This time, it’s one of Statoil’s deep-water finds in the Flemish Pass Basin. Bay du Nord is the most promising of three prospects in the area, with an estimated reserve of between 300 million and 600 million barrels.
But Davis pulled away from his predecessor in one respect: he would not commit to demanding an equity stake for the province.
Extracting a small equity stake from oil developments was one of Williams’ most defining legacies, though the value of doing so was and is still hotly debated.
His standoff with Exxon Mobil and other oil companies over the Hebron development in 2006 was greeted with applause by some, and a barrelful of disdain by others. The moniker “Danny Chavez” stuck in the mainland media, as if the demand for a fraction of the pie was in any way comparable to Venezuela’s wholesale nationalization of the industry.
In the end, the companies came back with an offer of 4.9 per cent equity, lower than Williams’ starting point of 10 per cent. The difference meant the province did not hold veto power, but as John Gray pointed out in The Globe and Mail in January 2008, the premier said that was never the idea.
“Williams insists he was interested in an equity stake only because he wants an insider view of the industry, not because he wanted a veto,” Gray wrote. “So he agreed to 4.9 per cent equity, for which Newfoundland would pay $110 million. Nobody seemed particularly worried any longer about the idea of government equity that had been such a terrible precedent just weeks before.”
Nonetheless, Williams did insist that deals going forward would come with a 10 per cent stake.
Williams’ game of chicken with the oil companies was loudly condemned by conservative media at the time, but was retrospectively vaunted as a new way of doing business. Even then-Alberta premier Ed Stelmach felt pressured into re-evaluating that province’s royalty regime in the wake of the Hebron agreement.
The equity stake does not come without risks. It costs money, and leaves the province open to market downturns and liability costs.
But the fact that Davis is telegraphing a break from the Williams doctrine indicates that perhaps the heady days of equity stakes and super-royalties may be winding down.
The premier did say the Statoil deal will come with a new, set royalty regime. It doesn’t help, though, that we’re in election mode, and Davis is under extreme pressure to seal a deal before the fall.
Whatever the terms are, they will make for an interesting side-by-side comparison.