Oram blames Danny for JSS cancellation

When Newfoundland and Labrador becomes the focal point and our shipyard becomes seemingly the best and only shipyard that can be used to do this particular contract, all of a sudden they first talk about going offshore and now they decide to cancel the project.  There is something going wrong somewhere.

"Something wrong with JSS contract, Oram says", Telegram, Tuesday, 25 August 2008

Newfoundland and Labrador business minister Paul Oram is blaming the strained relationship between his boss and the Prime Minister for the federal government's decision to scrap the joint support ship contract.

Premier Danny Williams said much the same thing in a radio talk show Tuesday.

Now of course that isn't what they meant, but, in truth, the very notion that the federal government would deliberately scrap an important contract because Danny and Steve don't get along is ludicrous in itself.  Silly as the thought is, both ministers offered it up to news media with a completely straight face.

In the Telegram story quoted above, Oram related a conversation he claims to have had with federal industry minister Jim Prentice while both ministers attended the Farnborough air show in July.  In the conversation, Prentice reportedly said that the federal government was considering having the hulls built outside Canada and the topsides and other fitting out work done in the country.

That part of the story is likely accurate since it jives with media reports that predate Oram's junket to the world's premiere air show. Oram would have had those reports long before Farnborough if his media clipping service and Our Man in a Blue Line Cab were doing their jobs.

Ottawa Citizen defence columnist David Pugliese reported in late May that both finalist shipyards had advised government they could produce only two of the three required ships for the $2.9 billion budgeted by treasury board for the project.

Pugliese blogged in early August that National Defence was examining a number of alternatives, including building the ships overseas.  That was seen at the time as politically unpalatable given that two shipyards in the country were technically capable of doing the work.

That's where Oram's account of the Prentice exchange and the likely one start to diverge.  While Oram claims the offshore option was considered because yards couldn't do the work, the thread that runs consistently through the story - and the one devoid of the political silliness Oram was trying to flog - is that there was enough money budgeted for either of the Canadian yards to be able to complete the project as tendered.

Big difference.

The joint support ships contract will likely come back and come back quickly since the vessels are needed urgently to replace the worn-out auxiliary oil replenishment vessels currently in service.  One of the consistent criticisms of the project is that the ships were supposed to do too many jobs for one hull.

In addition to providing logistics support for deployed naval forces (food, fuel and ammunition resupply), the JSS was supposed to serve as a transport ship capable of carrying an infantry company plus equipment to an overseas deployment.  At one point, the navy reportedly considered leasing a mothballed American amphibious assault ship for army support role while building conventional stores ships to replace the existing vessels.

There's no question these ships are needed, no matter what the configuration involved. Whatever the reason, the project was dealt a serious blow with the cancellation.  Coupled with the reported financial problems inside the current federal administration, it may not be back on track for some time to come.  In the meantime, the existing hulls will reach the end of the workable life in 2012. 

Something needs to be sorted out and sorted soon.

That will likely need to be done by federal politicians.

This contract may well serve voters as a good test to use when sorting through their federal candidates in the next election. If they are toeing a line - especially the childish ABC one - it might be an idea to leave them on the bench and look for a better alternative.

Unfortunately, the provincial government - through administrations of all stripes - doesn't seem to understand either the importance of defence industries to the provincial economy or what it takes to be effective in dealing with the federal government on defence issues.  Oram's not the first provincial cabinet minister to make asinine comments and sadly he likely won't be the last.

When politicians leap into complex issues they clearly know nothing about - as Oram clearly doesn't - they only serve to bugger up the works at worst or get ignored at best.

The men and women of the Canadian Forces, a great many of them from this province,  can do without that kind of "help".

The men and women of businesses like Marystown can do without it as well.

-srbp-

Government considering subsidies to private sector businesses

The provincial government is considering subsidizing air travel for people owning property in western Newfoundland but living outside Canada.

The idea of discount air travel using public money has been around for some time but has picked up momentum as Humber Valley Resort restructures and withdraws from tourism activity.  Currently, the resort offers its property owners a subsidized direct flight between the United Kingdom and Deer Lake. The resort won't be continuing the subsidized air travel for its property owners.

International commercial air travel is currently available to the island's west coast through connections in Toronto, St. John's, Halifax and Montreal.

A summer service by Air Canada between London (Gatwick) and St. John's was canceled after Astraeus Airlines - which then operated the private charter flights to the resort - introduced a stop in St. John's to challenge what was already a weak intercontinental market out of St. John's. Astraeus canceled its St. John's to Gatwick flight as well citing low business volume.

A west coast lobby group - Humber Direct-Air  - is looking at ways of providing the subsidy currently covered by Humber Valley Resort using other funds, apparently including a source that isn't the public till.

The lobby group includes west coast businesses, as well as the Deer lake airport authority head and a representative of Humber Valley Resort.

-srbp-

At the fictitious shareholders meeting...

Surely your humble e-scribbler is not the only one to notice that the provincial government is regarded by natural resources minister Kathy Dunderdale and her colleagues as a business venture.

Well, surely you've noticed that since 2007 (and a comfortable stranglehold on democracy, the ruling Conservatives have shown themselves to be nothing like the spitting and spewing populists they were.  Stephenville and Abitibi are but a dim memory.

So anyway so let's carry on with the delusion of some that this province is run by ProvGovCo, a wholly owned subsidiary of DW Enterprises.

Let's also imagine that there is an imaginary stockholders meeting in which all of us with shares in this little escapade get to put questions to the senior management.  Basically, this is cable Atlantic where four guys ran the whole thing.  This is more like ExxonMobil where even the lowliest shareholder can grill The Suits at least once a year.  Surely if its good enough for Big Oil it should be good enough for Big Oil's newest big buddies.
Anyway, there are a couple of fairly simple questions about AbitibiBowater and the provincial government's subsidies over the past couple of years.  Dunderdale puts it at $20 million.  The figure is likely more like $30 million, based on earlier comments, but the $20 million is a good starting point.

1. How much is the provincial government subsidizing the paper mills at Grand Falls and Corner Brook, annually?  Break it down by mill, and by the purpose of the subsidy.  Go back a decade so we can see any trends.
2. How much does the provincial government make every year from the mills in the forms of taxes, leases, rents, including income taxes and sales taxes resulting from mill activity?  Break it down, again, by category and amount and go back at least a decade to see what the trends have been.

That's pretty basic stuff.

No one should hold his breath expecting any answers, at least without forking over cash.

-srbp-

The Obama-Kinnock ticket

For political junkies, there is no such thing as rehab.

There is only the perpetual fix from news media.  No hit is more delicious and intoxicating than the ones that come from an American presidential campaign. 

Political junkies do not really need their own works.  The entire society is set up to deliver the drug to willing recipient. All news channels gave us something akin to coke. As if that wasn't enough, there came the political blogs, the crack cocaine of political addictions.

None of this, of course, is to make light of drug addiction and the havoc it wreaks on individuals, their families and societies.  It is simply a metaphor.  An apt one too, sometimes, considering what politics can do not only to the people caught up in it but their families and the people around them.

Such is the intensity of the political addiction of millions that way too freakin' early on a Saturday morning in late August, the world learned that Barack Obama- darling of certain media circles, presumptive Democratic Party presidential nominee and an intriguing potential president - selected the 65 year old senator from Delaware, Joseph Biden, as his vice-presidential running mate.

No dysfunctional New Yorker, despite the speculation, the hype and the supposedly sage advice from every corner.

No John Edwards, thanks in no small measure to Edwards' political electoral dysfunction resulting from a pair of old politicians disorder:  philandering and then fibbing about it.

Instead, we have Joe Biden.

The senior senator would add foreign policy depth and experience to the ticket, we are told.

The senior senator also brings with him some baggage of his own and it took not even 24 hours for the political junkies to remind us of Biden's theft - 21 years ago - of a speech by British Labour Party leader Neil Kinnock:

NEIL KINNOCK at Welsh Labour Party conference May 1987:

"Why am I the first Kinnock in a thousand generations to be able to get to university? Was it because our predecessors were thick? Does anybody really think that they didn't get what we had because they didn't have the talent or the strength or the endurance or the commitment? Of course not. It was because there was no platform upon which they could stand"

JOE BIDEN IN Sept 1987 during his first presidential campaign:

"Why is it that Joe Biden is the first in his family ever to go a university? Why is it that my wife... is the first in her family to ever go to college? Is it because our fathers and mothers were not bright? ...Is it because they didn't work hard? My ancestors who worked in the coal mines of northeast Pennsylvania and would come after 12 hours and play football for four hours? It's because they didn't have a platform on which to stand."

This excerpt doesn't give the full text of either speech.  Biden took Kinnock's references to hours of work and football and expanded the time involved in both. 

To the uninitiated, this might seem like trivia.  It may not be.  The revelation of one form of theft - plagiarism is the polite, intellectual name for it - led to digging for others. Altogether, the Kinnock theft scuttled Biden's presidential bid in 1987 once it was discovered and widely reported.

The Kinnock story is already making the rounds of American media and it is only a matter of time before youtube sprouts old video tape of Kinnock in full lyrical, Welsh flight married to the clunkier Biden version.  Political junkies can actually store up past benders and recycle them in a new binge.

Obama's already had a couple of Kinnock moments of his own.  One version is presented below.  There's a more detailed one in another youtube video.  About six months ago, some youtubers posted side by side clips of Obama and Massachusetts governor Deval Patrick.

Now there is a difference in the two cases.  Patrick is a strong Obama supporter and its another thing for two men who are politically tied in the same country to use each other's speeches.  Patrick and Obama might well be seen as merely representing two members of a political movement.

It is a different matter to swipe words from another politician in another country.

In the end, that may prove to be a distinction without being a difference. In a tight political race for the most important political job in the United States and arguably the biggest political job in the world, every possible fault, slip and foible will be highlighted.  Which one takes hold in the popular imagination is anyone's guess.

Incidentally, the Kinnock speech isn't on youtube.  Yet.

But other stuff is.

Like some of the savaging the Labour leader had at the hands of Spitting Image, the satirical television program.

let's see what use someone might make of this sort of stuff.

Williams and Harper use same comms approach

From David Pugliese's blog at the Ottawa Citizen, a description of the way DND Public Affairs has been turned from what Pugliese describes as one of the best media relations shops around to another of the drones.

Does any of this over-loaded, control-freakish information-manipulating, opaque (not transparent) silliness seem the vaguest bit familiar?

-srbp-

Navy support ships canned; Marystown in lurch

The federal government has scrapped plans to build three large supply and support vessels for the navy, saying the bids from two contending contractors were too high.

The shipyard at Marystown was part of one bidding consortium.

While some topsides fabrication for the Hebron project may go to Marystown, the modules likely to be built in the province are small and no where near as lucrative as the $3.0 billion Joint Support Ship contract.

The provincial government seemed to be signaling something was up two weeks ago when the Bull Arm fabrication site - soon to become a subsidiary of the Energy Corporation -  demanded immediate return of two large towers even though Bull Arm has no use for them in the foreseeable future.

Concern in Marystown led to a meeting between town leaders and energy minister Kathy Dunderdale that appeared to quiet the matter. 

Dunderdale used the Hebron project to threaten the shipyard and the community over the towers.  She said that the reluctance to return the fabrication stair towers from Marystown to Bull Arm would damage the Hebron negotiations and the prospect of future work. She made no effort to explain how the two might be linked, especially considering that the provincial government is a partner in the Hebron project and that its Bull Arm facility was the only site in the province where the gravity base structure could be built. 

Dunderdale also likely knew at the time of the public fracas that construction at Bull Arm for the Hebron gravity base would not begin until sometime after 2012.  One oil industry official told news media last week that concrete pours wouldn't begin at Bull Arm until 2013 or 2014.

The towers were originally built at Bull Arm for the Hibernia project at a cost of $8 million dollars. They were used at Bull Arm during outfitting of the Terra Nova floating production and storage vessel (FPSO) and by Marystown on the White Rose project's FPSO.

The Marystown yard is currently bidding on a refit of the Terra Nova FPSO. Bull Arm is apparently also bidding on the work.

In early August, community leaders noted that the government-owned Bull arm site already enjoyed a competitive advantage over the privately-owned Marystown shipyard. Marystown deputy Mayor Julie Mitchell:

suggested should Bull Arm need the infrastructure for a project, the matter might be different but, as of the moment the facility doesn't need the towers.

As it stands, she said companies who lease the Bull Arm site from government already have an unfair advantage over Kiewit when bidding for contracts. They don't have overhead costs, pay only a nominal rental fee and can walk away when the project is complete.

Kiewit has a bid placed on an upcoming Terra Nova project, with other companies that could potentially use the Bull Arm site also said to be in the running.

This week the provincial government also announced plans to convert the Bull Arm corporation into a subsidiary of the Crown-owned energy corporation.  As such,  Bull Arm will continue to enjoy significant cost and tax advantages over its private sector competitors while at the same time being entirely exempt from the public tender act.  It will also enjoy inside connections to the Hebron, Terra Nova, White Rose and Hibernia projects through the energy corporations work on White Rose and Hebron.

The Bull Arm company will be shielded from the province's open records laws under changes made to the energy corporation act in the spring sitting of the legislature.

In the House of Assembly last spring, Dunderdale used the prospect of other construction work - evidently including the JSS contract - to dismiss concerns about how much Hebron work would actually be done in the province once the deal was signed:

MS DUNDERDALE: Mr. Speaker, we are on the cusp of such development in this Province that we have never seen before in our history. We have a number of potential projects lined up here. Any one of them, any one of those projects, will fill up just about every bit of capacity we have in this Province.

As Bond Papers noted, government negotiators appeared to have operated under the mistaken assumption that major construction work in the province was all but guaranteed and that industrial capacity would be fully utilized. That would explain why last week's announcement of the final Hebron deal set minimums for local work rather than include the initial insistence that all work that could be done in the province would be done here.

The cancellation of the JSS contract follows on the failure of the NLRC second refinery proposal in June. The company is seeking investors for its failed bid and is currently operating under bankruptcy protection. A proposed natural gas terminal in Placentia Bay remains a proposal and the prospects of a Lower Churchill development are limited.

Of the projects to which Dunderdale referred, only the Vale Inco smelter-refinery at Long Harbour appears to be firm. Premier Danny Williams and Dunderdale jetted to Brazil last November to meet with Vale Inco officials about the project. 

Under the company's development agreement with the former Grimes administration, Vale Inco is contractually bound to build a smelter-refinery in the province.

-srbp-

Hebron project: less oil, higher cost, maybe less local work from MOU version

The Hebron project announced this week will focus on the estimated 581 million barrels of heavy crude of the Hebron structure itself at an estimated initial construction cost of CDN$5 -$CDN7 billion.

But that isn't what was on the table when the memorandum of understanding was announced a year ago.

The original memorandum of understanding included an additional 200 million barrels of light, sweet crude in the Ben Nevis and West Ben Nevis fields, adjacent to Hebron.

Both estimates of the oil contained in the fields came from official estimates by the Canada-Newfoundland and Labrador Offshore Petroleum Board.  They include both proven reserves as well as other resources which are believed to be present but which have not been delineated by further exploration and which may or may not be commercially recoverable. 

The lighter oil, which commands a higher price on world markets than its heavy relation could be developed by the private sector companies without government participation after the Hebron field is exhausted, and long after the capital costs have been recovered on the gravity-based system with substantial public sector subsidies. That would produce significantly higher profits for the companies, which could be gambling on a different political and global economic regime three decades from now.

That's not the only difference in the project as described in 2007 and 2008.

In 2007, the announcement included an estimated of  "development costs" over the anticipated 25 year life span of the project project as being between CDN$7 billion and CDN$11 billion.

The 2008 announcement only included estimates of between CDN$4 and CDN$6 billion for the construction phase.  It didn't mention the ongoing operational costs of the project nor the delineation and production drilling which must take place after oil is first produced, currently expected to be a decade from now.

In a preliminary assessment of provincial government financial costs for the project as announced this week, Bond Papers estimated the combined operations and delineation costs at CDN$10 billion over the life of the Hebron project.

The project start date has also been pushed back by two full years from the estimate in August 2007.  At that time the provincial government said "[f]ront-End Engineering and Design (FEED) could start within 18 months, meaning construction could commence as early 2010."

Construction is now forecast by the provincial government to start as early as 2012. The private sector companies were reluctant to commit to estimates.

There will also apparently be less work done in the province than originally indicated:

• The 2007 MOU announcement stated that "[a]ll fabrication work will be completed in the province, with the exception of the utilities/process module" with the caveat that the work was subject to "reasonable capacity and human resource availability".  Now the UPM will be built outside Newfoundland and Labrador and the large topsides fabrication components - the accommodations module, topsides drilling derrick and drilling support module - are subject to a "reasonable physical capacity" caveat.
• The amount of detailed engineering work to be done in the province for the gravity base has changed to provide a minimum of 50,000 hours compared with the earlier statement suggesting that all such work would occur in the province.
• Late front-end engineering and design work that must be done in the province is now restricted to those components built here.
• "Most FEED phase" GBS engineering has been changed to set a 50,000 hours.  There is no indication of the total anticipated amount of engineering to be done.  As with Terra Nova, project cost issues could reduce the amount of engineering work done in the province.
• A local procurement and contracting that was initially described as handling all procurement and contracting for the project, similar in concept to Hibernia Management and Development Corporation (HMDC) is now described simply as handling procurement and contracting activities. This could be confined to work done within the province, with other procurement and contracting done elsewhere.
• The project management office in the province must commit only to provide one million hours of project team activity in the province prior to first production.  That would be roughly equivalent to 50 people employed full time for 10 years or 100 people employed full-time for five years.

-srbp-

Welcome to the Hotel California, Hebron version

From the Friday Telegram, two examples of completely loopy comments, namely ones unsupported by fact.

First, the editorial on Hebron which states:

And because the province holds an equity position in Hebron, it will also have the chance to develop expertise in running an oilfield, which means employees won't only be welders and heavy-equipment operators, but will be managers, designers and engineers, too.

Now since the Telly-torialist has been following this project, he or she is aware that the equity interest in the project includes absolutely no management rights;  that is, there are no decision-making rights involved.

If that weren't enough, the managers, designers and engineers will not be employed by the provincial government's Ener Corp subsidiary.  The managers, designers and engineers are employed by the major players or the private sector contractors doing the work.

And if even all that weren't true, the Telly-torialist need only have read a news story which moved late yesterday afternoon and which is a front page story in the print edition of the Friday paper:

The ink has barely dried on the Hebron deal and a change of operators is taking place - ExxonMobil Canada will be the new lead partner among the five companies developing the oilfield.

Managing Hebron is not going to be a job rotating among the interest holders.

Nope.

Chevron was doing that job.

As of yesterday, ExxonMobil is slipping into the lead.

Second, there's a column by Brian Jones, one of the Telly's editors:

The province's political culture has also evolved, along with people's taste in wheels. The offshore oil debate used to revolve around royalties, a word seldom used by politicians in the 1990s. Despite lacklustre leadership, people became aware of the fact that, as owners, the public deserved a better share of offshore oil revenue.

Wednesday's Hebron announcement revealed that the provincial government will rake in about $28 billion, via royalties, taxes and profits.

The government will rake in $28 billion.

No question.

Definitely.

The problem for Jones is that, as he well knows, the $28 billion figure is based on the assumption that from 2018 until the last drop of oil is drained from Hebron, the price of a barrel of oil will average US$115.

With that kind of writing, Pollyanna must be on suicide watch.

Brian needs to check on both the average price of oil over the past 25 years and the typical price of a barrel. Let's just say that the number you come up with in either case is nowhere near one hundred and fifteen bucks.

Perhaps he is thinking the world price of oil will  be expressed in Weimar marks or Zimbabwe dollars, the latter of which has been valued against the American dollar at exchange rates that make the thing literally not worth the paper its printed on.

Such unsubstantiated commentary.

We really haven't had that spirit here since 1969.

 

-srbp-

Risky business: prov gov to increase public debt to pay for Hebron

Serial	Item	Description	Amount	Funding source
1.	Equity interest		$110 million	Paid from FY 2007 general revenue
2.	Capital  Expenditure	4.9% X $6.0 billion	$294 million	Increased public debt
3.	Operating Expenditure	4.9% X $10 billion	$490 million	Likely increased public debt,  at least until sometime after first oil
4.	Liability guarantee	Construction phase only	$250 million	Increased public debt?
5.	Sub-total	Sum 1 - 4	$1.193 billion
6.	Liability	Operational phase	Unknown	Increased public debt

 

Notes (Information on news release, plus media coverage):

• Capital expenditure (capex: construction phase costs) to be undertaken by subsidiary of Ener Corp - called OilCo in government materials - through borrowing guaranteed by public treasury.
• Actual capex is currently unknown, but estimated to be between $4.0 and $6.0 billion.
• The government backgrounder makes no mention of operations expenditures (opex: post first oil operating costs). Presumably these costs will be met through increased public debt.  (Government Ener Corp borrowing, with government guarantee.)
• Original equity interest purchased out of government general revenue. The most likely source of cash to meet all other costs is government-backed borrowing.
• Construction to begin "as early as" 2012 (Premier's remarks to media).  This is a minimum, not a maximum.  Construction may be delayed for currently unknown reasons.  Company representatives discussed firming up capex estimates over next few years.
• The term liability guarantee is unusual in the context of referring to a maximum cost of $250 million. It is unclear what this means. It does not necessarily mean that somehow OilCo and the provincial government have a limited liaibility for costs. If that was the case, then the backgrounder would have stated that the liability was limited to a maximum of $250 million.  This appears to be less an issue of liability than a promise that liability will be assumed/accepted by government, along with some associated fee, deposit or other sum that signifies the guarantee or a fee for providing the guarantee (Oilco to prov gov). 
• Whatever it is, the figure of $250 million is not the only amount associated with liability. The government backgrounder gives very little discussion of liability at all. For example, there is no discussion of liability exposure during the operational phase, for example.

-srbp- 

Buy this book. Feel good. Eat well. Help people.

Recipes of the Labrador

"It's a cookbook in aid of the Children's Wish Foundation of Canada put together by our volunteers in L'anse Au Loup. The cookbook is just $5.00 available at our office and includes many great recipes. The cost of postage and handling is $10.00 if you would like one mailed to you.

The cookbook is in memory of Paula Normore who passed away after a snowmobile accident at age 14."

"Our offices" would be the Children's Wish Foundation, Newfoundland and Labrador.

-srbp-

Hebron announcement notes

1.  ExxonMobil drove the bus.

Well, when it comes to project timings the big player called the shots.

The companies were ready to rumble in 2006 but the disagreement put this project firmly in the pile for sometime after 2012. 

ExxonMobil never wavered from that lead-time.

They confirmed it as recently as March.

2.  How much is that doggie in the window? 

Well, how much is a pig in a poke?

The Telegram and the Mighty Ceeb fell all over themselves today with the supposed cash value of the Hebron deal at $28 billion.  Aside:  Could David Cochrane have been any more excited today hosting "On the Go"? Second aside:  Yes, the Telly's been known to endorse big deals before.

That number is bogus, though, just as Cochrane and all the others well know since - like every other cash comparison figure and any cash valuation of this project (aside from construction costs) - the numbers are pulled from the nearest bodily orifice.

The $28 billion figure tossed around today assumes an average price of crude oil between 2018 (first oil) and 2043 (project termination) of US$112 or so per barrel.  Not even the oil companies are investing based on those sorts of airy-fairy projections.  

The $20 billion figure also tossed around on Wednesday used an assumed price of oil of US$87 over the same time period.

Wade Locke projected $10 billion over the same time span using an assumed price of US$50 a barrel.  And before anyone steps in to note the words super-royalty, let us all be reminded that the super-royalty applies only when oil remains above US$50 a barrel for West Texas Intermediate.

Do the math yourself. 

What is the average price of oil over the past 25 years?

What's been the usual price of oil over that time period, as opposed to the average price?

Now take another look at the Hebron projections.

Put it another way:  when the Hibernia deal was signed in September 1990, oil prices were as low as they could have been foreseen and were foreseen.  Within two years oil was at US$8 a barrel.  Only a few years earlier, it had been forecast to attain and stay above US$100 a barrel.

The project was assumed to be a total loser when it was started;  that is, the government never expected the project to hit payout.  As it is, Hibernia will generate in excess of $14 billion in provincial government revenues over its entire life span.  The government figures today deliberately low-balled Hibernia, Terra Nova and White Rose in order to hype the Hebron stock.

The project is going ahead;  that's good.  What it's worth to the provincial treasury will only be known at some distant point in the future.

3.  A Hebron exclusive they won't discuss.

Hebron is first oil project offshore Newfoundland and Labrador that will start construction four years after a development agreement was reached with the provincial government.

Hibernia, Terra Nova and White Rose all started construction within months of the signing.

4.  So how much work will be done in the province?

Safest bet is the bare minimum committed.

The provincial government negotiating team seems to have operated on the assumption that it didn't need to lock down all possible local construction  - an earlier political commitment - since the NLRC refinery and two other projects would be sucking up the labour pool at the same time.

By the time that assumption was proven to be pretty stunned, it was too late.

The gravity base and its associated piping will be done here, along with a few other bits of simple welding like the helideck, the lifeboat rigging and the flare boom.

By the time this project starts construction - some time after 2012 - there may well be a deepening of the current global labour shortage.  Any local construction workers currently in Alberta will be even more wedded to that economy than they are now making it unlikely the "homing pigeons" will be homing. Four years from now, the labour market locally will be smaller and older than it currently is.

Add it all together and you can see that it's highly likely some shipyard in Mississippi or Korea will be slamming the topsides together for Hebron.

5.  And what about the royalty regime?

Bond Papers already went through it, in spades:

•  The preliminary assessment
•  The second look (it didn't get better)
•  The lower royalty regime
• Wider implications  (As it turns out, the provincial government will be spending cash until 2018.  That's something that never occurred on a project before.  Oil production from the other projects will decline over the next decade, despite expansion of existing fields.  That means lower government revenues. At the same time, an aging population will cause increased pressure on health care spending. The whole thing makes for a difficult strategic mix, one made all the more problematic considering that revenues are tied to the price of oil which turn out to be much lower in the 2020s and 2030s than the assumptions used as the basis for this agreement)

-srbp-

"counter-spinning negativity"

Now, by any logical process, in order for there to be counter-spin, there has to be spin first.

This is not a chicken and egg thing;  very simply put, nothing can be counteracted unless it exists.

And you will likely recall that spin is another word for hype, bullshit and lies.

So if we take this phrase  - uttered by the Premier back in April - based on the meaning of the words, counter-spin would be a positive action in that it is intended to dispel hype, bullshit, lies, half-truths and other forms of misrepresentation and even outright deception contained in whatever spin existed in the first place.

Yet the positive action of dispelling falsehood is somehow negative?

What an odd notion.

And what a truly queer idea:  that a government so overwhelmingly popular might be somehow deflected from its mighty accomplishments by concerns for what must surely be  - given the almighty popularity of the government  - entirely without any impact at all.

-srbp-

Groundwork: The Hebron MOU deconstructed, as announced

To help in assessing the final Hebron deal, here are some notes drafted for a Bond Papers post last year:

Bottom line: Bond Papers said it about 18 months ago, and overall it remains true - a deal is good.

Both sides wanted it. The provincial government needed the deal, like they needed it 18 months ago. There are some implications of the delay as described below.

Even the memorandum of understanding takes a huge political monkey off Danny Williams' back.

The oil companies get to develop more oil than initially planned for about the same cost as originally proposed.

Much work needs to be done, especially on the local benefits package. The provincial government backgrounder contains conditional language that needs to be sorted out in the detailed negotiations.

As Williams said of Voisey's Bay, the detailed agreement are where the companies can find loopholes, escape hatches and off- ramps to avoid delivering on what they appear to have agreed to deliver.

Let's take a look at some specific issues.

1. Superlative language. Characteristically, the Premier and his energy minister used superlatives to praise their own memorandum of understanding.

Words like "tremendous", "historic" and "off the chart" were flowing easier than API 70 oil.

As a general rule, use of over-the-top language is an indicator of an insecurity in the announcement itself or an effort to offset some deficiencies. Hyperbole is a Danny Williams trademark.

2. What Danny originally asked for

Two of the three, depending on which April one considers.

- April 2005. [ram audio file] Better royalties, secondary processing i.e. a refinery, and better research and development funding.

- April 2006. Super-royalties, an "equity" stake, and better local benefits.

3. Equity. Total estimated cost: $360 to $660 million. 4.9%, costing $110 million plus an estimated $250 million of construction costs. The Premier also predicted an additional set of costs of some $2.0 to $6.0 billion over the 25 year life of the project; that would translate into additional costs from the equity position of $300 million.

Those costs must be recovered before the equity position yields any cash as net benefit to the provincial treasury.

Beyond that the province's energy company - that still exists only on paper - now holds a series of undisclosed risks and liabilities.

4. Larger field. The earlier negotiations involved only the Hebron field and its approximately 500 million barrels of heavy, sour crude. This project adds about 200 million barrels of light sweet crude in the Ben Nevis structure.

Ordinarily, this would add additional cash value to the project, but as noted below, the total projected revenue is not significantly better than that estimated for the earlier negotiation.

5. Tier 3 Royalties. Super-royalties that deliver a percentage based on oil above a certain dollar price? Not exactly.

What turned up in the news conference looks more like the Hibernia royalty regime.

From the official backgrounder:

The new super royalty for the province is an additional 6.5 per cent of net revenue at higher oil prices (>US$50 WTI/bbl) after net royalty payout;

From the Hibernia royalty regime:

The Net Royalty consists of a two tier profit sensitive royalty which becomes effective when Net Royalty Payout occurs.

• Tier 1

The Tier 1 Net Royalty is 30% of Net Revenue after a Return Allowance of 15% is achieved. Basic Royalty is a credit against this royalty. Therefore, the interest holders pay the higher of Basic Royalty or Tier 1 Net Royalty.

• Tier 2

The Tier 2 Net Royalty is 12.5% of Net Revenue after a Return Allowance of 18% plus the CPI is achieved. The Tier 2 Net Royalty is in addition to any other royalties payable.

Net royalty payout is "point in time when the costs related to a particular project are recovered plus a specified return allowance on those costs." A similar concept exists in the province's basic offshore royalty regime.

In all likelihood, the triggers to attain Tier Three royalties are such that they will not be achieved on Hebron until after other royalties have been triggered. There is no way to be certain since the language in the backgrounder is too vague to determine how the new Tier Three royalty relates to the rest of the royalty regime used for the Hebron negotiation.

One thing is certain: Tier Three royalties are only available after the project achieves simple payout. That means the possibility of collecting the additional revenue is contingent on the price of oil being above US$50 per barrel from the mid 2020s onward.

6. Other royalty regime changes. The provincial government's so-called generic royalty regime for offshore projects was developed in 1996. It clearly establishes the minimum royalty to be paid to the provincial government is 1% of gross revenue and increases progressively to 7.5% until simple payout occurs.

The backgrounder for the Hebron MOU refers to a change to royalty regime to "[p]rovide downside royalty protection by keeping the basic royalty rate at one per cent of gross revenue until project costs are recovered (i.e. simple payout)."

There is nothing in the provincial documentation to indicate why it would be necessary to introduce this new concept except that the progressive increase in the basic royalty rate is being eliminated.

As such, provincial government royalties will be a mere 1% until such time as the project achieves simple payout.

7. Revenues. The news release today provide a revenue estimate for the province of $16 billion over the 25 year lifespan of the Hebron project.

On the face of it, this figure appears to be nothing more than an adjustment to figures used by MUN economist Dr. Wade Locke that projected up to $10 billion, based on an assumed oil price of US$50 per barrel. Bond Papers noted this possibility in a pre-announcement post.

However, Locke did not anticipate a change to the basic royalty regime that reduces royalties to 1% during the entire pre-payout period.

There is also no indication from the Premier on the revenue flow anticipated from the equity position, thus, with the new lower royalty regime, this $16 billion is highly suspicious.

8. Research and Development. The commitment for $120 million over the 25 year lifespan of the project appears to be below the current standard set by the offshore regulatory board.

9. Timelines. The project may begin construction in 2010. This assumes that the complex negotiations for the development agreement are concluded successfully and quickly and that the development application to the offshore board is approved expeditiously.

-srbp-

When the last seam is welded, Part Deux

Here's another project that has proven more valuable in the hype than in the actual delivery of it, completed.

As with the second refinery and the natural gas terminal, Lower Churchill is something to believe only when the last seam on the last penstock is finished and the juice is actually flowing.

By the way, given that CRA is asking about "good corporate citizens" in its regional quarterly omnibus, this sort of story is well timed, dontcha think?  [Hint:  CRA polls in Nova Scotia at the same time as they poll in NL]

-srbp-

Pay no attention to the man behind the curtain

As we told you some time ago, the Hebron agreement was signed sometime last month but - for some completely inexplicable reason - the public announcement was postponed.

The mighty Ceeb is reporting it as if the deal itself may be signed this week and likely that's what they've been told via someone's clicking thumbs. Since the memorandum of understanding expires this week, having a deal at the last minute sounds more dramatic. It looks like it went right down to the wire wrestling every little concession and gain, when, truthfully, most of the time was spent with lawyers arguing about whether the sentence needed a comma or a semi-colon.

All pretty cut and dried since the deal in broad outline - jobs locally pouring concrete but not much else in local benefits - was done in the memorandum of understanding. Other fabrication work done locally will be minimal, most likely, if the MOU was any indication. Think not just Hibernia Light, but Terra Nova Light, but time will tell if the old crystal ball at Bond is right.

Anyways, beyond the need to ramp up the drama around the hebron thingy to try and draw some attention away from its potential shortcomings (what will the price of oil be in 2025, anyway, so we know if extra royalties cut in?) the real value of the Hebron thingy is its use in old-fashioned politics:

- There are two by-elections that clue up next week. yes, formal polling day is the 27th but we already know voting has been going on their under the farcical elections set-up in this province since before there were even candidates.

- Corporate Research Associates is in the field doing its quarterly survey work. Most of the questions are standard, but there are a bunch of interesting ones. Like most pressing problem facing Atlantic Canadians and which companies are the best corporate citizens. No sign of any obvious provincial government questions, at least in the versions reported to your humble e-scribbler.

Then again, in some quarters, CRA actually goes to the field with two separate polls. The common questions - the three CRA provincial politics ones reported in the media - are common to both. When CRA reports a sample of 800 some odd, that's a double poll month with the three public question results actually being glued together from two surveys rather than being reported as separate results.

Nothing says federal election like a politican handing out public cash.

Nothing says provincial politics like a bit of poll goosing and old-fashioned pork announcements.

Quick as that update: The Great Oracle of the Valley - a.k.a voice of he cabinet minister - has an online story that could have been clicked out by thumbs from the Hill. It contains all the elements: Announcement tomorrow. Deal reviewed by cabinet today (not mentioning the deal was done weeks ago). MOU expires on Thursday.

Ah, the drama of it all.

Ah for the old days when The Boss would drive into the parking lot on his way to The Hill and roll down the window so someone from the Oracle newsroom could stick a microphone through to record the latest utterances.

Here's a thought: if cabinet hasn't seen the deal at all until today, then what happens if one of them has a serious objection on a matter of substance, policy and/or principle?

-srbp-

Only sheer political genius...

would think of using Kevin O'Brien as the stunt dummy for a demonstration of "fall protection" gear.

Joe Clarke almost impaling himself on a bayonet while inspecting troops. 

Jean Chretien in a funny helmet.

Kevin O'Brien taking a header off a house in St. Thomas Line.

Freakin' brilliant.

-srbp-

The New Idiot Box

A few days ago, your humble e-scribbler was wandering through a second-hand book store he used to frequent in Kingston 20-odd years ago.

The city is roughly the size of St. John's but in the 1980s, the difference between the two cities could not have been more stark at least when it came to the number of book stores.  There used to be a half dozen new book stores and almost as many second-hand used book places along Princess Street, in the city's main shopping district downtown.

Today, it's down to an Indigo outlet with its trendiness, a locally-owned new-book store,  and another used store catering to a "higher-end" clientele. Down toward the bottom of the street, between Ben and Jerry's and a health food store, there's this tee shirt, a pair of jeans and comfortable sandals kinda place.

It's getting harder every year to stay open, according to the owner, as he filled out the receipt for a purchase. That comment started a chat about the changing reading habits of Kingstonians. The town is home to Queen's and the Royal Military College, giving the town a distinctly academic flavour.  The downtown shopping district, where all those bookstores used to be is in easy walking distance of the Queen's student ghetto housing and the cadets from RMC.

When comedy is trusted as news

From nyt.com, a profile of Jon Stewart and The Daily Show:

When Americans were asked in a 2007 poll by the Pew Research Center for the People and the Press to name the journalist they most admired, Mr. Stewart, the fake news anchor, came in at No. 4, tied with the real news anchors Brian Williams and Tom Brokaw of NBC, Dan Rather of CBS and Anderson Cooper of CNN. And a study this year from the center’s Project for Excellence in Journalism concluded that “ ‘The Daily Show’ is clearly impacting American dialogue” and “getting people to think critically about the public square.”

-srbp-

Universal Translator revealed

When it comes to federal politics, reporters and other observers sometimes  misunderstand the words the Premier uses.

It's really very simple. 

Whenever he says "Newfoundland and Labrador" or "we", he means "Danny Williams".

That's it.

The confusion comes from the fact that most people do not consider the entire province, all its people and their collective interest to be the same thing nor do they believe it is embodied in one person.

By contrast, he does. 

As in words after the 2007 general election to the effect that "I believe in my heart and soul that I embody the heart and soul of Newfoundlanders and Labradorians."

It was a real "l'etat? C'est moi!" kinda moment.

So take a quote like this one:

"From a Green Shift perspective, as well, Newfoundland and Labrador is just basically waiting to see where all the cards are going to fall here."

On the face of it, this is a pretty ludicrous statement given that in the same scrum, the Premier said that "[t]his election is not going to be decided strictly on Green Shift."

He's right on that point.

The election isn't going to be decided on one issue.

And the Green Shift was never intended to be the silver bullet of the next federal election.

The Green Shift is a niche policy designed to move a certain type of voter. It won't appeal to everyone, but it will appeal to enough to make a difference here and there.  Coupled with other similar niche ideas, it could tip enough ridings to propel the Liberals to a minority or majority government.

The whole concept is taken from the Conservative strategy in 2005/06.

That's why the Connies fear it so much they are  apoplectic trying to make the Green Shift some vision of the apocalypse.

But if you go back and apply the universal translator to that quote, you can see that, in fact, Danny Williams is waiting to see how the field shapes up on policies before he endorses one party or any party.

Now the quote makes perfect sense.

That's what the Premier did in 2004.  He waited to see how the offers looked and he went with the one he liked.

He did it again in 2005/06, endorsing Stephen Harper and the Conservatives even though the Layton New Democrats said yes to every single thing the Premier asked for in his Letter to Santa 2005.

But here's the thing:  in both federal elections, the Premier's impact on voters even in Newfoundland and Labrador produced a marginal effect.

In 2004, he made it tough for the local volunteers to turn out for the Conservative brethren.  They lacked party workers, but the Conservatives who won, did so in usual Conservative seats.

Individual voters still turned out and voted federally for their own choice in a secret ballot, in many cases, despite what their provincial vote may have looked like or what the Premier wanted. 

In 2005/06, it became safe for provincial Tories not only to work on Connie campaigns but to run for them as well.

But don't forget one crucial point:  the resulting seat count was exactly the same as in 2004. There were changes in voter turn-out but the overall impact of the Premier's position and intervention was marginal at best.

So while Danny Williams may like to answer reporters questions about the next federal election, it's doubtful the federal Conservatives are taking him too seriously.  Aside from the impact in his own province, Danny Williams just doesn't travel well.  Sure there are people who crop up here and there saying lovely things about him, but - as with every other provincial premier since the dawn of time - he just doesn't carry much beyond his own province. 

That's because  - fundamentally - Danny Williams is not identified as speaking on national issues from a national perspective.  He's not even really speaking on a plane that connects with voters in Dauphin or Deseronto.

He's a niche player, with a niche impact. 

Like a Green Shift.

The only difference among the federal parties is that - rightly or wrongly - the federal Conservatives have taken the measure of the niche impact based on two kicks at the can in the recent past. 

The New Democrats seem to have missed the lessons.  So too have some of the local Liberals  - candidates and back roomers alike - who want to court Danny in the  belief his blessing will be all that is needed to change their fortunes.

But the Connies? 

They've decided the impact isn't enough to worry about, either locally or nationally.  To get the point, think about that famous Stephen Harper quote from October 2006 in Gander. 

You know.

The one that came only from the Premier himself.  Something like "We don't need Newfoundland and Labrador."

Apply the Universal Translator.

Now you understand why DW is so pissed.

-srbp-

An old Connie ploy

Create a dysfunctional situation where one didn't have to exist and then crusade to fix it.

It's a bit like backing a dodgy proposition which you, yourself, had previously rejected, and then crusading against the position you endorsed.

If this keeps up, Harper will pledge to change the rules on election spending so that something like the in-out scam never happens again.

Sheesh, where have we heard that one before?

-srbp-