August 29, 2007

Be hopeful, but skeptical

After a series of tense negotiations, Newfoundland and Labrador signed a Memorandum of Understanding (MOU) on Wednesday, August 22 to develop the Hebron offshore oilfield.

Danny Williams, Premier of Newfoundland and Labrador, said during a press conference in St. John’s that it is a “historic day” for the province. Since it entered Confederation in 1949, resources were essentially given away by misguided politicians. “Step by step, we are becoming masters of our own house,” he said.

“Today’s announcement is good news not only for those directly related to the oil and gas industry,” said Kathy Dunderdale, Minister of Natural Resources, “but also to every Newfoundlander and Labradorian who will enjoy the economic benefits of this exciting development.”

At the current oil price of approximately $70 dollars (US) allowing for two per cent inflation, total revenues of $16 billion (CAD) are expected to accumulate in the province over the 25-year life of the project. In addition to revenues for the province, the federal government and Canadians will be benefiting from more than $7 billion in revenues from this project.

Local benefits are maximized with this agreement. From the start of construction through to the end of oil production, Hebron will generate significantly more jobs in the province than either the Terra Nova or White Rose offshore oilfield projects. For instance, a gravity based structure (GBS) will be constructed in Newfoundland and Labrador and all fabrication work will be completed in the province, with the exception of the utilities/process module. It will provide more engineering benefits, more revenue and more fabrication tonnage in the province than White Rose or Terra Nova does.

Based on the estimates of the Canada-Newfoundland and Labrador Offshore Petroleum Board, the Hebron-Ben Nevis field contains in excess of 700 million barrels of recoverable oil. The field, which was discovered in 1981, is located approximately 350 kilometres offshore. The owners expect it to be able to produce 150,000 to 170,000 barrels of oil a day.

Liberal Opposition Leader Gerry Reid is pleased but skeptical. “While today’s announcement is not an agreement and negotiations could once again go off the rails, it is encouraging that at least all parties are once again talking,” he said. “I am disappointed that it took 18 months to reach this point while thousands of Newfoundlanders and Labradorians have left the province in search of work.”

The province will purchase an equity ownership position of 4.9 per cent at a price of $110 million (CAD). If the $16-billion Hebron deal is finalized, construction could begin in 2010.

I am agreeing with Mr. Reid on this one and taking this agreement with a grain of salt. When or if this project gets underway, are there hidden details we don’t know about? Williams is insisting confidentially on the details of the MOU, which immediately raises suspicions. Coincidentally, campaigning for an October provincial election will be officially underway soon.

Be positive, but don’t get too excited. My email is What are your feelings on this agreement?

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