Waiting for the "real deal": deconstructing the Hebron announcement

"That's the details...That's where the deal gets done. That's where the off-ramps are. That's where the security is for the people of Newfoundland and Labrador. ... We want to see the real deal."

Danny Williams, Leader of the Official Opposition, June 2002

At 10:00 AM on August 22, 2007, Premier Danny Williams will hold a news conference and announce a miracle.

[Update 0745 hrs 22 Aug: According to CBC Radio's David Cochrane, the news conference will take place at 11:00 AM or noon. Bond papers understands it will involve only Premier Williams. As Cochrane indicated, there is no final and binding legal agreement but rather a general statement of principles (see below). Cochrane compared the situation to Voisey's Bay (again, see below), and acknowledged that there may not be an agreement reached. Cochrane dismissed the prospect given that both sides need a deal.]

The Premier will announce a deal to develop Hebron in which he negotiated every single one of his demands successfully at no or virtually no cost.

The reality is starkly different, if for no other reason than what the Premier is likely to discuss on Wednesday is not a complete agreement but rather a memorandum of understanding [MOU], a statement of principles to guide further talks that in itself is not legally binding on either party. According to some indications, the MOU will be kept confidential.

The details of the development agreement for Hebron remain to be negotiated.

The Hebron announcement will be starkly different from the position Danny Williams took as opposition leader in 2002 on the Voisey's Bay deal, although the circumstances are virtually identical.

As a Canadian Press story put it in June 2002:

But critics on the opposition benches warned a monumental bungle is in the making because the vote [in the House of Assembly] dealt with an 18-page statement of principles, not a legally binding commercial agreement.

"It's the worst ... document I've ever seen," Conservative Leader Danny Williams said outside the legislature. "It's not even a legal document because it's not legally enforceable. We as a people are being insulted by being asked to vote on this."

The legal text, which could comprise up to 150 pages of dense terminology, will be drafted by lawyers behind closed doors later this fall.

For the past nine days, Williams insisted the final text, not statement of principles, should be debated and put to a vote in the legislature.

"That's the details," he said. "That's where the deal gets done. That's where the off-ramps are. That's where the security is for the people of Newfoundland and Labrador. ... We want to see the real deal."

Effectively, Newfoundlanders and Labradorians will be voting on a Hebron statement of principles come October 9 but without the details which, as Danny Williams himself put it five years ago, is "where security is for the people of Newfoundland and Labrador."

It would be even more ironic - if that is even possible - were the Premier to make a comment along these lines on Wednesday: "We're completely satisfied we have all of the provisions that we need, all of the stop-gap measures, all the guarantees."

To give a sense of what likely won't be known on Wednesday with any certainty, consider these points:

1. Super-royalty: There will apparently be a provision covering special royalties while oil is priced above a certain dollar amount per barrel. There has been no public discussion of how this would work and hence there is no calculation of how this regime will interact with the other royalty regime.

It is conceivable that the province's existing royalty regime has been supplanted by an entirely new one - never publicly disclosed - complete with different triggers, different calculations and therefore different potential cash values to the provincial treasury.

Wade Locke's assessment of Hebron royalties of $8.0 to $10.0 billion over the 20 year lifespan of the project may well need to be replaced by an entirely new set of calculations.

Unless details of the royalty regime are released, there will be no way for an independent analyst, such as Locke, to assess any provincial government claims about royalties.

2. Equity stake. There will be a 4.9% equity position for the provincial energy company, according to media reports. Expect the provincial government will pay a fair market price - yet to be determined - for the stake and that the energy company will also bear its share of project development cost and downstream liabilities.

Those points have been at the heart of the oil companies' position on equity. The Premier has essentially accepted them already publicly when he stated that the provincial government would pay fair market price.

The problem for the public will come in assessing the real value of the equity stake. Premier Williams gave it a net value of only $1.5 billion over the life of the project based on discussions up to April 3, 2006. It is possible that in accepting operator risk - something the province has eschewed until now, apparently - the net cash value of the equity stake will be near zero.

The Premier has never publicly indicated any other value to the province of the equity stake and establishing an oil company.

[Update: CBC's David Cochrane attributed to Premier Williams acquisition cost of $150 million to the equity position. On the face of it, this is ridiculously low. If Hebron development cost were $5.0 billion, then 4.9% of that alone would be $245 million.

Added to that cost must be the share of other downstream costs and liabilities. If getting into the oil business on a project like Hebron - estimated gross value of US$25 to US$35 billion- was that cheap, everyone would be in it. ]

3. Local benefits: One of the major issues in the 2005/06 negotiations was apparently the amount of work to be done within the province. This remains an significant issue, made more acute by outmigration since April 2006.

Any provisions of the agreement which establish local benefits as work commitments must take into consideration the local labour market and the local industrial capacity in the context of a major construction project at Long Harbour, the likelihood that the Lower Churchill will start within the next three to five years, and the possibility that one or two other major construction projects at the northeastern end of Placentia Bay would also tax the local industrial capacity.

One way of coping with the issue would be to allow work - such as the topsides - to be shipped out of the province for completion based on certain conditions being met. As well, the provincial energy company may opt to slow work on the Lower Churchill or allow that project to export components or outsource supplies to ensure that Hebron can meet its first-oil target.

Since there are a limited number of facilities in the province capable of constructing some of the larger project components, a project such as the Joint Support Ship for the Canadian navy, might take a facility such as the Marystown yard out of contention for one or the other project.

The superheated Alberta construction marketplace has already taxed some aspects of the national labour supply. Challenges would exist in finding enough skilled workers in a relatively tight time frame to complete the planned and potential major projects across Canada, including the ones listed above.

4. Conflict of interest: Bond Papers raised this issue specifically focused on Ed Martin, the chief executive of Hydro who headed the 2006 negotiating team. The conflict remains, even though this round of negotiations appears to have been headed by the Premier himself.

Fundamentally, any political demands that insist on work being done in the province have to be paid for by some party.

Given that the provincial government is almost certain to become an operator, it is now faced with the dilemma. As an operator, it would seek to lower costs and thereby maximize profit which would flow ultimately to the provincial treasury. As a provincial administration interested in maximising local work, it would seek to maximize that local work irrespective of costs.

Until now, those interests were aligned: lower costs meant higher royalties.

Beginning with this agreement - when and if the details are finalized - the provincial government faces an internal conflict of interest not seen since the Peckford administration and negotiations on Hibernia.

How that conflict is resolved will determine much of the value of the final agreement, when and if it is reached.

5. There has been no public discussion of potential research and development work related to Hebron, let alone what the requirements might be.

6. Tax concessions: One sticking point for the provincial government in 2006 was a demand by the companies for a sales tax exemption for the construction phase of the project, similar to an exemption granted to Hibernia, as well as the creation of an investment tax credit.

Tax concessions - although not characterised as such - might form a part of this agreement as a mechanism to lower operator costs on an already difficult and costly project.

7. Dates and timelines. Some 18 months have already been lost on the project. The operators disbanded the project management team in 2006.

That team now must be assembled again.

The details of the agreement with the provincial government must be negotiated.

A development application must be submitted to the offshore regulatory board. The board must review the application, adjust portions and hold public hearings before the project can be sanctioned.

Even allowing some concurrent work, it is likely that first oil from Hebron will not be achieved much before 2014.

8. Hibernia South. As much as the parties attempted to downplay it, it appears that the provincial government's rejection of Hibernia South development was linked to collapse of the Hebron talks.

Some aspect of this MOU may include a side agreement to expedite development of Hibernia South, with the province essentially abandoning any demands for additional royalties and developments from the 300 million barrels of oil in the Hibernia extension. Hebron - the subject of the current discussions - is estimated to contain slightly more than 500 million barrels of heavy, sour crude oil.

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Hebron go ahead

From the National Post:

However, the gambit appears to have paid off. According speculation in Newfoundland Tuesday, he will announce a memorandum of understanding in which he won a 4.9% equity stake in Hebron for the province as well as a super royalty that would increase with oil prices -- demands that the oil companies would not agree to a year ago.

But Ed Hollett, a public policy commentator in St. John's, said it's possible the oil companies won concessions of their own, including tax breaks and an agreement to be able to do a lot of the work outside of Newfoundland. Mr. Williams had insisted that Hebron be built in the province.

"If by some miracle he got everything that he wanted, and the companies got nothing that they wanted, then he is the most brilliant negotiator in the universe," Mr. Hollett said. "But I have never known a negotiation that looked like that. Until we know the specifics, we don't know what this is all about, whether we have been diddling around for 18 months for nothing."

And from the Globe:

The deal will allow the province to earn a 4.9-per-cent equity stake in the project, and has a royalty regime that will ensure the province earns a greater share of the proceeds from oil production than it has from existing offshore projects, sources said last night.

Mr. Williams has been widely criticized for his insistence that the province gain an ownership stake in the project, with some critics dubbing him "Danny Chavez" after the socialist president of Venezuela, Hugo Chavez.

But the Premier — who faces an election on Oct. 9 — is wildly popular in his home province partly as a result of his battle with the international oil companies, as well as his heated disagreement with Prime Minister Stephen Harper over equalization.

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Breaking: Hebron deal?

From Cochrane's Crackberry - and discussed live on CBC's Here and Now - and the Financial Post online, word that there might be an announcement tomorrow on Hebron.

More to follow...

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LiberalOz to reconsider Long Tan gallantry awards

Australia's Liberal government will reconsider awards given to members of the Royal Australian Regiment who participated in the battle at Long Tan, Republic of Vietnam 41 years ago.

Left, a typically-laden Australian infantryman advances through jungle terrain, somewhere in Vietnam. [Photo: Australian War Memorial, AWM WAR/70/26/VN]

Approximately 100 Australian infantrymen, from D Company 6th Battalion The Royal Australian Regiment fought off attacks by an estimated force of 2500 Viet Cong guerrillas and North Vietnamese Army regulars.

Operation SMITHFIELD was opened by a mortar and recoilless rifle attack on the Task Force area on the night of 16/17 Aug 66. B Company was initially dispatched to clear the area to the east of the Task Force base. D Company took over from B Company on 18 Aug 66. D Company made contact with the enemy force of regimental size and were soon under attack from three sides. The battle was fought into the night under a blanket of mist and heavy monsoonal rain, but D Company held its ground with heroism and grim determination. The remainder of the Battalion deployed to aid the beleaguered Company. With the help of armoured personnel carriers of 3 Troop, 1st APC Squadron they hit the flank of a battalion size force which was forming up to assault the rear of D Company, inflicted many casualties and forced the enemy from the battlefield. A Presidential Unit Citation was awarded to D Company by the then President of the United States, Lyndon B. Johnson. 18 Aug is now commemorated each year as Long Tan Day, in memory of the eighteen soldiers who gave their lives in battle.

Between Aug 66 and its departure to Australia in Jun 67, 6 RAR took part in seventeen more Battalion operations and supported a number of 5 RAR operations. These operation, along with the routine patrolling around the Task Force area, graduallywrested control of the Province from the Viet Cong. Twenty three members of the Battalion received gallantry awards for the tour and 37 members gave their lives.

At the time, the Australian government downgraded the recommended decorations and prevented the South Vietnamese government from recognizing the soldiers involved. In 2004, the soldiers were permitted to wear the South Vietnamese decorations. The company commander, for example, was originally recommended for the Distinguished Service Order, but this was downgraded to the Military Medal. The United States government awarded the company a Presidential Unit Citation, which was accepted.

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SOL: The Ontario Version

The Globe and Mail recently gave Dalton McGuinty some advice on his version of the Summer of Love.

Their advice would be well received in the eastern reaches of the country as well.

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Getting in the quota

Odd that a news release emerges, in the third week of August, from the provincial government department known as InTRD, about an event at Memorial University, that Memorial University didn't talk about when it occurred, that involves an issue that actually relates to natural resources..

Then again, it isn't odd when one considers:

1. That this is polling month;
2. That all departments are required to pump out good news when they can, but especially in polling season; and,
3. That the Boss must get credit.

That's exactly what the lede of the release indicates, the lede - by definition - being the most important, newsworthy thing, about the subject at hand.

"A letter of intent signed in Ireland during a trade visit led by the Honourable Danny Williams, Premier of Newfoundland and Labrador, in February 2007 to produce closer ties between the oil and gas industries of Newfoundland and Labrador and Ireland, is generating results."

Exporting our expertise?

Nope.

Developing the oil and gas sector?

Nope.

The MOU Danny signed is working?

Bing! Bing! Bing!

And even though the event happened a month ago, the "news" of this is released in August, likely to fill the quota of Happy Face News (TM) during the most important polling season of the past four years.

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Is it wind or hydrogen?

Some time ago, Frontier Power Systems registered a wind demonstration project on Ramea.

The project received some international attention, including this presentation at an American alternative energy conference in 2004.

The project was supposed to be a combination of wind and diesel, but an announcement earlier this year mentions inclusion of a newly developed hydrogen fuel system. The announcement indicates the client is Natural Resources Canada, not Frontier. A similar announcement directly from the hydrogen system manufacturer isn't any more clear.

We'll keep you posted on the results of further inquiries.

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Exxon signs rig for Indonesian drill program

ExxonMobil has signed a deal with Seadrill to use its West Aquarius ultra-deep water semisubmersible rig for exploration offshore Indonesia.

The three year lease is estimated to cost US$570 million.

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Soldier killed in Afghanistan

Private Simon Longtin was killed in Afghanistan yesterday when the vehicle in which he was riding struck an improvised explosive device.

Private Longtin served with Charlie Company, 3rd Battalion, Royal 22nd Regiment.

Private Longtin's remains will be returned to Canada in several days. A recent story from the Globe and Mail, discusses part of the journey.

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So how much is fair, exactly?

When it comes to oil and gas royalties, there's a debate in Alberta.

There's no debate in Newfoundland and Labrador. Mostly there's a pile of misinformation, most of it flowing from the provincial government.

Well, for those who like to think to thoughts, to dare to be different and - oh, horrors - consider that the Powers-That-Be might just not be right about everything, here's another perspective, via the Globe.

Note particularly, the chart on the left comparing various jurisdictions.

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The bonfire of the vapidities

It's called a strawman. [Right: The ultimate strawman, Guy Fawkes, is set alight in one of the annual celebrations of the defeat of The Gunpowder Plot. Photo: Daily Mail.]

A strawman is a caricature of a position taken by one's opponent in a debate or discussion. In order to defeat the argument, one builds a strawman - a convenient caricature - and then sets it alight by explaining how foolish or ridiculous or misguided the opposing argument is.

Except you aren't really dealing with the argument at all. You are dealing with a fiction, a fantasy, a fabrication. It's an illusion.

The Telegram's editorial page editor, Peter Jackson, does a fine job of building strawmen in his column this week on the decision by the provincial government to establish Sir Wilfred Grenfell College as a second university in the province.

He starts out with some generalities about the evil news media assuming politicians have bad motives. Then he praises Brian Tobin for "decisively" ending denominational education and for building The Rooms. With that armature built, Jackson then adds the straw:

It has become de rigueur among many political observers of late to characterize absolutely everything Premier Danny Williams does as a Machiavellian attempt to manipulate polls. While it’s true certain spending initiatives and photo ops are tailored for maximum impact, one can hardly assume that a continued hold on the reins of power is the sole motivation behind every government decision.

Let's set that vapid statement alight before it goes any farther.

"A continued hold on the reins of power" is most decidedly not "the sole motivation behind every government decision" and Jackson constructs a rather flimsy strawman in this paragraph. Nor is it a townie versus baymen thing, as much as the provincial government has tried to paint it that way. Jackson picks up that thread at one point, although using the more politically correct phrasing of Grenfell as an issue affecting a "rural" constituency.

Rather, the point often made at Bond Papers and elsewhere is that the communications part of a government decision is less about providing information to foster discussion or promote understanding as it is more about creating an illusion of some kind or of simply justifying a decision already taken. It's the media blitz that is designed to help goose polls inf avour of the government crowd.

For good measure, Jackson then attempts to caricature those who have raised questions about the Grenfell decisions, labelling then as either "the same administrators on whose deaf ears Grenfell’s pleas for more consideration fell for so long,"...or "those who have nothing but contempt for anything remotely associated with Danny Williams."

Again with the strawmen and, in effect another vapid statement. Jackson ignores the way the government bunch decided about Grenfell, just as he ignores the detailed arguments involved in the debate. In fact,  Jackson conveniently ignores anything of substance in the debate so that he can skip on to his own simplistic view: Those who oppose the provincial government on this issue are either the evil oppressors of the noble people of Corner Brook or those who, to borrow a phrase, believe that Premier Danny Williams can't walk and chew gum at the same time. Or was it tie his own shoe laces correctly?

Jackson then praises the existence of a discussion on Grenfell's future, ignoring entirely that he just finished identifying those who question the provincial government's decisions as not warranting attention. After all, they are either The Man or The Cynics on the "Bad" side and Jackson's friends on the Good, as Jackson has so conveniently populated the world of straw in which the "discussion" takes place. Why pay any attention to the baddies at all?

It is a debate that has simmered for some time, but has exploded since the government announced its plan to forge ahead with restructuring.

It is a debate that will likely go on for some time.

This can only be a good thing. It is important that the pros and cons of autonomy be thoroughly discussed in the public arena.

Jackson's world exists almost entirely in his own head. He manufactured the various positions and just as simplistically manufactured the good of a "debate" which in fact does not exist.

The deal on Grenfell is done and has been done since before the consultants were hired. It would have been important to discuss the Grenfell issue publicly before the decision was made. It would have been important to hear all sides, rather than cavalierly dismiss valid criticisms, as Jackson does here. The debate Jackson praises is as much an illusion as the straw men he vanquishes.

And as for the accusations of politicking, one would be naive in the extreme to simply leave them unexamined in any major decision taken by any government anywhere at any time. Politicking, it should be noted is not synonymous with partisanship, the main element of Jackson's armature. In the case of Grenfell, one suspects that another politician of another party in the same situation might well make the same decision: and without any of the niceties of debate, discussion or even a plan to hinder the drive to make a particular constituency happy irrespective of the viable alternatives or the cost.

It's not like we haven't seen that before, say, in the case of The Rooms.

Just as it isn't like we haven't seen the straw men and the bon fire before.

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SOL Day 53: Backdraft!

As Russell Wangersky points out, the provincial government isn't above arranging some photo ops for firefighting equipment that has already been in service all in aid of the Summer of Love 2007 undeclared election campaign.

Of course, it's also time for the quarterly polling by Corporate Research Associates so the photo ops and associated news releases come in extra handy. CRA will report its results around the time the writ for the official campaign is dropped.

If you do the math, you'll find about 84 news releases issued by the provincial government since August 1, along with some 14 media advisories of minister's attending this festival or making that announcement. overall, the releases and advisories are running about the same as last year - they always boost the good news stuff during polling season - but this year the whole little huckster game of goosing the polls seems to be taking an intensity that smacks of desperation.

Like the environment minister opening an additional 25 campsites at Butterpot provincial park on August 14, even though the season opened on the May 24th weekend. That sort of staged event just screams out as a staged political event.

Polling season plus the Summer of Love are also as good an explanation as any for the bizarre events this past week with Danny Williams chastising one of his candidates for doing what all the rest have been doing all along: telling people it's imperative to have their member sitting on the government side. Dennis Normore's only mistake: he finished off the "or else" part of the implicit threat.

The premier obviously felt a bit sheepish about having that sort of target out there in the middle of polling season. The opposition and the media would jump on it quickly, as they did.

Meanwhile, expect that the old chestnut of local politics - the threat of dirt roads, no schools and reversion to the honey wagon unless the district goes for the winning party - will still find its way into this, that, or another political conversation. The candidates making the pitch will just be sure to keep it off the airwaves and off the newspaper pages.

At least, until polling season is over.

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Far from that madding crowd

Presidents in democracies are hemmed in by legislative bodies. Under our present system, whenever there is a majority government in Ottawa, the prime minister is hemmed in by nothing whatsoever. Except on paper, executive powers have been seized from the cabinet, and legislative powers have been removed from the House, all arrogated unto the PM and his faceless PMO in a gradual bloodless coup — so much so that it has become trite political science to say that these days in Canada we elect a “benign” dictator for four years.

There is but one saving grace that may control somewhat the little Napoleons at the top. Voters have taken a fancy to electing minority governments and, according to the polls, intend to do the same next election. Thank God for the wisdom of the motley crowd.

Something suggests Bill might say something decidedly different about the same situation as it relates to his former employer and rellow Rhodes alumnus.

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The Power of Blogs

In which some people discover the reality, namely that bloggers are not immune to libel and slander laws and in which we discover the potential that some other people - including the rich and powerful - might seek to impose a form of chill by simply launching lawsuits claiming defamation.

Then there's Michael Geist's blog. Geist is a law professor specializing in Internet issues. He's got a youtube link to a piece from The National on the issue. There are other posts on the Internet and free speech issues. geist is being sued himself, incidentally, for doing nothing more complicated than including in a blogroll a link to a site allegedly containing defamatory comments.

The Toronto Transit Commission has threatened legal action over a blog posting.

Ditto for a newspaper that prides itself on being locally owned and telling it like it is.

And of course, there's the Premier's famous melt-down. Oddly enough, by falsely accusing your humble e-scribbler of attempting "to disparage the reputations of people", the Premier was effectively doing the thing he claimed to be opposing.

Go figure.

The issue of defamation is a potent one for any form of communication, but especially for the online community where many of the rules and conventions of society appear to be ignored by so many. There are aspects of the Internet that seriously challenge some of the conventions society has evolved to permit free speech. Those will require some careful consideration and some serious thought before anyone rushes to write new laws.

At the same time, the notion of free speech apparently causes some people concern simply because it exists. The content is not as important to these people so much as the fact that comments are made publicly which are contrary to whatever turns out to be the official dogma of the moment.

Take for example, that there are some people out there who have a great deal of difficulty with the things written here from time to time. The comments include the now infamous "I am all for free speech but..." line used by a surprisingly large number of people to claims that your humble e-scribe ought to be thrown in jail for something they deem as "treason" to actual threats of violence.

Blogs can be a powerful medium, so powerful in fact that some people spend a heck of a lot of time trying to figure out how to shut them down. As the links above suggest, the future of blogging in Canada might wind up being a very hot topic this fall.

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The blower of pogs

For your amusement on this friday evening in mid-August ponder the bizarre world in which some people live.

When you can't deal with the substance of an argument, invent a conspiracy. Better still, share the conspiracy among others who have difficulty dealing with the substance of an issue.

or impose censorship.

Any blogger worth his or her salt recognizes a censor when they see one. Some even recognize the censor in themselves, but then promise to rationalize their efforts to stifle genuine free speech.

It's especially easy to spot a censor. They utter lines like "I am all for free speech but...". Consider the truly odd thing when theose words are written by the blogger himself. (The line is in the comment the guy wrote to himself.)

Bonus points for anyone who can figure out why this particular little corner of cyberspace went from telling people - like your humble e-scribbler - who complained about the vicious and libelous anony-slagging in the comments section to get stuffed, to imposing censorship so that only people known to the blog writer (and complete with hidden profiles) can post comments only after they have been vetted by said pseudonymic blog writer.

For those not familiar with the blogs linked above, note that the individuals involved run blogs that have very similar content and tend to comment on each others blogs (when they aren't tracking the great global conspiracy.

Intellectual incest is best, apparently.

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The essence of blogging: Part Two

Thought.

What a concept.

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The essence of blogging

The essence of blogging may be found in the reaction blogs garner from some quarters.

The essence of blogging may be found among print columnists who still use the word "blogosphere", as if opinion and information on the Internet existed in some bizarre alternate universe where a moron can work as a safety officer at a nuclear power plant and Mom has blue hair that even Ted Geisel might find garish.

On this summer Friday, consider the power of the words offered by a columnist from Toronto's national newspaper, one Rick Salutin, doing less to defend the cerebral ruminations of Liberal leadership hopeful Mike Ignatieff from a blogger's critique, than to lament the impact of blogs on Salutin's own job.

David Rees' column on Huffington Post, while written in the vernacular of the Internet user, is far from the simplistic characterization of it offered by Salutin. Rees' comments are a long way from the Duff-addled belchings Barney might post from the barstool at Moe's, which incidentally, now boasts wireless access.

[One advantage of the Internet versus the paper and ink versuion of the Grope is that one is not trapped rading Salutin. Rather, one may search and find Rees' opinion piece before going any further with Salutin's piece. But I digress.]

Ignore Salutin's pretentious argument about "common sense" versus "anti-respect".

That's not what Salutin is on about.

Nope.

What Rees put up Salutin's nose has nothing to do with Ignatieff either.

Rather Salutin's column is all about the simple truth that leads some print columnists to dislike blogs: theirs is no longer the only voice out there offering opinions on subjects the writer may know little about.

They also are not bound to follow the Globe style manual, either, but that is a subject for another post.

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History repeating itself

In 2005/2006, economist Wade Locke projected provincial revenues from Hebron using the existing royalty regime. He assumed an average price per barrel of oil of US$50 and based the calculation on the 500 million barrels in the Hebron field alone.

Ben Nevis and West Ben Nevis with their 250 million barrels weren't included in the last round of talks.

Locke put the estimate at $8.0 to $10.0 billion over the 20 year lifespan of the project.

Let's assume an average price for oil of US$70 per barrel. That would add about 40% to the original projection. In other words, without an "equity" stake or superroyalties, a Hebron deal signed today under the existing royalty regime would generate $11.2 to $14 billion for the provincial treasury. It would also oull the better part of the estimated $3.0 to $5.0 billion construction costs into the province as well since the biggest part of the fabrication - the concrete base for the platform - would be built in Newfoundland.

That's right. Just by changing the numbers used in the calculation, the provincial government appears to make more money. Danny Williams could accept the January 26, 2006 frmaework agreement, forget equity and supperroyalties and still look like a giant winner.

Essentially that's what happened between the $1.4 billion upfront cash offer from Ottawa on offshore handouts and the $2.0 billion Danny Williams accepted in January 2005.

The feds just assumed a different average price per barrel of oil. The number went up by $600,000 and Danny Williams settled for a deal that was fundamentally the same one he rejected three months earlier. In fact, in a media interview in January 2005, Danny Williams admitted the whole thing came down to a discussion of what the up front cash - the quantum - would be.

What exactly are the odds that might happen on Hebron, the second time around?

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Most expensive uni in Canada

So much for finance minister Tom Marshall's insistance that making a Grenfell College a university will have only marginal cost implications.

So much too, for his claim that those outside Corner Brook won't notice the difference. Who does Marshall think will be subsidizing his decision on grenfell, done for entirely political reasons and without a comprehensive plan?

Every taxpayer in the province that's who.

Oh yes, and for those who don't think the objective for Grenfell was established before the consultants were hired to provided a smokescreen to cover cover a decision already taken - without any plan or evidence to back it up - there's this great quote from Premier Danny Williams:

"At the end of the day, Grenfell will have autonomy," Williams told CBC News recently. "Now, whether that means complete, separate independence from Memorial, if that's not the right way to go, then we'll do a hybrid that works for everybody."

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The Hebron Gambit

Listen to what Premier Danny Williams told reports in a scrum on Saturday.

Then consider these observations on resumption of Hebron talks:

1. A second failure would be politically deadly.

Let's start by recognizing that the collapse of the Hebron talks was a big failure for Danny Williams' political reputation. He's the guy who described himself as being about job creation and negotiation when he ran for office in 2003. That was his self-image so the failure of a major negotiation was a deeply felt wound.

It was so deeply felt, in fact, that Williams personally lambasted the local oil industry organization for do nothing more than encouraging both sides to get back to the table and cut a deal. His friends and allies did just as much and more in private to shut down any criticism of Williams.

His remarks were childish - calling NOIA "annoya", for example - and that in itself revealed the depth of the personal setback the Hebron failure was.

Announcement of renewed talks have brought with them renewed and heightened expectations of success. [You can get a real sense of how high those expectations are in a 10 minute radio interview [ram audio file] at the Morning Show website.

The first failure was costly enough.

A second failure could be politically deadly for Danny Williams.

2. Danny needs the cash.

It's not about Hebron so much as Hebron funding the Lower Churchill.

In itself, Hebron would have been a major milestone in offshore oil and gas development. As economist Wade Locke said at the time, development of the 500-odd million barrels from the Hebron field, using the existing royalty regime would have produced between $8.0 and $10.0 billion in provincial royalties over the anticipated 20 year lifespan of the project.

3. Higher prices = greater competition.

Danny needs a deal. The oil companies don't.

Higher oil prices have made Hebron somewhat more attractive, but global competition for scarce development dollars is even stiffer now than it was 18 months ago. Check Bond Papers from a year ago and you'll get some idea of just how higher prices have changed the global environment.

Danny Williams has been working hard to undo the mess created in April 2006 because Hebron isn't the only game in town. The oil companies have plenty of places to spend their development cash. Danny Williams doesn't have the kind of moxie to change the simple laws of global oil economics, no matter what some people think.

As much as he has tried to portray Hebron as a great deal or convince people that he has some power to force a development, the simple truth is he doesn't.

The simple fact is, the longer Hebron goes undeveloped, the less likely it is the project will ever go ahead.

4. Danny will have to compromise.

But compromise is another failure, in the Danny Williams lexicon.

Offal News noted a change in Danny Williams' language on the provincial position in negotiations.

Maybe the change is important.

Maybe it isn't.

The core problem with Danny Williams' stance to date has been his unwillingness to compromise or appear to compromise, even though comprise is essential in all negotiations.

Up to this past weekend, Williams has been adamant on his bottom line for any deal. Last year he had some wiggle room. This year, in the wake of the last failure everyone knows exactly what Danny Williams' demands are.

It's the same position he had when talks collapsed:

- A Hebron deal must produce substantially better royalties. That's the idea of so-called super-royalties. Essentially, that's a premium paid on any barrel of oil sold beyond a benchmark number, like US$50.

- The provincial government must get 4.9% "equity", i.e. a seat at the project table with cash attached.

Unfortunately for Williams, any deal will require a very visible compromise of some sort on his part. Last year, he could have explained away any compromises. Having attacked the oil companies, tried to force Andy Wells onto the offshore board in order to force a development and having insisted he would never buckle, any compromise will be seen for what it is: Danny Williams doing something other than what he promised.

Sure, the open line plants will read their scripts and praise any deal he delivers. The local oil patch will be thankful for a settlement.

Underneath it all though, people will wonder what all the racket was about in the first place.

5. Fool me twice.

Point to watch out for: the major difference in the 2005 offshore deal and the version offered in October 2004 was a change in the average price of oil used to calculate the up-front payment.

Watch for the same sleight of hand this time. Wade Locke based his US$8.0 to $10.0 billion royalty estimate on an average price of oil of US$50/barrel. Assume oil at a higher rate and whatever deal Williams delivers - if he delivers one at all - might look to be more lucrative than it actually is.

6. Shortage of workers means shortage of work.

In the last round of negotiations, the provincial government insisted that any work that could be done in Newfoundland and Labrador had to be done there or the companies would pay a penalty. Reportedly, the companies noted that Long Harbour plus the Lower Churchill would outstrip the local labour and engineering pool making it almost impossible to complete Hebron using only local resources.

Cancellation of Hebron last year meant that workers who would have started work on Hebron have already headed west to the higher wages of Alberta. That made the predicted situation worse, not better and therefore will make it harder for the province to stick with that bargaining point.

Expect that provincial demand to drop off the table or for Hebron to get preference over the Lower Churchill. otherwise, the cost of the project will be forced up.

7. How would Danny pay for the "equity" position?

A question that has never been answered. Odds are he will simply defer any revenues until the purchase price has been paid. Again, people should wonder why the project was delayed for the better part of two years for no significant cash or other benefits.

8. What's the "equity" thing all about and what's it worth?

Asked and answered in July, by Bond.

9. The conflict of interest remains.

In last Saturday's scrum, Danny Williams said that Hydro boss Ed martin is heading the provincial negotiating team.

That means the fundamental conflict of interest Martin represents remains clearly in place. The conflict of interest - the exact opposite of the Norwegian model the Premier claims to be following - may continue to affect negotiations adversely.

10. The last minute gamble with the gambit

There was a workable agreement to develop Hebron on January 26, 2006. Then Danny Williams apparently tossed new demands on the table. Let's hope that doesn't happen again.

-srbp-