Landmark Oil Find - Great News for ???

The news offshore is good - another significant oil find off the coast of Newfoundland and Labrador.

Hundreds of millions of barrels of light sweet crude - lots of the best.

Now let's look at our cut.

Statoil is owned 67% by the people of Norway. They will be the primary beneficiary of our oil.

Newfoundland and Labrador is still not able to refine any of our own oil. Therefore refineries in Eastern Canada will be the beneficiary of the secondary processing.

Our population is not increasing despite the massive oil, mineral, and energy wealth.

The news is good - yes. The news is great - hardly.

How about our local media do a breakdown of the benefits coming from another of our natural resources. This might tell us and Minister Joan Shea why we have a shrinking aging population despite all the fabulous natural resource headlines.

Ironic - that today we are worried about the potential loss of the Come by Chance refinery where we process oil that is far inferior to our own.

It is superb news for NOIA - it is another sad day for the people of our province. 

Too bad our politicians do not have the vision of their colleagues in Norway.

Population Norway - 1970 - 3.8 million
Population Newfoundland and Labrador - 1970 - 514 thousand

Population Norway - 2012 - 5 million
Population Newfoundland and Labrador - 2012 - 526 thousand

Guess it really depends on what we do with natural resources. Norway and this province are good comparisons relative to energy wealth - both hydro and oil.

This is just another giveaway.

Yet another aluminum smelter for Iceland?

Here we go again - this time Norsk Hydro is looking at establishing an aluminum smelter in Iceland.

Chief executive of Norsk Hydro Eivind Reiten made the following quotes found in a story at CNN Money:

Reiten told a press briefing in Olso that his aluminium group is bent on becoming a major international player and will be focusing on major expansion of capacity in years to come.

What I can confirm is that we are having a dialogue with a power company in Iceland regarding opportunities in Iceland,' Reiten said. He said Iceland is still one of the places where energy is freely available for such a smelter.

Iceland is a good place to be.

Hard to know Premier which one to cheer on - Norsk Hydro or Iceland - or both. What I do know is that Labrador power should be available for industry in Labrador - instead of committing it to 3 million Ontario homes!

Give it up boys - there is too much evidence that aluminum is following renewable cost-competitive hydro - where as the politicians in Newfoundland and Labrador are following Danny's experts into the abyss.

Anybody going to give Reiten a call - he's bent on being an international player in aluminum production and is committed to major expansion. Yoo Hoo - is anybody home?

Can't vote Liberal - Energy Policy by Gibbons and Dumeresque

Voting Liberal means returning to the energy policies of Clyde Wells and Rex Gibbons - PRIVATIZATION included and further deters any ownership of oil and gas projects. And worse he tries to dupe the media - or he does not understand the issue at all.


It's no secret that I have policy issues with the Premier. I support his move to acquire equity in the oil patch - but I do not support his failed fisheries policy - failed rural policies - and especially the suggestion that Lower Churchill power be exported. The "pamphlet" he calls an "energy plan" could have been written in a few nights by myself and a couple of energy zealots. Further it is an insult to Labradorians - simple as that.

I also don't like his style - the Führer comment that got him into an outrage - pontificating on hitting below the belt. The Premier says they will do the campaign without getting into "gutter" politics. The truth is - the man threatened civil servants - threatened to sue bloggers - and generally is a bully. He surrounds himself with "experts" as long as they are his buddies or past business partners.

I support his stand on removing non-renewable resource revenues from equalization - but he is doing nothing practical to make "Steve" live up to his promises.

He's just dragged out the joint management of the fishery again and his desire to see Canada take custodial management of the nose and tail of the Grand Banks - but oddly when Loyola Hearn reneged on this promise - he claimed Tom Rideout and the provincial government agreed with changes made to NAFO on surveillance and penalties. Then the whole works of them got rid of FPI - no equity there. This also includes the Liberals who did not want to upset some of the potential for political contributions.

But let's get to it.

Gerry Reid has just added another piece of logic to his "no equity" policy. Now he says Norway just took equity because it needed to kick start it's offshore - in the same way that Canada did when it took equity in Hibernia.

Why then Gerry does Norway continue to take equity position? Why then Gerry does Norway continue to be a major shareholder in Norsk Hydro? How about this?

Norway has produced this year - a "simple" easy to follow "FACT" sheet on the petroleum sector. Here's a sample found in the document.

The government receives a large share of the value created through:

* Taxation of oil and gas activities

* Charges/fees

* Direct ownership in fields on the Norwegian continental shelf (through the State’s Direct Financial Interest, SDFI)

* Dividends from ownership in Statoil

The State’s Direct Financial Interest (SDFI) is an important source of state revenues, in addition to taxes, fees and dividends from its ownership in Statoil. SDFI is an arrangement in which the state owns interests in a number of oil and gas fields, pipelines and onshore facilities. Each government take is decided when production licences are awarded and the size of the state interest varies from field to field. As one of several owners, the state pays its share of investments and costs, and receives a corresponding share of the income from the production licence.

Gerry - regardless of what Rex says - trying to sell the media that crap is bound to come back and bite you.

And Gerry - let me cut this off at the pass - on Hydro...

Just last month - and based on the current and future value of hydro-power the Government of Norway issues this News Release:

The right of reversion – The Government secures public ownership of hydropower

It says in part:

Today, a provisional decree has been passed in the King’s Council with instant effect which is considered to bring the right of reversion in accordance with the ruling of the EFTA Court and the EEA agreement. It is stated that the basic principle of public ownership of the Norwegian hydropower resources at state, regional and local level is being maintained. It will no longer be given licenses for acquisition of waterfalls and hydropower plants to private actors. Such actors can, however, still own one third of public owned hydropower plants, Mr. Enoksen says.

and

I am very pleased that we have reached an arrangement which completely keeps our most important renewable resource on public hands. We maintain public ownership at state, county and municipal level and thus secure all public hydropower owners rights to the hydropower without time limits, Minister Odd Roger Enoksen states.

Voting Liberal means returning to the energy policies of Clyde Wells and Rex Gibbons - PRIVATIZATION - included and further deters any ownership of oil and gas projects. And that goes for Party President and Candidate Danny Dumeresque (another Clyde boy that promoted and apparently still does support the ideology of privatizing hydro).

Quebec does it...Iceland does it.... now Russia is doing it....

Russian metal producers eye hydro power is the headline for a Reuters UK story. Now this is certainly not a surprise - as all jurisdictions with significant hydro potential - are creating industrial economies around the resource.

Russia's energy giant Hydro OGK is making moves to attract industry by dangling the hydro-power carrot.

OGK senior executive Vyacheslav Sinyugin says metal producers are approaching them for possible joint ventures and investment.

Here are some of the direct quotes from Sinyugin:

"Major energy consumers are very important clients for hydroelectric companies the world over. Russia is no exception."

Sinyugin said large energy consumers such as metals producers were attracted by stable prices for long-term supply.

"What attracts these clients? First and foremost, price stability. The only factor influencing prices is tax payments, compared with fuel prices that can fluctuate widely.

For some reason these large energy consumers are looking everywhere but Newfoundland and Labrador. They must be absolutely certain that in order to use Labrador power - they will have to follow it to the jurisdiction we export it to. This is just not acceptable anymore. Our plans for the export of hydro-electric power must change - and industry must be sent a clear message.

If you want to use the power from the Lower Churchill - then you must set-up in Labrador.

Questions and Answers Hebron MOU

The only thing I want Danny Williams to do respecting the Hebron MOU is release it. Then I and any others interested can get a first-hand look at the document and do our own review.

As for major resource development - I call on Gerry Reid - Lorraine Michael - and Danny Williams - to introduce legislation that would require such MOU's to be released and debated in the House of Assembly. Otherwise you are all hypocrites.

Now that Danny won't release the MOU and Gerry has gotten into a list of questions - which I say the Premier will have a list of answers to during a televised election debate (won't be pretty) - I have some questions and answers of my own.

Why in the face of obvious public support for equity ownership (risks-benefits) accepted - do Gerry Reid and the Liberal Party continue to question the policy choice?

Here's one of Gerry's questions:

How long will it take for government to recover its up-front investment?

An estimated $600 million is a lot of money to put forward in up-front costs without any immediate return on investment. How long will it take to recover this investment before any real money flows into the province's coffers?

My answer is - yes it is a significant investment - with significant reward potential - nothing is guaranteed. At a time when oil was below $20 a barrel the feds purchased a piece of the Hibernia action and it has paid off exponentially. Now when oil sits at almost 4 times that value - we are wondering why we should take a piece of the action. Well that thinking gets us right back into the Upper Churchill. If we had taken some of the financial risk of that investment as Quebec did - we might be sitting here now with a few hundred million a year to work with. Labrador could have a highway of gold.

What is more puzzling is that the NDP and the PC's are willing to invest in equity and the Liberals are waffling on the whole idea. Get your arse pants off the picket fence and make solid policy choices.

Yes there are risks with equity - but you still buy a home right? Anything might happen.

With the size of our stake and the associated costs - one might imagine the "risk" the companies must be taking with the other 95%. We all know the oil companies do one thing better than any other industry - make profit. They too would have to speculate what the market would deliver - and they expect to make money from the Hebron development. We will also.

Let's look at another of Reid's questions:

How much money has been left on the table by compromising on the royalty regime and allowing a one percent payment until payout?

If the generic royalty regime with an increasing royalty rate from 1% to 7.5% until payout is applied, similar to White Rose, hundreds of millions of extra dollars will flow into the province=s coffers in the early years of production. What impact will your compromise have on the amount of money that could have flowed into provincial coffers in the first ten years of production?

Well I will address this two ways. First if we take more royalties on the back end of the deal instead of in the first ten years - we have essentially accomplished our equalization objective. Harper did not remove non-renewable resource revenues from the formula - so why scoop them all up now - only to lose equalization payments? No let's be more clever - bide our time - maybe the formula will change to reflect that policy in years to come - but if we are in the country let's max equalization as is done in Quebec.

Secondly if the profits of the equity are funneled into the new Energy Corporation and invested in much needed social and economic programs - we hide them from the equalization formula - thereby increasing our take again of the resources in our waters.

The Liberals had this advice in the past and ignored it. Too bad - they could have used the boost in public popularity and increased our benefits. Notwithstanding all of this in order to be a Norsk Hydro or a Hydro-Quebec we have to be players - and under past Liberal policy we were not. I only wish the Premier had done the same with wind - because in that you find Danny's weakness - inconsistency. That should have been further obvious when he did not release the MOU.

Over the next few days I will respond to Gerry's questions - and give you my take. Meanwhile Danny release the MOU. I have my own theory on where the oil companies made the gains and it's not with Hebron.

A + for the Hebron MOU - stay tuned...

As one Newfoundlander and Labradorian who stood squarely behind the Premier on his position with big oil - I am not disappointed. The benefits announced from the Memorandum of Understanding signed off by both sides are extremely beneficial to the people of our Province.

As I also believe strongly in equity positions on major resource developments - this 4.9% is something I support fully. That is exactly what Norway has done to make Norsk Hydro what it is today.

The equity position is great. 4.9%

The super royalty is great. 6.5%

The stated intent on local engineering - design - and construction work is great.

The Research and Development commitment is average.

$120 million over the life of the project.

The Education commitment is poor.

$1 million pre-sanction to College of North Atlantic and Memorial University of Newfoundland to enhance skills training.

On the choice of platform - Floating Production, Storage and Offloading (FPSO) - or Gravity Based Structure (GBS) - myself and the Premier may disagree but both would have exceptional benefits for the province - if the legal agreement delivers the objectives of the MOU.

Here's the difference for me:

The FPSO can be costed over more that one project and is significantly cheaper. The GBS is one project - one unit and currently is a permanent structure in the water.

This means cost recovery or time to royalties may be increased with the GBS. On the Premier's side of this however is the GBS is more labour intensive especially for building and construction trades. So one might say what we lose on the cost recovery/royalties we make up for through increased employment and perhaps materials supply.

I would and have argued that the FPSO technology is an area where facilities such as those found in Marystown benefit greatly from gaining expertise in building and maintaining them - in a fashion that additional work from FPSO's not involved in our oil patch would be achieved. In other words an industry developed on but not dependent on our resources.

Having said that it is believed that GBS is better for heavy oil projects.
Further the GBS is now being looked at for LNG applications. Perhaps we can develop an industry based on these structures.

Considering the engineering expertise employed by government and the oil consortium - I yield - to that decision.

All in all this is an advanced MOU which satisfies the Province's benefits list for the Hebron development.

Danny Williams was right to hold off until equity - super royalty - and employment/construction/engineering targets were achieved.

This MOU is a superior and an advanced position for a province in deals with oil companies/consortiums.

I do not believe the oil consortium gained anything tremendous in this MOU. I do believe the Province gained substantially in this particular project.

I do believe the additional benefits to some or all of the consortium partners will be found outside this deal in future ventures. We will get into that next week.

Now it's back to the Lower Churchill.