NOIA conference: building a strong, competitive industry

NOIA's 2007 annual conference is titled East coast Canada oil and gas: building a strong, competitive industry.

Look at the speaker line-up. There are heavy-weight presenters on every major topic currently under discussion from land tenure issues (fallow field) to technological developments and harsh environments.

Nothing like starting off with a bang.

Premier Danny Williams is scheduled to deliver opening remarks on Day 1 - June 19. He'll be followed by the usual update on the past year and existing developments.

The luncheon speaker is federal energy minister Gary Lunn.

The closing keynote is former Alberta premier Ralph Klein.

It would be hard to build a stronger, potentially controversial program.

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Energy plan as political plan

Looking at the Globe and Mail story on the Newfoundland and Labrador energy plan, it gets easy to see just how out of touch the Globe is with what's going on outside some very narrow confines.

There isn't anything in the story that qualifies as news.

For example, the provincial government has been saying for some time what local politicos have been figuring, namely that the energy plan will be a key part of the Williams administration's nationalist platform for the fall general election.

The energy plan isn't about economic development any more. It's about politics.

That's the news in the piece, but the Globe seems to have missed it.

The energy plan will be framed as a battle between Newfoundland and Labrador and Big Oil. It will be about hanging tough and looking for what is "reasonable."

Dunderdale merely repeated to the Globe what Danny Williams has already said: Big Oil better come back to the table because once the energy plan is released, the oil companies will have to pay a lot more than they would have a couple of years ago.

It's talking smack and talking tough for domestic political consumption.

But as both Williams and Dunderdale both know already, the oil industry is taking the view expressed by Paul Barnes local manager for the petroleum producers association in the Globe piece. Equity is fine if the provincial government wants to farm in and shoulder the costs - a la Statoil and Norsk Hydro - but anything else is likely to discourage outside investment.

Predictable positions on both sides. It really doesn't matter which one is right. The energy plan is now pure politics. Pure talk.

Take, for example, the Globe referring to the tough document that will demand "at least" a 5% equity position in all future oil and gas projects in the province. By some comparisons, five percent is actually pretty small, and that's likely why the number is being tossed out there: it sounds innocuous.

But, the Globe needs to do its homework.

The real number is likely to be 10%. Word from the oil patch and other places has it that the draft natural gas royalty regime has already been handed back to the provincial government with the polite advice that the government's plans would scare away investment. That's because the 10% equity position would come on top of the considerable share of cash flows the provincial government already receives.

The chart at right shows relative shares of cash flows for the local offshore, as presented by MUN economist Wade Locke in a public presentation last fall.

All things considered, it gets fairly obvious that the Great Battle Against the Foreign Demons of 2007 isn't really the same battle of 25 years ago.

What we are talking about today are fairly fine shifts of cash that look tiny. However, those fine adjustments of cash may tip the very sensitive investment balance against exploration investment in the local oil patch for some period of time.

If the equity demand will be applied to every new development, as the Globe reports, then we may also see impacts on existing significant discoveries. Hebron is already off the table until sometime in the next decade. Hibernia South: ditto.

Small developments like Norsk Hydro's West Bonne Bay would also be affected, especially if the results of Norsk Hydro's exploration program on the field shows oil reserves are much larger than current estimates.

Even White Rose would fall under that sort of requirement. Husky Energy has been working hard to cultivate a strong, positive relationship with the Premier. However, if White Rose turns out to be larger than currently estimated, that is, if there is an opportunity for the province to get more, then that relationship could change dramatically.

Delaying those developments aren't really important as the energy plan morphs into a political document. The government's real issues are bigger and look ahead over longer time spans.

The new energy corporation is likely to become the focus of export energy developments, some of which are tied to oil and gas. It wouldn't be surprising, given the corporation's mandate, to see it take control of the Lower Churchill project which may be generating power before the middle of the next decade. Part of that project will likely be the construction of the transmission infrastructure - sub-sea cabling - that would carry electricity to markets in the United States.

The new energy corp might well be the license holder at the end of the bid for Labrador parcels next year. With some exploration work - potentially carried on by the energy corporation on its own - the natural gas available from the Gudrid, North Bjarni and Bjarni fields could double in size. That gas, as much as eight trillion cubic feet (8 tcf) including the three existing significant discoveries, could be brought ashore and used to generate electricity in a new facility on the coast of Labrador. The power would be sold down the Lower Churchill lines to markets in the United States.

None of that would really be affected by the equity issue.

That bit on the energy corporation is speculative, of course, but it certainly fits with public statements by provincial officials. It also fits the Premier's concern about shipping natural gas directly to market without some form of added local value.

All of these plays or possible plays are well in the future, of course. In the short- to medium- term, the provincial government knows that it will have significant cash flows from existing oil production. There's no risk in the rhetoric. There may not be an economic gain either, even in the longer run, but the energy plan is increasing something other than economic development.

There really isn't any risk for the provincial government in using part of the energy plan for political purposes. Whatever consequences come will come so far in the future as to be irrelevant to any of the politicians currently making decisions or likely to make decisions on these issues over the next decade.

But to give credit where credit is due, the provincial government's posturing on oil and gas - with all the distortions and misrepresentations about revenues to date and who makes what - is a masterful example of framing a discussion in a way that can't be counteracted simply by anyone, political or industrial.

It will produce the political effect desired in October.

As a political plan, the energy document is already working its magic.

As an economic plan?

Well, that remains to be seen.

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Provinces lining up against senate reform package

The Globe and Mail is following up on a story reported on the weekend by Canadian Press that the provincial premiers are raising objections to the Harper administration's senate reform proposals.

The Globe quotes extensively from a May 30, 2007 letter from Premier Danny Williams to the Prime Minister:

Mr. Williams asks that Mr. Harper withdraw both Bill S-4, which would impose eight-year term limits on senators, and Bill C-43, which would create a process for electing senators.

"If you are intent on Senate reform, then it must be done correctly," Mr. Williams says in the letter.

"Any changes should be carefully considered by both (federal and provincial) constitutional orders of government in the context of a national public debate. The current piecemeal and unilateral approach does not suffice."

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Carter lands book deal

From Breakwater, the news release (issued May 28) announcing a book deal for NTV's Glen Carter:

Breakwater to publish first book from NTV's Glen Carter

Breakwater Books is pleased to announce the signing of the first book deal from award-winning reporter and NTV Evening News anchor Glen Carter. Negotiations were finalized last week for the first book, and a standing agreement remains for a potential two-book deal.

A newspaper, radio and television journalist for more than twenty-five years, Glen Carter has covered local, national and international stories as a reporter and as a six o'clock anchor.

Carter has covered a significant repertoire of newsmaking events including the mysterious crash of an American passenger jet which killed more than 250 U.S. soldiers. He's covered world leaders and royalty, including Diana, the Princess of Wales, and he once scored a rare and exclusive interview with former Soviet President Mikhail Gorbachev.

Carter has twice skimmed the North Atlantic aboard an American Coast Guard aircraft during a sentimental quest for the grave of Titanic. In May of 2005 he wrote and played the lead role in an internet viral film which won more than a dozen world awards, including a bronze Cyberlion at Cannes. The film, which was nominated for an Emmy, has been seen by more than 40 million people worldwide.

Glen Carter can now add published author to his impressive list of credentials. Carter's international experience and keen reporting abilities have equipped him with story-making skills in the same vein as Tom Clancy and John Grisham.

Angels of Maradona is a fast-paced action novel delving into international crime in various locales. Set in Columbia, Canada and the US, the novel boasts murder, romance, mystery, the illegal drug trade and global politics in a sleek and clever writing style.

Scheduled for publication in early 2008, Angels of Maradona by Glen Carter is anticipated to be one of Breakwater's most noteworthy spring releases.

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Jamieson to seek father's old seat

Roger Jamieson, son of former deputy prime minister and foreign affairs minister Don Jamieson will be seeking the Liberal nomination in the federal riding his father once represented.

Jamieson is a former media executive. He currently operates a tourist resort and has extensive experience in the tourism industry. Jamieson is past president of Hospitality Newfoundland and Labrador.

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PAL to train at Goose Bay

Provincial Aerospace will conduct training at Goose Bay for crews providing ocean surveillance to the Netherlands Antilles and Aruba.

The provincial government is spending $250,000 to support the training, described as a demonstration project in the government news release.

In mid-2006, Provincial Aerospace's maritime surveillance division won a US$100 million contract to conduct surveillance over Dutch territories in the Caribbean using two modified Dash-8 aircraft.

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Wow! Green delivers whopper.

Forget anything said or heard before at Bond Papers on Chief Justice Derek Green's report on legislative indemnities.

The thing runs 1300 pages and contains 80 recommendations, according to early media reports.

Just on that basis alone it appears to be well worth the wait.

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New Hydro Corp; same problem

While legislation creating a new Crown-owned energy corporation and a new version of Newfoundland and Labrador Hydro were announced last week with the words that "energy investments in non-regulated activities will not affect electricity rates", a closer look at the legislation shows the problem will still exist.

Bond Papers noted last May that changes made to existing legislation at that time created the potential that residents of the province would pay for government's energy policy through electricity rates.

Specifically, Bond Papers pointed out the interaction of two specific changes. First, changes to the Hydro Corporation Act not only allowed Hydro to invest in oil and gas projects but also provided that Hydro may undertake any other activity approved by cabinet. Second, a change to section 24 of the Electrical Power Control Act exempted Hydro from the restriction that, as a utility company, it could only be involved in electricity generation and power delivery.

The new Hydro-electric Corporation Act includes the same fundamental problem. While the oil and gas portions of the existing statute are removed, section 5(2) establishes that

Notwithstanding subsection (1), the corporation may engage in those other activities that the Lieutenant-Governor in Council may approve.

There are no changes to the Electrical Power Control Act. While the 2006 amendment that exempts Hydro from that section of the Act is not in force, it would merely a simple administrative procedure for the section to take effect.

Given that the provincial government is now creating a new energy corporation to take on the non-regulated activities of its energy program, there is no apparent reason to give Hydro the power to engage in any activities other than electricity generation and distribution.

Two new bills in front of the House of Assembly re-organize the Hydro corporation and create a new energy corporation. However, the fundamental problem identified by Bond Papers last May - namely non-electricity investments affecting electricity rates still remains. The current administration may not intend to implement changes to the Electrical Power Control Act enacted last year. However, leaving the legal authority to do so on the statute books may create an unnecessary temptation on some future date.

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Being Cassandra

Professor Michael Enachescu has taken some considerable umbrage at the post "Pollyanna Dunderdale 2", specifically for the remarks that began the commentary. At his request, his first reaction is contained in a comment at the end of that post.

Fair enough.

At the outset, let's make it clear that the comments were not meant in anyway to question Professor Enachescu's competence as a geoscientist or his knowledge of the oil and gas industry locally or globally.

Rather, the CBC story linked in the original post and the interview [ram file] connected to it seemed to be exceedingly optimistic in dealing with the prospect of exploration returning to Labrador because four parcels offshore Labrador had been offered for bids in the most recent land sale by the offshore regulatory board.

In the interview Professor Enachescu said that we "have to be very cautious" in projecting what will occur offshore Labrador since exploration must come first. That's considerably different than the implication of the comment used by CBC in the online story. Professor Enachescu did not take issue with the quote so let's work on the basis that the comment was accurately quoted.

On the point about exploration and development, Professor Enachescu is absolutely correct: exploration will determine what if any resources are available. That knowledge must come before any development.

In the interview, he also described the potential of the parcels up for bids containing at least as much in the way of natural gas, natural gas liquids and oil as the existing significant discoveries at North Bjarni, Bjarni and Gudrid.

If that turns out to be the case, there would be a total of around eight trillion cubic feet of natural gas in the area.

Put another way, the natural gas available for development in the area would be about double the amount of gas in the Snohvit field currently being developed in the Barents Sea. Ted Howell noted Snohvit as an example of an offshore gas field located well offshore in a harsh environment. Mr. Howell pointed out that a number of factors have changed to attract the first interest in exploring offshore Labrador in two decades.

That is not really the issue, however.

Rather, the point of the two posts on the land parcels was that other factors may well see the four parcels going without bids.

The most significant factor would be the provincial royalty and benefits regime. The gas royalty regime - the one directly relevant to the Labrador parcels - has yet to be revealed. One of the reasons bids will close on those parcels in August 2008 may well be to give time for companies to assess the impact of that regime.

If the regime increases the costs of development beyond the point at which companies are willing to invest, then the parcels will lay fallow. Alternately, if the regime is one thing but the provincial government reserves the right to add costs, then the parcels may sit fallow because the financial environment is too uncertain in comparison to other places. Exploration investment in those cases will go elsewhere.

Companies may still take up the parcels. As noted in the earlier post, they may decide that the potential resources in the parcel would justify the risk and whatever royalty and benefits regime the province imposes. Companies may also decide that no matter what the royalty regime occurs, the long lead times involved - nine years to complete exploration and whatever time after that to develop any significant discovery found - may well give further opportunity to change the provincial royalty regime.

Look ahead to 2020. The existing offshore oil fields will be drawing down. The provincial government will be faxing increased costs owing to the impact of demographics. In the absence of any significant new offshore development, the financial pressures on a provincial government a decade and more hence may well cause that future government to amend whatever royalty regime is announced this year.

Exploration indeed must precede development. But, if we look at the issues potentially affecting private sector interest in the fields, it is much too early to determine whether we will even get to exploration in the first place.

The other possible interest in those fields, as noted in the earlier post, may be from the province's new energy corporation. That's the second possible reason for the long time bids will be open. As we learned last week, the province's new energy corporation will be running by early in the New Year. Exploration costs are well within the financial means of the energy corporation and the long lead time on this bid process would allow the new energy corporation seven months to sort out any interest it has in acquiring exploration rights.

Once again, though, there are simply too many unknowns to project with any accuracy what will happen with those parcels. We may have a better idea the closer we get to August and of course we will know with certainty on August 2.

In any event, and as much as we might wish it were otherwise, it is far too soon to be discussing the return of oil and gas exploration to the Labrador shelf. It is tempting to be optimistic - particularly in the wake of Hebron and Hibernia South - but experience with the local offshore over 25 years ( and including those two spectacular setbacks) should give us all an abundance of prudence and caution when it comes to projecting what will occur.

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Your drain on bugs

For the third time in the past four weeks police have uncovered marijuana grow-ops and their associated production labs.

The second one turned up because it exploded.

The latest was discovered by police attended at the scene of a domestic disturbance.

If it wasn't so serious an issue, it would be comical.

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Quote of the week: Loyola Hearn

At the tail end of an interview with The Independent:

"I will not get down into the gutter, but it is getting to the point where if people push too far, they can expect a slash," he says. "I get sick and tired sometimes of listening to people who are doing a lot of damage to our province by inactivity, by constantly blaming others for what's not happening, who are doing nothing themselves except ridiculing and burning bridges.

The people in our province better wise up. We have tremendous opportunities, the best people in the world, we have greater resources, and we are letting some people, for personal reasons, try to build a little kingdom in our province."

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Premiers push back on senate reform

Ontario and Quebec are entering the debate on senate reform, saying the Prime Minister must obtain the consent of the provinces to reform the institution.

Canadian Press' Joan Bryden discusses the issue in French, in an article carried in la presse on Friday. Quebec - referred to by Bryden as one of the two most important provinces in Canada - wants the federal senate reform measures halted:

"Le gouvernement du Québec ne s'oppose pas à une modernisation du Sénat", a écrit la province dans un mémoire soumis au Comité permanent des affaires juridiques et constitutionnelles du Sénat.

"Mais si nous cherchons à modifier les caractéristiques essentielles de cette institution, la seule avenue possible est de lancer un processus constitutionnel coordonné au niveau fédéral-provincial qui réunit les joueurs constitutionnels, incluant le Québec", a-t-elle ajouté.

It appears that the Government of Newfoundland and Labrador has taken a similar position. In a May 9 session of the Senate committee on legal and constitutional affairs, senators make references to a letter or letters received by the committee from Premier Danny Williams:

Senator Milne: We will send a letter to the premiers of the provinces inviting their input on this matter, giving them a cut-off date so we can receive the reply before May 31. In a package along with this letter with suggested wording, we will send along copies of Premier Graham's letter and the legal opinion. We received letters from Premier Danny Williams, and the testimony of four different provinces and the report of the special committee. They have all the information with a request to reply before May 31.

...

Senator Hays: For the rest, Premier Williams wrote saying he was not going to appear, that anything involving the Senate should involve the provinces. It was not an opinion; it was just a letter saying that....

...

Senator Bryden: Premier Williams was pretty clear in his letter. He made a statement that nothing that would affect provinces should be determined without the provinces' participation. He went on, in either that letter or another, to say do not forget that the Council of the Federation has passed a resolution "... that no changes would be made in federal assets, including the Senate, without the agreement of the provinces."

...

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NL behind NS in space race

With 120 hectares of Crown land to build on, an American company has put Nova Scotia decisively ahead of Newfoundland and Labrador in the race for space.

When will people be organizing protests about this great slight to the people of Newfoundland and Labrador?

This sort of venture could have put Newfoundland and Labrador on the leading edge of the 21st century's great challenge.

Surely, this is proof that Confederation was a giant conspiracy to oppress the poor, downtrodden people of a poor downtrodden land.

Nova Scotians are already looking down their noses at us as they take away some of the greatest assets of the province in an unprecedented give-away of our resources. Next thing, they'll be looking down on us from outer space.

And while we are at, the Government of Newfoundland and Labrador should be lobbying for federal funding to build a museum to this affront to intelligence.

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MHA/MNA/MLA pay

Here's are two pay reviews completed for provincial legislatures in the past year:

1. British Columbia: Tabled on April 30, 2007. Appointed on January 30, 2007.

2. Saskatchewan: Report filed in June 2006. Appointed February 2006.

Chief Justice Derek Green's terms of reference weren't significantly different from those of any indemnity review appointed by any legislature in the country over the past umpteen decades.

The bit about financial administration in the House of Assembly was essentially spent before he got to it since the legislature's management committee, likely with heavy input from the Executive, hired all manner of staff and added all sorts of procedures. That should have made Green's job easier, rather than more difficult.

Green's terms of reference were also carefully constructed in such a way so that while it appeared he had the powers of a public inquiry, he actually didn't. That's not what the official news releases said, but then again claims in a government news release don't always match reality. That meant that essentially Green wasn't able to delve into questions his jurist-mind might have wanted answered - like who was responsible for the fiasco in the first place - but then again his terms of reference didn't allow him to go there anyway.

All that was left was a simple pay review of the type done countless times in the past, within 90 days.

Of course no one has ever explained why that review was ordered by the Crown, and not by the members of the legislature themselves. Perhaps it had something to do with the provisions of the legislation that would have given a commissioner appointed that way with all the powers of a public inquiry.

This is no reflection on Chief Justice Green.

Far from it.

The outcome of his report, the terms of reference, the manner in which he was appointed and now the inordinate delays in producing what ought to have been a simple result, appear to be related to unanswered questions about the constitutionally dubious origin of the whole appointment in the first place.

Let's not even get into the sometimes ham-fisted attempts at managing the fall-out from the fiasco itself.

Sometime soon we may know what Chief Justice Green has reported, but it is highly unlikely we will ever find out what caused one of the darkest stains in the history of our provincial legislature.

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The longest quick report in history

The delays have been longer than the report is likely to be but Chief Justice Derek Green finally has his work finished.

What work you ask?

Well, the relatively simple job of reporting on what members of the provincial legislature should be paid, based on practices in other places.

Saskatchewan finished a review - almost identical in scope - just before Green was appointed.

So, according to the news release, the Premier gets it on Friday. He's already been briefed at least once on its contents, hasn't he?

When will the rest of us see it?

Ooooooh. Oooooooh

Maybe it will be like the energy plan.

Often promised. Not yet delivered.

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FPI: One Nova Scotian's View

Jim Meek's column in the Chronicle Herald:

Demone says that consolidation is coming – belatedly – to the fishing industry. FPI’s assets should put the Nova Scotia company in a position where it is among the winners – or consolidators – in this transition.

It doesn’t hurt, either, that High Liner’s major shareholders include Nova Scotians with long-held stakes in the company. These are not quick-flip artists.

As for Henry Demone, he seems to have done the impossible in this FPI deal – convince Danny Williams that it’s OK to sell Newfoundland fishing assets to a Nova Scotia company.

We’re talking high-level diplomacy here. I may even have to rethink the Attila thing.

Does anybody else finding it passing strange that Danny Williams has blessed the break-up of a major local fish company and is planning to sell off the most lucrative marketing assets to a Nova Scotia company?

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Investing non-renewable revenues

A retired St. John's financial consultant is recommending the provincial government follow the example of other jurisdictions, including Alaska and Norway, and invest revenues from oil and gas development in Newfoundland and Labrador.

Bastedo figures Newfoundlanders and Labradorians would receive dividends between Cdn$3,000 and $3,300 once its own fund is worth $25 billion-$30 billion.

Established in 1976, the Alaska fund receives at least 25 per cent of the state's oil royalties and other income, such as mineral lease payments.

Six years later, the fund started paying dividend cheques to native Alaskans and those who had lived in the state for more than 21 years. Those dividends are based on a formula and the amount varies annually.

The lowest payments were US$331 in 1984, while the highest was US$1,964 in 2000.

The Norwegian fund, which is invested only in international markets, reported first quarter earnings of over US$300 billion in 2007.

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Public hearings on Bloom Lake, Fermont, June 19

The Quebec Bureau d'audience publique sur l'environment (BAPE) will hold a public information session 19 June 2007 in the Fermont Curling Club beginning at 7:30 PM.

The purpose of the session is to provide the public with information on Consolidated Thompson's proposed Bloom Lake mine.

According to the BAPE news release, the Bloom lake project will involve annual production of 7,000,000 tons of iron ore, with the ore being moved by train to Wabush. From there, the ore will be moved to Sept Iles for shipment to market. The $400 million project is expected to ship its first ore by the fourth quarter of 2008.

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Fortis to build new Belize hydro project

From the company's news release on Wednesday:

BECOL, an indirect wholly owned subsidiary of Fortis Inc. (TSX:FTS), announced today that the Company has received all major approvals for construction of a US$52.5 million 18-megawatt ("MW") hydroelectric generating facility at Vaca on the Macal River in Belize. BECOL has signed a 50-year agreement with Belize Electricity Limited for the sale of the energy generated by the Vaca facility, commencing late in 2009.

"The Vaca facility represents the final phase of a three-phase development on the Macal River to maximize its hydroelectric potential," explains Stan Marshall, President and Chief Executive Officer, Fortis Inc. "The existing upstream Chalillo and Mollejon hydroelectric facilities have benefited the customers of Belize Electricity and the country of Belize by helping to stabilize electricity rates and by increasing reliability of energy supply," he says.

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Province to create new energy corporation

While the provincial government changed the Hydro Corporation Act only last year in order to create a new energy corporation, two new bills were read for the first time on Tuesday which will create:

- a new Hydro Corporation; and,
- a new energy corporation.

We'll know what it's about after a media briefing on Thursday.

Until then, we can only scratch our heads in bewilderment.

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