Monday, 28 September 2015

PREMIER DAVIS: NOW IS NOT THE “RIGHT TIME”

Guest Post Written By "AGENT 13"

In June 2015, Premier Davis surprised most of the attendees at the NOIA Conference held in St. John’s. How? By stating that the provincial government and STATOIL may be only weeks away from finalizing the “term sheet” on the Bay du Nord field, a massive oil discovery located on the Flemish Pass.

At that time, the Premier indicated that the provincial government was on a path of negotiations to have the “term sheet” finalized, but that he would not commit to having it completed before the general election.

Then, last week Deputy Premier Steve Kent was asked about the status of the “term sheet” negotiations.  He stated his understanding it was very close and we would likely be hearing from the Minister of Natural Resources and the Premier in the coming weeks.

The question that must be asked is this: “Which party to the negotiations would benefit the most by finalizing the “term sheet” now, so close to a general election?”

It is inconceivable that STATOIL would proceed with this development right away, given current low oil prices and the volatile world market for oil. But notwithstanding the uncertainties caused by the price issue, I suggest it is impossible for the province to “get the right deal” right now, anyway.

It is obvious that the PC Government’s back is to the wall, a fact confirmed by successive polls. It is tough to imagine this weakness would not be used by STATOIL in the negotiations.

Recently, we heard quotes from STATOIL to the effect that the BAY du Nord field is the most remote oil field in the world, a not so subtle telegraph that the Company is concerned about costs and risk, and that it expects to be compensated accordingly.

Comments like those are very concerning as they give the public little insight into what must be one-sided negotiations.

Back in November of 2013, the province announced a revised Benefits Agreement with Husky to develop the West White Rose Project, using a concrete structure. The province indicated that, compared with a floating system, a concrete structure and graving dock with gates, at Placentia, would also generate three billion dollars in additional revenues to the provincial government.

Following the collapse in the price of oil, earlier this year, Husky put the project on hold, stating they are reconsidering their options, raising the prospect they may return to a subsea development concept. That approach would greatly diminish the amount of the oil recovered and thus the amount of revenues the province would receive during the life of the field. In addition, fabrication and construction benefits would be lost.

In fact, recently, Husky did not even show a presence at the Placentia Industrial Conference, highlighting their lack of interest in the project.

If the Husky project is on hold, why do we think STATOIL would proceed with the development of Bay du Nord?

Who is in charge of these negotiations, anyway, and who will decide whether or not we have the “right deal”?

We have Premier Davis, Minister of Natural Resources Daley, and Deputy Premier Steven Kent. What track record do they have in finalizing the “great deal” for the province? 

Naturally, the elected officials are supported by senior civil servants. Aren’t many of them likely to lose their jobs after the provincial election?  Should we not be concerned several of them have already quietly worked out a good parachute, for themselves, as they prepare for work with industry.

Where, one might ask, is credibility to be found in these negotiations?

How will the public be able to distinguish between a commitment to the future of the province and a deal that merely assists the Government’s re-election strategy?

This “term sheet” will have a long term, even lasting effect on the finances of the province; perhaps longer than Muskrat Falls.

And on the subject of credibility, what part of Deputy Premier Steve Kent’s August 21, 2014 remarks should we take to the bank, as he sought the leadership of the PC Party?  Said the P.C. Leadership candidate: “as Premier, I commit to you that government oversight of NALCOR will ask the hard questions, get answers to you, and bring this project in on time and on budget.”

I ask the Deputy Premier, is he the only one in the province that now believes this project is on time and on budget? And where is the true oversight of NALCOR?

Is the Government applying the same level of diligence to negotiations with STATOIL?

Where is our silent opposition in Newfoundland and Labrador? Our next premier will likely be Dwight Ball and, to date, he has been silent on this as he has been on other critical issues.

As incoming Premier, I suggest he should state publicly, and privately, to STATOIL that he will not honour any Agreement negotiated in the twilight hours of this Administration; that he will have the “term sheet” nullified, if necessary by the legislature, if it does not meet all the requirements of a new Liberal Administration.

The absence of statements like “the oil can stay in the ground until the people of Newfoundland and Labrador get the agreement they deserve”, gives one an eerie feeling any “term sheet” negotiated will not be about us.

I suggest that this is not the “right time” to finalize any such agreement.

Negotiations that involve such a massive development, considering the revenues, jobs, and economic activity it is expected to create, should not be entirely conducted in secrecy, anyway. And, most certainly, it should not be part of an election announcement.        
 ___________________________________________________

Editor's Note: 
Most readers will know "Agent 13" as one of the good guys, a support for "Agent 86" 
(Max) on the 70s TV Series, “Get Smart”.  Field reconnaissance missions were his 
specialty, hiding in unlikely places such as mailboxes, lockers, trash cans, and fire 
hydrants; Agent 13 always picked up good information.

Today’s contributor is an active professional. Having adopted Agent 13 as his 
pseudonym, he has chosen only to reveal his humourous side. On public policy 
matters, as you have just discovered, he is very serious. 

2 comments:

  1. Agent 13 - The province is not near finalising the term sheet with Statoil. The resevoir data is not known, the costs are not known, the concept has not been selected. This "term sheet" is merely the province once again changing the royalty regime.

    Part of the issue with international investment in this province is uncertainty. The ever changing set of rules, and the project by project negotiation introduces uncertainty to oil companies. Oil companies understand royalties, and local benefits. The problem in Newfoundland and Labrador is that it is too political, and too uncertain. Define a generic regime and move on!

    The other issue is that as our population ages we should be looking to transfer some of the local benefit requirements for royalties. The local benefits should be in technology, and not the unskilled labour.

    Finally the government needs to address the Regulator. This is another major uncertainty facing oil companies. The CNLOPB is a national embarrassment. How many times have I heard in the past year, from very reputable international contacts that they have never seen a regulator like the CNLOPB. Their senior people have limited practical experience, their regulations are outdated, and their new regulations are ridiculous. They impose streams of useless paperwork, and add limited real value.

    In a very challenging climate right now in the oil industry, our greatest risk are completely within our control. The head of the CNLOPB needs to be replaced by a international expert, who is selected through an international search. Likewise the Director of Safety at the CNLOPB. We need people with experience.

    There are many places in the world oil comanies can invest right now. They want to reduce risk. We cant control the ice, the waves, or the wind. We can put competent people on the CNLOPB, and can define the rules for doing business here.

    Really its simple... our politically charged environment, and culture of nepotism, really limits us being able to implement it.

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    Replies
    1. It is unfortunate that this is an unknown author. Some potentially good points . But we need some facts to support the statements made and a person 's name provided.

      I think it definitely would be a good idea to review the composition of the Board and its employees. A Federal Provincial expert review team with strict time limits and clear mandate would seem appropriate.

      There is no question that any deal with Staoil should wait until an the election is completed.

      Brian Peckford

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