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| Last updated at 9:31 AM on 26/08/08 |
Hello Hebron … 
Ovation greets deal on province’s fourth offshore oil project
BY MOIRA BAIRD
Transcontinental Media
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| HANDSHAKES ALL AROUND – The main participants in the signing of the Hebron offshore oil field development agreement Wednesday included (from left) Natural Resources Minister Kathy Dunderdale, Premier Danny Williams and Mark Nelson, president of Chevron Canada – project operator. Rhonda Hayward/Telegram Photo |
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There wasn’t a sad face in the room as Premier Danny Williams outlined the final, multibillion-dollar Hebron deal signed Wednesday.
Just a few tired expressions on the faces of Hebron negotiators in a downtown St. John’s hotel ballroom packed with beaming offshore oil industry contractors, suppliers and employees.
As he signed the deal, Mr. Williams was flanked by executives from the five Hebron oil companies – Chevron, ExxonMobil, Petro-Canada, StatoilHydro and the newest partner, the province’s Energy Corp., which is a subsidiary of Newfoundland and Labrador Hydro.
Mr. Williams declared “Ladies and gentlemen, we’re in the oil business.”
He described Hebron as the province’s most important offshore oil development to date.
“With Hebron, we are launching a new era of energy projects in which we, the people of Newfoundland and Labrador, are stepping forward and proudly taking our place as full partners and active participants in energy resource developments.”
The premier received a standing ovation following his 20-minute speech.
Hebron is expected to pump an estimated $20 billion into provincial coffers over the 20-25-year life of the Hebron project. That’s based on this year’s budget predictions of $87-per-barrel oil and an inflation rate of two per cent.
The earliest first oil could flow from Hebron is sometime between 2016 and 2018.
Chevron Canada Ltd. says the cost of developing the oilfield ranges between $5 and $7 billion, and company president Mark Nelson expected to “solidify that estimate” over the next 12-18 months.
“We have quite a bit of work to be done to finalize numbers, given the early stages that we’re in today.”
Chevron’s next step is putting together a project team.
Mr. Nelson said “The first thing we have to do is get the core team back ... my hope would be that sometime into the early part of next year we'll have the full complement of resources.”
Then, comes the front-end engineering work to design the Hebron production platform – a smaller, Hibernia-style gravity base structure (GBS) to be built at Bull Arm.
“Much of the construction will likely start in the 2013-2014 range, so there’s a lot of engineering work to be done.”
Along with a 4.9 per cent equity stake in Hebron, to be managed by a subsidiary of the Energy Corp., the province gets a 6.5 per cent super-royalty kicking in when world crude prices exceed US$50 per barrel. The province will also pay its share of the oilfield’s development costs.
The Bull Arm site – where the Hebron GBS is destined to be built – will become another subsidiary of the Energy Corp. The partners will lease the site for six years at a rate of two per cent of the total value of the project work done at Bull Arm.
Detailed engineering of the GBS, its mechanical outfitting and the topsides to be built in local yards will also be done in the province.
There were also concessions.
Not all the topsides modules are guaranteed to be built locally.
The utilities/process module – which houses production equipment – will be built elsewhere.
As well, three topsides modules – drilling support, drilling derrick and accommodations – will only be built in the province if there’s enough skilled labour and capacity in local fabrication yards to carry out the work.
Mr. Williams told a Wednesday morning briefing with reporters “You can’t work above 100 per cent capacity. There’s a significant amount of work here – as much as we can handle and more.
“We’ve got the lead time to build the capacity .... It gives lots of lead-time for people to come back and work in the province. So, we can gear up and we'll take whatever we can handle.”
Ed Martin, president and CEO of Hydro, said the deal strikes a balance.
“We’ve focused on ... the 8-10 components that really fit our long-term strategy, and can be built here in our yards and can be moved around effectively.
“We think we’ve structured this in a fashion ... to get as much work and experience as we can in our available yards and infrastructure, as well as protecting the economics of the project.”
Neither Mr. Williams nor Mr. Martin revealed what triggers the decision to build the three topsides modules outside the province – calling it commercially sensitive information.
Mr. Williams indicated “If we’re going to be full partners in the industry, then you have to behave like partners.”
Mr. Martin said the Hebron deal contains arbitration provisions to settle any disputes that may arise over what work leaves the province.
“There’s remedies to cover that off.”
Mr. Nelson noted markets are tight all over the world for the skilled labour and specialty resources needed to build an oil production platform.
“This is not an unusual challenge for the industry, but when we have a partner like the province here we’re comfortable we can work this out.”
He suggested the Hebron deal reinforces the province’s ability to work with the oil and gas industry.
“Getting formal agreements done is one step in a long journey.
“We’ll continue our discussions to make sure that Hebron becomes a reality, but this is a sign that the industry and the province can do business together.”
St. John’s Telegram
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26/08/08
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