Nfld. & Labrador

N.L. in clash with ExxonMobil over 3rd Hebron module

The Newfoundland and Labrador government and oil giant ExxonMobil are embroiled in conflict again, this time over a contract to build a module for the Hebron project.

Oil company can move work outside province, but faces possibility of fines for doing so

Premier Kathy Dunderdale and Natural Resources Minister Jerome Kennedy spoke to reporters Thursday about a conflict with ExxonMobil over construction of a module for the Hebron oil project. (CBC)

The Newfoundland and Labrador government and oil giant ExxonMobil are embroiled in conflict again, this time over a contract to build a module for the Hebron project.

"ExxonMobil drew a line in the sand this morning," Premier Kathy Dunderdale told reporters Thursday. "And the minister and I are here to draw another line in the sand, as far as this project is concerned."

At an industry conference in St. John’s, ExxonMobil said building the disputed module in the province would push back first oil for Hebron.

"Our studies indicate that attempting to build the third large module in-province would prolong the project schedule, with no ability to recover," Geoff Parker, vice-president of ExxonMobil Canada and senior project manager for Hebron, told delegates to NOIA’s annual conference.

"That would have significant financial implications for the co-venturers and the province."

Previous estimates put the value of the contract for the third module at roughly $100 million.

ExxonMobil's Geoff Parker addressed NOIA delegates about Hebron Thursday morning. (CBC)

Parker said work on the other two modules to be built in Newfoundland will involve 30 per cent more work than originally thought.

He stressed that ExxonMobil is "adhering to the spirit and intent of the benefits agreement" for Hebron.

Dunderdale disagreed.

"What we negotiated was benefits right here in Newfoundland and Labrador for the people of this province, and that’s what we want," the premier said.

She said ExxonMobil’s comments to NOIA clearly signal that the work is headed elsewhere.

"I’m saying that is absolutely unacceptable," Dunderdale said. "That is not the way that we’re going to do this work. And if this is the road that you’re going to go down, then we’re going to reflect back over a number of years and you’re going to find the waters around Newfoundland and Labrador getting a little rough again."

The premier said there is capacity at Bull Arm to do the work, and ExxonMobil’s arguments do not add up.

"They have not been able to prove to us at this point in time that the rationale that they have for moving the [third module] outside the province is sound," she said.

Natural Resources Minister Jerome Kennedy told reporters he believes ExxonMobil decided to move the contract late last year.

Hebron is located about 350 kilometres southeast of St. John's, and in the same basin on the Grand Banks as the Hibernia, Terra Nova and White Rose fields. ((CBC))

Both Kennedy and Dunderdale acknowledged that the government can’t force ExxonMobil to do the work here.

A dispute resolution process can ultimately only impose fines on the company.

The premier and minister declined to say exactly how much those fines could total.

Kennedy called it a "significant" amount. "If we’re successful in arbitration, there will be a smack for the oil companies," he said.

Pressed by reporters, Dunderdale said it could be "more than tens of millions."

ExxonMobil could also substitute replacement work in Newfoundland and Labrador.

After the dispute resolution process runs its course, the oil company could move the work out of province by the fall.

Contentious history

The province’s Tory government has long had a contentious relationship with ExxonMobil.

"The Hebron negotiation was a long, troublesome piece of work that got off to a rough start with this government back in 2003, 2004," Dunderdale noted Thursday.

In 2006, when talks collapsed and the Hebron partners walked away from the bargaining table, then-premier Danny Williams singled out ExxonMobil for particular scorn.

At that time, ExxonMobil owned the largest stake of the four Hebron partners, but the development was being led by Chevron.

"I'm saying to ExxonMobil right now that if you don't want to move on with this project, then we would be prepared to take you out," Williams said in 2006.

Just over a year later, both sides inked a memorandum of understanding to restart the development.

The province and Hebron consortium finalized that deal in August 2008. It included a 4.9 per cent equity stake for Crown-owned Nalcor Energy, bought for $110 million.

First oil is expected in 2017.