter. Production does not include resources used in connection with exploitation.

That’s potentially a significant cost to both Newfoundland and Labrador and to the companies.

That links to the other problem, namely the absence of an oil or gas royalty regime in the province.  Hibernia, Terra Nova, White Rose and Hebron all have royalty regimes.

The 2007 energy plan wiped out the existing generic oil regime. While the plan promised to replace it and issue a new gas regime, neither has emerged in the intervening years. There is no sign of either coming in the near future.

Even the development of smaller fields on the Jeanne d’Arc basin not associated with the existing projects is affected by the lack of a royalty regime.  The Hibernia South agreement is proposed using the Hibernia royalty regime developed in 1990 and amended in 2000, with some minor amendments.  Other projects would not have that as a basis, nor would it have the Terra Nova, the generic regime used at White Rose or the amended generic regime used for Hebron.

As Danny Williams said in 2005, oil companies don’t like risk.  Really though it isn’t that they dislike risk as much as they prefer predictability.  Even a volatile political climate is manageable, but when it comes to money, the companies like to have a good picture of what their costs will look like over time. That’s where an established royalty regime comes in handy.

In the meantime, some exploration will continue.  Seismic is pretty straightforward.  But when it comes to drilling holes and maybe looking at production, the lack of a predictable financial regime tends to make oil companies skittish.

The situation today is much the same as it was three or four years ago.  There are more exploration and development prospects for Big Oil than there is available capital.  They will put their money where they can figure out the financials.  Anything they can’t calculate  at all will go to the bottom of the pile in favour something somewhere else, even in a part of the world where the politicians in charge change with the sound of gunfire.

Now that Hebron and Hibernia South are pretty much done, the provincial government should turn its attention to restoring stability in the offshore financial regimes.

Above all else, that is what will determine the location of the next project or if there is a project at all.

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Global oil round-up

Some randomly selected articles from around the world on the current state of the oil industry.

1.  Omani oil revenues in the first four months of 2009 are down about 50% from the same time last year, according to Reuters.

2.  Expect a downward oil price correction shortly, according analysts quoted in the Edmonton Journal.   They put the drop to the low 60s or high 50s a barrel.  [Hint;  they’re conservative;  think lower still]  Among the factors cited:  weak demand, new production coming on stream and tons of oil currently in storage onshore and offshore that doesn’t have a market yet.

3.  Of course,the peak oil cultists are still predicting the opposite so they see any lowering as just a temporary calm before the Apocalypse hits.

4.  Scan to the bottom of this article on a recent meeting of  PetroCaribe and you’ll see reference to Cuban oil potential:

In the case of Cuba, Venezuela's financial and energy support is critical to supporting the Castro regime. Energy dependence has long been Cuba's Achilles' heel.

Havana used to depend on the east bloc for cut-rate oil, and plunged into economic chaos and blackouts when it was cut off after 1989. Now it depends on crude from ally Venezuela.

Cuba is negotiating oil exploration and production deals with Russia, China and Angola, with Moscow shaping up as the partner that could make the communist island energy self-sufficient, if its untapped offshore reserves pan out.

If it can achieve energy independence, Cuba may in the blink of an eye turn from a cash-strapped developing nation into a flush oil exporter, possibly projecting its current regime years into the future.

Cuban authorities in October announced that the Caribbean nation's crude reserves were more than double what had been thought, and now were estimated to be about 20 billion barrels.

5. OPEC oil production rose slightly in May, up again from a slight rise in April. Compliance with the OPEC production quota dropped again in May with Venezuela, Iran and Angola exceeding their quotas.  Go back to the article on PetroCaribe and you’ll see Venezuela is in the middle of a little local power play involving oil.  Venezuela runs an oil rent-to-own scheme in which countries in the region can buy Venezuelan crude on credit. 

6.  Still, OPEC lowered its oil demand forecast for 2009, which only makes sense in the current real market.

7.  While there may be some dispute as to whether Cuban oil potential is 20 billion barrels or five billion barrels, there’s no doubt interest is growing in developing the Caribbean nation’s offshore resources.

Either way, Cuba’s oil is attracting the attention of oil companies from around the globe. At the moment, Spain’s Repsol, Brazil’s Petrobras, and Norway’s StatoilHydro are overseeing exploratory drilling in the Gulf of Mexico. India, Malaysia, Vietnam, and Venezuela also have signed deals with Cuba.

Maybe Cuban oil potential is behind signs of a thaw in American-Cuban relations.

8.  Closer to home, there’s the NOIA oil and gas conference next week and with it, the annual speculation that Premier Danny Williams might say something earth-shattering despite the fact that making an announcement there would  involve sharing the spotlight with NOIA.

He hasn’t done anything like it before but people still like to stoke the hype.  Last year CBC got suckered into the whole thing in a big way;  this year it’s the Telly’s turn on a smaller scale and focusing on Hibernia South.

Now if the Hebron thing is anything to go by, what comes out the end could be a whole lot less than the hype suggested and some of the details have some really disturbing implications.  Of course, hype is more fun than details.

9.  Speaking of the NOIA conference, the theme this year focuses on the potential for the Arctic.

There’s the global perspective:

SESSION 2: TECHNOLOGIES FOR ARCTIC ENVIRONMENTS 2:30 p.m.

Russia’s Shtokman Project: an Update
Sergey Smityushenko, First Deputy Governor of Murmansk Oblast, Russia

Exploration and Production Options for the Alaskan Offshore
Mike Paulin, President, IMV Projects Atlantic

Pushing the Envelopment: R&D Advances for Arctic Oil and Gas Development
Jim Bruce, Deputy Director Ice Engineering, C-CORE

Canadian Frontiers Operating in Harsh Environments
Peter Haverson, General Manager, Global Drilling, International and Offshore, Petro-Canada

And the local one:

SESSION 4: FARTHER, DEEPER, COLDER 2:30 p.m.

Chevron's Growth Strategy for Atlantic Canada
Mark MacLeod, Atlantic Canada Manager, Chevron Canada Limited

Greenland - A Steppingstone to Arctic Exploration
Gregors Dam, Chief Geologist, Dong Energy

Playing to our Strengths
Mark Shrimpton, Principal and Practice Director, Socio-Economic Services, Jacques Whitford Stantec

Defining the Outer Limits of Canada's Continental Shelf in the Atlantic and Arctic Oceans Under the Law of the Sea
Jacob Verhoef, Director, UNCLOS Program, Natural Resources Canada

That last session is one to watch since the issue of  oil development at and beyond the edge of the continental shelf has implications for any developments in the Orphan Basin offshore Newfoundland.

And for those who are missing their fix of the government’s favourite economist, don’t worry.  NOIA is doing it’s bit to keep on good terms with government. 

Not only is there a reception at The Rooms, but Wade Locke is the lead speaker in the last session.  He’ll be talking up “Offshore Oil & Gas, the Economic Crisis & the Local Economy”.

If he sticks to his more recent lines, this should be fun.  Prediction:  He won’t be hyping non-existent aluminum smelter projects just as the demand for aluminum collapsed.   He might talk about the current economic situation but he might have to be more cautious about undermining the provincial government’s “we live in a bubble, all is well” talking point since the last time Locke’s comments were reported accurately, he got upset.

Right after Wade will be the provincial energy corporation’s Jim Keating who will, in all likelihood, be talking about the Lower Churchill.

Of course, that’s pretty much all there has been about the project:

• Project sanction was supposed to take place in 2009.  Then that got slid back by a mere six months. Now we don’t hear much talk of LC start dates at all.
• The land claims agreement with the Innu Nation – crucial to any development – seems to be deader than a doornail despite the initial hype about it.
• We do hear talk of slinging power lines through a UNESCO World Heritage site, something once described as the “most serious threat” to the park.
• There have also been contradictory statements about the future of the Holyrood generating plant.

And that’s just some of the stuff that hasn’t really been covered in any great detail in local media on the most talked about paper project in history.

Even if the Premier doesn’t lead off with anything Earth-shattering, there’s a prospect Jim and Wade can finish the NOIA conference with something really newsworthy.

 

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NL crude production forecast: 2009-2025

From the Canadian Association of Petroleum Producers, projected total annual oil production offshore Newfoundland and Labrador.  The CAPP report provides estimates of daily production which have been extended for this chart by multiplying by 365.


The downward production trend is unmistakeable.  The increase in 2017 represents the increase from Hebron and Hibernia South.  The two year delay in signing the development deal postponed the extra production which would have replaced dwindling production from other fields.

To give a sense of the implication of this chart, total royalty revenue in 2016 would be US$400 million.  If we assume a 20% premium for an 80 cent Canadian dollar, that works out to Cdn$480.  Compare that to the estimated $1.265 billion in Budget 2009.

Any added revenue that may come from the Hebron royalty regime would not arrive until sometime after 2020.  Even then, added revenue from the so-called super royalty only comes in any month when the average price for West Texas Intermediate crude is above US$50 per barrel.

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