Thursday, August 23, 2007

Offshore deal worth $16-billion to Newfoundland

Newfoundland and Labrador Premier Danny Williams said Wednesday that an offshore deal reached with four major oil companies represents an unprecedented gain for the province.

The agreement to develop the Hebron-Ben Nevis offshore oilfield gives the province an equity stake of 4.9% in the project, estimated to contain 731 million barrels of recoverable oil.

The equity stake came at a cost of $110-million, but the deal will mean total revenue of $16-billion over the 25-year life of the project for the province. The federal government will earn $7-billion in the same period, Mr. Williams said.

The combative premier and the oil companies broke off negotiations on the project -- Newfoundland's fourth major oil development -- in April, 2006, when they couldn't agree to fiscal terms.

The premier came under severe criticism, both in his home province and in the oil community, for refusing to back down on his demands, which involve heavy provincial involvement and for which he was likened to Venezuela strongman Hugo Chavez.

The premier was in a triumphant mood Wednesday, proclaiming the memo of understanding was "historic" and the first step toward Newfoundland and Labrador "Taking real and meaningful ownership of our resources."

There is also an improved royalty regime tied to the price of oil. When oil rises above US$50 a barrel, the province will receive a super royalty of 6.5% of net revenue.

Construction could begin by 2010.

The Hebron negotiations were suspended by the oil companies in April 2006, but resumed last month. One of the main stumbling blocks had been the province's demand for an equity stake in the heavy oil project.

"Our goal was to surpass benefits of previous agreements," said Mr. Williams, who touted the investment in his province's workforce, including the local construction of the new oil platform. "Determination and strength of conviction has been our government's guide."