Hebron equity and a possible conflict of interest

Premier Danny Williams provided more information in the House of Assembly on Wednesday about negotiations between the Government of Newfoundland and Labrador and the companies that proposed development of the Hebron-Ben nevis field offshore Newfoundland.

Following are extracts from the Premier's comments, followed by commentary.

1. On the equity position:

The reason we went from 8.5 per cent to below 5 per cent was because 5 per cent was a critical turning point in the joint venture agreement. The partners could not unanimously deliver more than 5 per cent to the Province of Newfoundland. Under that circumstance, there would be absolutely no agreement whatsoever. Four point nine percent is critical because when you get to 5 per cent there is an absolute veto right on all decisions.

This Province, in order to achieve 4.9 per cent, which could probably give us $1.5 billion additional return over time, was prepared to concede a veto right. We are not interested in a veto right on the project. That is the reason.

Comment: Two new significant pieces of information here.

First, we learn for the first time that an equity position above 5% would have given the provincial government a veto over management decisions. From other public comments by the Premier and others it appears that the companies either could not would not alter the joint operating agreement, hence the government's decision to accept a piece of the operation beyond royalties and other revenues at 4.9%.

The Premier's remark at the end that the province didn't want a veto is moot since the province could never have obtained one under the circumstances without likely forcing a complete renegotiation of the joint operating agreement signed in April 2005 among the corporate partners.

Second, we learn for the first time that the equity position was estimated to yield $1.5 billion in revenue that was over and above the $8 to $10 billion going to the province in royalties.

2. A. Was there a January 26 agreement or a position taken by the corporate proponents?

It was a January 26 position. That is exactly what it was. It was a position that had been negotiated down from their position over the course of two months. That is what was done between Mr. Martin and Mr. Bates, with intervention by us at certain points in time. What they did on last Thursday night, when we finally got down to the two final issues - which was equity and super royalty. When we had agreement on those issues, they reverted to the January 26 position, which included investment tax credits, which would have cost the Province about a half billion dollars. So, you had four companies that, collectively in revenues last year, made $590 billion and were looking for our Province to give them another half billion dollars. That simply was not on.

Comment: There are two new pieces of information here as well.

A. Recall that yesterday the Premier referred at one point to a January 26 agreement. The Premier categorically states today that in fact there was no January 26 agreement. He notes that there were negotiations which latterly dealt with the equity position and so-called super-royalties.

On Tuesday, the Premier said, describing the companies position: "Oh, yes, but we want all the terms that are in the January 26 agreement, with the exception of these two." Even if we grant that there was no formal agreement on January 26, it appears likely that ultimately the companies did not accept the provincial government's position on equity and super-royalties.

The Premier has said there was an agreement on equity and super-royalties; evidently there wasn't, otherwise the companies would not have reverted to their position on January 26 less two items, namely equity and super-royalties.

Part of the difficulty in assessing the Premier's comments may come from the different definitions he seems to apply to agreement depending on when he refers to his position and when he refers to the position taken by the companies. The negotiations do not seem to have followed a pattern in which items were settled and formally noted as settled. Thus, the parties - particularly the provincial team - could make a fundamental error in believing that some issues were settled when in fact they had not been.

When the Premier states there was an agreement up to this past weekend and that January 26 was a position, he is stating his interpretation of events. The companies may well have felt that from their standpoint, the January 26 position represented the basis for agreement given discussions up to that point.

We do not know when the Premier formally presented the demand for an equity position, however it appears likely that negotiations did not begin on this point until after January 26. Note that the premier did not publicly indicate that equity was a condition of an agreement until after January 26. Note as well that the Premier indicates the January 26 "position" was the result of two months of negotiations from a previous position put forward, presumably by the companies. One can easily see how such a process could lead to this document - if it is a document - being called an agreement, especially if the provincial team did not reject it formally or proceed to amend any of the contents.

By the same measure, the companies could conduct discussions in good faith, as it appears both parties did, have some legitimate misunderstandings and see the whole deal collapse at the last minute to everyone's evident consternation.

B. Was there an inherent conflict of interest in the provincial negotiating position?

The Premier refers to negotiations conducted by two representatives, namely Mr. Martin on behalf of the provincial government and Mr. Bates on behalf of the Hebron consortium.

Mr. Martin is Ed Martin, a former oil industry executive and currently chief executive officer of Newfoundland and Labrador Hydro.

These negotiations had two elements: one focused on the demand for an equity or partial ownership position in the operating consortium. The second was on royalties and other revenues to be paid to the province as economic rent for oil production as well as local industrial benefits as defined in the Atlantic Accord (1985).

To date, the Premier has not indicated how the shares in the operating company would have been managed. They could be held by an corporation like the Canada Hibernia Holding Corporation which reports to the federal energy minister. His officials would represent the federal government in making any decisions related to the federal government's shares in Hibernia, for example.

More likely, the shares would have been held by Newfoundland and Labrador Hydro as the province's new energy corporation or in a holding company managed by the revamped Hydro corporation. This would be consistent with the Premier's comment to the National Post:

With Newfoundland's business community anxiously holding out hope that negotiations will be revived on the Hebron Ben Nevis offshore oil project, Premier Danny Williams yesterday made it clear he is prepared to make the province a full-fledged partner in the multi-billion-dollar venture.

"We are prepared to have a full stake and, if necessary, at some point we will get involved in frontier exploration, whatever the opportunities are," Mr. Williams said in an interview.

Mr. Williams said his government is prepared to participate in all aspects of developing his province's offshore oil and gas resources through the provincial hydro corporation. He said he would like to model Newfoundland and Labrador Hydro after Quebec Hydro and Norsk Hydro, Norway's state-controlled energy company. [Emphasis added]

There is the strong possibility that by combining these two very different sets of negotiations in one that the province placed itself in a position whereby acquisition of shares in the operating venture could be inappropriately related to the province's royalties and other similar revenues. This would be similar to the Hibernia negotiations in which the province essentially traded off the gravity-based structure costs against future royalties.

Such a situation is implied in the Premier's comments on Tuesday that suggest the request for $500 million in tax concessions reduced the overall benefit of the equity position, even though the two issues should actually be considered separately. The equity stake had an intrinsic public policy value separate from the other "provincial benefits". As such the cost of the tax concessions ought to have been weighed against the $10 billion in royalties, not the $1.5 billion returned by the shares, or any combination of the two.

Of greater concern, though is the potential that in the second share management scenario, Mr. Martin was effectively placed in a conflict of interest during the negotiations themselves. Had the negotiations been successful in the second share management scenario, Mr. Martin would have been, for all intents and purposes, a co-owner of the Hebron development. As such, he would have naturally been concerned to lower the start-up costs of the project in an effort to maximize corporate profits. These profits would then be turned to whatever purpose the Crown-owned agency determined, including development of the Lower Churchill.

There is no question that in a typical situation, Mr. Martin as an operator, would naturally look positively on a request to lower start-up costs such as requesting forgiveness of certain taxes or the seeking of certain tax credits. No matter what a company's overall financial position, a project such as Hebron would be expected to operate as efficiently as possible, with the lowest costs and hence the maximum profits.

At the same time, though, Mr. Martin was operating as the province's chief negotiator on behalf of the public treasury. In a manner of speaking he was functioning as the tax collector. As such he would seek to maximize the revenue flowing to the public treasury; naturally this is separate from the Hydro corporate treasury. Thus, his negotiating brief ought to have given him clear direction to minimize concessions, except in so far as those concessions would bring a greater return in such things as local jobs. His public treasury role ought to have carried with it considerations separate from those of his brief as a co-owner of the development along with the major oil companies.

Under the second share management scenario, Mr. Martin appears to have been in a conflict of interest. He was on the one hand seeking to maximize the treasury returns while at the same time negotiating his way onto the Hebron management team, with its obvious concern to lower costs and maximize profits.

It is irrelevant that Mr. Martin would have been placed in this position by the provincial government itself. The provincial government appears to have been trying to achieve two separate public policy goals in the same set of negotiations. This may have contributed to the collapse of the negotiations.

Hebron: Did Williams kill the $10 billion fatted calf with last minute gamble?

Some additional information on the failed Hebron deal came to light on Tuesday in the House of Assembly.

The Hebron project was a $5.0 billion construction megaproject that would have delivered an estimated $10 billion dollars in royalties to the provincial government over the life of oil production.

Following are Premier Danny Williams' remarks with notes and comments after each. The posting runs more or less sequentially as Williams responds to questions from Opposition House Leader Kelvin Parsons.

If you want the truly surprising information, skip to the section marked "*".

1. On the equity position:

"...A critical milestone for them on equity was 5 per cent. Five percent and above jeopardized the joint venture agreement. There was extra voting rights. There were other rights and privileges that were above 5 per cent. Our preference would have been to obtain, at least, 8.5 per cent. That was our original goal because that is a benchmark which has been set by the federal government in the Hibernia project and that was a number that we were trying to achieve. However, in order to try and reach an agreement with these companies, we moved to the 4.9 per cent position because that was a position that they felt was acceptable to all the partners...."

Comment: This is interesting because for the first time the premier has indicated both the preferred size of the equity position (8.5%) and the subsequent position he contends was agreed to by all parties (5%).

Most interesting is the revelation that the province proposed a 4.9% since this level precluded the province from holding voting rights that would affect the original joint operating agreement.

This acknowledges two things. First, the province would not have held a full equity position in the project, thereby begging the question of what exactly the Premier was seeking so stridently and why.

Second, since the equity position was placed below 5% in order to avoid affecting the joint operating agreement the Premier implicitly confirmed the partners contention that equity was a new condition placed on the Hebron project by the province after April 2005.

2. The cause of the collapse:

"...we basically had a tentative agreement on equity and on super royalty on Thursday evening. The matter on which it broke down, which I explained yesterday to the House, was they reverted to the January 26 position, which is investment tax credits which were in the range of $400 million to $500 million, which was something that we had virtually assumed was off the table and was gone. They then reverted to a position of two months ago, which was absolutely unacceptable to the Province."

Comment: It is interesting that the Premier chose the words "we had virtually assumed" when discussing the issue of the investment tax credit and the sales tax credit on fuel purchases related to the development. Ordinarily, the parties to a negotiation would exchange plain language statements of what had been agreed to. Such an exchange would be particularly important if, as the premier contends, there was an agreement on Thursday evening. This approach is intended to avoid the very circumstance - potentially a misunderstanding - which seems to have occurred.

Apparently in this case a detail significant enough to cause the deal to fall apart was "virtually assumed" to have been eliminated. When one assumes one makes an ass...

The overall approach here may be similar to the slipshod way the province handled discussions with Ottawa in 2004. The federal and provincial governments did not begin negotiations (exchange proposals and position statements) until October. Detailed talks took place throughout November and into December, with Williams making a dramatic pre-Christmas explosion not unlike his media scrum on Monday.

This comment by the Premier begs one of the major questions surrounding the Monday disaster: how could $500 million scuttle a deal that would deliver to the provincial government royalties equal to or greater than the total provincial debt ($10 billion)?

* Alternate explanation: The Premier killed the deal by adding equity and insisting on it.

Later in Question Period, the Premier described the collapse this way:

Then when they send a memorandum into us, the memorandum gets cute and basically comes back and says: Oh, yes, but we want all the terms that are in the January 26 agreement, with the exception of these two. So, we basically said that is not on. Because what would have happened then, that would have clawed back everything that we gained. We would have ended up with an agreement that was basically less than generic, which is exactly what your government was prepared to accept some two years ago.

Comment: In this section the Premier refers to a January 26 agreement. Williams is normally careful in the words he uses. To refer to January 26 as an agreement may be taken as deliberate or at least a reversion to terms he has used in private.

Note that the Premier had previously referred to January 26 as being merely a position taken by the Hebron partners. (See Point 1 above)

Also, the Premier refers to the companies as having brought back the January 26 agreement less two clauses. The Premier's contention up until this point has been that it was the addition of two clauses to the late March agreement that caused the collapse.

This is significant since the Premier's new version suggests a foul-up on the part of the provincial negotiators ("we had virtually assumed") with the magnitude of the error only becoming apparent once a final summary was exchanged.

These comments by the Premier also reinforce the contention that equity was a last-minute addition to the agreement. Note that Williams did not publicly make equity a condition of a deal until after 26 January. Check that in a previous Bond Papers posting, "Hebron, the premier and getting a deal".¹

Ultimately, though, this particular description of the collapse raises significant doubts about the Premier's account of events. On a deal with provincial revenues on the order of $10 billion with hundreds of millions of dollars of added benefits for the private sector in the province, it is curious that the addition of $500 million in short-term tax concessions would completely negate every other gain the Premier had supposedly made.

If the Premier had negotiated such a remarkable agreement, then by his own account, $500 million would turn this deal into one that involved the province getting less revenue than provided in the generic royalty regime.

On the face of it, this seems preposterous.

These comments make more sense if we interpret these remarks to mean that after a period of discussion with the Premier on so-called super royalties and something being called an equity position, the companies rejected the Premier's efforts to change the January 26 agreement.

Instead, their final position was to insist on the January 26 agreement already reached, including tax concessions but "without these two elements", that is super royalties and equity of any size.

The reference to "clawed back everything gained" would refer to the loss of equity and super royalties which, in fact might not have been gained at all.

This is consistent as well with a comment in a presentation made by Chevron's Mark Macleod in February 2006. One of Macleod's bullet points in a slide show on Hebron indicated that the companies were "re-evaluating potential for development". The language is telling. The project is not being evaluated. There are no discussions to finalize an agreement. In February 2006, the Hebron partners are evaluating the project once again for development.

The only comments the Premier would need to clarify is on the January 26 agreement producing royalties of less total quantum than the generic regime.

3. The cost of buying out ExxonMobil's 38% interest in Hebron

"...Having said that, with regard to the price that the government is prepared to pay for Exxon Mobil'’s interest, we are dealing in hundreds of millions of dollars here. I am not prepared to announce to Exxon Mobil today what we are prepared to pay them...."

One would expect that the price for the major shareholding in a project like Hebron would comprise costs incurred to date, possibly a portion of the $5.0 billion construction costs and almost certainly compensation for future earnings on revenues from oil sales.

To give some sense of what gross revenues would be on Hebron, the current value of Hebron oil, based on US$50 per barrel oil would be $35 billion. Even using a discounted price heavy oil running US$15 lower than that, the field is worth $24.5 billion. It is difficult to imagine ExxonMobil selling its interest for the hundreds of millions the Premier claims it would cost.

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¹ During the offshore revenue talks in 2004, the premier consistently shifted his public position once agreement had been reached on certain points. It was not until Ottawa stood firm in October 2004 that Williams came to the table and negotiated a final deal. Several posts on this can be found here.

It is not unusual, for example, for the Premier to claim that an agreement existed when no negotiations had taken place, that there was an agreement when evidently there was not one, or that, as in this case, the other party was being perfidious. careful examination usually reveals something closer to the truth than the Premier's often contradictory statements.

Why Danny wanted Andy...at the offshore board

Since Danny Williams first confirmed that he thought Andy Wells would be the perfect chairman for the federal-provincial board that regulates the offshore industry anyone with half a clue about the board and the industry has been trying to come up with a plausible reason to a simple question:

Why?

Turns out that we got it right from the start. Last July, when the story broke one of the scenarios offered up as a possible explanation was that Wells appointment would be part of a plan to push around the oil companies.

1. Wells, who knows little about oil and gas regulation but much about kicking up a stink, would be well positioned to bugger around with the forthcoming Hebron proposal. Wells would be a tag team with the Premier to try and push Chevron around a bit and since both men are of similar minds, there'd be less bickering between the two of them than between them and the oil companies.

There were a bunch of other posts - here, here, here, here and here - all of which pointed out Wells' consummate unsuitability for the position by any ordinary measure. In the meantime, the selection process set out in the Atlantic Accord (1985) turned up a proper candidate. Word on the street has it locally that the matter has gone all the way to the current Prime Minister who has blessed the results of the committee chaired by Newfoundland businessman Harry Steele.

Tapped for the job is Max Ruelokke, a former provincial public servant with the private sector oil and gas experience needed in the regulatory authority.

Anyway, since the Hebron deal collapsed yesterday, Williams has been threatening to legislate ExxonMobil out of the oil patch for refusing to go along with what Danny wanted. Williams' former law partner, outgoing New Democratic Party leader Jack Harris is sounding like the deputy premier lately than anything else. Harris told the local CBC radio drive show this afternoon that Williams was dead on in his overall approach to Hebron and pointed to several sections of the Atlantic Accord implementation acts under which the companies could be forced to develop Hebron.

Flip over to the federal implementation act and you can find section 79, among others which give the Canada-Newfoundland and Labrador Offshore Petroleum Board the power to order a company to produce oil within three years or surrender its license. The same ability is contained in section 78 of the provincial implementation act.

Lawyers and purists will point out the serious practical problems with trying to use these powers when there is no security of supply problem or in a period other than an evident national emergency. There would even be difficulties in having Wells as chairman trying to get the board to issue such an order without the - unlikely - concurrence of the Government of Canada.

None of that is the point. With Andy as chair of the offshore board, the past two days would have seen him filling every available television screen backing Danny with Well's own form of bluster to match Harris' more polished support. Wells' frothing about the evil foreigners pillaging our resources would take some of the political heat from the Premier.

But while negotiations were underway, the Premier could be quietly threatening the oil companies with unleashing Wells if they didn't co-operate. Perhaps Wells himself would be talking up his potential exercise of the offshore board's extra-ordinary powers. Count the number of times today Jack Harris mentioned Hugo Chavez favourably in the same breath as Danny Williams and you get the idea of what might be in some people's minds.

As strange as it might seem to have a Conservative premier and a New Democratic Party leader on the same wavelength, one need only look at Williams populist performance and many of his policies to understand that Williams is not a Conservative in the sense most people would use the term.

Williams is philosophically a Peckfordite, albeit a more refined one. Williams' policy manual reads in many parts like the brian Peckford offshore policy. The demand for an equity position is taken straight from policy in vogue during the 1970s when even ostensibly Conservative governments around the globe supported state ownership of large sections of the economy. In 1980, the Peckford administration passed legislation creating a state-owned energy corporation which would own, by law, 40% of any significant discovery. Williams' policy goals may seem smaller but they are fundamentally aimed at the same objective. No surprise that Peckford's former energy advisor thinks Danny Williams is on the right track.

Putting Andy Wells in charge of the board regulating the province's offshore resources fits with the pattern. It took a while to see what the objective was in pushing Wells for a position he was demonstrably unqualified to win on his own.

In the midst of the Hebron mess, Danny Williams objectives become clearer.

Oil industry backgrounders

Check offalnews for three articles penned by one Simon Lono on Newfoundland and Labrador's oil and gas industry.

These are the raw versions; the print ones appeared in Atlantic Business Magazine last month.

Note in particular this portion of an interview with energy minister Ed Byrne. It's been quoted on the Bond Papers before and Simon will post the whole thing in a couple of days. The edited version is at ABM.

MINISTER BYRNE: From our point of view, equity is important from this perspective: it puts us at the table and helps us develop an intellectual capacity that doesn'’t necessarily exist within the provincial structure right now. It puts us in the seat as a legitimate bona fide partner in developments. It helps us gain further insight, expertise and knowledge into the oil and gas industry. It has worked successfully as a model in other jurisdictions and there'’s no reason to think it wouldn't here. Other jurisdictions are both equity partners and royalty partners. So while there is some legitimacy in saying that equity is represented by royalty, there are other benefits associated with being an equity partner. [Emphasis added]

The Premier miscalculates

Expatriate Canadian Howie Mandell hosts a new American television network game show called "Deal or No Deal" in which contestants pick cases hoping to win a million dollars.

At stages in the game, contestants are offered other settlements. The game rests on the contestant's ability to know when to quit and take the cash in front of him or her rather than go bust.

The drama of the show for viewers comes from the contestant's miscalculations. They continue to press on despite the odds shifting against him or her and viewers scream at the television set. We wonder how people could be so stunned as to turn down a half a million dollars when they would likely go bust long before the last case is opened.

Too many of them are hypnotized by the top prize that is really just an illusion. They push and push and wind up with a pittance or worse still wind up with the briefcase containing a cent.

Miscalculations are a feature of Newfoundland and Labrador politics. Premier Danny Williams likes to focus on the times when his predecessors supposedly quit too soon and settled for too little. Sometimes that happened. Sometimes it didn't.

Danny Williams and others who share his view don't like to talk about the times when the miscalculation was in gambling on the big prize despite having a good offer in plain view and losing most everything in the end. They forget that sometimes "All" can be the enemy of "pretty damned good".

Brian Peckford did the same thing on the offshore. While Nova Scotia settled for an arrangement with Ottawa that left begging the question of ownership but jump started their industry, Peckford ignored the legal advice that he would lose court references on ownership. Instead, he pressed on, picking first the Supreme Court of Newfoundland briefcase and then later the Supreme Court of Canada package. Peckford and his advisors were also hypnotized by promises of ever-escalating oil prices that mirror almost exactly the predictions being made today. Experience is a painful teacher and Newfoundland governments have plenty of such experience.

He lost both.

Badly.

And by the time Hebron was discovered, the same year Peckford lost big, oil prices ha plummeted to the point where the Hebron find - second biggest of the Big Four to date - was not commercially viable.

Were it not for Brian Mulroney, who in a truly remarkable act, signed the Atlantic Accord (1985), Newfoundland and Labrador today would be staring at nothing from offshore revenues. The most recent budget with its billion dollars of oil revenue in a single year simply wouldn't exist. We wouldn't even have the briefcase with the penny in it.

Leap forward to Danny Williams.

The Premier appears to have made fundamental miscalculations in negotiating with the Hebron partners.

First, he miscalculated the proponent companies' collective opposition to having a neophyte Crown corporation with no oil expertise sit at the table making fundamental decisions on a massive and complex oil project.

Second, he miscalculated the willingness of these partners to simply close down the Hebron project and put it on the shelf. He misjudged their willingness to move to larger, less cumbersome projects from a project that was only made more problematic and more costly by the premier's demands.

Third, and flowing from that, the Premier fundamentally miscalculated the extent to which the Newfoundland and Labrador offshore must be globally competitive. He seems to have been infected by the old view from Peckford's time that we would somehow be able to dictate to multi-national oil companies based on nothing other than our bluster.

Newfoundland and Labrador has oil and gas assets which are valuable, but we have smaller proven assets than many places on the globe. In Venezuela, for example, the assets are considerably greater. The importance of those assets to important markets like the United States are such that the companies are prepared to accept the posturing of local strongmen to get the oil out of the ground. Oil companies are prepared to work with all manner of regimes around the globe; Danny Williams inability to get a deal seems odd in comparison.

Right: "We got it!". Venezuelan President Hugo Chavez has earned praise at home and caused disruption in the international oil markets through his forceful policies with multi-national oil companies. Is Chavez the model for Williams' policies on offshore revenues?

Fourth, Williams miscalculated the impact of foisting new demands into the negotiations toward the end of the process. Williams claims he made the government position clear early on. Publicly, he only said he wanted a refinery and larger benefits and royalties. The equity position emerged within the last few weeks. The Premier himself took the refinery demand off the table when he announced a third party consortium would examine the feasibility of building a second refinery.

The Premier's initial comments on the Hebron failure suggest that he is aware of the miscalculations. When the Premier is threatened or under pressure, the intensity of his rhetoric and the range of options or threats he poses escalates, even if the options are mutually exclusive or not viable. Consider that during talks with Abitibi, for example, the Premier threatened the company with expropriation; no action has been taken and none would be taken. More importantly though, Williams was prepared to pay Abitibi more in an annual grant of public money than he made in tax and royalty revenue merely to keep the mill going with its 282 jobs.

Williams has threatened to "take out" ExxonMobil. His own comments undermine this position. If $500 million in tax concessions were too rich to acquire a five percent stake in Hebron, then surely ExxonMobil's share - 38% - would be eight times too rich for the Premier, even if he could find the billions to pay for the share.

Similarly, the Premier has threatened fallow field legislation in the same breath and to accomplish the same purpose. Under such an approach license holders would have a fixed time in which to develop a field or have the license be cancelled. Unfortunately, the Premier cannot introduce this legislation on his own; he must have the co-operation of the federal government to change an issue such as the issuing of licenses. Given the Harper administration's commitment to free enterprise and its base of support in Alberta's oil patch, it would take quite a leap to expect Stephen Harper to co-operate with an approach that to some will appear to be modeled on that of Hugo Chavez's Venezuela.

Likewise, the Premier has insisted as recently as this morning that Hebron's failure would have no impact on the province's oil and gas industry beyond the immediate loss of potential for the development. Again, one would be foolhardy to expect that ExxonMobil and the other partners in Hibernia South would bring forward a development proposal to the Williams administration having just gone through the Hebron experience.

He also points to gas potential which would supposedly offset the Hebron loss. It may. But in order for gas to be developed Williams has to deal with many of the same players he has just worked so hard to frustrate. Experience is indeed a harsh teacher.

Williams also does not have a royalty regime which describes even for planning purposes the likely costs of development. Faced with the Hebron example and the uncertainty of the gas regime, no one should expect imminent development of any gas resources.

On top of that he has made comments in the past about not wanting to see gas exported in "some goddamn boat". As much as Williams' energy minister Ed Byrne has tried to calm industry fears no one can be assured that Williams did not mean exactly what he said, even if the technology is locally developed, would create local jobs and benefits and produce the ability to also start a secondary gas processing industry here. Uncertainty is great in the oil and gas business these days and the industry will need some concerted calming by the provincial government before all is back to where it was.

Williams has also gone so far as to raise the spectre of the Upper Churchill contract in defense of his decision to help shelve Hebron. "No more give-aways" is his cry. Williams knows this is nonsense. His Abitibi deal should be proof enough that give-aways can rear their head even under his administration.

In this instance, though, Williams knows that the Upper Churchill power purchase agreement fixes the price of power at pennies per unit over the life of the deal. By contrast the province's generic oil royalty regime bases its calculation of provincial rent as a percentage of the price per barrel of oil. As prices go up, so too does the province's cut. If that were not enough, the regime contains tiers of royalties. Once the project costs are recovered the province's share jumps again by an order of magnitude. It jumps once again to a third tier - so-called super royalties - that are paid if other conditions are met. Unless Williams abandoned that approach - and there is no sign he has - then his comparison of Hebron to the Upper Churchill is specious, to put it mildly.

The Hebron proposal is now dead, apparently based on serious miscalculations by the provincial government. There will be repercussions. Anyone who believes otherwise is misinformed.

Part of the difficulty in soundly assessing what is going on is that Premier Williams has never explained what he means by "equity position" and why it is so valuable that $10 billion and substantive local benefits were not enough to pay $500 million to acquire. More detail and fact is needed. More accountability is mandatory.

It's not like Williams and his predecessor Brian Peckford have not led the province down this same path before.

It's not like we haven't seen leaders claim we got it when they didn't, accuse others of selling the shop or of shooting for the million and coming up with considerably less than what was in front of them a move or two ago in the offshore game.

Hebron failure: notes and observations

The Newfoundland and Labrador oil industry is reeling in the wake of news today that the Hebron development collapsed in the face of demands from Premier Danny Williams that the provincial government be given an equity position in the deal.

While little had been said of the negotiations coming down to the April 1 deadline, some had expected Williams to sign a deal. Instead, it appears Williams stood by his demand for an equity position. The companies were known not to favour involving the provincial government in management decisions on the project, even after Williams lowered the percentage he sought.

Williams singled out ExxonMobil as opposing the equity position, however it is likely several of the project partners had difficulty with Williams' demand. This was based on their experience with government involvement in the costly Hibernia project.

In an interview with CBC television's Here and Now, Memorial University economist Wade Locke described the royalties from Hebron - estimated at upwards of $10 billion over the life of the project - as being greater than the provincial government royalties from the other three fields in production combined.

Based on oil at US$50 per barrel, the 700 million barrel Hebron-West Ben Nevis-Ben Nevis development would be worth US$35 billion. The provincial royalty position Williams rejected represents 28% of the project's total potential revenues.

According to lead partner Chevron Canada, Hebron would have been the second largest development offshore Newfoundland and Labrador. Reserves are estimated at 400 to 700 million barrels, with development costs to first oil estimated to range as high as $5.2 billion. Under the operating agreement, the Hebron partners committed to use a gravity-based structure as the production mode. The fractured nature of the fields coupled with the heavy nature of the oil combined with the needed production mode to increase development costs.

NOIA, which represents the province's service and supply sector, predicted downsizing and shifts to business outside the province in the wake of today's decision.

"With a Hebron project delay," said Deirdre Robinson Greene, NOIA's director of communications and policy. "NOIA members have told us that they see reduced business opportunity and activity in their own back yard. If they are to continue operating, they have to look to other markets. That could mean anything from re-tooling for export, to re-locating, to perhaps re-deploying resources and workforce elsewhere. That all translates into less business and fewer jobs here in Newfoundland and Labrador."

In a scrum with reporters today, Williams accused the oil companies of not bargaining in good faith. He said the negotiations collapsed when the proponents sought an investment tax credit of 15% which Williams called unprecedented, as well as a tax exemption for fuel used on the project. Williams estimated the total value of these exemptions at $400 million.

If this figure represents a total cost versus an annual cost, there is no indication why Williams found this amount unacceptable while later in the same media scrum, Williams said the government was willing to spend the same amount to "take out" ExxonMobil from the project.

Williams repeated similar comments in the House of Assembly. He compared the province's demand for an equity position to the 8.5% stake that the Government of Canada purchased in the Hibernia project in the early 1990s. it is unclear whether Williams was prepared to purchase an equity position as the Government of Canada had done.

There is, however, an inconsistency in Williams' contention that one one hand the province was unwilling to forego less than half a billion in revenue in exchange for $10 billion while later claiming the provincial government was willing to purchase ExxonMobil's interest for the same amount. ExxonMobil owns 38% of the Hebron project, a share worth considerably more on the face of it than $500 million.

At no point has Williams described his goal in achieving a so-called equity position, nor has he indicated the benefits that would accrue to the province from an equity position, versus increased royalties. Williams has not indicated if his version of "equity" consisted entirely of cash or if it involved management rights.

Under the Atlantic Accord (1985), the Government of Newfoundland and Labrador collects revenues from offshore oil and gas as if the resources were on land. Williams did not explain today why he was prepared to reject $10 billion in royalties, plus billions in start-up construction benefits apparently for a cost of $400-$500 million in tax concessions.

Chevron Announces Plans to Suspend Hebron Activities

CALGARY, Alberta, April 3, 2006 -- Chevron Canada Limited, on behalf of itself and its co-venturers - ExxonMobil Canada, Petro-Canada and Norsk Hydro Canada Oil & Gas Inc.- today announced a decision to suspend negotiations with the Government of Newfoundland and Labrador and demobilize the Hebron project team.

"We have worked tirelessly with the Government of Newfoundland and Labrador, especially during the past year, to find ways to move the Hebron project forward, but significant and fundamental gaps remain on fiscal terms and benefits that would enable the project to proceed in a viable manner. We are disappointed that we have not been able to reach an agreement with the government," said Alex Archila, President, Chevron Canada Limited.

"Hebron poses a number of challenges due to the high degree of technical complexity associated with recovering heavy oil in a harsh marine environment," Archila said. "While activities are suspended at this time, the co-venturers remain positive that activities could proceed at a future date with the conclusion of a definitive agreement with the Government of Newfoundland and Labrador."

The Hebron field is located 350 km offshore the province of Newfoundland and Labrador. Chevron Canada Limited is the designated operator for Hebron, with a 28 percent working interest. Other Hebron owners are ExxonMobil Canada Properties (37.9 percent), Petro-Canada (23.9 percent ), and Norsk Hydro Canada Oil & Gas Inc. (10.2 percent).

Chevron Canada Limited, a Canadian subsidiary of Chevron Corporation (NYSE: CVX), is actively engaged in oil and gas exploration and production activities in Atlantic Canada, the Mackenzie Delta and Alberta's oil sands. Chevron Corporation, based in San Ramon, Calif., is one of the world's leading energy companies. With more than 53,000 employees, Chevron subsidiaries conduct business in approximately 180 countries around the world, producing and transporting crude oil and natural gas, and refining, marketing and distributing fuels and other energy products. More information on Chevron is available at www.chevron.com.

CAUTIONARY STATEMENT RELEVANT TO FORWARD-LOOKING INFORMATION FOR THE PURPOSE OF "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

This press release of Chevron Corporation contains forward-looking statements relating to Chevron's operations that are based on management's current expectations, estimates and projections about the petroleum, chemicals and other energy-related industries. Words such as "anticipates," "expects," "intends," "plans," "targets," "projects," "believes," "seeks," "estimates" and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this release. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

U.S. Securities and Exchange Commission (SEC) rules permit oil and gas companies to disclose only proved reserves in their filings with the SEC. Certain terms, such as "barrels estimated to be recoverable" or "in-place oil volumes" and others are used in this press release that may not be permitted to be included in documents filed with the SEC. In addition, SEC regulations define activities associated with oil sands as mining-related and not a part of conventional crude oil and natural gas producing activities. U.S. investors should refer to disclosures in Chevron's Annual Report on Form 10-K for the year ended December 31, 2005.

Requiem for The Sunday Independent

The Sunday Independent is no more.

Actually, that paper died when it was bought out by local entrepreneur Brian Dobbin.

Now its successor newspaper, The Independent, is out of business as of yesterday when the last number went to the printers.

The official reason - repeated ad nauseum by Dobbin and managing editor Ryan Cleary - is that the paper ran out of money and time.

The official reason is a crock.

Dobbin and Cleary had two full years to do whatever was needed to make the paper viable. That's plenty of time. There was also plenty of cash, evident from the page three picture in the last number showing the staff members. By a rough count, the final staff was at least double the complement of the old Sunday Independent and may well be closer to triple the band that got the paper off the ground in the fall of 2003.

The magnitude of the bleeding will never be known publicly, but it was obviously enough to push Dobbin into abandoning the paper. The Current estimated last fall that Dobbin was losing about $10, 000 per issue; the real figure might well have been much higher once one considers how much of the Spindy's ad revenue came from Dobbin's other companies.

The real season the Spindependent died had nothing to do with time and money. No one can blame Trans-Con Media for this loss, either.

Nope.

The Spindy died because it simply never matched the grandiose claims its publisher and managing editor continued to make for it right up to the interment. In the whole twenty-odd months of its life, there was rarely anything in the Spindy you couldn't live without reading on Sunday when the paper came out; nothing that couldn't wait until Wednesday when you could get the paper online for free.

As we put it here at the Bond Papers a year ago:

the more Ryan slags everyone else and claims that his paper is somehow superior, the more I know it is just spin; pure unrefined shite. Every week, I look through the Indy and I have yet to see any story that isn't covered just as well if not better in any other news outlet in the province. Well, almost any. I don't read The Monitor any more.

And when I see recycled flatulent crap, as I did this week yet again, on the Indy front page, no less, I can explain to you why your circ sucks. It has nothing to do with CBC refusing your TV spots.

The basic problem is that you claim to be the newspaper for thinking people. You claim to be informative and a whole bunch of other things. Anybody who has looked at the paper knows that it isn't any of those things. Your ad campaign sets you up for a gigantic credibility gap when they hear the ad and then look at a paper that is more like the Spindependent or, this week, the Windypendent than the newspaper for thoughtful people.

If you want to boost your circulation, Ryan, stop telling me how great you are. Try writing a story that proves it. Stop with the grandiose and go back to the basics. Give me solid research, a novel approach, some background and good writing. No one is really interested with the stuff they can get anywhere else, including Open Line. And they obviously aren't really interested in pseudo-nationalist rantings in place of well-researched stuff that draws its conclusions from the evidence, not picks evidence to fit the preconceived conclusions.

In the long run, you'll find that approach is actually less expensive than the in-house ad campaign and it will be more effective in boosting your audience. Boost the audience and you can sell enough advertising to pay the bills.

To be fair, in the past year - especially in the past six months - the Indy generated better stories. The Melina and Keith series is an example, but sadly it was a rare example of the potential the Indy had but never came close to attaining consistently enough to make the paper financially viable.

Cleary's only big project - the much ballyhooed rack of Confederation six-parter - was an utter flop. He did not pull in "every brain" as he claimed in the last number of the paper. Instead he grabbed two refugees from radio talk shows, neither of them known for sticking with facts. By the looks of it, he did grab the janitor to cobble together something that didn't challenge the local orthodoxy. The Spindy series merely repeated it.

They had a conclusion and by God the facts would be chosen to conform to it. When problems occurred, the Indy management was quick to claim information actually in the public domain couldn't be found or was being withheld. In Newfoundland public life, the most common of barnyard animals is the scapegoat.

Not only did the Spindy fail to live up to its self-promotion, it also missed in another crucial area as well. In his final column, Dobbin writes of wanting to put in print what he had heard over a beer or while sitting at the dinner table.

There are two problems with that. First, what is heard over a beer is seldom better than the stuff Cliff Claven spouted. People don't quote barstool know-it-alls except to laugh at them. Second, and more importantly, what is evidently heard around the Dobbin or Cleary dinner table is not some radical new thought. It is very much the view of the local elite on everything from Danny-boy to Confederation.

For a supposedly brazen newspaper, being an Establishment mouthpiece is deadly. Upstarts need to be anti-Christs. They need to challenge orthodoxy, reject the conventional. They need to get in your face and stay there so that as much as people might publicly denounce you, your broadsheet is their secret, guilty pleasure.

The stuff they pull up the covers and read with a flashlight so the husband...or wife...wouldn't catch them at it.

The stuff they will need to go to confession about.

"Forgive me, Fahder for I have sinned. I read it in The Independent."

The Indy under Brian and Ryan was entirely conventional and totally orthodox. The audience they were shooting for already knew just about everything the paper printed and if they needed reinforcement, then surely they could get it by tuning in five days a week to Bill Rowe...for free. Without eyeballs, a paper can't attract readers. And without readers, there are few if any advertisers - the source of cash for all publications.

With all that said, mourn the loss of The Independent. This province needs another media voice, not because the rest is bland or suppressed, but because there are stories here to tell that aren't being told by anyone else.

Mourn the loss - hopefully a temporary one - of talent like photo editor Paul Daly and senior editor Stephanie Porter. They remained my only real reason for buying the paper each week. Sadly, they could not keep the venture afloat on their talents, as considerable as they are.

Above all else, mourn the loss of potential. If just for a moment the Indy had ever come close to what it ought to have been, we'd be sitting here on a Sunday with jaws on floor. We'd be gobsmacked at the latest revelation.

Instead, I am typing an obit I never wanted to see, let alone write.

I sincerely wish it were otherwise.

Danny Williams: "When I grow up, I want to be just like Ralph Klein"

As if falling for Paul Watson's April Fool joke on Costco and seal oil wasn't enough, Danny Williams flew off to Alberta on Friday to attend the Alberta Progressive Conservative party convention.

Speaking to delegates yesterday, Williams scolded Alberta PCs for their lukewarm endorsement of King Ralph's leadership. As VOCM reports it, "...he told delegates Klein deserves their gratitude for all he's done for the province. ... Williams said when he's achieved a fraction of Klein's success, he'd expect gratitude and thanks from his party."

"And I would expect to leave on my own terms, having won the mandate from the people," he said. "Ralph Klein deserves certainly no less." That's from the Edmonton Sun's incredibly short story on Williams' after-dinner speech.

The CBC version includes Williams saying "When I grow up, I want to be just like Ralph Klein."

I'll let you guys google Ralph to find out all the things The King of Alberta has done over the years that Danny might find praiseworthy.

The interesting thing here is that Williams took it upon himself to advise/lecture/scold Alberta Tories on their own leadership. Presumptuous would be one word for it, especially in light of the fact Ralph was asking for an endorsement so he could hang around for a couple of years, thereby leaving the Alberta PC's to have a fractious leadership convention and go to the polls all in the space of a few months.

"The delegates here have spoken. The delegates have said their thoughts -– they're the important people in this particular discussion," said Lyle Oberg, a former Klein cabinet minister, commenting on Williams' intervention.

That's really the point, isn't it?

The delegates get to decide based on all the facts.

Guest speakers don't.

____________________

Belated April Fool's Bonus:

In the photo at left, Premier Danny Williams explains the proper hand technique for seizing the ruling cheeks before planting the mandatory laudatory osculation on The Leader's hindmost region.

"Learn it now so I don't have to show you later."

Happy Confederation Day

On this day in 1949 - at the very same minute as this posting - Newfoundland officially annexed Canada.. errr Newfoundland and Labrador joined Canada.

For a fine description of what it means to be a first-generation Canadian, try nottawa's take. I never looked at it this way before, but there is something about Mark's perspective that has struck a chord in this first-generation Canadian.

Once you've finished with that, there is always the ahistorical blather of the pseudo-separatists.

I say pseudo-separatists because they slag Canada at every opportunity but are pathologically unable to remove themselves from the federal transfer tit long enough to advocate that Newfoundland and Labrador become an independent country once more.

Mark is right about one thing in particular. Newfoundland and Labrador should celebrate March 31st and the Prime Minister ought to make a habit of noting this day.

This is a day all Canadians should be proud of, especially as we go around the world helping others to develop the democracy of which we are so rightly proud.

Happy Confederation Day!

Left: Signing of the Terms of Union between Canada and Newfoundland, 11 December 1948.

Sir Albert Walsh (seated, right), chairman of the Newfoundland delegation, signs the Terms of Union at the Senate Chamber, Parliament Buildings.

Seated next Walsh is Prime Minister Louis St. Laurent.

Standing (left to right): Hon. Milton F. Gregg, Minister of Veterans' Affairs; Hon. J.J. McCann, Minister of National Revenue; Hon. Brooke Claxton, Minister of National Defence; F. Gordon Bradley, Gordon A. Winter, Philip Grouchy, Joseph R. Smallwood and J.B. McEvoy [members of the Newfoundland delegation].

Photo: National Archives of Canada/PA-128072.

Costco, seal capsules and Danny's latest folly

Danny Williams is in a lather because Costco reportedly pulled his old buddy Bill Barry's seal oil capsules from its shelves.

Williams issued a news release today on the whole thing, including announcing that his fish minister Tom Rideout (left) will be off to do battle directly with the retail giant.

Wags will recall that during his deficit fight shortly after taking office, Danny Williams referred to a financial analysis having been prepared by PriceClubWaterhouseCoopers.

I kid you not.

Anyway, through the wonders of google searching it turns out this is not the first time Costco has done this.

Click www.seashepherd.org and find an announcement from April 12, 2004 on the Sea Shepherd Conservation Society website announcing seal oil capsules were being pulled from Costco shelves.

Then click www.veg.ca and an announcement from September 1999 that Costco had pulled seal oil capsules from its shelves.

Meanwhile, the National Post carried Paul Watson's claim five days ago that he had succeeded in having seal oil capsules pulled from Costco shelves. He just didn't say if it was in 1999 or 2004. Watson also didn't note that the effectiveness of his boycott was considerably less than claimed, as reported here by local media.

In any event, Danny and his crew need to read their daily media clips, speed up their office admin processes or maybe search the Internet.

Danny Williams might well be tilting at anti-seal hunt windmills just as effectively as he did when he got a guest shot on Larry King Live. Of course, more and more people are regarding that whole sad episode as a set-up in which the Premier was basically suckered into appearing as a pawn in the anti-sealers' fundraising campaign.

This time the Premier will be sending his stunt double, at least.

Multi-billion dollar oil project in slings but...

Danny Williams has time to issue a lengthy news release condemning Costco for delisting a local product, namely Omega-3 capsules containing seal oil.

Love the seal hunt. Hate it. That doesn't matter.

Consider the implications of this demonstration of Danny Williams' priorities.

"I find it incredible that an international company of Costco's reputation would make such a serious decision without giving us the courtesy of hearing our views, or those of the industry," the Premier said. "I urge the company to reconsider this decision that has such serious implications for the sealing industry and the communities and individuals who depend on it, or at least put the decision on pause until we have an opportunity to inform them about the seal fishery."

I find it incredible Danny is stating that he finds this incredible.

But wait.

Danny's comms people will highlight this as an example of Danny's ongoing efforts to stand up for Newfoundland and Labrador and promote the province. They'll tell you this also fits with the new communications strategy (backed by $100K of new tax dollars) Danny will implement to defend the seal hunt.

But wait again.

Turns out the seal oil capsules Costco pulled from its shelves are manufactured by the Barry Group. For those of you who don't know, Bill Barry (left) is an old friend of Danny's. The Barry Group is the same company that got millions of dollars in loan guarantees last August to support its aquaculture operations in the province. It's also the company that has floated a possible commitment to buy the fishplant in Harbour Breton. The commitment is possible because it hinges on a fish quota which Barry doesn't have and in fact hasn't even applied for yet.

Considering all that, one can easily conclude that the Premier had more reason to get involved in this issue than just to stick up for the poor downtrodden Newfoundlanders and their annual seal hunt. One of the guys Danny really likes is involved and that probably makes it a bit more important.

Having gotten this far in our little exploration of the Premier's big news release, you might be interested to see that on the anti-seal hunt site maintained by Paul Watson's Sea Shepherd Conservation Society , the Barry Group is identified as one of the largest seal processors.

The site is promoting the anti-Canada boycott the Humane Society of the United States has been reminding us of in radio ads lately. Supposedly the boycott is costing us hundreds of millions of dollars annually. There's even mention that two of Barry's big customers for other ocean products are Red Lobster and Long John Silvers, encouraging people to hurt all of Bill's business to stop the seal hunt.

Now all of this put together and the news release starts to make more sense.

Go back to the release though and you'll notice that not once is mention made of the fact that the seal oil capsules in question are produced by Bill Barry's company. I wonder why.

What you will find, though, is a Canadian first minister calling for a boycott of companies that don't support Newfoundland and Labrador.

This isn't like fighting apartheid and it damn well doesn't make any sense to fight a boycott with another boycott. Like most boycotts the one organized by the anti-sealing crew is largely ineffective anyway. It's just another theatrical device to rally the hordes to give more cash to keep up the fight against the seal hunt.

Now Danny Williams wants to use a tactic against a pack of loons that the pack of loons is using against a local industry, and Danny wants to spend taxpayer cash to do it.

Oh yeah.

That makes a lot of sense.

But if we are going to do it, maybe Bill Barry could throw a couple of hundred thousand bucks into the kitty as well. After all, it seems like the Premier is doing as much work for Bill on this file so far as he is for the guys who actually go out risking their lives to harvest the seals in the first place.

Hebron clock ticks down

Danny Williams and the companies looking to bring the Hebron-Ben Nevis field into production set April 1 as the deadline to achieve an agreement on royalties and local benefits.

There's been dead silence on the talks in the past few weeks. Yes, the Premier met with senior company officials in Toronto and other meetings have taken place, but so far not a word about the negotiations have hit the streets.

In the long run that may be good news.

Almost a year ago, Danny Williams was excited to learn that the companies involved in developing the Hebron-Ben Nevis offshore Newfoundland had reached an operating agreement and would be coming to the province to talk about getting the field in production.

It's useful to go back and look at what Danny wanted when the talks started. He told reporters last April that it was important to "grow" the oil industry in Newfoundland and Labrador. Williams was looking for a favourable royalty regime, secondary processing and improved research and development spending.

In the meantime, Williams recently redefined his "ask", to use the sales term he favours. He indicated the province was looking for better royalties than on other projects, improved local industrial benefits, and an "equity position".

Piling on the demands made many in the local industry nervous, but as Williams told reporters in a scrum last year that he expects detailed, frank negotiations in which the province got a reasonable, fair return. Williams has talked recently about an equity position, but as the companies made clear they weren't prepared to entertain a deal that gave the province a management stake in Hebron.

Williams likes to add on demands in public and talk tough, but his pattern in bargaining has usually been to settle for something much less than his last "ask" all the while claiming total victory.

Chevron and the partners are deadly serious about closing up their Hebron shop if this set of negotiations fails. They can still gain financial benefit from having undeveloped Hebron as part of their portfolio. Once Williams is gone they can look to strike a good deal later in a post-Williams Newfoundland and Labrador.

By contrast, Williams and his administration can't afford to say no to what, by most accounts would be an excellent development deal. He needs a new confirmed win in the wake of the Fishery Products and Abitibi disasters. Williams can't afford to let the local oil industry shrink having committed himself to continued economic growth in the province.

More to the point though, Williams needs the cash that will flow from development heading into the next election, likely his last. Money from Hebron can be used by Newfoundland and Labrador Hydro to help develop Williams' glory piece, Lower Churchill development, as a "go-it-alone' project.

Without Hebron cash, Williams will be forced to take the Ontario and Quebec proposal. That circumstance would demolish the carefully built facade of the resurgent and vibrant Newfoundland and Labrador which thrives under his leadership and which can tackle any project by itself, of course with Danny in charge. The illusive and sometimes illusory Lower Churchill project would become, in Danny's view, the antidote to the supposed failure of the Upper Churchill development if it is built with as little outside help as possible. With that project under his belt and with a clean sweep of the provincial legislature's seats in late 2007, Williams will head off to his next goal. Maybe Ottawa has been singing the same siren call to Williams it has sung to at least one other premier.

Williams' political colleagues need the Hebron production cash to start flowing when one of them heads to the polls in 2011. That will be the time when offshore oil revenues are expected to decline from their current peak. Their internal pressure will be a powerful force behind signing a good deal of the type Chevron and the other companies are already prepared to accept.

That's why Bond Papers expects an announcement very shortly on a Hebron deal. There will be added industrial benefits of some kind and a better financial return for the province. The added cash may be called "equity" but there will be no management control explicit or implicit in that, no matter what the Premier's Office tries to present.

Expect solid local benefits which will ensure the local service and supply sector, represented by NOIA, is happy and continues to grow.

We can also expect a massive signing ceremony in which the deal and its signatories will be lauded as never before.

That's the Danny way.

Step 1: Ask for a trip to the moon and the stars.

Step 2: Add a trip to a distant galaxy.

Step 3: Settle for less.

Step 4: Claim victory.

Step 5: Praise all highly and lavishly.

The atmospherics are irrelevent; what matters is that a good deal gets done.

A deal will be good for the oil companies. It will be good for the local supply sector. The cash revenue will be good for the people of the province.

And Danny and his political colleagues will have a solid political win to use for their own purposes.

No deal is not really a viable option.

Danny's Deal not delivering as promised

Today's new agreement is a giant leap forward on the path of progress. It gives our province 100 percent of our provincial share of offshore revenues, free from equalization [sic] clawback while we are an equalization-receiving province. [Emphasis added]

Premier Danny Williams
Atlantic Accord 2005 signing ceremony
February 14, 2005

The January 2005 offshore revenue deal with the Government of Canada will deliver only half the revenue protection promised by Premier Danny Williams in 2005, according to an assessment of figures released by the Government of Newfoundland and Labrador on Thursday in Budget 2006.

Provincial government figures show that while total oil and gas revenues will be some $927 million in Fiscal Year (FY) 2006, the provincial government will receive offsets of only $329 million.

That's just half the $648.9 million the province should be receiving.¹

Coupled with the Equalization offsets contained in the Atlantic Accord 1985, Danny Williams' 2005 agreement with former prime minister Paul Martin was supposed to create a new federal transfer payment that would equal 70% of the province's total offshore revenues. This is the amount supposedly clawed back through reductions in Equalization caused by growing oil and gas revenues. The remaining 30% was supposedly shielded from Equalization calculations already.

In the budget speech, provincial finance minister Loyola Sullivan said:

In 2006-07, the province is expecting to generate royalties from oil production of $703 million² and corporate income tax from companies operating in the offshore area of $224 million. This represents direct revenue from offshore oil of $927 million in this year alone. This forecast assumes the average price per barrel of oil will be $US57. Added to this is the benefit accruing to the people of the province from the Atlantic Accord arrangements which will contribute an additional $329 million in 2006-07.

While Danny Williams originally sought a deal that would deliver to the provincial government a federal transfer equal to total provincial oil and gas revenues, the agreement signed in January 2005 contained an important redefinition of the word "revenue" that to date has never been discussed publicly.

The January 2005 agreement defines revenues as being the money collected under the Canada-Newfoundland Atlantic Accord Implementation Act (1987)³. That federal law refers only to royalties collected on behalf of the province.

Even using the more restrictive definition - which has never been publicly acknowledged by the provincial government - the forecast offsets for 2006 are below what they ought to be. Provincial royalties estimated at $663.4 million would give an offset amount of $464.38 million.

That's a difference of $135.38 million more than the budget forecast.

Using Sullivan's royalty figure of $703 million, the offset should be $492.1 million, or $163 million more than Budget 2006 projects.


-------------
Notes

¹ Based on the original Williams proposal to offset total provincial oil and gas revenues. The figure is 70% of the total oil and gas revenues and assumes that the remaining 30% of total revenues is already protected from supposed Equalization clawbacks. Some sources have estimated the clawback to be much higher, amounting to as much as 85%. The 70% clawback is used since it is the one referred to most often by Premier Williams in 2004.

² The Estimates gives this figure as $663.4 million. See for example, Statement IV, p. vii.

³ "2. ...The Government of Canada intends to provide additional offset payments to the province in respect of offshore-related Equalization reductions, effectively allowing it to retain the benefit of 100 per cent of its offshore resource revenues...[Note 1 in original] Defined as revenue received from the Government of Canada under the Canada-Newfoundland Atlantic Accord Implementation Act and Hibernia contractual royalties."

Under the Canada-Newfoundland Atlantic Accord Implementation Act, 1987, the Government of Canada collects royalties from the Newfoundland Offshore Area, which are transferred to the Government of Newfoundland and Labrador under the terms of a memorandum of understanding between the two governments.

The Atlantic Accord (1985) defined the province's revenues much more broadly:

On the basis of the foregoing, Newfoundland shall receive the proceeds of the following revenues from petroleum related activity in the offshore area:
(a) royalties;
(b) a corporate income tax which is the same as the generally prevailing provincial corporate income tax in the province;
(c) a sales tax that is the same as the generally prevailing provincial sales tax in the
province;
(d) any bonus payments;
(e) rentals and licence fees; and
(f) other forms of resource revenue and provincial taxes of general application, consistent with the spirit of this Accord, as may be established from time to time.

The 48 seat budget - updated

Loyola "Rain Man" Sullivan delivered his budget for Fiscal Year 2006 this afternoon, with a 10% increase in government spending and cash poured into just about every existing demand in the province.

Consider this the first of two budgets aimed at winning every seat in the province for Danny Williams in the next election. By October 2007, the entire electorate will be asking "What other choice is there?" except to vote for Danny Williams. Judy Foote, the member for Grand Bank district and former cabinet minister, may rue the day she uttered the same phrase when talking about her motion yesterday calling for an "independent" public inquiry in Fishery Products International.

Total spending is projected to be $5.6 billion. The provincial government's own-source revenues are higher than the entire provincial budgets delivered less than a decade ago.

Biggest cash increase came from oil and gas which generated almost $1.0 billion dollars last year in revenues. Government deliberately low-balled the numbers last year.

Some preliminary highlights and observations:

1. The budget for Danny's own Department of Business has more than doubled going from $1.7 million last year to $3.8 million this year.

Still no word on the main departmental initiative, namely the Young and Cool rebranding initiative.

Question: who got the rebranding contract?

2. $100,000 to design and implement a communication strategy to support the sealing industry.

Question: Who will get that contract and how will it be awarded?

3. Oil and gas royalties in 2005 were more than double last year's budget projections. Last March, Bond Papers noted the budget spin control deployed by government for last year's budget.

This year's budget shows just how much Rain Man spun his numbers last year, especially on oil and gas revenues.

4. Loyola Sullivan's revenue projections were out of whack yet again. In 2005, Loyola Sullivan projected a deficit of almost $500 million. His actual position at year-end showed a surplus of over $70 million. That's a pretty big shift. But then again, he was off in his first budget as well, by an equally horrendous amount.

If we use the past to guide our projections, expect that this budget will see revenues about $500 million higher than Loyola is allowing. Oil and gas revenues plus the full production impact of Voisey's Bay will be the drivers.

5. Look back at the March archive for the Bond Papers and you'll see Loyola was musing about huge deficits for the foreseeable future and investing the offshore cash in a way other than what he did. They dropped it all into the unfunded pension liabilities.

6. Equalization dropped this year by about $191 million even though oil revenues grew by more than that. At the same time, the combination of the Real Atlantic Accord (1985) and the January 2005 deal produced "offsets" of $329 million.

When Danny Williams claimed "We got it" what he supposedly meant was "we got the original plan" in which the offsets were supposed to equal oil revenues. By my rough calculation, the "offsets" are roughly $142, 800, 000 less than the actual royalties from 2005, much less the total revenues for that year. They 2006 offsets are about 50% of the total royalties projected for FY 2006.

7. While provincial own-source revenues are higher than total government spending a decade ago, the federal transfer portion remains about the same in dollar terms as it has been for some time. The Government of Canada will send Newfoundland and Labrador about $1.6 billion in FY 2006 to help make ends meet.

Spindy unwinds?

CBC's Here and Now reported this evening that the upstart local newspaper The Independent, known affectionately around here as the Spindy, will publish its last number this weekend.

I'll save my obit until there is confirmation, but the Ceeb claimed to have it confirmed from three sources. Presumably neither of the sources had the last name Dobbin or Cleary.

Who is surprised by Loyola and Jerry?

That's Loyola Hearn and Jerry Vlasak.

Vlasak (left), for his part, has repeatedly stated he believes it's just peachy to kill humans if animals are saved in the process. At the Bond Papers, we have discussed Vlasak, his wife - former child actor Pam Ferdin, and their associations with Paul Watson and the animal extremists. Check here, here and here, from last October's archive.

Vlasak told a 2003 animal rights convention:

"I don't think you'’d have to kill -- assassinate -- too many vivisectors," Vlasak said, "before you would see a marked decrease in the amount of vivisection going on. And I think for 5 lives, 10 lives, 15 human lives, we could save a million, 2 million, 10 million non-human lives." When one woman in the audience disagreed, saying that Vlasak's approach was no different from that of abortion-clinic bombers, Vlasak was undeterred. "Absolutely," he countered. "I think they had a great strategy going."

Vlasak's a known quantity.

Also known is (left//Photo: Greg Locke) Loyola Hearn, the federal fish minister, who is known at least if you pay attention to what Hearn says and does as opposed to what you may wish he was saying and doing.

CBC reports "Loyola Hearn said the hunt must be open to public scrutiny."

"He fears that if the federal government doesn't issue observer permits, it will look like seal hunters have something to hide."

Hearn knows full-well that there are grounds for keeping some animal extremists out of the country and for restricting their activities that are not about observing the hunt at all. Vlasak has been barred from some countries; Canada should be added to his personal No-Fly list.

But Hearn's position is hardly surprising for a guy who has toed the pre-existing policy line in Ottawa since taking office. Hearn has a couple of problems, not the least of which is a shortage of qualified staff. Some reports have the bulk of his people coming out of the bowels of his department because others don't want the job or can't pass the sniff test for getting hired.

Ryan Cleary, long Hearn's chief booster in the province, was reported here as having the job earlier. He later said publicly he wasn't offered a job and wouldn't take it if he was offered one. The details will never be known why Cleary isn't getting paid for supporting Hearn, but somehow, it's hard to imagine Cleary siding with the department officials he loathes on a matter like Vlasak and the seal hunt.

Political staff can serve a valuable purpose of giving a minister a perspective different from that of department officials. Hearn isn't getting it, apparently, although around here, we'd argue Hearn as minister is just being the kind of politician he has always been regardless of who is staffing his office.

Either way both Vlasak and Hearn are known quantities acting predictably.

Why are people surprised by their comments?

Greg Locke meet Greg Locke

Anyone who knows the superlative local photographer will know he holds strong convictions and is capable of the odd harangue in favour of his cause.

It must be something about the name.

Harper, cabinet and the constitutional thingy

As Canadian Press reports, Prime Minister Steve Harper considers that cabinet secrecy is a constitutional thing.

"Meetings of cabinet are private. It's a constitutional thing," the prime minister argued at a mid-day availability.

Well, he's right.

To a point.

Cabinet meetings are secret, but to be perfectly accurate, the PM should have said that the contents of cabinet deliberations are secret. In other words, unless you are a member of cabinet or an official or other person specifically permitted by cabinet in the room, no one gets to know who said what to whom about what. That level of secrecy is intended to allow cabinet ministers to discuss the sensitive matters they deal with each day in the most frank way possible.

The secrecy of deliberations is intended to keep cabinet what it is: collectivly responsible for decisions. There is little if any possibility of having the government appear divided on an issue and thereby demolishing public confidence in the core of government.

And, as much as we like to speak popularly of this prime minister or another being responsible for everything, cabinet government has traditionally made the prime minister merely primus inter pares, first among equals. Certain first ministers, like say Danny Williams, can dominate a cabinet and make whatever decisions he pleases. But let Danny slip in the polls. Let his shenanigans cost the government political support and he might find himself faced with a cabinet as unified as the herd of cats Roger Grimes fronted.

An Australian politics website describes it well:

Ministers must be able to speak freely within the cabinet room. They need to be able to discuss issues and political strategy with each other in a frank and uninhibited manner. Discussions would be seriously circumscribed if ministers thought that their comments would be reported outside.

What Steve Harper is talking of is something far less than a constitutional convention.

Once upon a time, only a handful of people would know when cabinet was meeting. These days, though, most jurisdictions not under terrorist threat don't make a secret of time and place in which cabinet regularly meets. Not knowing when cabinet met, much like the secrecy of deliberations, prevented the sovereign from meddling in the affairs of the elected parliament.

In Newfoundland and Labrador, it used to be Thursdays starting at 9:00 AM. These days, I might not be able to tell you when Danny pulls the crowd together to formally record their "Yes" votes, but odds are good that news media know and the information could be readily uncovered even though it has never been a practice here to issue news releases about schedules of meetings and such.

In Ottawa, the practice since before Joe Clark has been for cabinet meetings to be publicized and for news media to be allowed to gather in controlled circumstances and intercept ministers as they leave. There is nothing to stop cabinet from organizing other meetings aside from its regular session and undoubtedly those have occurred repeatedly since Confederation (1867).

The current battle between the prime minister's office (PMO) and the parliamentary press gallery (PPG) is not the most serious fight facing anyone, but it is an unnecessary racket. Stephen Harper makes much of his commitment to accountability. If this were true then he should merely let the established practice continue.

By attempting to exert control over the PPG, and by tightly controlling what ministers may say and when they may speak, the prime minister is demonstrating that he is the antithesis of genuine accountability.

By muzzling cabinet and by attempting to manage the media Harper is himself pushing against some more substantive constitutional provisions and confirming that he looks on his new job just as did some of his predecessors.

Like Jean Chretien.

The prime minister's office in Canada has become too much like the White House over the past three decades, but without the legal counterweights to the first minister's legal ability. Gordon Robertson, formerly the most senior public servant in Canada told the National Post in 2002 that "[o]ur concentration of power is greater than in any other government with a federal cabinet system. With the lack of checks and balances, the prime minister in Canada is perhaps the most unchecked head of government among the democracies."

Robertson made those comments in the waning days of the Chretien administration, while Paul Martin was talking of a democratic deficit and before Harper and his allies, like Loyola Hearn, engineered the merger of the old Alliance party with the Progressive Conservatives. At the time, Harper though t a key to curbing the powers of the prime minister was an elected senate. That promise appears to have slipped from the Prime Minister's list of priorities.

More to the point though, Harper could demonstrate his commitment to reforming parliament, the prime minister's office and to keeping both accountable by his actions. Harper has the power simply to be accountable, rather than talk about it or consider putting it in legislation.

Genuine accountability does not come from an act of the legislature. It comes from the actions of the prime minister.

In the Great cabinet Secrecy Racket, Harper's actions on accountability and change in government speak far more loudly than his words.

It's a shame.

Province pays multi-nationals to keep locals employed

The upshot of this ministerial statement by provincial natural resources minister Ed Byrne is that the Government of Newfoundland and Labrador is willing to pay a large international company so that local workers will keep their jobs.

We have reached a short-term agreement with Corner Brook Pulp and Paper that will see them continue to purchase pulpwood from the Northern Peninsula this year. In exchange, the province has agreed to look within its existing budget to see what can be done to mitigate the costs to the industry of the fire suppression, spray, silviculture and access roads programs.

Byrne explains later in the statement that the Kruger mill in Corner was planning to import wood from the Maritimes which is now on the market as a result of mill closures there. Kruger could get the wood brought by barge across the Gulf of St. Lawrence for less than they could get wood cut on the Great Northern Peninsula and brought to the mill by truck.

But now Ed Byrne will write Kruger a cheque to subsidize its operations so the loggers will get paid and, presumably Kruger will still bring in the wood from the Maritimes.

There are 250 seasonal workers affected by the decision, so it's only fair to ask how much money government is putting into Kruger. When about the same number of jobs came on the block in Stephenville, government was willing to drop upwards of $12 million a year to create a situation where basically we'd have been paying the company to take our resources away and make money on them.

So how much cash is involved here?

But more importantly, one must wonder why a couple of hundred part-time workers on the west coast got swift action on their grievance when on the south coast the people of Harbour Breton are in the second year of waiting for Danny Williams to do anything substantive for them.

And, more to the point, Fishery Products International on the Burin peninsula are waiting for the province to come up with an older-worker-adjustment program, commonly known as early retirement.

When can the people of the Burin peninsula expect the same speedy commitment of provincial cash to help them out?

Offal news

Back from the frozen North, Simon Lono takes a look at FPI in his first major posting over at Offal News.

It's worth checking out.

The problem is not FPI - FPI is reacting to changing world conditions. The current noise and smoke coming from Rideout and others mask the fact that government has fallen into a vicious cycle of short-sighted crisis management and populist damage control instead of realistic appraisals and sensible solutions. If they have a plan, it is well hidden.

Ouch.

Control freaking

Canadian Press is reporting on the growing controversy in Ottawa over prime Minister Stephen Harper's ongoing efforts to restrict media access to cabinet ministers.

Yesterday's broohaha focused on Harper's office having security guards to keep reporters from horning in on a photo op. The bigger issue is Harper's plan to move reporters away from the cabinet room and likely hold secret cabinet meetings.

Harper's communications director, Sandra Buckler, gave the official response to media comments on the issue: "I don't think the average Canadian cares [about media access] as long as they know their government is being well run."

Ahem.

That may well be true.

Unfortunately, Canadians will have a harder time finding out how well run the government is if the reporters who would carry that message are cheesed off by the prime minister's efforts to piss off all but the most blatantly Conservative reporter on the Hill.

Look at the number of stories today that highlight the unimpressive nature of the upcoming Throne Speech. The damn thing hasn't even been delivered yet, but Sandra's sterling efforts at pissing people off are reaping a predictable reward.

If you stop and think about it though, this administration, less than 100 days in office, has not implemented any great policy initiatives. It hasn't really been demonstrating how well things are run.

Nope.

And that might be the clue as to why the biggest thing on Sandra Buckler's agenda - aside from vetting thousands of e-mails, letters to the editor and other ministerial communications - is to shag around with news media access.

If Harper and company were actually doing something news-worthy, Sandra wouldn't have to worry about message control. Sure the guys have only been in office a few weeks but, come on, they must have something they could be doing rather than frigging with deciding who can and cannot ask Steve a few questions.

Bill Clinton's team of amateurs tried this sort of access control and it failed miserably.

Other world leaders have tried it too.

It some places the Harper/Buckler approach works...

Places like Khazakstan.

Or Zimbabwe.

This is hardly the model we should be emulating.

On time or on target

but seldom both at the same time.

An old joke at the expense of gunners everywhere but likely not an accurate description of the crew manning this 155 mm howitzer from A Battery, 1 Royal Canadian Horse Artillery. (Photo: Louie Palu/The Globe and Mail)

The M777 howitzer is brand new, being fielded this year by the Canadian army, the United States Army and the United States Marine Corps.

At less than 10, 000 pounds, the M777 is light in weight but packs all the punch of a 155 mm system. At Charge 8, the M777 has a range of 24.7 kilometres; it rocket-assisted rounds can reach ranges up to 30 kilometres.

Some Canadian critics of the army and its performance claim the Canadian military lacks modern, capable equipment.

The critics need to update their information.

SEALs fight back

The war on terror took a bizarre turn today as United States Navy SEALs launched a counterattack against men and women who are reportedly clubbing their brethren in the Gulf of St. Lawrence.

At left, two members of a SEAL detachment are seen skiing cross-country to intercept the fishermen, described by one Pentagon source as "terrorists".

The once clandestine SEALs have been reported for some time walking openly in the streets of some eastern Canadian communities (right).

Fishermen complain that fish stocks are being decimated by the SEALS, who patrol river mouths and eat salmon and other species as the fish head up river to spawn.