Williams creates Hebron royalty confusion

In a letter to the Friday National Post, Premier Danny Williams has given a completely different version of the Hebron royalty regime from the one announced on August 22, 2007 and confirmed by natural resources minister Kathy Dunderdale in an interview with the Telegram a few days later.

With regards to criticism of modifications to the basic royalty, it is important to note that the change is the difference between 2.5% and 1% -- not between 7.5% and 1% as reported by Mr. Coyne -- in addition, we still maintain the 5%, and in some cases 7.5%, level of royalty once costs are recovered. As well, the province will still receive the monetary benefits of being a 4.9% owner of this project during these early years.

The government Hebron news release stated that the only changes to the province's generic royalty regime were to add a Tier 3 royalty (the so-called super-royalty) and to reduce the basic royalty to a flat 1% until the project attained simple payout. It made no reference to the basic royalty level after simple payout. Presumably, Tier and 2 would continue as currently stated in the generic regime.

The generic regime basic royalty begins with a 1% royalty on gross revenue and rises through a series of triggers to as much as 7.5% on gross revenue. After simple payout, the basic royalty - at whatever rate is in place at that time - continues and is supplemented by additional royalties based on a net revenue calculation. Simple payout is the point at which the project development costs are covered.

Dunderdale confirmed the 1% flat rate to the Telegram, but referred obliquely to a 5% rate applying in a net royalty period (i.e. after simple pay out.) She apparently provided no further details. At no point was there reference to a potential 7.5% basic royalty.

The scenario painted by the Premier for the National Post would assume project simple payout after less than four years of production, despite total project costs estimated to be $7.0 billion to $11 billion. Even at the lower range of costs, i.e. start-up costs of $5.0 to $6.0 billion, the project would likely take longer than that to pay out unless one assumes sustained high prices for Hebron heavy oil well into the future.

As well, Williams' comments suggest the royalty regime for Hebron is significantly different from what was announced on August 22 and significantly different from the generic regime. Under the generic regime, the basic royalty continues at a fixed rate after simple payout but is supplement by a series of higher rates applied to a net revenue. Williams' comments in the Post suggest further variability in the basic royalty after simple payout.

No information is available beyond the government's contradictory comments since the memorandum of understanding among the operators (including the provincial government) prohibits the disclosure of the document.

There is no way of confirming the extent of the confidentiality clause to determine if the information released to date actually violates the confidentiality agreement.

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House management committee reveals more fumbles on the road from perdition

Rejoice!

The members of the House of Assembly's internal management committee have voted to prevent members of the legislature from making claims against their constituency allowance once an election has been formally called. They met for the first time this week.

In an effort to appear more attentive to controls on public spending, Speaker Harvey Hodder is quoted in a CBC news story, linked above, as saying that:

"If members who are incumbents can access their constituency funds during the election period, that in my mind does not facilitate a level playing field for all candidates."

Sounds wonderful, until you realize that this decision came in a fairly obvious response to the revelation that the old rules on constituency allowances - not the tighter Green ones - will be in place until October 9. Members can still make donations from their funds, even though Green decried it and his new rules prohibit it.

As you may recall, deputy premier Tom Rideout turned himself and the very concept of time in knots trying to explain away that bit of business.

In any event, the members of the new commission - which incidentally includes many faces from the old committee - also voted to take away cell phones from members of the legislature once the election is formally called.

Sounds marvelous, until you realize that under changes to the Elections Act also made last spring, voting is actually already underway.

That's right. The legislature has not been dissolved and candidates are not legally in place but people have actually voted already, as they have been legally entitled to do since August 20.

Sounds wonderful too, until you realize that once an election is called, there are actually no members of the House of Assembly to file claims. The election is formally called when the Premier visits Government House and advises His Honour to dissolve the House.

By definition, dissolving the legislature puts everyone on the street and everyone - including incumbents - becomes nothing more than a candidate. They have no right, legally or otherwise, to lay a claim on the public purse for a single nickel of expenditure from their constituency allowances. They have no right to travel expenses or cellular telephones or any of the other perks of office since - by the most obvious of obvious points - they no longer hold office.

(As an aside, cabinet ministers remain cabinet ministers since they actually hold those appoints separately from their place as members of the House. Government administration carries on even without a legislature. Their incomes should drop as well, given that they are not entitled to pay as members of the legislature during a period when - legally - they aren't members of the legislature.)

So what went on here?

Mr. Speaker Hodder claims that the management committee were correcting a problem with Chief Justice Green's report. According to the CBC story, Chief Justice Green "recommended that incumbent members of the house should be able to use government money to do their constituency work after the writ is dropped."

Of course, there is no such recommendation among the list of recommendations in the Green report. It is hard to imagine the Chief Justice consciously creating a complete nonsense. By reputation, Derek Green doesn't do nonsense.

There is an anomaly in s. 14 of the Green bill that would entitle members to claim allowances and expenses until the date of the next election. (That's easy to explain given the size of the report and the amount of work involved.)

The section, as it stands, would literally mean voting day, but, as such, it clearly contradicts the legal order dissolving the legislature and therefore vacating every seat in the House. The two things can't exist at the same time and, as much as your humble e-scribbler is not a lawyer, it would be a safe bet that any court worth its stuff would toss that section of the Act out the window on the face of it.

In their haste to get the Green bill through the legislature last year and appear to be making substantive changes, the members and their lawyers obviously missed this point. They were able to delay the bits of the legislation that would have genuinely restricted spending by members, until after the election - although they didn't tell us that - but they missed the little anomaly that really ought not to have caused much concern.

What the management committee did today was tidy up an oversight and then claim a great moral victory by blaming the mess on Chief Justice Green. Pure fluff and nonsense.

It's good they fixed the problem, but frankly, trying to claim credit for doing something that they all know couldn't really exist in the first place seems just a bit of a stretch.

Of course, restricting the thing to the period after a writ drops seems a waste of time given that these same legislators are able to claim expenses during the real election which, as we've said, started on August 20.

But here's an interesting question:

Even though that little section of the Green bill wouldn't stand up to a court challenge, what about the sections of the Elections Act that allow voting in an election that hasn't been called yet?

Is that constitutional?

Update: Voting has started and, apparently so has the amateur political commentary from I.P Freely. This stuff turned up during the by-elections during the winter and it seems to have returned.

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Nightstalkers!

Some will get this.

Most won't.

If you don't get, it don't worry about it.

Left: Albrecht Drurer, The Four Horsemen of the Apocalypse.













Right: Patch of the 160th Special Operations Aviation Regiment, United States Army. The Nightstalkers. "Nightstalkers Don't Quit."


Death rides a pale horse.

The Minneapolis Airport Shuffle

CNN has both the transcript and audio of a police interview with a senator involved in an alleged lewd behaviour that allegedly took place in the toilet stalls at the Minneapolis-St. Paul airport. The Minnesota police released the transcript and an audio recording to the news media across the United States on Thursday.

Bond lampooned the thing a couple of days ago, and frankly the transcript doesn't add much to the whole incident; it still seems bizarre for the actions involved, the police response and - this one is really big - a united States senator absolutely an undeniably foolish enough to speak to police without a lawyer present after the senator was arrested and charged.

According to the New York Times, calls are mounting for Idaho Senator Larry Craig to resign. Republican presidential candidate Mitt Romney has, not surprisingly, called Craig's alleged behaviour disgraceful. Romney is shooting for the conservative vote and dumping a guy facing allegations like this would be am easy call. Add that Craig was the co-chair of Romney's campaign - that is until he resigned - and you can pretty much bet little time was taken in the Romney camp to question whether or not to stand by the guy.

While the saga of the Minneapolis Airport Shuffle seems bizarre, other aspects of the story are not. The Idaho Statesman carried a story this week of a 40-year-old Idaho Republican who claims to have had oral sex with Craig in 2004. Statesman editorials have pointed out other aspects of the case, and the senator's past, that have had an unmistakable impact on the story as it has unfolded. For example, the guilty plea to a misdemeanor charge apparently came two months after the arrest and Craig kept the incident from everyone, including his family.

The Statesman capped its coverage by calling for Craig to resign. The editorial board did so citing Craig's desire to keep secrets. and his performance in a public statement after the story broke.

There are a few observations to make, now that the story has developed further.

First of all, Bond's initial reaction was wrong. This is a very serious story. It is serious because of the senator's efforts to avoid or deny dealing with it. Craig apparently has been the subject of local rumours about his sexual activity in the past. The Minneapolis arrest appears to prove the rumours.

Second of all, and as the Idaho Statesman's editorials and coverage make plain, a lack of public accountability or attempting to deny what is obvious is considerably more damaging than dealing with the issue head on.

Third of all, Craig's posturing during the Lewinsky scandal and his opposition to equal marriage measures suggest a measure of hypocrisy, something certainly Idahoans appear not willing to tolerate.

Fourth of all, and looking at it from outside the United States, we might look in bewilderment at a culture which makes an individual's sexual orientation a political issue. Promiscuous heterosexuals can apparently run the entire United States government with not much being said about it.

Fellatio in the Oval office? Not really a problem for most Americans. Most who turned on Clinton - other than hard-core Republicans - did so because of the famous lie, not for the diddling in the broom closet.

But being a gay man?

That's another story in some parts of the United States.

The result of all this is that a 27 year political career in the United States senate has come to an inglorious end. Craig may have himself to blame, as the Statesman puts it, but at some level, there are probably a few other people who should be thinking about the opinion environment they've helped to create.

And as for the Minneapolis Airport? If the Statesman is correct and the place is a known hangout for public indecency and lewdness then by all means it needs to be stopped.

But don't stop it because the people taking part are of the same sex. Do it because none of us need to answer the call of nature either alone or to help our underage children and find adults in the next stall doing something else.

The state has no place in the bedrooms of the nation, but the porcelain palace is another matter altogether when horny Minnesotans can't just bother to get a room.

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Ralph Goodale on the 2005 offshore deal

Ralph Goodale is in town for the annual federal liberal caucus meeting. The Telegram grabbed him for an interview. [Photo, left, The Telegram/Rhonda Hayward]

Here are some extracts:

On the flag stunt:

Shortly after, Williams yanked down the Canadian flag from the front of government buildings across the province in a protest that, even now, Goodale finds distasteful.

"I thought then — and I still think today — that approach, that tactic, was unfortunate. I don’t agree on any occasion with any premier, whatever the issue might be, taking that particular slant to it and pulling down the flag," he said.

On the deal as a whole:

"Do I think it was the right deal? Yes I do," he says without hesitation.

"The problem was real, there was justice behind the provinces’ position and, as difficult as the negotiation was and as colourful as some of the tactics were, we had to keep our eye on the ball and work our way through it."

Read the rest. it's an interesting counterpoint to the false information spread local during the discussions and since.

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Elections Canada reviewing Conservative election ad spending

From CanWest:

OTTAWA - Federal election watchdog William Corbett is "examining" disputed advertising expenses claimed by Conservative candidates in the last election. Elections Canada confirmed it referred the issue to Corbett last last April.

As Commissioner of Canada Elections, Corbett has the power to pass on cases to prosecutors.

Corbett's involvement indicates the potentially serious nature of the dispute between Elections Canada and the Conservatives over $1 million in advertising costs its candidates paid the party, after the party transferred the money to the candidates.

Violations of the Elections Act that Corbett enforces are subject to fines and imprisonment.

The Conservative Party would not comment on Corbett's involvement. The party says it is in full compliance with the Elections Act.

From the Globe:

The Conservatives spent the maximum amount allowed by a political party during the 2006 campaign. In addition, they gave about $1.2-million to local candidates who had not spent their own personal maximum. The money was then given back to the party on the same day to buy ads in regional markets.

Elections Canada is locked in a court battle with 37 financial officers for candidates who want the government - which returns 60 per cent of the election expenses of candidates who get at least 10 per cent of the votes in their riding - to cover the expenditure.

The federal agency refused, arguing that the party, not the candidates, bought the advertising.

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Hebron Basic Royalty: a second view

On the heels of Bond Papers' preliminary assessment of the Hebron royalty regimes, here's a look at the same issue using different oil price assumptions. please refer to the earlier post for more detail on the scenario, assumptions and caveats to be applied.

The initial assessment assumed total annual production averaging 50 million barrels per year, based on the provincial government's estimate that Hebron would produce at least 150,000 barrels per day on average. It also assumed first oil would be achieved in 2017.

As well, the initial assessment used an assumed average price for heavy crude oil at US$45 per barrel, on average for the period.

To get a more refined look, this version uses constant 2005 US dollars and takes price projections from the United States Energy Information Agency (EIA). The EIA issued its annual energy outlook in February 2007 for the year 2007 with projections to 2030.

EIA projected prices for West Texas Intermediate (WTI) delivered at Cushing Oklahoma, however, heavy oil sells at a discount compared to WTI. That discount varies over time, based on market action and has been known to run at 40% to 50% less than WTI. For the purposes of this second look, the average price per barrel for heavy crude is taken at an average of US$38 per barrel, on average over the 10 year period 2017 to 2026. That assumes a discount for heavy oil of 25%. The EIA prices ranged from US$31.88 to US$37.13.


The provincial generic royalty regime produces two years of production at 1% of gross revenue , two at 2.5%, two at 5% and four at 7.5%. The Williams basic royalty, as presented in the provincial government news release of August 22, 2007 sets the basic royalty at a constant 1% for the period before simple payout.

As can be seen, the generic royalty regime's steady progression produces significantly more royalty revenue for the provincial treasury annually than does the flat rate approach during the assumed 10 period before the project attains simple payout.

Cumulatively, the generic royalty would produce $893 million in royalty versus $190 million over the 10 year period.

There are several points to bear in mind:

1. Since there is insufficient information available publicly from the provincial government on the proposed royalty regime after simple payout, there is no way to assess whether or not there are gains after simple payout to offset the revenue foregone in the initial phase.

2. When assessing the impact of Tier 3 so-called super-royalty, it will be important to confirm whether the figure of US$50 per barrel for WTI will be expressed in any final agreement as being constant dollars (adjusted for inflation given a base year) or nominal dollars.

To illustrate the importance of this distinction, note that the EIA forecast shows WTI going above US$50 constant 2005 dollars in 2028 and then only by 17 cents. Revenue from Hebron will be actually lower than this, given the impact of the heavy oil discount.

3. Given the royalty that appears to flow in the period before simple payout, there is some doubt as to the accuracy of the $16 billion revenue figure used by the provincial government or exactly what revenues it contains in addition to royalties.

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Three more charged in House scandal

Royal Newfoundland Constabulary today laid charges against the remaining three individuals named originally by the Auditor General in mid-2006.

Fromer government House leader and natural resources minister Ed Byrne and former Labrador West member of the legislature Randy Collins are both facing one charge of fraud over $5000, one charge of uttering forged documents and one charge of breach of public trust.

Former legislature financial officer Bill Murray faces one count of fraud over $5000, one count of uttering forged documents and three counts of fraud against the government.

Note: There seems to be some confusion about the charge of fraud on the government, arising from an initial comment on Friday that this was a charge of influence peddling. Several news media reported that the Criminal Code had been recently changed.

In fact, the phrase "fraud on the government" appears in a heading to s. 121, a section dealing with public corruption. Some changes were made to the Criminal Code in 2007 to give force to the United Nations Convention Against Corruption. This charge has only been laid against two individuals so far.

The section now reads:

Frauds on the government

121. (1) Every one commits an offence who

(a) directly or indirectly

(i) gives, offers or agrees to give or offer to an official or to any member of his family, or to any one for the benefit of an official, or

(ii) being an official, demands, accepts or offers or agrees to accept from any person for himself or another person,

a loan, reward, advantage or benefit of any kind as consideration for cooperation, assistance, exercise of influence or an act or omission in connection with

(iii) the transaction of business with or any matter of business relating to the government, or

(iv) a claim against Her Majesty or any benefit that Her Majesty is authorized or is entitled to bestow,

whether or not, in fact, the official is able to cooperate, render assistance, exercise influence or do or omit to do what is proposed, as the case may be;

(b) having dealings of any kind with the government, directly or indirectly pays a commission or reward to or confers an advantage or benefit of any kind on an employee or official of the government with which the dealings take place, or to any member of the employee’s or official’s family, or to anyone for the benefit of the employee or official, with respect to those dealings, unless the person has the consent in writing of the head of the branch of government with which the dealings take place;

(c) being an official or employee of the government, directly or indirectly demands, accepts or offers or agrees to accept from a person who has dealings with the government a commission, reward, advantage or benefit of any kind for themselves or another person, unless they have the consent in writing of the head of the branch of government that employs them or of which they are an official;

(d) having or pretending to have influence with the government or with a minister of the government or an official, directly or indirectly demands, accepts or offers or agrees to accept, for themselves or another person, a reward, advantage or benefit of any kind as consideration for cooperation, assistance, exercise of influence or an act or omission in connection with

(i) anything mentioned in subparagraph (a)(iii) or (iv), or

(ii) the appointment of any person, including themselves, to an office;

(e) directly or indirectly gives or offers, or agrees to give or offer, to a minister of the government or an official, or to anyone for the benefit of a minister or an official, a reward, advantage or benefit of any kind as consideration for cooperation, assistance, exercise of influence, or an act or omission, by that minister or official, in connection with

(i) anything mentioned in subparagraph (a)(iii) or (iv), or

(ii) the appointment of any person, including themselves, to an office; or

(f) having made a tender to obtain a contract with the government,

(i) directly or indirectly gives or offers, or agrees to give or offer, to another person who has made a tender, to a member of that person’s family or to another person for the benefit of that person, a reward, advantage or benefit of any kind as consideration for the withdrawal of the tender of that person, or

(ii) directly or indirectly demands, accepts or offers or agrees to accept from another person who has made a tender a reward, advantage or benefit of any kind for themselves or another person as consideration for the withdrawal of their own tender.

Contractor subscribing to election fund

(2) Every one commits an offence who, in order to obtain or retain a contract with the government, or as a term of any such contract, whether express or implied, directly or indirectly subscribes or gives, or agrees to subscribe or give, to any person any valuable consideration

(a) for the purpose of promoting the election of a candidate or a class or party of candidates to Parliament or the legislature of a province; or

(b) with intent to influence or affect in any way the result of an election conducted for the purpose of electing persons to serve in Parliament or the legislature of a province.

Punishment

(3) Every one who commits an offence under this section is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years.

R.S., 1985, c. C-46, s. 121; 2007, c. 13, s. 5.

Aside from fraud, the other charge common to all five charged so far is s. 122:

Breach of trust by public officer

122. Every official who, in connection with the duties of his office, commits fraud or a breach of trust is guilty of an indictable offence and liable to imprisonment for a term not exceeding five years, whether or not the fraud or breach of trust would be an offence if it were committed in relation to a private person.

R.S., c. C-34, s. 111.

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Fun with homonyms

Reporting on the release of South Korean hostages in Iraq, a reporter in the CBC Radio national news referred to the entire hostage taking as prompting a great deal of "soul searching" in South Korea.

No duff.

It actually happened in the 1:00 PM cast (1:30 in Newfoundland and Labrador)

Which would be pretty much what you might expect since the country's capital is Seoul.

Koreans probably would have no problem searching for Seoul on a map.

Meanwhile, across the United States, U.S. Americans are looking to Miss Teen South Carolina [link to youtube video] to explain just exactly why they can't find this Soul place on the map, let alone South Africa and the "the Iraq" she kept babbling about last Friday night.

The young woman, who ended up in third place, told Associated Press she would like the chance to "re-answer" that question since she and her friends actually do know where the United States is on their map.

In their map of the universe, the United States is likely right there at the centre.

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Don't take a dump in Minnesota

Or some eager undercover Tackleberry will mistake tapping your foot as a come on instead of an effort to get over the natural shyness most people feel of having to do nature's business in an airport restroom.

Then when the cop sticks his foot under the stall wall, he might mistake your efforts to swat his foot away as some kinda vague effort at bizarre foreplay rather than what it easily could be: getting rid of some kinda perve in the other stall - in this case an undercover cop with what looks like an over-active imagination and a quota.

Of course, if the senator who got grabbed had exercised even the most simple of rights - one phone call to legal counsel - he might now have the Minneapolis cops looking pretty stupid. After all, the description of the incident from CNN sounds like much ado about nothing.

meanwhile, the real perves and the real crooks?

Well they know that since the guy with the short hair, 'stache, tight leathers, handcuffs and motorcycle cop boots in the airport is a real cop, it's time to take their indoor games to another locale.

And Tackleberry?

He's still still sitting on the crapper in a bid to stamp out foot-tapping and hand-waving-under-stall-walls.

Get 'roids, there bud.

Maybe the Twin Cities PD has a medal they pin in the appropriate place.

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Lono Launches into the Deep

Now when He had left speaking, He said unto Simon: "Launch out into the deep, and let down your nets for a draught."

And Simon answering said unto Him: "Master, we have toiled all the night, and have taken nothing: nevertheless at Thy word I will let down the net."

And when they had this done, they enclosed a great multitude of fishes: and their net brake.

Luke 5: v. 4-6

Provehito in altum.

"Launch forth into the deeps", or in some translations "reach for the heights."

It's the motto of Memorial University which chose the words from Luke to set a goal for students seeking knowledge.

The motto is also an admonition to strive for seemingly unattainable goals, to abandon the comfortable and the secure.

By any translation, that pretty much describes what Simon Lono has decided to do.

Lono announced today that he will be seeking the Liberal nomination in the provincial district of St. John's North in the October 9 general election.

St. John's. Traditionally deep blue Tory country.

Launching into the deeps is nothing knew for the guy who tried for a seat on St. John's city council two years ago n a shoe-string budget and with a call for greater accountability for council and investment in basic municipal infrastructure.

Lono didn't win a seat, but he finished in the middle of a large pack; not bad for an unknown. Dismissed by Mayor Andy Wells as a nitwit who didn't know what he was talking about, Lono was vindicated with the attention Wells and his newly elected council paid to investments in roads, sidewalks and water and sewer projects.

As the author of Offal News, Lono has been taking some shots and offering some insights. When the House of Assembly spending scandal broke open last summer, he spearheaded a call for a public inquiry into the mess.

So far we've been jokingly referring to this pre-election period as the Summer of Love. Well, something says that as of tomorrow, there'll be a few people who will be showing something other than love for candidate Lono.

All their personal attacks will do is show how much a particular crowd are worried Lono will get elected. The louder they howl, the more you know Lono has scored a point.

Here's Lono's news release as he launches once more into the deeps of local politics:

Simon Lono Declares for Liberals in St. John's North

Simon Lono today declared his candidacy for the Liberal Party nomination in the provincial district of St. John's North.

"The people of St. John's North deserve strong, vigorous representation in the House of Assembly," said Lono. "They deserve more than the attitude that St. John's can take the hit in elder care, education and the economy."

This was not a decision taken lightly, Lono said. "It was not an easy choice; I have been thinking about this for a while. I'm running because I'm concerned about the direction the province going."

"The Williams government has neglected important issues and has misplaced priorities," said Lono. "They've taken no action to address the needs of our aging population. In education, they've decided to break up Memorial University without counting the cost to the public purse, the effect on post-secondary education or even if this is the best option for our students.

"As for the economy, we can't be satisfied to accept mere crumbs of information on a project as important to our future as Hebron; we need more information than government has revealed so far, so we can judge for ourselves. Secret deals are not acceptable."

Lono notes that it takes a strong representation to make the difference. "The people of St. John's North have had no voice. We have too many silent, passive members sitting on the government side of the House," he said. "This government has taken St. John's North for granted and it shows."

"Public service has always been important to me, and I know I can contribute energy and new ideas to this province as a member of the House of Assembly working for the people of St. John's North."

-30-

Contact:
Simon Lono
689-0809
Simon@SimonLono.ca

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Fibre-optic details...at last

The provincial government released further details on the fibre-optic deal on Monday.

According to the summary of the deal included with a news release, the details include:

1. Persona will build and own the network. The company will post a performance bond to ensure completion, as recommended by EWA, the consultant retained to assess the proposal last summer. Rogers will oversee construction. Given that the earlier CDLI project is included in this project, it is unclear whether or not the network includes the CDLI project begun in 2005.

2. The Government of Newfoundland and Labrador will receive an indefeasible right of use (IRU) to a certain number of strands on varying sections of the network. This includes four strands on a section between Cow Head and Plum Point. Note that IRU is a form of long-term lease, not outright ownership. Note as well, that the strands on the Great Northern peninsula are actually part of an earlier project funded with $5 million of provincial government cash and another $5 million from the federal government.

This brings the total provincial investment to $20 million, not the $15 million quoted. It also confirms the Persona figure of $82 million for the whole project which combined the CDLI project with a new idea, namely the new underwater link to the mainland and the underwater strands across the south coast of the island.

3. The provincial government has already paid $5.0 million and will now pay the remainder of the outstanding $10 million in equal instalments of $2.5 million over the next year.

A line item in the 2007 budget set aside $10 million to "provide for the purchase of fibre optic strands forming part of a new, fully redundant fibre optic telecommunications link along two diverse routes which will connect with national carriers in mainland Canada." As it turns out the provincial government is not purchasing strands but rather is entering into a long-term lease arrangement with Persona/Bragg.

4. "The Provincial Government has an initial 10-year period in which maintenance will be provided at Persona’s cost. After this period, the actual average annual cost will be determined and shared amongst the IRU parties based on a sharing formula, with Persona performing the work for an administration fee based on 25 per cent of the costs."

The parties will also share the cost of any catastrophic break in the lines.

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Hebron basic royalty, a preliminary assessment

[Note: Some people may not have noticed but if you press the play button on the slide display with this post, there is an audio file giving a explanation of the slides. ]

Here's a rough assessment comparing the royalty from Hebron using the provincial generic royalty regime and the basic royalty announced by the provincial government on August 22, 2007.

The main implication of the assessment is the need for more information being made available in the public domain on the overall agreement.

The major caveat is a warning against concluding the deal is good or bad based solely on the information in the public domain so far or on this assessment. As with Voisey's Bay, it is easy to come to snap judgments only to later acknowledge the deal was good.

There may well be errors and omissions in this assessment. It is rough and was intended to be a first-look overview to see what, if any, points came into view for further discussion and inquiry.

The slidecast runs abouts 22 minutes, with narration synced with the slides. You can still skip ahead to specific slides. Note: There is an error in the slide representing the third scenario. There should be two years at the lowest royalty level and four at the top end. this doesn't materially alter the overall picture which should focus on the impact of an increasing share versus a constant share, in an assumed constant price scenario.

For some of the background used in developing this assessment, use the following links;

1. Sproule Associates: price forecasts.

2. Government news release announcing the memorandum of understanding.

3. Canada-Newfoundland and Labrador Offshore Petroleum Board, for resource estimates.

4. Hebron field characteristics.

Original slides without audio:

Hebron basic royalty, a preliminary assessment from edhollett

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Car industry is a natural resource?

One of the things Professor Michael Temelini likely can't explain about his comments to CanWest is be how a provincial government that controls the province's natural resources resources actually fights to control them more?

"Look, we have to have greater control of our resources.' And if that means taking on the oil companies, then so be it. If it means taking on the federal government, then so be it."

Control in this sense is a binary thing, basically. You either do or you don't.

The Government of Newfoundland and Labrador does.

It just signed a deal to develop Hebron, which of course demonstrates that Temelini's idea just doesn't hold up in the context of the issue he's talking about.

Unfortunately, Temelini falls into a rather simplistic assessment of the current political climate that looks at the surface but not at the deeper local origins of the local political charade involved in the masters of our domain argument. Local politicians like to blame events they haven't dealt with on a variety of things, one of them being carpetbaggers and other forms of evil foreigner.

Temelini's argument doesn't hold up in other contexts either, for that matter:

"If I was living in Ontario and a government said we want to take over five per cent ownership of Chrysler Corporation, you'd be hard put not to vote for that government if you were New Democrat," he said.

If Ontario already owned the cars, it would be a bizarre thing, and presumably, if we are talking New Democrats we might be wondering why they'd settle for only five percent.

See, that's the thing about the whole "equity" line that no one has explained yet. If "equity" is about control of resources and "public ownership", as Temelini asserts, then why would anyone be fighting for a position which - as Premier Williams outlined - doesn't give the provincial government any control at all beyond what it already had over resource development?

Why would they be buying something they already own?

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Masters of our domain: Andrew Coyne weighs in

An astute, perceptive comment from one analyst who actually can do math and thinks about things:

But here's another thing that bothers me, Danny. Leave aside how much you've given up in royalties to get that ownership stake. Why make such a trade at all? After all, the royalties in question are paid on gross revenues -- whereas ownership in the project entitles you, not just to a share of revenues, but a share of the costs. These have already climbed, from an estimated $6-billion to ... well, no one seems to have a very clear idea what it will cost at this point.

But let's say it's closer to $10-billion, all told. That 4.9% equity stake lets you -- or rather the taxpayers -- in for another $500-million in costs, against about $2.5-billion in revenues, if oil stays at US$70 a barrel, or $1.5-billion at $50. So your share of the profits, over the life of the project, are between $1-billion and $2-billion. If the same money could be collected, at considerably less risk, in the form of royalties, why the fixation on public ownership?

I know: it's to give the province "a window" on the industry. But at 4.9%, the province would have precious little say in the operation. And it's hard to see what sort of leverage it would have, as a shareholder, that it would not have as a regulator, or what information it would not be able to obtain from regulatory filings, legislative hearings and private talks. Indeed, there's something bizarre about the government paying for the right to participate in the extraction of a resource it already owns.

Food for thought, although the legions will find some reason to dismiss Andrew Coyne's common sense, typically by focusing on something other than disproving his common-sensical comments.

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(h/t to an astute local Coyne reader who flipped Bond an e-mail.)

Accused former legislature financial officer missing

Update [1200 hrs] : vocm.com is reporting that Murray was located at 3: 00 AM Sunday. No furthers details were reported by cbc.ca/nl or The Telegram.

The former financial officer accused in the multi-million dollar House of Assembly spending scandal is reportedly missing and police are seeking public help in locating the missing man.

Bill Murray has not been seen since Friday.

The RNC was asking for the public’s help with information about Murray’s whereabouts or his vehicle, described as a red 2005 Pontiac Montana with the licence plate HKP 544.

He’s described as 53 years old, five-foot-nine, 210 pounds, balding with grey hair on the sides, and with blue eyes.

He was reportedly last seen leaving his St. John’s home, wearing a long-sleeved denim shirt, light blue jeans and white sneakers. Murray was reported missing by his family.

In June, around the time of the anniversary of the scandal breaking, the provincial government announced it was launching a civil action against Murray seeking repayment of an undisclosed portion of the $4.0 million allegedly misspent.

The government's claim was based on the highly contentious allegation that Murray "signed or approved virtually 100% of the [constituency allowance] claims and sent them for processing and payment, and in doing so, was in reckless disregard for the limits." The claim is highly contentious since no action has yet been field against anyone else involved.

A report by Chief Justice Derek Green - received by government before the action against Murray - discusses responsibility for the scandal in a wider context, although Green did not address the role any individuals played nor did he address the issue of potential civil or criminal liability.

So far, two of five former members of the legislature are facing criminal charges over alleged misspending in the House of Assembly and police are reportedly continuing their investigations.

Murray is not facing criminal charges at this point.

No civil actions have been commenced against any of the former politicians named thus far.

The amounts that the police and the province's Auditor General alleges are involved are substantially less that the total overspending that did occur in the legislature between 1998 and 2006, as reported by Bond Papers last year in August and December and by the Green report this year.

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Former cabinet minister charged in spending scandal

Update: The Telegram's full story is now available. CBC online is also reporting.


Former provincial cabinet minister Jim Walsh is facing three charges arising out of a police investigation into the House of Assembly spending scandal.

The Royal Newfoundland Constabulary charged Walsh on Friday with one count of fraud over $5000, one count of breach of trust by a public official and one count of frauds against government, according to The Telegram.

Walsh left provincial politics in 2003 and was appointed to the federal Transportation Safety Board.

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Masters of our domain: Williams concedes on royalties

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

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

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

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

The Telegram reports Dunderdale as saying that the royalty then would climb to 5% until the companies exhaust something called a "return allowance". This would represent a new royalty layer not included in previous agreements and also is a piece of information not previously released by the government. No further details were contained in the Telegram story.

Only after the return allowance for the 5% rate is exhausted would the province receive the higher royalty rate of 30%. Terra Nova is currently paying at the 30% level. White Rose will also hit that level within three years of production start up. Hibernia - a considerably more expensive project comparable in some ways to Hebron - is expected to hit the higher tier royalties around 2011, 14 years after production started.

Under the three existing royalty arrangements and the province's generic scheme, royalties are tied to production levels and time, as well as costs. However, the so-called super royalty for Hebron of 6.5% is actually contingent on oil prices being above US$50 per barrel for West Texas Intermediate at a point beyond simple payout and exhaustion of the 5% rate.

The royalty re-arrangement is correctly described as a gamble. It trades guaranteed royalty levels that don't depend on oil prices to exist.

Dunderdale told news media that the changed royalty regime is designed to provide the oil companies with front-end protection - i.e. reduced costs - against plummeting oil prices. Those same low oil prices the companies needed insurance against on the costly Hebron venture would also wipe out the super royalty under certain conditions.

The Telegram reported her comments this way:

"The rationale behind these changes was the companies needed some downside protection if the price of oil went very, very low," Natural Resources Minister Kathy Dunderdale said.

"So, that was the trade off for us — to give them protection if oil prices really plummeted, to get a gain if prices were high, above $50. So, we traded off some risk on the low end for significant gains on the other end."

It's important to note, though, that the lowered royalty scheme in the province's concession essentially provides the protections sought by the oil companies in the first round of talks when they sought tax concessions. Those concessions were rejected at the time by the province.

Premier Danny Williams said in April 2006 that those concessions would have wiped out the benefits of the equity position he was seeking.

In April 2006, Williams also criticised a reduction in the generic royalty regime, considered at one time under Premier Roger Grimes, even though that is essentially what he announced on Wednesday. Grimes considered an adjustment to the royalty regime - including lower initial royalties as Williams agreed to this week - at a time when oil was well below US$50 per barrel.

CBC reported Williams attitude in 2006:

"I've indicated publicly before, when Mr. Grimes offered the more favourable royalty regime, that I wasn't in favour of that," Williams said.

" We now have a situation where we have plus-$55 oil … so there's a lot of profit in the oil industry … and so we expect to get a good return," he said.

The Telegram story - headlined "Province concedes on early royalties" - has been picked up across the country. It appears in Cape Breton Post, and a CBC version is available internationally on the CBC website.

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SOL Special Ballot update: Voting started Monday!

Turns out the eagle-eyed e-mailer wasn't so right after all.

Turns out too, your humble e-scribbler needs to check some fine details sometimes.

Advance voting by special ballot began on Monday, under a set-up proposed by former chief electoral officer Chuck Furey (see story below) and passed in the House of Assembly in June of this year.

The Elections Act, 1991, as amended last spring, allows for anyone otherwise qualified to vote in the province to apply for a special ballot now , get a kit from Elections NL and then write in the name of the candidate, the name of the candidate and party or just the name of the political party he or she wants to cast a vote for.

Who might be affected by this new voting method?

Well, anyone qualified to vote. If you are a "Canadian citizen 18 years of age or more on polling day is qualified to vote at an election if he or she is ordinarily resident in the province immediately preceding polling day," then you can vote.

So like remittance workers who take the Fort Mac express but maintain a permanent residence in the province?

Yep. They're in.

But basically, anyone can vote early provided that, as a minimum, they have a personal reason to believe he or she won't be able to vote on the actual polling day on October 9.

And here's another fun piece of work: under the Act, those ballots will be collected and can be counted before polling day.

The election campaign has been on for months. It got a big boost with the Hebron announcement on Wednesday.

But it will be really interesting to see how many special ballots are cast, let alone how many are cast before the campaign officially starts sometime in mid-September.

We'll know that sometime after October 9.

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The Telegram
November 28, 2006

Voting window could widen to accommodate Alberta exodus

Rob Antle
The Telegram

The province may be losing its workers, but it's hoping not to lose their votes.

Elections officials are proposing changes that would allow voters to cast their ballots nearly two months in advance of the 2007 provincial election, to accommodate Newfoundlanders working out west.

"The idea is to try to make it as flexible and as open and as transparent (as possible), and to give everybody the full opportunity and the fair opportunity to cast their ballots," chief electoral officer Chuck Furey told The Telegram.

In 2004, the Williams administration passed legislation setting fixed election dates every four years. The next provincial election will be held Oct. 9, 2007.

By law, the premier must officially ask the lieutenant-governor to dissolve the legislature and drop the election writs a minimum of 21 days before polling day.

Currently, those who can't vote on election day can cast an absentee ballot - called a special ballot - during that 21-day time period.

Furey said his proposal would allow voters to cast those special ballots up to four weeks before the writ is officially dropped.

"We're trying to say, look, if you've got a fixed-date election, why are we limiting it to 21 days, if we have such a migratory and transient population now? They're coming and going - let's try to capture people and give them a full opportunity to vote by
adding that extra four weeks."

The proposal is currently awaiting a decision by the province.

By law, anyone over 18 can vote in a provincial election as long as they have a fixed address in Newfoundland and Labrador.

There are no official figures on how many transient workers commute to Alberta or other destinations for work while still maintaining a home in Newfoundland.

The Newfoundland and Labrador Statistics Agency does not compile such data, saying it would be nearly impossible to gather and maintain.

But there is ample anecdotal evidence confirming the trend.

An estimated 9,000 people attended an Alberta job fair held in St. John's last month.

Air Canada established a daily direct flight between St. John's and Fort Mc-Murray this year to meet the demand of workers travelling back and forth.

And Canadian North is operating weekly private charter flights linking Deer Lake, St. John's and northern Alberta.

Vincent Pratt, from the Triton area, is one of the commuters using that service.

In a recent interview with Transcontinental Media, Pratt estimated that more than half of the 2,000 people employed at his work camp in northern Alberta are from Newfoundland.

Net out-migration increased to more than 4,100 this year, according to provincial figures.

The most recent provincial population estimate is under 510,000, a drop of about 70,000 since 1991.

Praise from a self-described bastard

There's a small measure of joy that comes from having the Premier mention you - even obliquely - in a news conference, but there is something more satisfying when a self-described bastard weighs in on comments about "some bloggers" in Newfoundland and Labrador and the criticisms thrown around.

Read Craig Welsh for yourself, but here's a snippet for this Friday ego-stroke moment:

Are Ed and Simon, to give but two examples, diehard Liberals? Of course. To say otherwise is foolish. But to dismiss the points they make because they have a Liberal background is even more foolish. They are smart men with enough communications and policy wonk experience on them to choke a horse. They’re going to notice things that the average person, and the average journalist, might miss. To ignore what they have to say is silly. To question their desire to see Newfoundland thrive is idiotic. Their desire to see Newfoundland prosper is greater than their desire to see a Liberal government in power. Never doubt that.

Dissent as they say, or even criticism is not treason.

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Summer of Love 2007 : Vote early!

But don't vote often.

Special balloting for the October 9 general election apparently began on August 20.

The Elections NL didn't issue a news release until today.

That's an interesting timing.

The Elections Act provides that "An application to vote by special ballot may be made to the office of the Chief Electoral Officer beginning not more than 4 weeks before the issue of the writ of election and ending at 6:00 p.m. on a day to be determined by the Chief Electoral Officer."

That provision was added to the act by an amendment approved in the legislature just this past spring.

So what do we know?

Well, the writ will drop sometime within the four weeks from August 20. Most likely the official campaign will be short, lasting only the legal minimum.

However, there's nothing to stop an elector from legally applying for a special ballot this week, getting it before the writ is dropped and having their mind made up - and their vote cast and in the box - well before the official campaign begins.

How many votes will be cast before the writ of election is actually issued?

We'll know on October 9.

Anyone doubt now that the election campaign has already been unofficially under way since late June?

Update and correction: An eagle-eyed e-mailer pointed out an obvious point. The ballots can't be mailed until after the writ drops and Elections NL nominations close.

Still.

It'll be interesting to see how many people apply and vote early.

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Masters of our domain: the [insert list of superlatives here] deal in the history

In 2002 and 2003, then-opposition leader Danny Williams made a big deal out of demanding to see not only the memorandum of understanding but the final legal text of the agreement to develop Voisey's Bay.

Then Premier Roger Grimes relented to the attacks, tabled the MOU in the legislature and out it to a free vote in the House. It passed with a couple of opposition members bucking the party line to vote with the government members.

Fast forward to Williams' own MOU on Hebron. As Premier Danny Williams is touting the need for near complete secrecy as a "normal" part of deals like this. He even chided reporters for getting too close to the copy of the document he waved about during the hastily called news conference announcing the tentative deal.

Asked about putting the deal in front of the legislature, Williams told reporters he "hadn't even thought about it" but that the deal was so good ratification would not be a question. Not really the point, though since as a government measure the thing would pass in all likelihood anyway. Not really the point either since Williams' set the standard by which he'll be measured on the very sort of issue of openness, transparency and accountability

Members of the opposition have been asking Williams to release the document.

Such is the story that both CBC's Here and Now and The Telegram carried stories today highlighting the stark contrast between Danny Williams then and now.

But "hadn't thought about it?"

Natural resources minister Kathy Dunderdale, taking a leaf from her boss' copy of Hyperbole for Beginners, publicly defend the cone of silence on the MOU on Thursday by referring to the current administration as the most open, accountable and transparent administration in the province's history.

Dunderdale, who buggered up a simple explanation of one aspect of the deal during a radio talk show appearance today, even trotted out the old thin-skinned line about supposed personal attacks by the opposition on the Premier and his ministers.

Hadn't thought about it? It only begs the question of how the most open, accountable and transparent administration in the province's history did not think about public disclosure.

Of course, they thought about it.

They thought about it as they agreed with their co-venturers in the oil business to keep the whole thing under wraps.

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Incidentally, there's likely a bit more to this issue than the mere claim by "outs" about the nefarious ways of the political "ins", as some have suggested; but that is for another post.

For the record, here are two Canadian Press stories from 2002 on the Voisey's Bay dust-up.

As a curiosity, note that the energy minister at the time was Lloyd Matthews. His daughter worked as communications director with the Liberal administration at the time, including a stint handling comms for current opposition leader Gerry Reid while Reid was provincial fisheries minister.

Where is Lloyd's daughter today?

Well, Elizabeth Matthews bolted from Reid's office suddenly and surprisingly, shortly before the 2003 election to take up a job with Danny Williams.

The rest, as they say, is history, although playing six degrees of separation among the political classes in the province is obviously a fool's errand.

Nfld. premier trying to avoid scrutiny of Voisey's deal - opposition

May 2002

St. John's, Nfld. (CP) -- The only thing standing in the way of an agreement to develop the fabled Voisey's Bay nickel mine is a signature from Newfoundland Premier Roger Grimes, the province's Conservative Opposition leader said Monday.

But Danny Williams said Grimes is stalling because he doesn't want to close the deal and face public scrutiny while the legislature is still sitting.

"Newfoundlanders and Labradorians can sense that a bad deal is about to be made," Williams told a news conference. "Why won't he debate it in the House of Assembly? What is he trying to hide?"

Grimes was out of the province Monday attending an oil industry conference in Houston. But the province's mines minister, Lloyd Matthews, confirmed talks with mining giant Inco Ltd. -- owners of the $4.3-billion mineral deposit -- were in their final stages, though the outcome remains unclear.

"Over the next several weeks, one way or the other, we should bring resolution and clarity as to whether or not there will be a deal," Matthews told the legislature.

Matthews said a number of key issues remain on the table, but no meetings are scheduled with Inco because the company is in the midst of negotiating the terms of benefit agreements with Labrador's main aboriginal groups, the Innu and Inuit.

Williams said while the premier and minister have been coy about discussing the prospects for a deal this spring, executives with Toronto-based Inco have been dropping hints at every opportunity.

Indeed, Inco chief executive Scott Hand has said he hopes construction can begin at the site in northern Labrador by next month.

Meanwhile, there are indications the company has already lined up a contract with the Quebec engineering firm SNC Lavalin, Williams told the legislature.

Earlier, Williams suggested the deal will be announced some time during the last two weeks of this month, after the legislature adjourns for the summer recess.

Wants Debate

Williams said the deal should be brought before the house for debate to ensure the province gets the best deal possible. But Grimes has already rejected that request on the grounds he is not obligated to submit such a business deal for legislative approval.

Grimes will try to avoid public scrutiny of the deal because the Liberal government will be forced to admit it has abandoned the tough stand taken by former Liberal premier Brian Tobin, Williams said.

Tobin won widespread public support when he insisted all the ore extracted from Voisey's Bay had to be processed in Newfoundland. He won two general elections by repeatedly declaring the province wouldn't give away its raw resources so that others could profit from processing the ore into finished nickel.

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All fired up: Opposition politicians expected to demand details of Voisey's Bay deal as House opens

Michael MacDonald (Canadian Press)
Monday, June 17, 2002

Opposition politicians will have one, simple question for Premier Roger Grimes this week when the Newfoundland and Labrador legislature holds a special debate on the Voisey's Bay mining project: Where's the legal text?

The question stems from the Liberal government's decision last week to sign a tentative, $2.9-billion development deal with Inco Ltd. based on a so-called statement of principles, rather than a legally binding commercial agreement.

"That's where the truth lies - the devil is in the details," said Ed Byrne, the Conservative house leader. "About 95 per cent of the details have yet to be negotiated."

During the debate, which starts Tuesday and culminates in a historic free vote Thursday, Conservative Leader Danny Williams will argue the final draft must be held up for public scrutiny.

Grimes has said the legal text will be drafted behind closed doors by a team of lawyers from Inco and the provincial government by Sept. 30, but it won't be up for debate.

The three-day debate on the statement of principles should provide skeptics with all the details they need, he added.

"There are some legitimate concerns, with people seeking a little more information," Grimes told The Telegram on the weekend. "They're looking to have a little better comfort level. ... I think people will have a greater level of comfort after the debate."

Scott Hand, Inco's chief executive, dismissed the Tories' demand for the legal text.

"The statement of principles is a very detailed document," he told reporters last week after speaking to the St. John's Board of Trade. "It really sets out all the commitments, guarantees and remedies required. ... The legal agreement will reflect that quite clearly."

But some observers aren't so sure.

"What about the final deal itself?" asked Peter Boswell, a political science professor at Memorial University. "Is that going to come before the house? If not, then that's why this whole thing is a charade."

Echoes of Charlottetown accord

Boswell said the political sparring over the Voisey's deal reminded him of the debate 10 years ago over the Charlottetown accord - another in a line of ill-fated attempts to bring Quebec into the constitutional fold.

The accord was rejected by 54 per cent of Canadians in a national referendum, but not before popular opinion forced the federal government to release a legal text.

"There's a lot of things in this statement of principles that are open to change," said Boswell.

"The free vote is almost like a public relations exercise. They're just going through motions."

Still, the debate in the House of Assembly could offer direction to the lawyers drafting the final documents, he said.

Too many loopholes: Williams

For example, Williams has suggested the statement of principles contains too many broad exemptions and escape clauses for Inco, which could lead to long delays in the project.

He zeroed in on something called the force majeure clause, which excuses the company from meeting its obligations if it is beset by shortages of supplies, accidents, breakdowns or inflated prices for raw material.

"I've looked at hundreds of these during the course of a legal career," said Williams, who worked as a high-profile lawyer for 30 years before he was acclaimed Tory leader last year.

"This is the weakest, broadest one I've ever seen. There's things in here that are ridiculous."

Provisions "normal"

Not to be outdone, Hand said he's seen more force majeure provisions than Williams has.

"I've been a lawyer for 32 years," he said.

"It's very normal. It's fundamental for financing. It doesn't eliminate our obligations. All it can do is suspend it for a little time."

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Master of our own domain: Give-aways? Did I say give-aways?

From labradore, a little tidbit buried in the middle of a long and detailed dissection of Premier Danny Williams' changing views of the Voisey's Bay deal:

"The video is available on the CTV web site (on the right-hand side, select "CTV Newsnet: Danny Williams answers media questions 7:27", ... .)

At about 1:44 into the video file, in response to a barely-audible question comparing the Hebron MOU to the Voisey's Bay Statement of Principles that he famously condemned, Danny Williams made this amazing concession:

Well, you have to put that in context, there were other issues with regard to that MOU that we had concerns about at the time, and I’m not gonna get into this, because I don’t want to diminish this announcement by diminishing that project, which is a good project, and I’m prepared to say that.

There you have it: Voisey's Bay. Not a giveaway. A good project. Not to be diminished. Danny says so. "


Geez, that wasn't really the first thought that comes to mind when a guy goes from saying something was a give-away or a badly negotiated deal to acknowledging exactly, diametrically, 180 degrees the opposite.

Bully for him for admitting he was wrong five years ago.

or last year, for that matter.

Kinda makes you wonder, though, when Danny Williams came to the conclusion that Voisey's Bay was - in his own words - a good deal.

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Ethics and professional integrity

An eloquent rejoinder to recent smears, from Geoff Meeker.

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Masters of our domain: national and international reaction

1. Financial analysts are reacting favourably to news of a pending deal to develop the Hebron oil field offshore Newfoundland.

From the National Post:

For producers like project leader Chevron Corp., as well as Exxon Mobil Corp., Petro-Canada and Norsk Hydro, the good news is that the basic royalty rate remains unchanged at 1% until costs are recovered, UBS analyst Andrew Potter told clients in a note. Previously, this rate increased progressively from 1% to 7.5%.

The bad news: A “super royalty” of 6.5% of net revenue after payout (when oil prices are above US$50 per barrel) has been included.

Mr. Potter thinks the new deal is fair to both parties, adding that these fiscal changes will not make a major difference.

For Petro-Canada (PCA/TSX), the government acquisition values Hebron at $1 per share, in line with the analyst’s revised net asset value for the project. His previous estimate was approximately $1.40 per PCA share, but this was been reduced due to higher capital costs and a later start date.

Note that industry analysts consider it positive that the provincial government's royalty rate has been set at a flat 1% until payout.

Note as well the valuation of the share price in the project. The delay in the project and higher capital costs had the effect of devaluing shares from CDN$1.40 to CDN$1.00.

2. Editorial opinion at the Edmonton Journal holds there may be a lesson in Hebron for Alberta Premier Ed Stelmach who, the newspaper contends, should seek a greater provincial return from the oil industry.

3. Chevron Canada president Mark Nelson told the National Post the provincial government equity position is simply a different way for the provincial government to collect its revenue. That may be a clue that the secret memorandum of understanding contains little if any management power for the province's newly minted energy corporation.

The equity stake comes with an acquisition cost of CDN$110 million, plus potentially up to $540 million in development costs. Potential gross revenue from the 4.9% share would be $2.45 billion over the 25 year estimated lifespan of the project, assuming an average price per barrel of $70. At $50 per barrel, the gross revenue would be approximately $1.5 billion. The cost estimate does not include any other undisclosed liabilities.

4. The Globe and Mail's energy reporter includes some interesting information in his latest story, but concludes with a bizarre claim that the equity position costs may affect the province's entitlement to Equalization:

On the face of it, Mr. Williams's [sic] insistence on an equity position in Hebron could reduce the government's revenues in the medium term, which could make it more likely it would once again receive equalization payments. That's because the Premier has given Newfoundland and Labrador Hydro a mandate to invest heavily in oil and gas and other energy projects - a policy that will divert revenue from general government coffers to the Crown corporation.

Newfoundland and Labrador will no longer qualify for Equalization in the 2009-2010 time frame without Hebron. Under enabling legislation, the newly minted energy corporation is empowered to borrow up to $600 million to finance its operations. As such, there is no diversion of revenue from provincial government coffers.

5. Reaction from some in western Canada's oil patch is mixed, as Report on Business indicates:

Peter Linder, managing director with DeltaOne Capital Partners Inc., said Newfoundland's reputation as a place to do business will get a boost with the Hebron deal but questioned why the province felt it needed an equity stake, given that it owns the resource and would collect a royalty.

"As long as they get their fair share through royalties, why do you need to own equity? I think the equity for Newfoundland is strictly politically motivated."

6. The Chevron/Hebron story made the New York Times. The Times story refers to a royalty base rate of 30%

The tentative pact with the oil companies, he added, also includes an extra 6.5 percent royalty, on top of a 30 percent base rate, and removes the special investment tax credits that the oil industry had demanded.

That version turns up in many of the financial reports. One implication is that lowering royalties at the front end of oil development may be part of a longer term government policy to increase the attractiveness of the local offshore.

Providing an equity stake without management powers might actually minimise the potential total cash cash outlay for operators while helping to defray costs among the operators at the front end. Coupled with a lower royalty regime, the local offshore could become more attractive to investment.

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