Hibernia clarification clarification

The provincial natural resources department issued a “clarification” today on some figures contained in its news release last week.

Seems they gave incorrect figures for production from the existing Hibernia field.

The original release quoted the Premier himself as saying that:

“The original Hibernia field has produced 670 million barrels to date and the provincial treasury has seen $3.9 billion from that production.”

The exact same phrase turned up in the Premier’s speaking notes for NOIA, by the way.

The “clarified” version is:

The correct figures are approximately 630 million barrels with revenue valued at $1.9 billion.

Both figures are supposed to represent cumulative oil production from first oil in 1997 up to the end of March 2009. The mistake is described as a “transcription error”.

According to the “clarification” – not a correction – this is the only error and “does not affect any other numbers in the news release or any other publications.”

Here’s the real number: up to the end of April, 2009, the Hibernia/Avalon field had produced 636,957, 170 barrels of oil. Hibernia produced a little over 605 million barrels p to the end of April 2009.

That figure was readily available - at the time the release was issued last week - from the Canada-Newfoundland and Labrador Offshore Petroleum Board.

Hmmmm.

Makes you wonder though if some of the other numbers might be off just a wee bit.

Like say this one from the same quoted attributed to the Premier:

“We expect a further $13 billion from the remaining main field production…”.

That was based on an assumed price of oil of US$80 a barrel, as the Premier indicated in subsequent interviews.

Okay.

The offshore board gives three estimates of the reserves at Hibernia: proven; prove and probable; and proven, probable and possible. Let’s call them P1, P2 and P3 for simplicity sake. We’ll also knock off the Hibernia South Extension oil since that is apparently included in the totals for Hibernia.

Here’s the way it works out. The figures are in millions of barrels:

	P1	P2	P3
	782	1244	1916
Less production to end Apr 09	636	636	636
Sub-total	46	608	1280
Less Hibernia South Extension*	46	220	220
Total remaining	0	388	1060
Low royalty (30%)		$ 9.312 billion	$25.44 billion
High royalty (42.5%)*	$1.56 billion	$13.192 billion	$36.04 billion

* Note - Approximately 50 million barrels of the extension come from the original Hibernia production license. That corresponds roughly to what remains in Hibernia based on CNLOPB figures and allowing that the provincial figures are a month older than the CNLOPB ones. Since the government news release indicated the 50 million was being produced at the 42.5% royalty, it’s pretty clearly working under the original Hibernia Tier 2 royalty regime.

Here’s where things get a wee bit interesting.

Once you do a little simple math, it’s pretty clear the provincial government news release deliberately chose the least volume of remaining oil when calculating the potential return from Hibernia now that pay-out is achieved. They put that together with the Tier 1 and Tier 2 super-royalty from the original Hibernia agreement (1990/2000) since that is what oil at US$80 a barrel would deliver.

That’s not bad for a project that wasn’t supposed to pay-out - ever - and that Danny Williams and others have trashed as one of the great give-aways of the past.

Even without going a step farther, those figures pretty much demolish the idea that Hibernia was a give-away. Not only will Hibernia deliver in spades from here on out but the royalty regime developed in 1990 and amended in 2000 is the basis for the Hibernia South agreement. There can’t be much higher an endorsement than to have the old deal used as the basis for the new one negotiated by the guy who, supposedly, is fighting relentlessly against any more give-aways.

Incidentally, using the same oil price assumption, the Hibernia South extension would deliver $8.8 billion in royalties (at the high end assumption of 50%). The oil company share would produce $1.7 billion, without accounting for any development, production or decommissioning costs.

Just scan across to those P3 figures, though, and try not to let your eyes pop out. The figure can’t be discounted. In fact, when natural resources minister Kathy Dunderdale vetoed the Hibernia South extension plan in January 2007, she cited that high-end reserve estimate in her letter to the offshore board:

That P3 figure would mean that what remains of the original Hibernia deal would yield more in royalty alone than the “White Rose extension, Hebron and Hibernia South” in royalty and “revenue”.

Now there are a few more curious or questionable statements from the speech and news release last week, besides that one about Hibernia production.

For example, in the Premier’s NOIA speech we get this pair of paragraphs that came back-to-back just as they are presented here:

I am also extremely pleased to confirm today that after nearly 12 years of production, the Hibernia project is now in "payout" meaning the province is now receiving a royalty of 30 per cent.

When you consider the agreements reached by our government in terms of oil and gas development I think you will agree that although we had some critics and skeptics along the way, we have delivered for the people and for the industry in this province.

As the release makes plain – if you go back and check the facts - Hibernia in payout delivers 42.5% from the original royalty deal not 30%.

The second paragraph, though, appears to take credit for both Hibernia hitting pay-out and for delivering the massive royalties. Both those are a direct result of a deal negotiated almost 20 years ago.

It all makes you wonder when might we expect some further “clarifications” – they should really be corrections to factual mistakes and misleading claims - from last week’s announcement?

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There’s no pleasing some people

That’s the thing about being a political saviour.

People expect you to save them.

There’s no good complaining, as Danny Williams did last week with the host of a local talk radio show.

Not only do you manage to overshadow your own good-news announcement less than an hour after you made it, people don’t really care any more about the umpteenth round of good news.

In central Newfoundland, people are not happy since the major private-sector employer left Grand Falls-Windsor and the provincial government stepped in to scoop up the most lucrative asset, the hydro-electric generators owned by three companies.

The provincial government resisted calls for financial assistance before finally coughing up $35 million for some. Others have gone looking for a bit of provincial help and have been told  - as some of them might see it - to sod off. The local chamber of commerce and the town aren’t happy either since, as the chamber put it, the whole thing looks like the region has lost while the province – read provincial government  - has gained.

And if all that wasn’t bad enough, CBC’s Here and Now is reporting that people the Premier’s own district are worrying that their mill – the last paper-making operation in the province – might also be in jeopardy.

Then there are the 10,000 or so in the fishery reeling under the downturn in markets for their products.  Ask talk show host Randy Simms about them.

Then there’s health care.  On another radio call-in show last week, this time on CBC, Danny Williams made it plain he hasn’t been thrilled with the string of strings about problems in health care.

Compared to previous administrations of any political stripe,  Danny Williams and his administration have had a relatively easy time of things.  The usual local political demands have either never materialised or were met with the cash.  No one got a “no” unless there was a good reason.

Those days appear to be over.  The global recession is producing economic problems and political demands, that seem fairly typical for anyone watching local politics for more than the past few minutes, are surfacing with unsettling regularity.

As much as it is pretty simple to criticize Danny Williams’ for his public tirade last week, that litany of problems recited above is probably the view from his office.  As much as he claims to be an optimist, and as much as Williams talks about the bright future, the view from his office window must seem pretty bleak.  before the current stuff there was breast cancer and before that there was the House of Assembly scandal.  Neither of those is over and, given some media, it seems like it might never go away.

Inside the office, things must surely be stressful.  Government is a tough place to work at the best of times.  There are all manner of problems and issues that crop up.   Cabinet government is designed to manage that by distributing the power to make decisions among different people.  Pull everything together into the Premier’s Office and it can seem to the few people on the end where the spray comes out like  the three inch fire hose of demands is always running on high and that someone has secretly replaced the line with a six inch gusher. 

On top of that, consider that the provincial Tory administration can no longer blame everything on the crowd that went before.  They are now in control and everything is theirs to manage.  That’s a normal transition for every government to make:  after a certain period, every government hits the point where they have effectively taken ownership of government and they see themselves as indistinguishable from it.  

The current administration has been able to work through the past few years thanks to oil money and the lack of any coherent political demands from the province as a whole. They wandered through the first six months and whatever they set in place back them has largely become the pattern. They gained control of the political agenda by inertia and default.

Countless items got left behind in the meantime, a sure sign of a government that took office without the plan of action it claimed to have.  major projects get tackled one at a time, in serial fashion.    Even if this administration isn’t run entirely from one office on the eighth floor of the East Block, it gets pretty hard for cabinet to form a cohesive team if half the people aren’t working every day in the same place (or even the same town) and get together only every week or so for a few hours of cabinet.  That doesn’t get any better when there are large numbers of people within the administration shifting jobs or being appointed only on an acting basis. 

If you stop and think about it for a second, if you put yourself in Danny Williams’ place, it’s not hard to see why he blew up at Randy Simms or even he’s been known to get a bit testy on a fairly regular basis.  He’s in a hard spot.

In 2007, voters gave Danny Williams what he asked for.  They voted for him because they’d learned the way to get anything done was with a Blue member in the legislature.

They performed the rituals of the local political doctrine and now they are looking to get into the Kingdom.

And here’s the thing:  if people think Danny Williams was testy, wait until they see a pack of voters who feels condemned to perdition.

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Chamber concerned seized central hydro assets gain for provincial government, loss for region

The Exploits Regional Chamber of Commerce is very concerned about the benefits from seized hydroelectric assets going somewhere other than the region of the province in which they are located, according to the Grand Falls-Windsor Advertiser.

The chamber estimates that based on electricity used by AbitibiBowater (54 megawatts), savings to Newfoundland and Labrador Hydro in excess of $70 million annually are being realized.

The chamber wrote the CEO of Nalcor in May to try and meet to discuss how the Exploits region could benefit from being adjacent to the source of the power. While the letter was copied to local MHAs and members of the provincial Ministerial Task Force set up to deal with the closure of the mill, Nalcor has not responded.

NALCOR is the provincial government energy company which took control of the assets earlier this year.  They were seized by the government from three companies:  AbitibiBowater, ENEL and St. John’s-based Fortis.

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Darrell Dexter’s Dipper Dozen

Nova Scotia Premier Darrell Dexter’s cabinet comprises a mere 12 members including himself.

Interestingly, the news release is written in the style of what has come to be called a “social media” release.

The new cabinet includes 38.7% of the government caucus and only 23% of the members of the legislature.

Wonder what the comparative numbers for Newfoundland and Labrador would be?

43% and 39.5%.

There are 19 members in the current Newfoundland and Labrador cabinet, including the Premier.  Notice that the Premier is not included in the list of cabinet members even though he is President of the Executive Council.

There are 44 Progressive Conservatives in a legislature of 48 seats.

The new Nova Scotia cabinet is considerably leaner than any cabinet in Newfoundland and Labrador in the past 40 years or so. 

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On confusion and ignorance

From Thursday’s editorial in the Halifax Chronicle-Herald, the newspaper’s editorial crew noted the blow-up at Randy Simms and then penned this:

What’s more, the tentative deal with the consortium of oil companies represents yet another vindication for Mr. Williams’ brand of hardball.

…

By comparison, the Hibernia South expansion is the mother of all sweet deals. Exxon Mobil, Chevron and Petro-Canada have ceded a 10 per cent stake to the province for $30 million. The tentative deal also gives the province a 30 per cent royalty rate, as well as a "super royalty" rate that could climb to 50 per cent on some aspects of the project.

Hmmm.

Guess the confusing government news release served to confuse even the Chronicle-Herald into believing that the bulk of the Hibernia South royalty regime wasn’t actually negotiated in 1990 without that magical “brand of hardball.”

Odd.

Given that the editorialist did note that the Hibernia project hit payout – and hence the royalty regime was running at 30% - they could have actually checked the royalty regime online and discovered something really interesting.

Oh well.

It’s not like anyone writing anything for the Herald would ever get a phone call from a certain Premier a little miffed over something he saw in that newspaper.

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‘Ethics and accountability’ report card

More than half not done despite 2003 commitment “to deal with them and begin to restore the public's confidence”

Of the 23 commitments made by the Progressive Conservative opposition on what a February 2003 news release termed “ethics and accountability”, 11 remain unfilled and in two instances, the action taken went against the stated commitment.

Amendments to the energy corporation act in 2008 and the research and development corporation act in 2009 both increased the restrictions on disclosure.

No action has been taken to impose six new, tougher restrictions on campaign financing.

No action has been taken to reduce restrictions on disclosure of cabinet confidences and no amendments that would “enhance the transparency of government actions and decisions.”

Of the 10 commitments actually met, one to impose significant penalties for breaches of the lobbyist registration act turned out to be nothing more than a potential one year de-registration.

At least two significant lobbying efforts were never registered.  One involved a multi-million dollar fibre-optic deal.  in another instance, officials of a tourist project now in bankruptcy protection claimed publicly to have been lobbying but never registered their activities.

In two others where action was taken, nothing appears to have been done to implement the commitment until the House of Assembly spending scandal became public.  The commitments – for a code of conduct for members of the legislature and  new administrative procedures on allowances  - were implemented in 2007 as a result of recommendations by Chief Justice Derek Green following his inquiry.

The policy commitments were made by then-opposition leader Danny Williams.  Ironically, Williams was accompanied at the announcement by Ed Byrne, currently serving a prison sentence for fraud and corruption.
Williams’ words at the time proved to be prophetic:

We've invited you here today to address what I see as one of the greatest challenges facing elected governments today. As a result of recent developments at both the provincial and national level, I firmly believe that the public is losing confidence in their elected officials. 

We've seen blatant abuse of office and taxpayers' money, allegations concerning conflict of interest, questions of fundraising contributions, and suggestions of impropriety during leadership conventions. These are very serious issues that are eroding the people's confidence in government.

Now, we can either choose to ignore these issues and continue with the status quo or we can attempt to deal with them and restore the public's confidence. I'm saying that it's time to deal with them and begin to restore the public's confidence.

Public confidence likely took a further dip with the revelations of what occurred in the legislature between 1997 and 2006.

Here’s a list of the commitments and notes on the actions taken or not taken.  The complete news release is at the bottom of this post.

Serial	Commitment	Action
1	“We will legislate maximum donations to candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.”	No action taken.
2	“We will set out in legislation that the cash contribution to the party from an individual or corporation shall not exceed $10,000.”	No action taken.
3	“We will also legislate maximum expenditures by candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.”	No action taken.
4	“Furthermore, we will require the full public disclosure of all donations to, and expenditures by, candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.”	No action taken.
5	“With respect to Party leadership races, we will require that donations must be disclosed when they occur, and all expenditures must be independently audited and fully disclosed within three months after the election of a new leader.”	No action taken.
6	“We will also enact provisions governing the ownership of unused contributions donated to candidates in leadership races. These legislative provisions will ensure that all unused donations are returned to the donors”.	No action taken.
7	“We will amend the Elections Act to require that provincial elections be held on a fixed date every four years, or immediately if a government loses a confidence vote in the House of Assembly.”	House of Assembly Act amendment, 2004
8	“The legislation will ensure that, if the Premier resigns or the Premier's office is vacated within the first three years of a term, an extraordinary election will be held within twelve months and a new government will be elected to a fixed four-year term.”	House of Assembly Act amendment, 2004
9	“We will also amend the Elections Act to require a by-election to be called within 60 days of a vacancy and held within 90 days of a vacancy, so as to ensure that all Newfoundlanders and Labradorians are appropriately represented in the legislature.”	House of Assembly Act amendment, 2004
10	“We will establish a new procedure to provide for the proper auditing and disclosure of the expenses of Members of the House of Assembly.”	Significant new procedures were not implemented until after the disclosure of the spending scandal and not until passage of the House of Assembly Accountability, Integrity and Administration Act in 2007.
11	“We will amend the Access to Information legislation to enhance the transparency of government actions and decisions.”	Amendments to the Energy Corporation Act in 2008 and the research and development corporation act 2009 significantly reduced access to information related to these two bodies.  There have been no amendments to the ATIPPA to “enhance the transparency of government actions.”
12	“The Access to Information legislation proposed and passed by the Grimes government in 2001 (though it has not yet been proclaimed) allows the government to exclude a great deal of information from release to the public under the umbrella of "cabinet confidences". We will limit that exemption so more information that rightly belongs in the public domain will be accessible to the public.”	No action to limit the exemption. A request for disclosure of polling (specifically listed in the 2002 legislation as not being exempt from disclosure) was denied initially on the grounds it may disclose cabinet confidences.
13	“Also, the legislation will be changed so any information that continues to fall under the umbrella of "cabinet confidences" will be released earlier.”	No action taken
14	“We will enact changes to tighten up the exceptions to the release of information.”	Amendments to two other acts in 2008 and 2009 created new mandatory exemptions.
15	“We will remove provisions that allow the cabinet to override the legislative provisions of the Act by regulation at their discretion.”	No action taken.
16	“Finally, we will shorten the time lines for the release of information so information that rightly belongs in the public domain is available to the people of the province on a timely basis. Access delayed is sometimes access denied.”	No action taken.
17	“A Progressive Conservative government will commission a process of public consultation directly or through a special committee of the House of Assembly to develop appropriate and strict legislation for the registration of lobbyists operating in this province.”	Consultation took place in 2004.
18	“The primary objective of the legislation will be to establish a registry so the public can see by whom their Members and their government are being lobbied.”	Lobbyist Registration Act, 2004.
19	“The legislation will require that lobbyists report their activities. It may also require those who hold public office to disclose circumstances in which they have been lobbied.”	Lobbyist Registration Act, 2004. Public office holders are not required to disclose circumstances in which they have been lobbied.
20	“The legislation may require lobbyists to file their general objectives and/or their specific lobbying activities.”	Lobbyist Registration Act, 2004.
21	“The legislation may differentiate between those who are paid to lobby government and those who represent volunteer or non-profit agencies.”	Lobbyist Registration Act, 2004.
22	“The legislation will impose significant penalties for those who violate these provisions.”	The only penalty that may be imposed is the cancellation of a registration or the refusal to register a lobbyist for period not to exceed one year in duration.
23	“We will also ask the legislature to adopt a strict code of conduct for all Members, to be enforced by the Commissioner of Members' Interests, emphasizing their accountability to the wider public interest and to their constituents, and the need for openness, honesty and integrity in their dealings with the public, constituents and lobbying organizations.”	A code of conduct for members of the House of Assembly was included in the House accountability act in 2007 on the recommendation of Chief Justice Derek Green. Prior to the disclosure of the House of Assembly spending scandal, no action appears to have been taken on this.

-30-

Williams announces policies regarding
ethics and government reform

ST. JOHN'S, February 5, 2003 — Danny Williams, Leader of the Opposition and MHA for Humber West, today announced a number of policies regarding ethics and government reform. His speaking notes follow:


Good afternoon, and thank you everyone for coming out today. Joining me is Ed Byrne, our House Leader, and Harvey Hodder, one of our longest-serving MHAs.

We've invited you here today to address what I see as one of the greatest challenges facing elected governments today. As a result of recent developments at both the provincial and national level, I firmly believe that the public is losing confidence in their elected officials.

We've seen blatant abuse of office and taxpayers' money, allegations concerning conflict of interest, questions of fundraising contributions, and suggestions of impropriety during leadership conventions. These are very serious issues that are eroding the people's confidence in government.

Now, we can either choose to ignore these issues and continue with the status quo or we can attempt to deal with them and restore the public's confidence. I'm saying that it's time to deal with them and begin to restore the public's confidence.

To that effect, I am today announcing several policies to help modernize the electoral process and the day-to-day operations of the government in Newfoundland and Labrador. These policies concern three separate areas that can be classified under the following general headings: transparency in political fundraising, effective government, and regulation of lobbyists.

Each policy area was developed under the basic philosophy that the public has a legitimate right to be informed of their government's activities.

A. Transparency in Political Fundraising

Let's first look at transparency in political fundraising.

The Elections Act limits election campaign contributions and spending, and attempts to promote electoral fairness by allowing candidates to recover part of their campaign expenses from public funds.

However, the intent of the Act is undermined by loopholes that allow political parties to raise and spend unlimited amounts of money before an election is called, and permit unlimited contributions and spending on leadership contests.

A Progressive Conservative Government will amend the Elections Act to close those loopholes.

• We will legislate maximum donations to candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.
• We will set out in legislation that the cash contribution to the party from an individual or corporation shall not exceed $10,000.
• We will also legislate maximum expenditures by candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.
• Furthermore, we will require the full public disclosure of all donations to, and expenditures by, candidates in Party leadership contests, nominees in Party candidacy races, and candidates in general elections and by-elections.
• With respect to Party leadership races, we will require that donations must be disclosed when they occur, and all expenditures must be independently audited and fully disclosed within three months after the election of a new leader.
• We will also enact provisions governing the ownership of unused contributions donated to candidates in leadership races. These legislative provisions will ensure that all unused donations are returned to the donors.

The public is demanding transparency in the raising and spending of all funds related to the election of Party leaders, Party candidates and Members of the House of Assembly. It is our obligation and our commitment to deliver the transparency and accountability that the public is demanding.

B. Effective Government


We also have seen problems arise over timely elected representation. There have been numerous situations over the last few years in which the electorate has gone unreasonable periods of time without elected representatives. In fact, one district did not have representation for the entire Voisey's Bay debate, which was one of the most important debates that occurred in this province last year. We have an ongoing situation in which the Premier has governed the province for two full years despite the fact that the people of Newfoundland and Labrador did not have the opportunity to elect him. And we have situations in which individuals are not able to obtain information from their government because of countless restrictions and excessive wait periods. This is wrong.

A Progressive Conservative Government will address these issues decisively.

• We will amend the Elections Act to require that provincial elections be held on a fixed date every four years, or immediately if a government loses a confidence vote in the House of Assembly.
• The legislation will ensure that, if the Premier resigns or the Premier's office is vacated within the first three years of a term, an extraordinary election will be held within twelve months and a new government will be elected to a fixed four-year term.
• We will also amend the Elections Act to require a by-election to be called within 60 days of a vacancy and held within 90 days of a vacancy, so as to ensure that all Newfoundlanders and Labradorians are appropriately represented in the legislature.
• We will establish a new procedure to provide for the proper auditing and disclosure of the expenses of Members of the House of Assembly.
• We will amend the Access to Information legislation to enhance the transparency of government actions and decisions.
• Our legislative changes will clearly identify information that should be in the public domain, and will require full and prompt disclosure of the information to the public. The Access to Information legislation proposed and passed by the Grimes government in 2001 (though it has not yet been proclaimed) allows the government to exclude a great deal of information from release to the public under the umbrella of "cabinet confidences". We will limit that exemption so more information that rightly belongs in the public domain will be accessible to the public.
• Also, the legislation will be changed so any information that continues to fall under the umbrella of "cabinet confidences" will be released earlier.
• We will enact changes to tighten up the exceptions to the release of information.
• We will remove provisions that allow the cabinet to override the legislative provisions of the Act by regulation at their discretion.
• Finally, we will shorten the time lines for the release of information so information that rightly belongs in the public domain is available to the people of the province on a timely basis. Access delayed is sometimes access denied.

C. Regulation of Lobbyists


Another activity which must be brought forward for public review involves government lobbying. The governments of Canada and four provinces have enacted legislation requiring lobbyists to disclose their identities, their intentions and their activities. Since there is no such legislation in this province, the people of Newfoundland and Labrador do not know which individuals and groups are lobbying their government to make decisions that will benefit the lobbyists or those they represent. Disclosure reassures the public that their representatives' arms are not being twisted behind the scenes.

• A Progressive Conservative government will commission a process of public consultation directly or through a special committee of the House of Assembly to develop appropriate and strict legislation for the registration of lobbyists operating in this province.
• The primary objective of the legislation will be to establish a registry so the public can see by whom their Members and their government are being lobbied. It will not be our intention to impede free and open access to government by individuals and groups, but we will strike the proper balance through transparency and disclosure.
• The legislation will require that lobbyists report their activities. It may also require those who hold public office to disclose circumstances in which they have been lobbied.
• The legislation may require lobbyists to file their general objectives and/or their specific lobbying activities.
• The legislation may differentiate between those who are paid to lobby government and those who represent volunteer or non-profit agencies.
• The legislation will impose significant penalties for those who violate these provisions.
• We will also ask the legislature to adopt a strict code of conduct for all Members, to be enforced by the Commissioner of Members' Interests, emphasizing their accountability to the wider public interest and to their constituents, and the need for openness, honesty and integrity in their dealings with the public, constituents and lobbying organizations.

Conclusion


In conclusion, I firmly believe that people are losing their confidence and trust in elected government, and that must change. Our Party is committed to that. It is our intention to begin to address these issues and restore public confidence with these policies.

Today in history…

On this date in 2006, then natural resources minister Ed Byrne left the annual NOIA conference and went off to discuss with Premier Danny Williams the auditor general’s review of the House of Assembly accounts and specifically some problems discovered in the records for Byrne.

It was a Tuesday.

The next day – over 24 hours after that chat with Byrne – Williams told the rest of the province about what became the House of Assembly spending scandal.

How much had changed from a little over five years before when Williams took the reins of the Tory party from Byrne at a convention in St. John’s (left).

Byrne remained a major force within the party up to his resignation on June 21.

To mark the third anniversary of the scandal, Bond Papers has collected together links to the posts on the spending scandal.  You’ll find them if you scroll down the right hand column.  There are a lot since the scandal is huge and continues to reverberate to this day.  The are so many, we’ve had to break them down by year.  The first couple of months worth are ready as this post goes live.  The rest will follow in short order.  Unlike the last link list on the scandal, this one will be a permanent sidebar feature.  Interest in the issue hasn’t abated.

The are arranged chronologically beginning with the first one, posted the evening the Premier told the rest of us some of what he already knew.

The story has gone through a number of twists and turns as more information came to light.  Still, three years later, the people of Newfoundland and Labrador do not have a complete tally of how much cash went out the door nor do they have any idea where most of it went.

Along the way there have been some moments of personal satisfaction for your humble e-scribbler. 

In a post in August 2006 – two months into the scandal -  Bond Papers pointed out how much of that the Auditor General missed in his reports.  Chief Justice Derek Green confirmed it in his report in mid 2007. The Auditor general has never corrected his figures or explained his glaring oversights.

While the Green report turned out to be a significant turning point in the whole affair, the response was less edifying.  As Bond Papers reported first in “One last trip to the trough?” the members of the legislature adopted the Green bill quickly but made sure they didn’t have to live with the chief justice’s spending rules until after the fall election. 

Then- government House leader Tom Rideout proved a source of great entertainment as he tried to explain how in June the legislature had decided to implement the legislation “tomorrow” but in the language of parliament “tomorrow” was not the next day but a day five months later.  Only a title lifted from Get Smart – “Chaos in Control” -  could cover such a piece of hilarity.

Then there was a moment of unease.  In reviewing the posts, you will find one written early on about the use of public money for partisan purposes.  At that point it was only a suspicion. The suspicion was confirmed when Ed Byrne pleaded guilty to the charges levelled against him.

Only five individuals were charged in the scandal.  One pleaded guilty.  Another case is currently before the courts and three more are due to start over the summer and into the fall.

Since the scandal broke in the Bow Wow parliament, other similar stories have emerged elsewhere.  In Britain, the scandal of account mismanagement in the House of Commons has ended political careers sparked numerous investigations and may ultimately topple the Labour government.  The public has received details of the spending and reacted with appropriate anger.

Yet, three years later, and despite a series of investigations, there has not been a full public accounting of the money or where it all went.

There may never be.

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Meanwhile across the border…

The Government of Quebec is advancing plans to develop the Petit Mecatina river, according to a government news release issued Thursday. The project feasibility study is expected this year.

Media reports in early June indicated that the project had been modified to involve two generating stations from the original four.  This would accelerate the development but it is unclear if the other stations could be developed subsequently in order to maximise the power flow.  The headwaters of the river are in Labrador.

The La Romaine project recently received the go ahead.  Both are part of a plan to make Quebec the key source of hydro-electric power in North America. Some 4500 megawatts of power are expected to flow from a series of new projects started by Hydro-Quebec in its 2006-2010 plan.

The La Romaine project caused a political stir in Newfoundland and Labrador over claims by some in the province that the project would lead to a re-drawing of the border between the two provinces and that the La Romaine would adversely affect portions of Labrador.

While it initially dismissed concerns, the Government of Newfoundland and Labrador submitted a brief to the environmental panel detailing its concerns.

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S-92 crash – TSB report – tail rotor, MGB, “run dry”, flotation system

From the Transportation Safety Board report on Thursday:

• Flight data recorder stopped working at approximately 800 feet ASL
• The aircraft was in a controlled, powered-down descent at the time.
• At approximately 500 ft ASL, the tail rotor drive power was lost (Cause unknown).

 

Photo of 491’s tail rotor, showing damaged teeth.

• The tail rotor appears to be directly implicated in the crash, a point previously unknown.  At the time of the crash, there was no apparent loss of power to the main gearbox and it was rotating.  This suggests that it had not seized as would be expected if zero oil state had been attained due to leak and the gearbox had failed entirely.  Without oil, it would seize and stop turning.  Initial reports identified this as the main issue and the whole idea of a run dry capability served as the basis for public comment.  it also appears to be a factor in a lawsuit in the United States, launched Thursday.

Left:  tail rotor take off gear, new

Right:  tail rotor take off gear recovered from  Cougar 491

• The TSB report notes suggest another issue (not the MGB) led to the crash:

“Examination of the MGB indicates that there was no loss of main rotor drive and that the main rotor blades were rotating at the time of the impact. The examination of the MGB also revealed that the tail rotor drive gears had been severely damaged, resulting in a loss of drive, causing it to stop producing thrust. Further examination is being carried out by the TSB Engineering Laboratory to determine the cause and sequence of this loss of tail rotor drive.

The metallurgical examination of the titanium oil filter attachment studs revealed fatigue cracking in the studs as well as evidence of thread damage. A detailed metallurgical examination of the studs, nuts, and filter bowl is under way to identify the origin of the fatigue cracks and to determine the fracture mechanism.” [Emphasis added]

 

• Pilots initiated a main power shut down, immediately  (Time stamps show three seconds), which is standard procedure according to TSB.
• “The helicopter struck the water at approximately 1226 in a slight right-banked, nose-high attitude at an approximate location of 47°26'03" N, 051°56'34.8" W, with moderate speed and a high rate of descent.”
• TSB considers the nose-high attitude consistent with a flared landing approach.  With zero power, the descent would have been spiralling due to loss of the tail rotor.
• The aircraft flotation system did not deploy on impact. “The Sikorsky S-92A flotation system activation switch was found in the armed position after recovery.”
• The investigation revealed an issue with the S-92A flight manual:
• “…there is a perception in some areas of the aviation community that the MGB can be run in a dry state - that is, without lubricating oil - for 30 minutes. FAR 29 does not require run-dry operation of a gearbox to meet the 30-minute”.
• “The Sikorsky S-92A Rotorcraft Flight Manual (RFM) has been reviewed regarding MGB oil pressure loss below 5 pounds per square inch (psi) and the need for pilots to land immediately. An RFM revision has been approved by the FAA and Transport Canada.”
• Other issues are under investigation, as would be expected in an investigation of this type:

“A number of issues regarding survivability such as passenger immersion suit and crew flight suit effectiveness, use of underwater breathing devices, adequacy of survival training, adequacy of general ditching procedures, personal locator beacons, weather/sea state flight limitations, and Sikorsky S-92A flotation system are currently under investigation.”

Lack of royalty regime hampers further oil development

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

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

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

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

There are at least two others.

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

Article 82

…

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

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

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

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

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

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

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

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

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

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

-srbp-

“How dare you complain about it?”

Not surprisingly, the latest of Danny Williams public attacks against any contrary voices is stirring further revelations.

The biggest news this week was Williams verbal assault on talk show host Randy Simms for suggesting that maybe some other issues in the province – like the faltering fishery – needed some urgent attention.

Apparently, it wasn’t the only testy exchange between the two.  Williams took a snotty tone with Simms during an exchange the week before over government’s role in a botched April announcement on breast cancer testing.

A caller to an open-line show Wednesday afternoon identified only as “Kevin” described his own experience with the political rant from a government member of the House of Assembly.

His crime?

Daring to voice an opinion in a local newspaper.

You’ll find the whole thing over at Geoff Meeker’s blog at the Telegram.

Farther down the post there’s a reference to Tom Marshall, minister of justice, who weighed in to support Williams in his tirade.  Marshall – who is widely respected as knowledgeable and decent – sometimes winds up in these sorry positions defending his boss.

In late 2007 former Tory Premier Brian Peckford was on the receiving end of a Marshall scolding. 

Curiously enough – in light of Randy Simms comments -  Peckford had dared to suggest that perhaps the provincial government was too focused on oil and that other issues deserved greater attention. Peckford’s was a sensible and reasonable presentation.

Marshall’s on the other hand, was  - uncharacteristically for him - a pile of misrepresentations and mindless Leader worship.  It included this dig which Peckford certainly did not deserve:

And for him to say that we're focusing exclusively on oil and gas would be the same as saying that when he was office he focused exclusively on growing cucumbers, and we all know that's not true. But it's an asinine comment to make and he has to be held to account for it.

Marshall was right, except that the asinine comments were his. And on another level Marshall can be forgiven since he did help put Danny Williams in the job.  Marshall was Williams’ west coast chair for the Tory leadership coronation in 2000-2001.

Marshall defends Williams in the most recent case by saying that if “you are against this province then he – and rightly so – is going to be your worst enemy.”

The only problem with that is that none of the people who have felt Williams’ wrath, like say Randy Simms, could even vaguely be considered to be “against this province.”

To make the point let’s leave aside the politicians.  Let’s forget Loyola Hearn, the guy who Williams supported for premier in the 1989 race to replace Peckford as Tory leader.  Let’s even forget that Hearn returned the favour and helped organize Williams’ campaign in 2000.

Let’s forget Norm Doyle and Fabian Manning.  Let’s leave aside John Efford, Roger grimes and basically any politician before Williams irrespective of party who has been dismissed as perpetrating give-aways.

Let’s just look at the ordinary people who wind up on the receiving end of a “crap” comment:

• Mark Griffin, a lawyer from Corner Brook was accused of betraying the province when he commented on concerns in central Newfoundland after the closure of the AbitibiBowater mill.
• From the Gulf News in 2008 during the Memorial University fiasco:

‘However, the most disturbing conclusion of all in this wretchedly pathetic display of political arrogance, is that we now know we have a government with a paranoid determination to control.

Premier Williams has been known to personally call editors and letter writers who offer criticism of him and his government's decisions.

While his stated aim is to "set the record straight" the tactic probably leaves ordinary letter-writing citizens with the sense of "better be careful what you say because He is watching."

This government, quite simply, likes to control the message.

It also likes to attempt to control public debate and opinion.’

• Craig Westcott (The Newfoundland Post) and David Cochrane (CBC Provincial Affairs reporters) have both been cut off from interview opportunities with the Premier, the latter for only a short period but the former on permanent “ignore”.
• Ryan Cleary and the crew at the Independent who fell from grace and then garnered gobs of provincial advertising cash only after they slacked off their government reporting.  [Why exactly did Ivan Morgan stop writing about Danny? – ed.]
• Max Ruelokke, head of the province’s offshore regulatory board whose only “crime” was to win two merit based competitions against Williams’ preferred candidate.
• The judge in Ruelokke v. the Government of Newfoundland and Labrador who weighed the evidence and found in favour of Max Ruelokke getting the job, calling government’s actions “callous” as he did so.
• Madam Justice Margaret Cameron, who commented negatively on the curious amnesia afflicting some of the witnesses at an inquiry into one of the province’s most serious health scandals.
• Joyce Hancock, formerly head of the province’s status of women council, who expressed concern over a series of issues surrounding women in the senior public service.
• NASA, for launching a Titan 4B booster as they have done for decades.  [Okay that one wasn’t a direct attack but it was a totally loopy, beyond-all-reason, panic-attacky tirade of silly proportions.]

And that’s just the bigger ones that have actually made into some of the local media.  There are at least two more your humble e-scribbler can relate involving reporters.  There are more to come, undoubtedly as people shrug off the fear.

Williams complaints the day after the Randy meltdown certainly followed in the same vein.  As with the clash with Simms over health care, Williams is evidently highly frustrated at news stories which convey something other than the manufactured image from his publicity machine and the scripted comments of his open line callers and online anonymous army. 

Voicing that frustration won’t make the stories go away.  If anything, the resurgent CBC Here and Now, for example, the source of Williams’ annoyance over health care will just keep piling on the accurate stories of problems here and there in the administration. 

This is the normal course of things for any government and any politician.  This is what news organizations do.  To complain about it is to complain about dogs barking. 

Williams has been lucky thus far to have had a relatively free ride and precious little serious criticism until recently.  Still, he has liked to complain from the start about the media and public attention.  He complained bitterly about attention paid to the lengthy process of getting his private business affairs into a blind trust.  Anyone recall the silliness about his being reduced to living on an allowance from the trustees?  

The better part of a decade after he got into politics, the guy who says he has a thick skin, actually demonstrates time and again that he doesn’t.  He needs to get over it and himself.  Williams garnered more, negative media attention for himself over the racket with Randy than he any positive coverage with what should have been a triumphant day of news about another offshore deal.

before leaving this whole issue of childishness, thin skins, and all the rest,  we shouldn’t forget another Premier of a decade or so ago who was fond of expressing his displeasure with people who dared contradict him. 

One story involved a very prominent local business leader and a disagreement over hydro development or some such.  The comments came in a very public way at Marble Mountain.  Another involved a local editor and accusations that the editor’s insufficient endowment were the driving force behind his writing.  As the story goes, the line was something like the only reason you are taking me on is because you have a small dick.

The impact of that sort of childish behaviour wasn’t readily apparent since Newfoundland and Labrador is a small community used to suppressing open confrontation.  Still, the opinions do get expressed. 

Nasty - and false - rumours circulate, whispered from one to another with glee.  Even those stories relayed above  may have been embellished, with time, as they made it to your humble e-scribbler.  At a certain point, their veracity is not as important as the fact they get circulated with great vigour in the community, not in the news media, but over the dinner table and on the links.

The mighty will be humbled if they go too far.

And humbled that one was on the day he left federal politics.  There were no soft questions at all and no one was concerned about his legacy after a long career in public service.  Every reporter in the hastily called news conference took turns to slam Brian Tobin with every hard question they had about his departure.  They’d been saving stuff up, as it seemed, and on that day, they used it.

Voters used the frustration they’d saved up as well, in a couple of districts, in a by-election not long after.  They humbled the people from the same party who carried on after the Big Guy had left the scene.  The sins of the Father, as it were.

People made a change and they changed for a bunch of reasons, not the least of which was a desire to get right of the behaviour of the crowd that they had before.

How quickly some people forget.

-srbp-

Obscuring the next frontier

Offshore gas development is the next frontier, according to what natural resources minister Kathy Dunderdale told delegates to the NOIA conference this week.

The Labrador land sale last year garnered some strong interest, as it turned out and that was, at the time rightly heralded as a strong indication natural gas could be the next major offshore play.

One of the companies that has moved in is Repsol:

Repsol is also a majority partner in the Canaport liquefied natural gas (LNG) facility in Saint John, N.B., and the plant will be operational in a matter of days.

"We're looking for supply for that facility," said [Repisol vice-president Denis]Marcoux.

If gas is the next frontier, there are two large obstacles that have to be overcome.  Neither is the technical issue of how to exploit the gas.

One huge problem is the lack of a natural gas royalty regime.  The provincial government started looking at one in the late 1990s.  The current administration inherited their work, produced a draft version that wound up in the energy plan in 2007 and that’s the last it’s been heard of.

Word is the operators had problems with it, but that’s pretty normal for these sorts of things.

In the meantime, given that government can apparently only handle one major issue at a time, odds are good the thing has been languishing, waiting for first Hebron and then Hibernia South to get finished.

That’s despite the Premier’s assurance last year both would be done by the end of 2008.  As it turned out, Hibernia South took another year just to get to MOU and then will take the better part of another year still to get the formal agreements ready.

Your serial government continues to function just at it has since the beginning.

No royalty regime means that even if a company was interested in developing an existing find, they have no way of knowing what the costs are. That level of uncertainty makes companies with the cash to invest leery of starting something.

That’s something that can’t be easily dismissed. Having a royalty regime made it possible for the companies to start thinking hard about Hebron a decade before the deal was done and that was at a time when oil prices weren’t forecast to 50 bucks a barrel.

Heck, some companies haven’t been willing to commit to drilling on gas prospects because they simply can’t forecast the development costs even in a preliminary fashion.  They may bang some seismic in the meantime but no one is poking exploration holes and without those holes, nothing is really moving anywhere.

The other obstacle is the provincial government’s attitude. 

Under Williams Mod 1, there could be no development without tons of add-ons. He said in 2005 that he didn’t want to see gas shipped down the coast in some “God-damn boat.”

That’s pretty much what Repsol has in mind and that would definitely bring their LNG tankers up on the rocks that were sticking pretty high out of the water in 2005.

Those rocks might still be sticking out of the water or the tide might have risen.  Right now, the policy fog is obscuring natural gas as the next frontier offshore Newfoundland and Labrador.

-srbp-

Hibernia Southern Extension MOU Assessment, Part II: Equity and industrial benefits

[Part I  Royalty]

Equity

According to the backgrounder released on Tuesday, the provincial government’s oil company will acquire a 10% interest in only that portion of the extension to be developed through tie-backs. 

That has been described as covering 170 million barrels, however, as with Hebron that figure may become smaller in the final agreement.

The acquisition price is $30 million however the backgrounder provided no estimates the development costs, operating costs or other costs associated with the project.

According to some sources, part of the delay in reaching the memorandum of understanding came from re-unitizing the existing licenses, especially EL 1093.  There are seven interest-holders in that license with four of them having less than 10%.

As with Hebron, details of the acquisition agreement will not be made public.  As with Hebron, information crucial to a thorough assessment of the acquisition and the provincial government’s share will remain hidden from public scrutiny.

Industrial and local benefits

Aside from existing benefits arrangements under the Hibernia development plan and offshore regulatory board regulations, no new or enhanced local benefits are contained in the backgrounder.

The project will be developed using a combination of slant drilling from the existing Hibernia platform (50 million barrels) and sub-sea tie-backs to the platform.  This was not a part of the 2006 application. 

However, planned expansion of the Hibernia GBS appears to have been shelved. This significantly reduces the potential amount of local work available.  The project is smaller than what was suggested last June when the Premier indicated a Hibernia South deal would be in place by the end of 2008. 

"We fully expect Hibernia South to be concluded by the end of this calendar year," Williams told more than 700 people attending the annual offshore conference hosted by the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).

As it turned out, the MOU was signed in mid 2009 and final agreements are not expected until early 2010. That would be three years after the provincial government vetoed the development and two years after the oil companies originally planned to start production.

Local companies already have demonstrated expertise in supply and in fabrication of sub-sea components.  Thus, local companies should be able to secure fabrication and related work on the project.

This is particular interesting since two of the four reasons given for vetoing the development plan in 2007 related to local benefits:

• The province needs more information on what options exist for other modes of development to extract the oil from Hibernia South. This may have implications for overall benefits.
• The lack of a Benefits Plan Amendment. This is a departure from the normal process and the CNLOPB did not require it in the "interest of expediency."

Through the MOU, the provincial government also accepts the offshore board’s position in the voted application with respect to local benefits (affirmative action, research and development and education and training). 

This is significant since these aspects of local benefits were cited as an area of concern for the provincial government  with the board’s approval of the plan.  In a subsequent exchange of correspondence energy minister Kathy Dunderdale accused the offshore board of failing in its responsibilities for local benefits yet it appears the government has ultimately accepted what the companies initially proposed and board approved. 

-srbp-

Hibernia Southern Extension MOU Assessment, Part I: Royalty - some potential added cash plus a cap

While Danny William’s radio tirade/meltdown is rapidly eclipsing his own good news announcement nationally, there is interest in assessing the details of the Hibernia South Extension memorandum of understanding based on the official news release and news reports on the day of the announcement.

Caveats

As with Hebron, the final agreement may yield some details which were not readily apparent when the MOU was announced.   As well, and as with Hebron, key portions of the deal are likely to be hidden from public view.   With that said, we still have enough information to make some observations about the proposed development deal.  In this first post, we will look at the royalty regime.

General

Overall, this agreement represents a transformation from Williams Mod 1 to Williams Mod 2 in the government’s approach to offshore oil development.

Williams Mod 1 (pre-2o06) was essentially a variation pre-1984 provincial government thinking and emphasised:

• increasing local benefits especially through forced development of refining and downstream production;
• some additional revenue from federal transfers, and
• an undefined “equity” interest which is essentially analogous to the old petroleum corporation.

Williams Mod 2 (post- 2006) places the greatest emphasis on additional government revenue through the most obvious source:  enhanced royalties. This is especially clear in the Simms encounter where the Premier states:

The reason we’re caught up in the oil, it’s not the oil, it’s the black gold that’s out there, it’s not the petroleum, it’s not the oil and gas, it’s the revenue that it brings to us, so that we can deal with problems in the fishery, so that we can take care of the Abitibi workers, so that we can build new hospitals and new long terms care facilities, so that we can build new schools, so that we can lead the country in poverty reduction, and it goes on and on and on. Surely you – presumably – run a municipality. You must know the importance of revenue, and where that revenue comes from – if it comes from business, whatever form of business it is, or if it comes from residential real estate, it goes into your coffers now so you can do all the wonderful things that need to be done. [Emphasis added]

Government-induced infrastructure has been effectively abandoned as evident in both Hebron and Hibernia South and the equity portion has also been capped artificially at 10%.  In Hibernia South, the second GBS or other production facility has been discarded for the most economical production method (slant drilling from the original GBS and tie-backs to the original GBS).

This effectively adopts the philosophy that guided resource development after 1985 and is best seen in the 1990 Hibernia agreement and in the subsequent developments at White Rose and Terra Nova.

As much as Danny Williams may like to complain about those who offer alternative views to his own, this basic approach has been noted before – including in this corner – as an alternative to Williams Mod 1. 

The easiest, most efficient means of enhancing government revenue is through adjustments to the royalty regime.   Revenue is needed to meet the demands for program spending and infrastructure development today. Regular readers of Bond Papers will recognise the refrain.

Hibernia Southern Extension Royalty Regime

The base for the three-part royalty is the existing Hibernia royalty regime as concluded in 1990 and modified in 2000. 

This sets the rate after simple payout (achieved a few months early) at 30% Tier 1 royalty with a further 12.5% Tier 2 royalty triggered by profitability.

This is the royalty rate – 42.5% -  that produces the bulk of the cash.

The royalty regime for the southern extension is cut into three parts.  There is no explanation as to why the rate is structured this way. The backgrounder provided with the news release does not explain the structure clearly.

Part I:    For the 50 million barrels or so that will be drilled directly from the Hibernia gravity base structure, there is the 42.5%  that already exists in the Hibernia royalty regime established in 1990 and modified in 2000.

There is no price trigger for this since the original royalty regime did not tie provincial government revenues to oil prices directly.

Part II:  For the portion of the project that is under the original production License 1001 (PL 1001), the basis is the original Hibernia royalty regime (maximum 42.5%, not tied to price).

In addition there is a further 7.5% royalty when prices for West Texas Intermediate (WTI) are above US$50.  Above WTI at US$70 there is an additional 5%. 

There is a cap on the royalty however: 

Should supplementary royalty payout be achieved under the terms of the original Hibernia contract be achieved, the top rate will be 50 per cent.

It would appear that once the project has triggered the Tier 1 and Tier 2 royalties (42.5%),  only an additional 7.5% is available beyond that irrespective of price. 

Part III:   There is a similar 50% cap in the new areas, i.e. the ones covered by PL 1005 and Exploration License 1093 (EL 1093).  The cap is achieved by reducing the incremental royalty tied to price (WTI at US$50) from 7.5% to 2.5%.

Observations

Overall, this represents a complex arrangement that modifies the existing royalty regime slightly. The complexity may be due in part to the highly diversified interests in the three licenses, especially EL1093.

In many pricing scenarios, then, the maximum available royalty from what is described here as Part II of the regime  would appear to be the same as under the existing Hibernia regime, i.e. 42.5%.

On the face of it, the Part II and Part III royalty structures offer an identical outcome.  Additional information would be needed to explain how the structure works and why it is in place.

The provincial government revenue figure offered in the announcement  - $10 billion – is apparently derived almost entirely by applying the existing Hibernia Royalty Regime to an environment in which oil prices are considerably above the average price that existing during the initial phase of the project.

-srbp-

Money Update:  Premier Danny Williams told CBC’s David Cochrane today that the estimate of $10 billion of provincial revenue from Hibernia South is based on an estimated average oil price of $83 over the next decade.

There is something suspicious about the government calculation though since Williams claimed on Tuesday that five times as much oil left in Hibernia as in Hibernia South would net the province only slightly less cash than Hibernia proper even though both projects use essentially the same royalty regime:

We expect a further $13 billion from the remaining main field production and this extension adds an estimated $10 billion more in revenue for the province…

Randy Simms: the wind beneath Danny’s wings

When Danny Williams rails against relentless negativity, he knows of what he speaks.

The guy who built the early part of his career tearing down anything that came before him now finds it a wee bit uncomfortable when someone dares to suggest there could be other things to gain the Premier’s attention besides oil.

The audio from the Premier’s five minute tantrum this morning is rapidly spreading to every available media out there.

People are shaking their heads and many are laughing.

They shouldn’t.

It isn’t funny when a guy who should be proud of his accomplishments instead launches into a childish tirade on international radio.

It wasn’t funny at all considering that Simms is above all else a decent and fair journalist. His comments earlier weren’t out of line and Williams’ tirade is built entirely out of his own invention not anything Simms said.

For those who missed it, here’s the audio along with some stills to give you something to look at.

Meeker Nails it Update:  the whole thing transcribed.

When you’re done, go check out an eerily similar rant from Joe Smallwood aimed at a much younger Randy Simms.

Smallwood rant mp3

 

 

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You couldn’t make this crap update:  Best line uttered in the spittle-fest is the reference to “hard-core” infrastructure.

Apparently government spending is now like pornography.  it comes in hard-core and soft-core versions.

What’s the difference, you ask?

Well, in soft-core the building is simulated by actors and there is no actual construction.

Wonder what that makes the stimulus package where almost half the projects started some time ago and some have been the subject of multiple announcements?

Hibernia South memorandum of understanding

There’s a non-binding memorandum of understanding to develop new areas of the Hibernia field with a final agreement expected in early 2010. 

Hibernia South includes 220 million barrels of recoverable oil.  There is an estimated 1.24 billion barrels of proven and probable recoverable oil reserves in the Hibernia project, including the Hibernia South area, and as much as 1.9 billion barrels covering proven, probable and possible reserves.

Proven reserves are 782 million barrels of which 605 million barrels have been produced up to April 30, 2009.

That means there is 640 million barrels of proven and probable reserves to exploit and as much as 1.295 million barrels including possible reserves.

The existing Hibernia project has also hit simple payout, raising provincial royalties under the Hibernia royalty regime to 30%.  That will deliver additional cash to the provincial treasury in the current fiscal year that wasn’t previously accounted for.

The MOU also contains a settlement of a dispute on calculation of transportation costs for the Hibernia project. The understanding adopts the provincial government interpretation retroactive to first oil in 1997. 

According to the news release, this understanding is responsible for the attainment of simple payout.  However, in 2007,  estimates existed that the project would achieve payout in 2009 or 2010 based on production levels and anticipated oil prices at the time unconnected to either project expansion or the transportation cost interpretation dispute.

In the wake of failed talks on the Hebron project in 2006, the Williams administration vetoed a development application for a portion of Hibernia South. That redevelopment plan was resubmitted in 2008, as anticipated by the Canada Hibernia Holding Corporation in 2007.

There were some indications the provincial government planned to seek development of Hibernia South as a new project with a new production platform.  The MOU announced on Tuesday calls for the production methods originally proposed by the operators using the existing Hibernia platform.

-srbp-

More to follow on MOU announcement including a review of the royalty regime.