Robbing Newfoundland and Labrador 101 Part 4

Good morning fellow Newfoundlanders and Labradorians! Yesterday I said stay tuned - now here it is.
For purposes of understanding the whole mess you need to review;

Part 1

Part 2

Part 3

in order to get an understanding of the oft talked about 8.5 % share the feds own in Hibernia through the Canada Hibernia Holding Corporation. This is the piece of the pie Danny was looking for during the last federal election. For some reason he has abandoned this now - although he does not say why.

In either case when Danny claimed enthusiastically "we got it We Got It" coming down the escalator at St. John's airport - we were all pleased, to varying degrees.
This was supposed to accomplish two things:
1. Our offshore oil and gas (owned by the feds) would finally provide the promise of the Accord - that Newfoundland and Labrador would be the primary beneficary of the resource and
2. That our oil and gas (owned by the feds) would be treated as if the resource were on land.
(That is to say that natural resources on land are owned by provinces.)

From the financial aspect this is somewhat true because feds collect taxes from the companies regardless - be they in Alberta or Newfoundland and Labrador. From a management perspective we know it is not the same as Alberta as we would not need the feds permission or agreement to claim fallow field, we would simply legislate it and more recently the appointment to the CNLOPB would not be in question because it would not be the Canada/Newfoundland and Labrador anything - it would simply be managed by the Province.

The big thing was that Canada is not including royalty revenues in the equalization formula - allowing us to keep more money.

Now there is this outstanding issue of the 8.5 % share. In the earlier posts I have referenced I have explained the value of this asset and unfair (greedy) way the feds are profitting from the resource.

Here's the kicker though! Take a sip of your coffee now.

Royalty:
The Hibernia Royalty Agreement provides for royalties to be paid by owners, to the Province of Newfoundland as follows: (sorry for not including Labrador) but the CHHC does not include it in the financial statements)
(a) 1% to 5% payable on gross sales less transportation costs (currently at 5%);
(c) 30% payable on net sales revenue commencing at such time as cumulative net sales revenue exceeds 81/2% of the total investments in the Project. Total investment (which includes gross royalties paid in (a)) includes a 1% allowance for capital expenditures and a 10% allowance for operating costs, and a 15% return allowance, on the total investment, compounded annually.

During the year ended December 31, 2005 the Company has paid royalites of $ 20,582,000
(2004 - $11,308,000).

Now this much we knew as distasteful as it is (we get screwed), it pales in comparison to what's happening next.

Big sip of coffee required!

In addition, CHHC is party to the net Profits Interest Agreement (NPI), which provides for a 10% royalty payable to the Government of Canada by all Hibernia owners, once a defined level of project profitability has been achieved. Based on current oil prices, it is estimated that payments of this royalty will commence in 2009.

THERE WE HAVE IT - THE FEDS ARE GOING TO COLLECT ROYALTIES ON NEWFOUNDLAND AND LABRADOR OFFSHORE RESOURCES. THIS PUTS TO REST ANY NOTION THAT THIS RESOURCE IS BEING TREATED AS IF IT WERE ON LAND (ALBERTA) AND THAT OUR PROVINCE WILL BE THE PRIMARY BENEFICIARY OF THE RESOURCE.

FURTHER THE FAILURE TO TURN OVER THE 8.5% OWNERSHIP IN HIBERNIA HELD BY THE FEDS TO NEWFOUNDLAND AND LABRADOR IS A FURTHER INSULT TO THE OBVIOUS GOUGING - FROM A PROVINCE THEY CLAIM IS THE POOREST IN THE COUNTRY.

LOYOLA HEARN CAN YOU GET YOUR GOVERNMENT TO TURN OVER THE 8.5% OWNERSHIP AND TURN THE "ROYALTY" YOUR GOVERNMENT WILL RECEIVE FROM THE PROJECT OVER TO NEWFOUNDLAND AND LABRADOR. The Accord is a tory-tory deal....your mess....you clean it up.