$10B Hibernia South deal reached: Williams

Main Hibernia project costs paid out, higher royalty rate kicks in

Last Updated: Tuesday, June 16, 2009 | 2:06 PM NT

CBC News

Premier Danny Williams told an industry conference in St. John'sn on Tuesday that a memorandum of understanding has been reached on the Hibernia South expansion. (CBC)

Newfoundland and Labrador Premier Danny Williams said Tuesday a tentative agreement has been reached on expanding the Hibernia oilfield, in a deal that is expected to yield $10 billion to the provincial treasury.

Williams announced a memorandum of understanding has been reached with members of the Hibernia consortium while he delivered a keynote address to delegates to the Newfoundland & Labrador Oil and Gas Industries Association conference in St. John's.

Williams said the government has negotiated a 10-per-cent equity stake in the Hibernia South expansion, through its Crown-owned Nalcor Energy. The $10-billion projection is based on that, and on all government royalties and taxes.

"I am delighted this morning to bring a bit of good news to the member of NOIA — well, about $10 billion worth, to be precise," said Williams, who added the announcement will mean billions of dollars in new revenue for the federal government.

"That amount is actually double the royalties collected by the province from all three projects to date, since 1997."

Williams said the tentative agreement also includes a top royalty rate of 50 per cent.

"Hibernia South will increase and sustain production from the Hibernia field, preserving employment, while providing a significantly greater royalty return for the province than any previous project," Williams said.

Hibernia South has been estimated to contain about 230 million barrels of crude oil.

Williams said Nalcor's oil and gas division will pay $30 million for the purchase price of its stake in Hibernia South, once formal agreements are signed.

Williams announced that another milestone in the province's oil industry has been reached, with Hibernia reaching what is known as payout.

That means that the costs of development of the project have been reached, and that the Newfoundland and Labrador government will now receive a royalty of 30 per cent on subsequent Hibernia production.

Hibernia has pumped out 670 million barrels to date, with the provincial government treasury collecting about $1.9 billion from that production.

Feds to benefit, too: Williams

Williams made a point during his speech of noting that the federal government, with which he has had an often-strained relationship, should receive an additional $3.5 billion because of the Hibernia expansion alone.

"It's just another example of how much we as a province contribute to Canada's coffers, and the contribution that we make to this great federation of Canada," Williams said.

Later, Natural Resources Minister Kathy Dunderdale said it was important for Williams to underscore how the federal government will also benefit from Hibernia South.

"It's an extremely important point to be made," she said. "One of the serious criticisms levelled at us from the rest of Canada since Confederation is that we haven't paid our way. We have demonstrated time and time again, that that's not true."

ExxonMobil's Glenn Scott said the Hibernia consortium is optimistic about the expansion to the project. (CBC)

It is the second year in a row that Williams has used the conference to announce an agreement. Last year, he announced a tentative pact on Hebron, which will become the fourth oilfield to go into production off Newfoundland's east coast. A formal deal on Hebron was reached later that summer.

An agreement on Hibernia South has been anticipated for months, and Williams suggested as much at last year's conference.

After his speech on Tuesday, Williams told reporters that the deal was not the easiest to reach.

"Anytime an owner gives up equity, that is always difficult. What I admire most by our industry partners here is that there was acutally recognition that that was necessary," he said.

Asked to explain, Williams added: "We felt that, as a province, we should have a stake. We should have a piece of the action. We should have some ownership."

Glenn Scott, president of ExxonMobil Canada, which is the operator of the Hibernia project, told reporters the consortium is optimistic about the Hibernia South expansion.

"It's going to benefit everybody," he said.

"It's going to mean more jobs in the province. We're really excited about it."

Confronts radio host

Williams was not in an entirely celebratory mood on Tuesday, however.

Shortly after speaking at the NOIA conference, he had an on-air confrontation with open line radio host Randy Simms, who questioned on his top-rated VOCM show whether the province had become too focused on oil.

After insisting that the government has been able to afford a record amount of infrastructure spending because of oil-based revenues, Williams — who has been known to berate journalists and commentators who displease him — said Simms, the mayor of Mount Pearl, should understand the importance of where governments earn their money.

"We don't need that kind of pessimism and crap coming out of your mouth," Williams said, shortly before hanging up on Simms.

Approval blocked in 2007

In January 2007, Williams and his government unilaterally blocked a regulating agency's approval to Hibernia to drill into Hibernia South. The Canada-Newfoundland and Labrador Offshore Petroleum Board had given conditional approval to the Hibernia consortium in late 2006.

The government has said that it wanted a better benefits agreement for Hibernia South than governed the original Hibernia development, the first field to go into production. The Hibernia platform pumped its first oil in 1997.

Hibernia's partners include operator ExxonMobil, as well as Chevron Canada, PetroCanada, Norsk Hydro and Murphy Oil. The federal government also owns a stake in the consortium.

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