Williams concedes on royalties (2007) #nlpoli

As Bond Papers noted on Thursday, part of the Hebron deal will involve a change to the provincial royalty regime local media are characterising as a concession.

The Telegram reported on Friday morning that the province will indeed lower the initial royalty to a flat 1% on gross from an escalating regime that maxed at 7.5% until the project recovered its initial development costs.

After that, royalties jumped to a combined 305 in two separate tiers. After simple payout, provincial royalties were based on net profits which provided the companies with a rate of return allowance.

Under the royalty regime for Hebron, the province will collect 1% for as long as it takes the project to recover start-up costs.

Oil and Gas Update: 2013 edition #nlpoli

First, the oil.

Regular readers will recall the Article 82 issue that will affect how much money the provincial government collects from oil and gas development outside the 200 mile exclusive economic zone.  Article 82 of the Law of the Sea Convention requires the coastal state to put up to seven percent of royalties from offshore oil and gas into a fund that will go to other countries.

CBC reported on Monday that neither the federal nor provincial governments have figure out how they’ll deal with it.  The federal government may have legal jurisdiction but the 1985 Atlantic Accord gives the provincial government the same ability to set revenues from offshore resources as if they were on land.

Nalcor Royalties: yet more information

•   Part 1:  Resource give-away
•   Part 2:  Nalcor Royalties – more information

Nalcor estimates the company will pay anticipated royalties to the provincial government totalling  $2.06 Billion dollars.

That’s from the second post in what has become a miniseries.

Nalcor followed up with some further information on how much oil they estimate is involved and how much they estimate the gross revenues will be.

Here’s the verbatim paragraph from Nalcor’s e-mail:

Nalcor Energy's total anticipated royalty payments of at $2.06 Billion dollars is included in a total projected gross revenue of $7.58 Billion.  These revenues are expressed in nominal terms meaning they are the sum of un- discounted cash flows.  The calculation uses the "PIRA Brent Reference" pricing issued November 2010.  Each project has a different oil price project owing to its differences in crude quality.  As an approximation, $92/bbl [$92 per barrel] in 2010 [dollars] can be used escalated thereafter. Total Nalcor Energy reserve volumes used for the calculation was 52.8 million barrels (proven and probable).

Nalcor may not have to pay any royalties from Hebron even though Nalcor’s projection assumes it will.

Under the Hebron financial agreement, the provincial government can exempt Nalcor from paying any royalties at all on its 4.9% interest.

The escalation is two percent per year.

- srbp -

Nalcor Royalties – more information

Nalcor, the provincial government’s energy corporation, paid $142,332 in royalties on North Amethyst in 2010.  The company has paid  $317,399 in 2011 on the same project up to the end of June.

That’s information provided to SRBP by Nalcor Energy in an e-mail.  The royalty figures apply only to the White Rose expansion. There’s more information on Nalcor and royalties in a post from last week.

According to Nalcor vice president Jim Keating, “Nalcor forecasts that total royalties paid to the province will exceed $2.06 billion dollars over the full field life of the Hebron, White Rose Expansion and Hibernia Southern Extension Projects.”

Nalcor is liable for provincial royalties on two of the three projects and may be liable for royalties from Hebron.  According to Keating:

The Hebron contract does provide the Province with the ability to apply a 0% royalty rate to its Crown Corporation should the Province choose to do so.  These provisions were included to ensure the current and any future Governments were not limited in their policy decisions.  While the Province may in the future choose otherwise, it has decided to hold Nalcor Energy in the same shoes as other interest holders and is therefore subject to royalty payments under the same terms as the other owners. 

Nalcor holds a 5% interest in the White Rose expansion, a 4.9% interest in Hebron and a 10% interest in the Hibernia southern extensions.

Keating did not provide any details on how the company arrived at the projected royalty total.  SRBP asked for more information  - total quantity of oil,  oil price assumptions etc - after the e-mail arrived on Friday but did not receive a reply in time for this post.  When the reply arrives, your humble e-scribbler will pass it on.

- srbp -