Food for thought: the need for realism and statesmanship

Ever since it became self-governing in the mid-nineteeth century, political leadership in Newfoundland and Labrador has rotated between representatives of the dominant social class and populists who appeal directly to the "people" directly, with party labels meaning very little...

What Newfoundland and Labrador needs, however, is neither populist nor merchant. It needs a leader - or leadership if you include the whole of Cabinet [sic] - who can transcend both the exaggerated rhetoric of the populist and the restricted conservatism of the merchant. It needs men and women who exhibit statesmanship, by which I mean leadership that both transcends the interests of a single class and is grounded in a deep understanding of the issues, problems and potential rather than superficial rhetoric. [Italics in original]

J.D. [Doug] House, Against the tide: battling for economic renewal in Newfoundland and Labrador, (Toronto: University of Toronto Press, 1999), p. 239.

Doug House's account of his involvement in shaping government economic development policy in the period between 1986 and 1996 caused a stir in the local political community when it appeared toward the end of Brian Tobin's administration.

House had been appointed by the populist Brian Peckford to chair what emerged as a landmark economic policy task force the final report. It fell to Clyde Wells, whom House described as the epitome of the 'sensible' good government approach of the "official class leaders", to implement the task force report. As a testament to its soundness and to the sensibility of what House implemented as chair of the Wells' administrations' Economic Recovery Commission that Wells' 1992 Strategic Economic Plan remains the basis of government economic development policy through four subsequent administrations of two different political parties.

House's characterization of the alternating cycle of post-Confederation first ministers in Newfoundland and Labrador is both obvious and generally understood.

Danny Williams appointed House toa deputy minister position in his current administration.

The question for today is this: Does Danny Williams continue the alternating cycle of populist versus merchant or does he represent the statesmanship House proposed?

Harper on Hebron: leave me out of it

Answering questions from reporters during a visit to St. John's, Prime Minister Stephen Harper said today he wanted to stay out of the Hebron fiasco, calling it a "commercial matter".

As for legislation to force development of a field, Harper said he would be studying the legal implications.

"We've learned in the past, you know, it's best to keep a stable investment climate in the oil and gas business, and that's the general approach the government of Canada will take," Mr. Harper said.

Canadian Press is reporting that Harper "panned" the idea of fallow field legislation. Harper pointed to possible impacts such legislation would have on Canada under the North American Free trade Agreement.

Williams, who had a separate news conference following Harper's, says he doesn't want to embroil the prime minister in the matter, despite saying the day before that he would ask Ottawa for the tools to expropriate idle fields.

Uh huh. Harper's office never made a call.

And the Prime Minister's Office (PMO) didn't insist on a separate newser for Williams so there'd be no pictures of Williams and Harper together talking about Hebron.

And the PMO didn't insist on talking on a plane where no reporters are in sight just to avoid having Harper and Williams give the obligatory joint "so how'd the meeting go?" newser afterward.

Pull the other one.

It's got bells on it.

Hebron Fiasco Week 2: More answers, more questions

1. Elvis has definitely left the building. The Globe and Mail story on Wednesday makes it clear that Hebron is dead. The project office is being demobilised and staff reassigned to other duties.

Chevron spokesman Mark Macleod told CBC television in St. John's it could reasonably take years to re-organize the Hebron team.

The same sentiments are in the Globe piece.

If that wasn't clear enough, check the Financial Post front page.

"I just wanted to make sure that everybody is clear that this thing is over," Mr.[James] Bates [, Hebron chief negotiator] said from St. John's, where he was hosting a goodbye luncheon for Chevron's departing Hebron team

2. Did Chevron call to restart talks?Premier Danny Williams has said several times in the past few days that he has received a contact from the Hebron consortium's chief negotiator. The implication left is that the companies are trying to see if talks can be restarted.

However, in a scrum outside the House of Assembly Monday, Williams gave sufficient detail of the contacts to decipher what really happened.

The chief negotiator called on Sunday, April 2, according to Williams to clarify the issues the province was not willing to budge on - namely the two tax concessions Williams highlighted the next day as being something the government found unacceptable.

Williams told reporters he also received a call the following Wednesday for clarification of Williams' comments on the major issues that had led to the talks breaking down.

There is no reason to believe this represented anything other than what it is - contacts for gaining an accurate understanding of the provincial government's position. There is no reason to believe the companies were seeking to re-start talks, unless there had been a significant misunderstanding. Evidently there wasn't.

In short: Chevron called, but not to restart talks.

Elvis is in the car on the way home.

3. Dazed and confused. But here's the thing about the calls and the clarification: if everything had been written down clearly, there would normally be no need to double check media comments. When the companies reached their decision to suspend talks on the project they ought to have known exactly what the issues were. It's odd that they would find it necessary to call Williams to make sure they understood his comments to news media.

Williams has also stated on several occasions that there was confusion among the companies, that they were not bargaining in good faith and that they needed to sort out their position.

It seems like there was plenty of confusion to go around and the confusion was coming as much from Danny Williams as anyone else. All that tells anyone is that while finding fault and blame here is still not a useful exercise, there is plenty to be learned so the same mistakes don't get repeated again.

4. The best defence is a good offense. That said, much of what Danny Williams (Right/Photo: Peter Redman, National Post) was doing here is masking a provincial government weakness by claiming someone else was suffering from a problem that could just as easily be found in his own back yard.

Danny Williams followed much the same negotiating approach with the Government of Canada in 2004. His position - what he was seeking - shifted dramatically over the course of discussions from January to October 2004. No detailed talks began, in fact, negotiations as most would understand the term, didn't start until November 2004. Then again, the two sides only really started talking once the federal government made it clear how far it was not prepared to go in meeting Williams' vaguely worded demands.

5. To expropriate or not to expropriate? Danny Williams started talking about taking ExxonMobil out of the Hebron project on the same day Chevron announced the project was shelved. He talked about buying out Exxon's share or bringing in legislation to do the same thing. Williams also talked about forcing development either using existing legislation or new rules if Exxon wouldn't sell. [Note: Following this link to bloomberg.com and the unedited interview attached to this story.]

There was no mistaking Williams' threat that if oil companies wouldn't accept government demands, Williams was prepared to find a legislative way to get what he wanted. As Williams told the Financial Post on 05 April:

And if you don't want to sell your interest, you are really leaving us no option than to seriously look at legislation or action to ensure that undeveloped discoveries proceed on a timely basis.

On the same day Chevron announced Hebron was in mothballs, Exxon made it clear its shares were not up for sale. No surprise, therefore, that the oil industry focused on the remaining option and reacted badly to the thought of legislative action. Some news media have lately taken to calling this "expropriation". Business writers across North America compared Williams to Venezuelan president Hugo Chavez.

Williams has kept up the issue by answering questions about so-called "fallow field" legislation, or in the scrum linked above from this week, talking about sections of the federal Accord implementation act that might be used.

Did Williams threaten expropriation? Strictly speaking, he may not have said or meant that. However, Williams hasn't taken a single step to dispel that notion unequivocally. Instead, he has been talking about it openly.

6. Does Williams have the legal option of forcing development on Hebron? At the outset, let's make it clear; I am not a lawyer, nor do I play one on television. But I can read plain English and I can talk to knowledgeable people in the oil and gas industry.

Under the sections of the federal Accord implementation act Williams cited recently - s.34 to s. 41 - it's pretty clear the sections refer to the offshore board ordering development and production in times of national emergency or when there is a shortage of feedstock for existing refineries in the country.

Under s. 79, the offshore board may order production, but that is expressly related to s. 31-41, namely the terms that refer to security of supply. Aside from that, before the board would issue such an order and largely to cover its own backside, the board would need written instruction from both orders of government before taking such a decision.

Beyond those circumstances, there are no current legislative regime in which companies can unequivocally be forced to develop a project.

There certainly isn't a clear regime whereby government or the offshore board could order development of a project like Hebron in the circumstances at hand. The companies are ready and willing to cut a deal, but not at any price. Any effort to force development under those circumstances would almost certainly bring expensive legal challenges. What's more, according to one international trade expert quoted by national media, expropriation would trigger provisions of the North American Free Trade Agreement (NAFTA)

Undoubtedly there is a lawyer out there who will give a contrary opinion, but while he or she will collect considerable billable hours, I wouldn't want to be the one arguing the case on a contingency basis. The chances of winning are remote.

Danny Williams has also talked about new legislation covering so-called fallow fields. There'll be more on that in an upcoming post.

7. It's not a retreat. Seriously. It's just a tactical redeployment.

Premier Danny Williams talked to Prime Minister Stephen Harper about the failed Hebron talks today and the need for legislative changes to give Williams the power to order development in some cases. On Monday, it was a big issue.

But, in a scrum yesterday outside the legislature, Williams said that fallow field legislation and other efforts to expropriate ExxonMobil's share in the Hebron project were moved far down the agenda of the meeting.

Top of the list? Early retirement help for workers from Fishery Products International. That's an issue the government has struggled to avoid discussing since last December when FPI first briefed the Premier and fish minister Tom Rideout on the company's plans.

Williams talked about having to exhaust other options first, such as buying out the Exxon shares. That's a whole lot different from the message he was sending as recently as Monday.

It's amazing what changes come when there's a bad headline in the Globe's business section the day before you meet the Prime Minister.

Maybe someone from Harper's office made a phone call.

Liberal leadership? Danny Williams

Rick Mercer comes up with another interesting idea.

Check out the rant for April 11.

New JAG - Newfoundlanders taking over National Defence

National Defence minister Gord O'Connor today announced the appointment of Ken Watkin as the new Judge Advocate General (JAG) for the Canadian Forces and Watkins promotion from colonel to brigadier-general.

Watkin is originally from Newfoundland and Labrador and was called to the bar of that province in 1981. Trained as an infantry officer, Watkin has considerable operational experience as a lawyer.

In the field of operational law, Colonel Watkin served on the J5 legal staff during the 1991 Gulf War and was the legal advisor to the 1993 military/civilian board of inquiry that investigated the Canadian Airborne Regiment battle group in Somalia.

In 1995, he was the legal advisor to the Canadian navy during the turbot dispute with Spain. He has served as a legal advisor to the Canadian contingent commander in IFOR and as a division legal advisor in SFOR [NATO missions in the former Jugoslavia]. Colonel Watkin has advised military commanders on a variety of domestic operations.

Prior to this appointment, Watkin was deputy judge advocate general for operations and for a time served as a visiting fellow at Harvard Law School. His paper on human rights norms in contemporary military operations was printed in the January 2004 number of the American Journal of International Law.

------------------------

Army Postscript:

If you are in the mess with Brigadier General Watkin, hope he rings the bell.

Otherwise, just celebrate Brigadier General Watkin's appointment by singing a chorus of this favourite tune of JAGs and barristers everywhere.

Justitia!

Hebron Fiasco Week 2: Notes and numbers

1. I've got a gun... "Williams wants expropriation tools"

If Danny Williams wants to attract greater investment in Newfoundland and Labrador, this headline from the front page of today's Globe and Mail business section is decidedly not the way to go.

Investors are already jittery about Newfoundland and Labrador in the wake of the Williams' administration's handling of investment files ranging from oil and gas to forestry to fishing. Knowing that Williams is looking for the legal tools to expropriate investor holdings will just confirm in their minds, rightly or wrongly, that while Williams might not be exactly like Hugo Chavez right now, he is headed in the same direction.

It's not that Williams is likely to get his wish mind you. The Globe story originated in Calgary, home of the Canadian oil industry and one of prime Minister Stephen Harper's bases of support. Harper won't look kindly on this latest of Williams' ideas anyway. Given that the expropriation threat is so blatantly linked to Williams' inability to sign a deal with the Hebron consortium, Harper will be doubly set against giving Danny Williams a loaded gun for him to use at his leisure.

For investors, though, the problem is that Williams went looking for a Chavez-like big stick in the first place.

2. Who owns the oil anyway? Lost in the entire Hebron fiasco and Danny Williams' threats and bluster is a simple reality: the Government of Newfoundland and Labrador has no legislative jurisdiction over offshore oil and gas, except for the areas specifically assigned to the provincial government in the Atlantic Accord (1985).

Brian Peckford pushed the matter to the limit in the early 1980s despite having sound legal advice that he would lose any court cases. Peckford declined the opportunity to sign a deal with Ottawa, as Nova Scotia had done, preferring instead to go for the whole schmeer. Peckford's administration referred a question to the Newfoundland and Labrador Supreme Court, Court of Appeal. At the same time, the Government of Canada asked the Supreme Court of Canada to rule on a similar reference.

The Court of Appeal ruled that Ottawa had legislative jurisdiction over the offshore. The Supreme Court of Canada concurred, when the case was appealed to it. In the direct reference from the Government of Canada, the Supreme Court of Canada reached the same conclusion.

Bottom line: Newfoundland and Labrador cannot unilaterally legislate fallow fields, expropriation or anything else of the sort in relation to offshore oil and gas. That right rests with the Government of Canada.

3. "I'm delighted we're getting that reaction [criticism] from the national press." Premier Danny Williams quoted in The Telegram, Sunday, 09 April 2006, page A1.

Of course, he's happy.

Delighted.

Tickled pink.

The more the mainlanders crap on him, the higher his stock rises in opinion polls and among the Bill Rowes, Sues and Moonmen of the local radio call-in shows.

Danny Williams' strategy isn't aimed at anything except maximizing his support - poll results and then election results - in Newfoundland and Labrador. What the mainlanders think is irrelevant, unless they suddenly started to ignore him.

Like Brian Peckford on whom much of Williams' offshore policy is modeled, Williams' blaming the province's problems and major setbacks on a foreign enemy is a deliberate government policy.

That's what makes Memorial University professor Chris Dunn's assessment of the offshore deal superficial and, ultimately, wrong. Dunn argued that waging war on Ottawa, as Williams did in the offshore revenue fight in 2004, was a popular piece of local political theatre.

Popular it may seem, but only Williams and Peckford use the "foreign wolf" card as a conscious act of policy. Other premiers - Smallwood, Moores, Wells and Tobin - did their fair share of fighting over issues. But people not from Newfoundland and Labrador were not always the scapegoats.

Those of us who lived through The Crazy Days in the early 1980s remember it all too well.

4. Danny can still claim victory in a Hebron deal. While there is every indication the Hebron deal is dead, Danny Williams can still pull off an Atlantic Accord-style victory thanks to the rising price of oil.

Williams January 2005 deal was essentially what had been negotiated in the fall of 2004, with some minor changes. The major difference was in the lump sum cash settlement Williams took. in October it was $1.4 billion; in January, it was $2.0 billion. Williams likes to toss those figures out as proof he didn't settle too soon. He hung on and got a "better" deal.

Well not really. The original quantum was based on a price per barrel of oil as it was at the time. The January lump sum was calculated using a higher price.

Danny walked away from a Hebron deal that was worth at least $8 to $10 billion in royalties and hundreds of millions if not billions of construction spending. The quoted value of the deal also didn't include provincial corporate taxes. Put that number in the billions as well over the life of the deal, even if the province had forgiven about $500 million in taxes during the construction phase of the Hebron project.

But that number on royalties was based on an assumed price for a barrel of oil and the province's royalty regime. That royalty regime gives the province a percentage of the price of a barrel of oil. Oil goes up; the province gets more cash.

Since Danny balked at the Hebron deal, oil prices have spiked upwards to around US$69.

Sign a deal today and he can claim "victory" even though there isn't any substantial change in the deal.

5. Stunned is... Anyone notice that it is only the supporters of the saviour of the moment who tell us how stunned - naive, stupid, foolish - we have collectively been in the past? Bill Rowe is the latest one to try this argument on over Hebron. One of his favourite callers chimed in yesterday telling us we were "weak".

It's an odd strategy that those who wish to boost our collective self-confidence spend all their time telling Newfoundlanders and Labradorians how weak and stupid they are before launching into their prescription for fixing all the ills. This isn't a case of setting up a strawman to burn; it borders on psychological abuse.

But for some strange reason only those claiming to want to build Newfoundland and Labrador into some great paradise - of course following their specific prescription - spend so much time telling us, as Rowe put it, that we have had "habitually agreeable, lackadaisical ways."

What's next? Bill and Sue telling us all we are "dumb newfies"?

Stunned is as....well...

From Bill Rowe's Telegram column, Saturday April 8, 2006, titled "Are we as stunned as we were?":

Then, we hooked up with a couple of other prize-winning buccaneers, John Shaheen and John C. Doyle and flung hundreds of millions of our dollars with both hands into a refinery and linerboard mill. The Come By Chance refinery alone became one of the biggest bankruptcies in the world till then. That, too, was pretty stunned.

"Stunned", by the way, is Newfoundland English for "foolish, stupid, or naive."

Rowe next talks about the infamous Churchill Falls contract.

He tosses in the Sprung greenhouse.

Then he goes for a flourish about Hibernia, noting that we never bothered to ask for an equity position at the time. "Just a tad on the stunned side, perhaps."

Let's recall that Rowe was appointed to Joe Smallwood's cabinet in 1968 and held several portfolios until Smallwood was defeated in 1972. Just coincidentally, Churchill Falls, the Labrador linerboard mill and the Come by Chance refinery all passed through cabinet in the same time span.

Rowe was right there when what he now calls "stunned" decisions were made. He is not on record as having raised any objections. The former Rhodes scholar did not resign his seat in the legislature, let alone leave cabinet. If memory serves - and I stand to be corrected on this - Rowe went into cabinet just as John Crosbie and Clyde Wells left cabinet over financing of the Come by Chance oil refinery. So, it's not like Rowe didn't know at the time there was the odd question about the refinery deal that needed answering.

Hmmm.

This is the same Bill Rowe, by the way, who tried unsuccessfully to run for Brian Peckford's Progressive Conservative party in the 1980s. That was at the same time that Peckford was busily negotiating what Rowe now refers to as a stunned Hibernia deal.

Never mind, of course, that Rowe knows now, just as he knew at the time, that the Hibernia project was an extremely costly venture and the province lacked the financial resources to acquire an equity position. Since Peckford had foolishly pushed the ownership question to the limit, the province also lost the ability to gain an equity stake through legislation.

This is all stuff Rowe elected not to tell his readers as he builds a case to support Danny Williams rejection of a deal on Hebron.

Of course, we would be remiss if we did not note that Williams appointed Rowe for a brief period as Williams' personal representative in Ottawa. Both before he took the job and since he has returned, Rowe - the former lawyer and current radio call-in show host - has been a relentless booster for Danny Williams. Both Bill and Danny won the Rhodes scholarship for Newfoundland in the 1960s.

Given Rowe's consistent misrepresentations of Newfoundland history, even though he was directly involved in some of the decisions he now calls stunned, and his consistent omissions of relevant information on his own relationship with the events he misrepresents, one wonders what would qualify as being even more stunned for Rowe's audience:

Questioning Danny Williams' judgment and then making a sound decision based on evidence, or, listening to Bill Rowe's advice?

Williams, Chavez and Putin

What's the difference between Danny Williams, Hugo Chavez and Vladimir Putin?

Not much if you ask some people.

But there are plenty of differences.

For one thing, Danny doesn't have an army, didn't come to power in a coup and wasn't once an agent for the intelligence services.

Sure Danny likes to talk about expropriating ExxonMobil's interest in oil and gas properties offshore Newfoundland and Labrador.

Hugo Chavez doesn't talk about it.

He does it.

The same weekend that talks fell apart between Danny Williams and the consortium looking to develop the 700 million barrel heavy oil Hebron project offshore Newfoundland, Chavez seized control of two oil fields in Venezuela from companies that refused to give up their oil fields to the Venezuelan state-owned oil company.

Both Total SA and Eni have vowed to fight in court for compensation over the seizure, based on contracts signed in the 1990s giving the companies licenses to produce oil from the fields. Companies with smaller interests, such as Norway's Statoil, either sold their shares or complied with the Venezuelan demands. Statoil is owned 70% by the Government of Norway but operates as a company under the Norwegian equivalent of the Companies Act.

After months of wrangling, ExxonMobil sold its interests in some fields but continues to fight over larger projects such as a multi-billion oil sands project.

The ongoing dispute between Venezuela and the major oil companies adds upwards pressure to oil prices already reacting to instability in other areas of the world.

While Venezuela has been reportedly courting state-owned oil companies from Russia, Iran, and China, Williams has so far refrained from inviting new companies to develop the gas and oil reserves offshore Newfoundland and Labrador.

For his part, Williams told The Telegram that he had written to ExxonMobil about selling its 38% stake in Hebron. company spokespeople had earlier in the week stated flatly that the company wasn't interested in selling its stake to Williams or any other party.

Current goes bi-weekly

Following is a news release issued today by the publisher of Current announcing the provocative tabloid will be going bi-weekly.

One of Current's more famous recent covers was the one at left featuring Andy Wells with a ballgag stuffed in his mouth. [Photo: Greg Locke/ballgag: Our Pleasure]

Current is distributed free of charge in the metro St. John's area. There are no plans to change that.

Current celebrates 7th anniversary with plans to publish bi-weekly.

The free monthly newspaper Current is pleased to announce that it is celebrating its 7th anniversary with plans to become a bi-weekly publication. Mark Smith, publisher and co-owner says, "Current has grown from its early days as a small, alternative newspaper to the point where today, the paper is widely-read and a consistently profitable part the St. John's media marketplace. Nationally, 'free' periodicals are one of the few growth areas in the newspaper business and Current is firmly established in that niche."

When Current was launched in 1999 it was a labour of love. Sometimes the paper made money and sometimes it didn't. Roger Bill, Current's editor and Smith's partner says, "Current is still a labour of love for the people who work on it, but newspapers are a business. We have gotten great support from our advertisers, our bottom line is solid, and we think Current's is strong enough to take the next step."

In addition to publishing every two weeks Current is also investing in an upgrade of its online presence at www.currentmag.ca. Greg Locke, a veteran photojournalist and original editor of the Sunday Independent newspaper, will become the Online Editor of the new, dynamic and interactive website. Locke says users of the online edition can expect, "daily news, commentary, local information, lively discussion and debate. "A dynamic online service not only allows for more timely coverage and delivery of information but gives a direct and immediate voice to the public."

Starting on Thursday, April 27 Current will begin publishing every two weeks. "The support from both readers and advertisers with the idea of increased frequency has been tremendous," says Smith.

Bond Papers New Look

Brighter.

Cleaner.

Hopefully easier on the eyeballs.

Cleaned up right nav strip.

Call it Spring Cleaning at the Bond Papers.

Now all I have to do is learn to write in a more concise way.

(Yesssss.

I got the feedback - all of you - on the stream-of-consciousness nature of some of the Hebron stuff. That's why Friday's main post was a synopsis of the week's activity.)

Keep the cards and letters coming.

Next potential upgrade: podcasting.

Feds speak on offshore board appointment

Three days of coverage from The Telegram last week on the ongoing saga of Max Ruelokke.

You may recall he was picked to head up the board regulating oil and gas development offshore Newfoundland.

The provincial government is still pushing for St. John's Mayor Andy Wells. Originally, the province wanted Wells to be chairman and chief executive officer. When that didn't fly, they suggested the Nova Scotia approach, where their board is run by two people.

The part-time chair pulls in about 10K a year for her part-time efforts, although Andy Wells apparently believes the job pays almost as much as he currently sucks down for belittling people at City Hall.

Anyway, The Telly finally got a spokesman for federal natural resources minister Gary Lunn who said - after approval from the very highest of highest levels- that Ruelokke is in without Andy. We can say from the highest of high levels because the story has been all over town for weeks, right down to the response from the Prime Minister when he was briefed on the whole thing and the fact Ruelokke was supposed to start work the last week of March:

"There was an arbitration process that happened, the results of that process are final and binding and both levels of government are in a position where they will have to respect that," [Emma] Welford told The Telegram Friday.

Welford said Ruelokke's appointment will be made official "very,very soon."

"We wish him all the success in his new position," she added.

Overturning the decision made by the arbitration panel would require changes to federal legislation, a process that could take several months if not years. Premier Danny Williams has never explained why he is pushing Wells for the job.

Provincial natural resources minister Ed Byrne recently said: "It is our position that we would like to see the mayor involved in some capacity, particularly if the position was split, we'd like to see him as chair."

Byrne was not asked why the provincial government has not appointed Wells to the vacant provincial seat on the board giving Wells the ability to be "involved in some capacity." The provincial appointment has been available since before Danny Williams first spoke publicly about appointing Wells.

In the meantime, the ministerial co-ordination e-mail in effect in Ottawa doesn't seem to be working. Better known as the gag order, it required every cabinet minister in Stephen Harper's administration to have his or her public comments vetted by the Prime Minister's Office.

After Emma told the Telly what - wait for it - the Prime Minister had approved, federal fish minister Loyola Hearn was telling VOCM something different:

Federal Fisheries Minister Loyola Hearn says he suspects an official announcement on the new chair for the Canada-Newfoundland and Labrador Offshore Petroleum Board will be made sooner rather than later. Max Ruelokke is waiting to take on the post, having apparently been selected by an arbitration panel. Hearn says he would think with the conversations he's had on the matter, the announcement will come very soon. Hearn says a change in legislation to divide the position of CEO and chairman, is a possibility if the two governments agree on that.

Loyola's comments are basically the same as what he said last week on this file, except for a decisions being made sooner rather than later. Looks like Loyola needs to read more memoranda or have his staff deliver better briefings.

Maybe Loyola is just out of the loop on this one altogether.

After all, he apparently told VOCM legislation would be a possibility if the position at the offshore board were split into two jobs. Had he been in the know, Loyola would have known legislative change would be mandatory: that's the only way to vacate the decision made by the arbitration panel under the Atlantic Accord implementation acts.

Spindy 2: The Second Coming

Outlets for The Independent have a letter this week advising that the paper, under new management, will be returning to shelves next weekend at a cover price of a twoonie.

That's up fifty cents from the price when the paper died last weekend. Managing editor Ryan Cleary told CBC News that the paper had a circulation of 7, 000 when it folded but apparently gave no indication of whether that was 7,000 paid subscribers, 7,000 copies sold weekly or a combination of paid subscribers and sales at news stands. Subscribers paid a loonie to have the paper delivered each week.

Interesting to watch will be the advertising, which normally would pay all or most of the cost of printing a newspaper. In the late 1980s, Premier Brian Peckford withdrew all government advertising from the weekly Sunday Express in retaliation for its coverage of his administration's greenhouse folly. A similar policy was applied against the Daily News.

An increase in provincial government advertising might indicate the opposite policy being adopted toward The Independent.

In any event, the Spindy will be back next week, apparently.

Whither the offshore? Hebron collapse likely to bring unwelcome results

In the wake of the collapse of the Hebron project, investors are reviewing their plans to invest offshore Newfoundland and Labrador, according to Paul Barnes, the East Coast manager for the Canadian Association of Petroleum Producers.

"[They're] trying to understand the investment climate here in the province. Is it as good as it once was or is it starting to deteriorate? They're taking all that into account before they take future investment decisions."

There's no under-estimating the repercussions from the collapse, which appears to have been triggered by Danny Williams' insistence on an equity position in the project. Industry insiders have complained publicly about Williams' efforts to change the rules as the game was being played, including announcing publicly that the equity demand as a deal-breaker only a few weeks before the negotiations collapsed.

Williams offshore vision a personal one

The companies rejected the demand for an equity stake which would have given the province's hydro-electric utility a seat at the operator's table. Hydro has no experience in the oil and gas sector, although Premier Williams has described his wish to get involved in exploration work.

"We are prepared to have a full stake and, if necessary, at some point we will get involved in frontier exploration, whatever the opportunities are," Mr. Williams (Photo, right) said in an interview.

No one should doubt the Premier's deep personal involvement in the oil issue. Asked by the National Post why the province was interested in getting into the oil and gas business with its high cost and high risk, Williams replied by describing his own qualities and characteristics.

Williams likened his equity goal to having a local Norsk Hydro, but Newfoundland and Labrador Hydro operates more as a government department and less like a private sector corporation.

Conflict of interest a likely problem

Oil company executives may have been concerned about the Hydro company's cozy relationship with the provincial government. Hydro chief executive officer Ed Martin acted as the provincial government's chief negotiator in the Hebron talks on industrial benefits and tax and royalty payments to the provincial government.

Those close ties to government would likely have made the industry nervous that the presence of the state-owned enterprise on its team would compromise confidentiality in any dealings with government on current and, more importantly, future development projects.

There are no signs Williams plans to change that relationship in the near future.

Province's go-slow approach won't help speed investment decisions

Investment decisions are also likely to be adversely affected by the go-slow provincial approach on many things. A gas royalty regime has been in development for some time but Williams has said it will take until the end of 2006 for the government to announce any decisions. Likewise, the province is reviewing its royalty regime for the Laurentian sub-basin. That won't be released until the end of 2006 either, according to Williams.

With that time frame, investors would need time to assess the competitiveness of the regime and then do preliminary calculations on any project they are considering. By the time an operating agreement is negotiated on multi-partner operations, and other preparatory is completed, it would difficult to see any new development deal being signed within the next two to, perhaps three years.

Even a deal signed in 2007 likely wouldn't achieve first production until 201-2011. Offshore production is expected to decline by one third to one half of current levels in that same time frame, lowering with it provincial revenues. Growing oil revenues fueled a 10% increase in government spending this year with promises of tax cuts in 2007, an election year.

No Hebron hurts regions, undermines government's fiscal plans

Some are beginning to wonder how finance minister Loyola Sullivan will be able to afford many of his pre-election spending plans in the absence of a multi-billion cash injection that would have come over time from Hebron. Projected royalties alone from the dead deal were equal to the provinces total consolidated debt. Total revenues, including corporate taxes might have reached as high as $13 billion over the life of the project.

The Conference Board of Canada said in February 2006 what while production at White Rose and the Voisey's Bay nickel mine will boost the provincial economy to grow by 6.4% in 2006, the future looks different. The Board projects growth for 2007 at just 1.5%.

"Until there is another boom in construction or mining activity, the overall prospects are rather moderate to weak," said Marie-Christine Bernard, associate director of the board's provincial outlook.

That $13 billion for Hebron doesn't include start-up costs - projected at $5.0 billion - which included building a new gravity-based structure, likely at Bull Arm with portions of the topsides likely built at Marystown. At that price, the Hebron project was slightly smaller than the Hibernia project and approximately the same size as the Premier's pet Lower Churchill construction. Those construction costs represent the sort of boom the Conference Board of Canada was referring to. Without it, economic growth will likely not keep pace with ancticipated government increases in spending coming into the 2007 election year.

In the meantime, the failure of the Hebron project adds to the economic problems in some regions, like the Burin peninsula where plant closures by Fishery Products International and lack of an economic alternative or a government assistance package have left many local residents with as little as one week's unemployment insurance to come.

Residents and community leaders on the province's Burin peninsula told CBC television on Thursday that they cannot remember a time when both the Marystown shipyard and the local fish plants were shut down simultaneously. A year ago, Marystown shipyard finished fabrication work on White Rose, the last oil field to be brought into production. More than 1,200 men and women worked at the yard at the time. Today, it lays mostly idle with 30 workers.

National reaction a clue to damage

Perhaps the most noticeable sign of the province's potential problem in attracting investment comes with the comparisons being made in national media between Danny Williams, Russian president Vladimir Putin and, especially, Venezuelan strongman Hugo Chavez (photo, left). The Hebron story has run for most of the week in both the National Post and the influential Globe and Mail with negative connotations in each story for Danny Williams and Newfoundland and Labrador.

The story has also been covered in the the heart of Canada's oil industry, Calgary, where Williams' scolding of Albertan Conservatives over the Ralph Klein leadership vote tweaked more than a few noses. The Calgary Herald ran a commentary this week that said, in part:

When he spoke to Conservative party delegates on the weekend in Calgary, Newfoundland and Labrador Premier Danny Williams offered unsolicited advice to Tories on how they should have voted in Premier Ralph Klein's leadership review.

In that spirit, here is some advice for Williams: Stop acting like a tin pot, banana republic demagogue.

That image - as popular as it may be on the radio call-in shows - does win elections in the short-term.

But outside Newfoundland and Labrador, where the investment money will have to come from, and over the longer term, being portrayed like a goon or gangster doesn't help brand Danny Williams as someone with whom the investment community can do business. When Williams identifies the province's goals and his own goals as being identical - as he clearly did in one recent interview - the province wears whatever label Danny gets.

Danny Williams' "youngest and coolest" rebranding initiative looks rapidly like it's becoming a waste of money. Outside the province, the image is becoming set in concrete and it is not about being young or cool.

And that won't put money in the treasury where and when it is needed most.

Dawn of the In-dead-pendent?

A year ago, The Independent was running radio spots telling us all that to be informed everyone had to read the Spindy.

Now the former managing editor is trying to revive the paper with an appeal for people to subscribe and advertise in it. (Of course, they published their last number almost a week ago.)

Perhaps the next thing will be a ragged- arsed writer standing outside Coffee and Company holding out a sign that reads "Will investigatively report for food".

The paper went out of business with some dignity last weekend.

If people wanted to support the Indy they would have done it already. They didn't. Maybe some people's energy would be better spent figuring out what went wrong and trying again with a new venture. It would beat the hell out of making a mockery of the last edition of a newspaper a lot of people thought very highly of.

There is a need around this province for a genuinely new voice.

We just don't need one that lurches about moaning "uunnnnnnnh" all the time.

Hebron background

The Hebron-Ben Nevis is the second largest of the four major oil discoveries offshore Newfoundland and Labrador. Hebron-Ben Nevis is located in the Jeanne D'Arc Basin, approximately 300 kilometres east of St. John's Newfoundland and Labrador.

It consists of Hebron, discovered in 1981 West Ben Nevis and Ben Nevis (discovered 1980) with estimated recoverable oil reserves of between 400 and 700 million barrels. The bulk of the oil is heavy (API 20), making recovery more complicated than at Terra Nova, Hibernia and White Rose.

The fields were considered non-commercial for some time after discovery owing to the physical difficulties in the field, including the presence of large quantities of heavy oil.

The four corporate partners - ExxonMobil, Chevron Canada, Norsk Hydro and Petro-Canada - drilled appraisal wells in 1999-2000 and began evaluating the potential for development in 2000. This work was discontinued in 2002. After some delay, the partners concluded a joint operating agreement in April 2005 and shortly after began discussions with the Government of Newfoundland and Labrador on a royalties and benefits agreement.

These discussions concluded on or around 31 March 2006 with no deal being reached. Chevron Canada announced the suspension of the project and began redeploying its personnel in St. John's to other projects around the globe. There is no indication that the partners will pursue the project in the near term (less than five years).

Development cost of the field to first oil was estimated by the partners at between CDN$3.2 and CDN$5.2 billion, making it the second most costly project in the current offshore. The preferred production mode was a gravity-based structure (GBS). Experience gained on Hibernia allowed the companies to reduce the size and hence the cost of the GBS. Field life is estimated at 20-25 years pending further delineation.

Left: Built between 1990 and 1997, the Hibernia gravity-based structure contains drilling rigs, living quarters, oil storage and other facilities to sustain production at Newfoundland and Labrador's largest offshore oil and gas field. [Photo: Greg Locke/Picturedesk International]

While it unlikely in the near-term, as technology develops or as other options emerge, the partners may switch production modes to a less costly method than GBS. This would reduce the local industrial benefits to Newfoundland and Labrador but improve the corporate profitability of the project.

Media reports this week indicated that the provincial government would have received CDN$8 to CDN$10 billion in royalties over the life of the project. This does not include other provincial revenues related to oil production. The current provincial debt, on a consolidated basis, is approximately $11 billion.

In 2006, the Government of Newfoundland and Labrador estimated that it will receive more than CDN$700 million in royalties from current production and an additional CDN$224 million in corporate taxes. A similar or improved ratio of royalties to corporate taxes could have been be expected from Hebron given that project royalties from the development were equal to or greater than royalties from the three existing developments combined.

Peter Fenwick on Hebron failure

Realization that the Hebron deal is dead is starting to sink in across the Newfoundland and Labrador oil patch. Hope of possibly restarting talks and concluding a deal have faded and more and more individuals and businesses are coming to understand that the Hebron partners may not seek again to develop the field for at least two years.

National media criticism of Danny Williams in the Globe and the National Post continues to be strong. It makes their previous criticism during the flag flap in 2004/05 look like a love tap. What the national newspapers and columnists are saying about Danny Williams' decisions about Hebron makes their condemnation of Tobin's "Not one teaspoon" stunt with Inco over Voisey's Bay in 1998 look like foreplay.

While the rhetoric has been extreme in the wake of the deal's collapse, cooler heads will start to look at the entire issue. The blame game will end and people both inside and outside of government will see if there are lessons to be learned.

Ultimately no one profits from blame - as much fun as it can be in the short term. The goal must always be to learn from bad situations and figure out how to move forward positively.

In the meantime, there is this column "Newfoundland's shakedown racket" in the National Post from former provincial New Democratic Party leader Peter Fenwick. Criticizing Williams by comparing him to Hugo Chavez or Vladimir Putin is not only unfair, but also only boosts his stock in the wrong-headed circles clogging radio call-in shows. Condemnation from The Mainland only serves to rally the locals around their Leader in the short term.

In the longer term, as with Tobin, the costs of these situations can be severe. Screwing with the local business community can be deadly and there are undoubtedly deep wounds Danny Williams needs to heal. Tobin suffered a steady erosion of his support - at least in private. Roger Grimes paid the price for Tobin's folly as well as his own shortcomings.

There is value in heeding Fenwick's last comment:

There's a reason Newfoundland has seen over two decades pass since the discovery of a new oil field: If you keep changing the rules, people won't want to play.

Hugo Chavez may not be able to grasp that reality. Danny Williams is too savvy to make the same mistake.

Hebron equity and a possible conflict of interest

Premier Danny Williams provided more information in the House of Assembly on Wednesday about negotiations between the Government of Newfoundland and Labrador and the companies that proposed development of the Hebron-Ben nevis field offshore Newfoundland.

Following are extracts from the Premier's comments, followed by commentary.

1. On the equity position:

The reason we went from 8.5 per cent to below 5 per cent was because 5 per cent was a critical turning point in the joint venture agreement. The partners could not unanimously deliver more than 5 per cent to the Province of Newfoundland. Under that circumstance, there would be absolutely no agreement whatsoever. Four point nine percent is critical because when you get to 5 per cent there is an absolute veto right on all decisions.

This Province, in order to achieve 4.9 per cent, which could probably give us $1.5 billion additional return over time, was prepared to concede a veto right. We are not interested in a veto right on the project. That is the reason.

Comment: Two new significant pieces of information here.

First, we learn for the first time that an equity position above 5% would have given the provincial government a veto over management decisions. From other public comments by the Premier and others it appears that the companies either could not would not alter the joint operating agreement, hence the government's decision to accept a piece of the operation beyond royalties and other revenues at 4.9%.

The Premier's remark at the end that the province didn't want a veto is moot since the province could never have obtained one under the circumstances without likely forcing a complete renegotiation of the joint operating agreement signed in April 2005 among the corporate partners.

Second, we learn for the first time that the equity position was estimated to yield $1.5 billion in revenue that was over and above the $8 to $10 billion going to the province in royalties.

2. A. Was there a January 26 agreement or a position taken by the corporate proponents?

It was a January 26 position. That is exactly what it was. It was a position that had been negotiated down from their position over the course of two months. That is what was done between Mr. Martin and Mr. Bates, with intervention by us at certain points in time. What they did on last Thursday night, when we finally got down to the two final issues - which was equity and super royalty. When we had agreement on those issues, they reverted to the January 26 position, which included investment tax credits, which would have cost the Province about a half billion dollars. So, you had four companies that, collectively in revenues last year, made $590 billion and were looking for our Province to give them another half billion dollars. That simply was not on.

Comment: There are two new pieces of information here as well.

A. Recall that yesterday the Premier referred at one point to a January 26 agreement. The Premier categorically states today that in fact there was no January 26 agreement. He notes that there were negotiations which latterly dealt with the equity position and so-called super-royalties.

On Tuesday, the Premier said, describing the companies position: "Oh, yes, but we want all the terms that are in the January 26 agreement, with the exception of these two." Even if we grant that there was no formal agreement on January 26, it appears likely that ultimately the companies did not accept the provincial government's position on equity and super-royalties.

The Premier has said there was an agreement on equity and super-royalties; evidently there wasn't, otherwise the companies would not have reverted to their position on January 26 less two items, namely equity and super-royalties.

Part of the difficulty in assessing the Premier's comments may come from the different definitions he seems to apply to agreement depending on when he refers to his position and when he refers to the position taken by the companies. The negotiations do not seem to have followed a pattern in which items were settled and formally noted as settled. Thus, the parties - particularly the provincial team - could make a fundamental error in believing that some issues were settled when in fact they had not been.

When the Premier states there was an agreement up to this past weekend and that January 26 was a position, he is stating his interpretation of events. The companies may well have felt that from their standpoint, the January 26 position represented the basis for agreement given discussions up to that point.

We do not know when the Premier formally presented the demand for an equity position, however it appears likely that negotiations did not begin on this point until after January 26. Note that the premier did not publicly indicate that equity was a condition of an agreement until after January 26. Note as well that the Premier indicates the January 26 "position" was the result of two months of negotiations from a previous position put forward, presumably by the companies. One can easily see how such a process could lead to this document - if it is a document - being called an agreement, especially if the provincial team did not reject it formally or proceed to amend any of the contents.

By the same measure, the companies could conduct discussions in good faith, as it appears both parties did, have some legitimate misunderstandings and see the whole deal collapse at the last minute to everyone's evident consternation.

B. Was there an inherent conflict of interest in the provincial negotiating position?

The Premier refers to negotiations conducted by two representatives, namely Mr. Martin on behalf of the provincial government and Mr. Bates on behalf of the Hebron consortium.

Mr. Martin is Ed Martin, a former oil industry executive and currently chief executive officer of Newfoundland and Labrador Hydro.

These negotiations had two elements: one focused on the demand for an equity or partial ownership position in the operating consortium. The second was on royalties and other revenues to be paid to the province as economic rent for oil production as well as local industrial benefits as defined in the Atlantic Accord (1985).

To date, the Premier has not indicated how the shares in the operating company would have been managed. They could be held by an corporation like the Canada Hibernia Holding Corporation which reports to the federal energy minister. His officials would represent the federal government in making any decisions related to the federal government's shares in Hibernia, for example.

More likely, the shares would have been held by Newfoundland and Labrador Hydro as the province's new energy corporation or in a holding company managed by the revamped Hydro corporation. This would be consistent with the Premier's comment to the National Post:

With Newfoundland's business community anxiously holding out hope that negotiations will be revived on the Hebron Ben Nevis offshore oil project, Premier Danny Williams yesterday made it clear he is prepared to make the province a full-fledged partner in the multi-billion-dollar venture.

"We are prepared to have a full stake and, if necessary, at some point we will get involved in frontier exploration, whatever the opportunities are," Mr. Williams said in an interview.

Mr. Williams said his government is prepared to participate in all aspects of developing his province's offshore oil and gas resources through the provincial hydro corporation. He said he would like to model Newfoundland and Labrador Hydro after Quebec Hydro and Norsk Hydro, Norway's state-controlled energy company. [Emphasis added]

There is the strong possibility that by combining these two very different sets of negotiations in one that the province placed itself in a position whereby acquisition of shares in the operating venture could be inappropriately related to the province's royalties and other similar revenues. This would be similar to the Hibernia negotiations in which the province essentially traded off the gravity-based structure costs against future royalties.

Such a situation is implied in the Premier's comments on Tuesday that suggest the request for $500 million in tax concessions reduced the overall benefit of the equity position, even though the two issues should actually be considered separately. The equity stake had an intrinsic public policy value separate from the other "provincial benefits". As such the cost of the tax concessions ought to have been weighed against the $10 billion in royalties, not the $1.5 billion returned by the shares, or any combination of the two.

Of greater concern, though is the potential that in the second share management scenario, Mr. Martin was effectively placed in a conflict of interest during the negotiations themselves. Had the negotiations been successful in the second share management scenario, Mr. Martin would have been, for all intents and purposes, a co-owner of the Hebron development. As such, he would have naturally been concerned to lower the start-up costs of the project in an effort to maximize corporate profits. These profits would then be turned to whatever purpose the Crown-owned agency determined, including development of the Lower Churchill.

There is no question that in a typical situation, Mr. Martin as an operator, would naturally look positively on a request to lower start-up costs such as requesting forgiveness of certain taxes or the seeking of certain tax credits. No matter what a company's overall financial position, a project such as Hebron would be expected to operate as efficiently as possible, with the lowest costs and hence the maximum profits.

At the same time, though, Mr. Martin was operating as the province's chief negotiator on behalf of the public treasury. In a manner of speaking he was functioning as the tax collector. As such he would seek to maximize the revenue flowing to the public treasury; naturally this is separate from the Hydro corporate treasury. Thus, his negotiating brief ought to have given him clear direction to minimize concessions, except in so far as those concessions would bring a greater return in such things as local jobs. His public treasury role ought to have carried with it considerations separate from those of his brief as a co-owner of the development along with the major oil companies.

Under the second share management scenario, Mr. Martin appears to have been in a conflict of interest. He was on the one hand seeking to maximize the treasury returns while at the same time negotiating his way onto the Hebron management team, with its obvious concern to lower costs and maximize profits.

It is irrelevant that Mr. Martin would have been placed in this position by the provincial government itself. The provincial government appears to have been trying to achieve two separate public policy goals in the same set of negotiations. This may have contributed to the collapse of the negotiations.

Hebron: Did Williams kill the $10 billion fatted calf with last minute gamble?

Some additional information on the failed Hebron deal came to light on Tuesday in the House of Assembly.

The Hebron project was a $5.0 billion construction megaproject that would have delivered an estimated $10 billion dollars in royalties to the provincial government over the life of oil production.

Following are Premier Danny Williams' remarks with notes and comments after each. The posting runs more or less sequentially as Williams responds to questions from Opposition House Leader Kelvin Parsons.

If you want the truly surprising information, skip to the section marked "*".

1. On the equity position:

"...A critical milestone for them on equity was 5 per cent. Five percent and above jeopardized the joint venture agreement. There was extra voting rights. There were other rights and privileges that were above 5 per cent. Our preference would have been to obtain, at least, 8.5 per cent. That was our original goal because that is a benchmark which has been set by the federal government in the Hibernia project and that was a number that we were trying to achieve. However, in order to try and reach an agreement with these companies, we moved to the 4.9 per cent position because that was a position that they felt was acceptable to all the partners...."

Comment: This is interesting because for the first time the premier has indicated both the preferred size of the equity position (8.5%) and the subsequent position he contends was agreed to by all parties (5%).

Most interesting is the revelation that the province proposed a 4.9% since this level precluded the province from holding voting rights that would affect the original joint operating agreement.

This acknowledges two things. First, the province would not have held a full equity position in the project, thereby begging the question of what exactly the Premier was seeking so stridently and why.

Second, since the equity position was placed below 5% in order to avoid affecting the joint operating agreement the Premier implicitly confirmed the partners contention that equity was a new condition placed on the Hebron project by the province after April 2005.

2. The cause of the collapse:

"...we basically had a tentative agreement on equity and on super royalty on Thursday evening. The matter on which it broke down, which I explained yesterday to the House, was they reverted to the January 26 position, which is investment tax credits which were in the range of $400 million to $500 million, which was something that we had virtually assumed was off the table and was gone. They then reverted to a position of two months ago, which was absolutely unacceptable to the Province."

Comment: It is interesting that the Premier chose the words "we had virtually assumed" when discussing the issue of the investment tax credit and the sales tax credit on fuel purchases related to the development. Ordinarily, the parties to a negotiation would exchange plain language statements of what had been agreed to. Such an exchange would be particularly important if, as the premier contends, there was an agreement on Thursday evening. This approach is intended to avoid the very circumstance - potentially a misunderstanding - which seems to have occurred.

Apparently in this case a detail significant enough to cause the deal to fall apart was "virtually assumed" to have been eliminated. When one assumes one makes an ass...

The overall approach here may be similar to the slipshod way the province handled discussions with Ottawa in 2004. The federal and provincial governments did not begin negotiations (exchange proposals and position statements) until October. Detailed talks took place throughout November and into December, with Williams making a dramatic pre-Christmas explosion not unlike his media scrum on Monday.

This comment by the Premier begs one of the major questions surrounding the Monday disaster: how could $500 million scuttle a deal that would deliver to the provincial government royalties equal to or greater than the total provincial debt ($10 billion)?

* Alternate explanation: The Premier killed the deal by adding equity and insisting on it.

Later in Question Period, the Premier described the collapse this way:

Then when they send a memorandum into us, the memorandum gets cute and basically comes back and says: Oh, yes, but we want all the terms that are in the January 26 agreement, with the exception of these two. So, we basically said that is not on. Because what would have happened then, that would have clawed back everything that we gained. We would have ended up with an agreement that was basically less than generic, which is exactly what your government was prepared to accept some two years ago.

Comment: In this section the Premier refers to a January 26 agreement. Williams is normally careful in the words he uses. To refer to January 26 as an agreement may be taken as deliberate or at least a reversion to terms he has used in private.

Note that the Premier had previously referred to January 26 as being merely a position taken by the Hebron partners. (See Point 1 above)

Also, the Premier refers to the companies as having brought back the January 26 agreement less two clauses. The Premier's contention up until this point has been that it was the addition of two clauses to the late March agreement that caused the collapse.

This is significant since the Premier's new version suggests a foul-up on the part of the provincial negotiators ("we had virtually assumed") with the magnitude of the error only becoming apparent once a final summary was exchanged.

These comments by the Premier also reinforce the contention that equity was a last-minute addition to the agreement. Note that Williams did not publicly make equity a condition of a deal until after 26 January. Check that in a previous Bond Papers posting, "Hebron, the premier and getting a deal".¹

Ultimately, though, this particular description of the collapse raises significant doubts about the Premier's account of events. On a deal with provincial revenues on the order of $10 billion with hundreds of millions of dollars of added benefits for the private sector in the province, it is curious that the addition of $500 million in short-term tax concessions would completely negate every other gain the Premier had supposedly made.

If the Premier had negotiated such a remarkable agreement, then by his own account, $500 million would turn this deal into one that involved the province getting less revenue than provided in the generic royalty regime.

On the face of it, this seems preposterous.

These comments make more sense if we interpret these remarks to mean that after a period of discussion with the Premier on so-called super royalties and something being called an equity position, the companies rejected the Premier's efforts to change the January 26 agreement.

Instead, their final position was to insist on the January 26 agreement already reached, including tax concessions but "without these two elements", that is super royalties and equity of any size.

The reference to "clawed back everything gained" would refer to the loss of equity and super royalties which, in fact might not have been gained at all.

This is consistent as well with a comment in a presentation made by Chevron's Mark Macleod in February 2006. One of Macleod's bullet points in a slide show on Hebron indicated that the companies were "re-evaluating potential for development". The language is telling. The project is not being evaluated. There are no discussions to finalize an agreement. In February 2006, the Hebron partners are evaluating the project once again for development.

The only comments the Premier would need to clarify is on the January 26 agreement producing royalties of less total quantum than the generic regime.

3. The cost of buying out ExxonMobil's 38% interest in Hebron

"...Having said that, with regard to the price that the government is prepared to pay for Exxon Mobil'’s interest, we are dealing in hundreds of millions of dollars here. I am not prepared to announce to Exxon Mobil today what we are prepared to pay them...."

One would expect that the price for the major shareholding in a project like Hebron would comprise costs incurred to date, possibly a portion of the $5.0 billion construction costs and almost certainly compensation for future earnings on revenues from oil sales.

To give some sense of what gross revenues would be on Hebron, the current value of Hebron oil, based on US$50 per barrel oil would be $35 billion. Even using a discounted price heavy oil running US$15 lower than that, the field is worth $24.5 billion. It is difficult to imagine ExxonMobil selling its interest for the hundreds of millions the Premier claims it would cost.

-----------------------------
¹ During the offshore revenue talks in 2004, the premier consistently shifted his public position once agreement had been reached on certain points. It was not until Ottawa stood firm in October 2004 that Williams came to the table and negotiated a final deal. Several posts on this can be found here.

It is not unusual, for example, for the Premier to claim that an agreement existed when no negotiations had taken place, that there was an agreement when evidently there was not one, or that, as in this case, the other party was being perfidious. careful examination usually reveals something closer to the truth than the Premier's often contradictory statements.

Why Danny wanted Andy...at the offshore board

Since Danny Williams first confirmed that he thought Andy Wells would be the perfect chairman for the federal-provincial board that regulates the offshore industry anyone with half a clue about the board and the industry has been trying to come up with a plausible reason to a simple question:

Why?

Turns out that we got it right from the start. Last July, when the story broke one of the scenarios offered up as a possible explanation was that Wells appointment would be part of a plan to push around the oil companies.

1. Wells, who knows little about oil and gas regulation but much about kicking up a stink, would be well positioned to bugger around with the forthcoming Hebron proposal. Wells would be a tag team with the Premier to try and push Chevron around a bit and since both men are of similar minds, there'd be less bickering between the two of them than between them and the oil companies.

There were a bunch of other posts - here, here, here, here and here - all of which pointed out Wells' consummate unsuitability for the position by any ordinary measure. In the meantime, the selection process set out in the Atlantic Accord (1985) turned up a proper candidate. Word on the street has it locally that the matter has gone all the way to the current Prime Minister who has blessed the results of the committee chaired by Newfoundland businessman Harry Steele.

Tapped for the job is Max Ruelokke, a former provincial public servant with the private sector oil and gas experience needed in the regulatory authority.

Anyway, since the Hebron deal collapsed yesterday, Williams has been threatening to legislate ExxonMobil out of the oil patch for refusing to go along with what Danny wanted. Williams' former law partner, outgoing New Democratic Party leader Jack Harris is sounding like the deputy premier lately than anything else. Harris told the local CBC radio drive show this afternoon that Williams was dead on in his overall approach to Hebron and pointed to several sections of the Atlantic Accord implementation acts under which the companies could be forced to develop Hebron.

Flip over to the federal implementation act and you can find section 79, among others which give the Canada-Newfoundland and Labrador Offshore Petroleum Board the power to order a company to produce oil within three years or surrender its license. The same ability is contained in section 78 of the provincial implementation act.

Lawyers and purists will point out the serious practical problems with trying to use these powers when there is no security of supply problem or in a period other than an evident national emergency. There would even be difficulties in having Wells as chairman trying to get the board to issue such an order without the - unlikely - concurrence of the Government of Canada.

None of that is the point. With Andy as chair of the offshore board, the past two days would have seen him filling every available television screen backing Danny with Well's own form of bluster to match Harris' more polished support. Wells' frothing about the evil foreigners pillaging our resources would take some of the political heat from the Premier.

But while negotiations were underway, the Premier could be quietly threatening the oil companies with unleashing Wells if they didn't co-operate. Perhaps Wells himself would be talking up his potential exercise of the offshore board's extra-ordinary powers. Count the number of times today Jack Harris mentioned Hugo Chavez favourably in the same breath as Danny Williams and you get the idea of what might be in some people's minds.

As strange as it might seem to have a Conservative premier and a New Democratic Party leader on the same wavelength, one need only look at Williams populist performance and many of his policies to understand that Williams is not a Conservative in the sense most people would use the term.

Williams is philosophically a Peckfordite, albeit a more refined one. Williams' policy manual reads in many parts like the brian Peckford offshore policy. The demand for an equity position is taken straight from policy in vogue during the 1970s when even ostensibly Conservative governments around the globe supported state ownership of large sections of the economy. In 1980, the Peckford administration passed legislation creating a state-owned energy corporation which would own, by law, 40% of any significant discovery. Williams' policy goals may seem smaller but they are fundamentally aimed at the same objective. No surprise that Peckford's former energy advisor thinks Danny Williams is on the right track.

Putting Andy Wells in charge of the board regulating the province's offshore resources fits with the pattern. It took a while to see what the objective was in pushing Wells for a position he was demonstrably unqualified to win on his own.

In the midst of the Hebron mess, Danny Williams objectives become clearer.

Oil industry backgrounders

Check offalnews for three articles penned by one Simon Lono on Newfoundland and Labrador's oil and gas industry.

These are the raw versions; the print ones appeared in Atlantic Business Magazine last month.

Note in particular this portion of an interview with energy minister Ed Byrne. It's been quoted on the Bond Papers before and Simon will post the whole thing in a couple of days. The edited version is at ABM.

MINISTER BYRNE: From our point of view, equity is important from this perspective: it puts us at the table and helps us develop an intellectual capacity that doesn'’t necessarily exist within the provincial structure right now. It puts us in the seat as a legitimate bona fide partner in developments. It helps us gain further insight, expertise and knowledge into the oil and gas industry. It has worked successfully as a model in other jurisdictions and there'’s no reason to think it wouldn't here. Other jurisdictions are both equity partners and royalty partners. So while there is some legitimacy in saying that equity is represented by royalty, there are other benefits associated with being an equity partner. [Emphasis added]