From the December 19
Financial Post, comes a commentary by Claudia
Cattaneo, the Post's Calgary Bureau Chief. There's a link to it, but for posterity, we are reproducing the whole thing below.
After that, you'll find Danny Williams' rejoinder published in the January 3 edition of the venerable Canadian business journal. It's pretty interesting to read Williams' letter since it actually doesn't address the points
Cattaneo makes. There are a few
Bond Papers' comments in square brackets but don't let those distract you from the main articles.
Or his sentences.
Fragments actually.
Lots of them.
Danny Williams [
left, not exactly as illustrated] must have kidneys of
superhumanly freakish size for all the pissing he does.
Cattaneo's comments are accurate, reflecting an understanding of Williams' position, recent comments by one of Hydro's senior officials and - to be sure - the view of the oil and gas industry with whom Williams would have to work if offshore oil and gas resources are to be developed. Unfortunately,
Cattaneo's understanding doesn't conform to the Premier's year-end
puffery. So he claims she is uninformed and in the back pocket of Big Oil.
We've heard it all before.
Anyway, for the record, here's the original article followed by the Premier's comments, all part of the Premier's latest pissing match.
One last thing: Danny Williams' is right about one thing: inaccurate, selective and uniformed commentary is completely unproductive and does a disservice to everyone. Too bad the Premier is most often the one providing such comment.
You could've been a contenderComment
Claudia
Cattaneo,
Financial PostPublished: Tuesday, December 19, 2006
Right about now, if Danny Williams, the Premier of Newfoundland and Labrador, hadn't played Russian roulette with Big Oil -- and lost -- the
Hebron Ben Nevis heavy-oil project would be hiring hundreds of people and writing cheques with nine zeroes.
The Hibernia offshore oil project, Newfoundland's first and mightiest, would be looking forward to many more years of steady production volumes, thanks to the discovery of an extension in the southern edge of the field. [
BP note: see, for example, "
Waiting for the other shoe".]
Yet partners are facing a rapid decline next year, apparently handcuffed because the Tory Premier wants a better deal on the new reserves.
It's a similar situation with Husky Energy Inc., which were it not for Tory
obstinance, would now be beavering away to develop the 2.3 trillion cubic feet of gas reserves associated with the White Rose oil project. [
BP note: This comment is a bit overblown. A natural gas royalty regime has been under development since the late 1990s. In April 2006, Husky
indicated it would be shelving plans to develop White Rose gas until the gas royalty regime is issued.]
Instead, thousands of Newfoundlanders are leaving to work in oil projects in Alberta. The exodus is so huge the shock to the provincial economy has been compared to the collapse of the cod fishery.
But Mr. Williams continues to stick to his guns. The province is expected to unveil an energy plan early in the new year that will bring back government ownership and control of oil and gas resources in Canada for the first time since the 1980 National Energy Program.
One the greatest fears is that the plan will mandate equity ownership in oil projects by the province without contributing capital. The plan may also include a generic natural-gas royalty regime. Depending on the terms -- and there are few hints on what they may be -- it will either encourage production of vast natural-gas finds, or keep them idle. [
BP note: The Premier has stated several times over the past year that the energy plan will include a natural gas royalty regime.]
Mr. Williams' approach has wide appeal in Newfoundland, where bashing arrogant Big Oil garners votes and the common view is that the province got a raw deal on Hibernia, as oil companies underplayed its potential to squeeze the best possible terms.
Mr. Williams believes the plan will turn his province into an even greater energy producer by putting the government in the driver's seat and ensure it gets a fairer share. Most likely, it will keep Newfoundland an energy wannabe.
A presentation last month by Jim
Keating, vice-president of business development at Newfoundland and Labrador
Hydro Corp., the provincial Crown corporation through which Mr. Williams is expected to drive his oil-and-gas agenda, is seen by Canada's oil industry as signalling where the Premier is going.
The
presentation notes:
- That many other governments get a bigger share from their oil riches than Newfoundland.
- Government-controlled entities are common in the sector globally, with 88% of reserves under government control.
- The global trend is for a greater government take from oil and gas projects and highlights energy- producing countries such as Russia, which has increased royalty and export duty rates; Algeria, which has introduced a windfall profits tax and is increasing state equity; Venezuela, which has increased royalty, tax and state equity rates; Ecuador, which has introduced a windfall profits tax; and Bolivia, which increased the royalty rate and nationalized assets.
The speech, given at
Memorial University in St. John's, praises the benefits of government ownership and control, such as ensuring greater knowledge and influence over the industry while ensuring development of long-ignored resources. [
BP note: Several people who attended the session and some who heard a similar speech delivered by Hydro chief executive officer Ed Martin at the St. John's Board of Trade offered an observation similar to
Cattaneo's.]
It's hardly the type of thinking that makes oil types want to drop what they are doing and flock to the area. Already, their experience with
Hebron, and now expectations that a new standoff is brewing with the province over development of Hibernia's south extension, has dampened any enthusiasm they had left.
Global trends such as increased government take and ownership have largely scared off foreign investment, increased government corruption, and frustrated oil-and-gas sector development.
In Canada, past government ownership of oil and gas resources, through entities such as
Petro-Canada, is widely seen as failed government policy that cost taxpayers dearly.
With estimated reserves of 2.7 billion barrels of oil and 10.2 trillion cubic feet of natural gas buried off its coasts, Newfoundland has significant holdings. Yet they're modest by world standard and hard to get to.
Mr. Williams' confrontational style doesn't make him the type of partner oil companies would welcome.
If Mr. Williams moves forward, the predictable outcome is that exploration activity will remain significantly below potential despite high energy prices, there will be no new projects and current daily production of about 300,000 barrels of oil a day will start to decline next year.
The sad part is that Mr. Williams is so popular that Newfoundlanders -- at least those who haven't left for Alberta -- seem to be buying into his views. He should let them know that his high-risk strategy could cause their oil industry to unravel, and that they would be the big losers, not Exxon Mobil Corp.
Financial Post ccattaneo@nationalpost.com
-30-
We will not be bulliedFinancial Post, January 3, 2007
Re: You Could Have Been A Contender, Claudia
Cattaneo, Dec. 19.
The uninformed, superior attitude of certain commentators never ceases to amaze me. Claudia
Cattaneo's article entitled "You could have been a contender" is condescending to the people of my province, to me personally, and frankly your readers should be equally insulted. Her complete lack of understanding of the facts is somewhat astonishing, especially considering she is generally quite knowledgeable on the facts of the oil-and-gas industry. But perhaps her proximity to the oil companies in Alberta has skewed her objectivity. I certainly hope this is not the case. In any event, let me correct some of the impressions left by her unfortunate commentary.
First of all, I would like for Ms.
Cattaneo to explain to me how "Tory
obstinance" is blocking the development of Husky Energy's natural gas development. This government is in the process of consulting with industry to implement a fair and reasonable natural gas royalty regime. I make no apologies to her for ensuring we do this in a proper, timely fashion. I do not have the luxury of having no one to answer to -- rather, I have many future generations of Newfoundlanders and
Labradorians relying upon our government to ensure we get a fair return on our resources. [
BP note: The natural gas royalty regime has been under development since the late 1990s. It was supposed to be released, along with the energy plan last year. That would hardly qualify as "proper, timely fashion."]
Furthermore, Ms.
Cattaneo's assertion that our government is looking for equity without contributing capital is wrong. During our negotiations on the
Hebron development, we were quote willing to pay for our equity position. And a minor equity position at only 4.9%. A very fair and reasonable position, considering some other jurisdictions regulations. [
BP Note: Premier Williams deliberately confuses his claims about what was involved in the
Hebron discussion with
Cattaneo's references to what some people believe
may be in the energy plan.] It is ironic that on the very day this "commentary" appeared the news reported the merger of Stat Oil and
Norsk Hydro -- the Norwegian government will hold 62.5% of the merged company, and its Prime Minister said he would seek parliament's approval to increase the state's share to 67%. I don't think there will be an exodus of companies leaving the Norwegian shelf as a result of greater government ownership. Fine for Norway, but I guess Ms.
Cattaneo doesn't see such benefits as befitting Canada or my province. Which leads to another point.
Ms.
Cattaneo selectively uses excerpts from a presentation made by an official from Newfoundland and Labrador Hydro. In so doing, she tries to paint our government as comparable to Algeria, Bolivia and Russia. What she fails to point out is that in fact we are looking for a greater return on our projects, as other jurisdictions have. Her selective examples are the extremes. She conveniently fails to mention the other examples of increasing fiscal terms that are closer to home-- the United States, the U.K., Norway and, yes, Alberta. We are seeking arrangements on the development of projects on a just and reasonable basis. [
BP note:
Bond Papers has previously
noted the misrepresentations repeated here by the Premier. For example, the American offshore
taxation regime on some properties, even after increase, would still not be as lucrative as the Newfoundland and Labrador regime. In
Alberta, the province is seeking a modest increase in its royalty on tar sands. For a discussion of some factors affecting Newfoundland and Labrador's economic future see
here.]
Inaccurate, selective and uninformed commentary, such as provided by Ms.
Cattaneo, is completely unproductive. It does a disservice to the people of my province, and indeed to the people of Canada who as well will all serve to benefit greatly from our offshore development. But I can assure Ms.
Cattaneo and the oil companies she so valiantly supports that our government will not be bullied into making decisions that are not in the best interest of our people. We are not unreasonable; we are not selfish or irrational. We are, in fact, looking to work together for
everyone's mutual benefit and develop our industry in a manner that returns to the people some of the benefit they so richly deserve.
Danny Williams, QC, Premier of Newfoundland and Labrador.
