Ditched, along with the champagne corks, was even the tiniest bit of perspective on the flawed deal — even if, admittedly, it was an important one.
There is no question that the failure of OPEC to keep prices as high as Ed Martin had decreed, the end of the Vale and Hebron projects, and the consequent downturn in the housing sector, have everyone longing for the good “old” days. But economic challenges are not a time for governments to lose their minds, or embrace a future with a duration running only until the next election.
Siobhan Coady seemed within a nudge of shouting “we got it”, her restraint tethered only by the star of Galway who long ago appropriated the phrase with dubious claim.
Had they been forthright and said to the public, “we negotiated hard… we would like to have gotten more… but the Province needed this project,” we might have appreciated the honesty — if all cards had been laid on the table. That’s not what occurred. Instead, they gave the public a false story.
Husky Energy, on the other hand, had a good news story to give their shareholders.
Let’s take a look.
On the same day that the company announced the White Rose Extension, the public was informed of a “new” oil find close to the White Rose field; it might even be a new field. Given the thickness of the “pay zone” — 100+ metres — it certainly has quite significant potential.
|Husky Energy Investor Day Presentation — May 2017|
Remember that the Company was faced with declining reserves at White Rose. Without the “Extension”, the substantially drained reservoir would soon be uneconomic.
It is true that the capital cost of the project met headwinds from an uncertain oil market. The new ‘find’ injects the possibility of a new field, at worse a tie-back opportunity (and better scale economies). Either way, a savvy Government might have concluded that this is not a Company about to run away from the Newfoundland offshore.
For the Premier and the Minister of Natural Resources, the new find should have constituted leverage to get more work from Husky — which should have been part of the original deal.
Too much work is going to South Korea or to the U.S. Gulf States, as it is.
The Government's vision could not see beyond getting the project going now. Like most third world governments, they couldn’t shake short-termism.
There is another reason why the Husky deal needs context, even while we will forego asking why a June 2013 deal was still “current” for Husky — but not for the Government?
Some might remember — though evidently not the NL Trades Council — that the 2013 deal was negotiated at a time when the province’s economy was booming, the skilled labour force fully committed to other projects. Bull Arm was occupied — giving rise to Argentia as a new offshore fabrication centre.
Siobhan Coady told the public that the topsides arrangement she announced last week was agreed to in 2013. But the Minister wasn’t telling the truth.
It was Husky — not the Government — who requested that the deal be re-opened. The Company wanted out of their ‘legacy’ project to Argentia: the retractable gates. They also wanted to perform less topsides work than that contained in the 2013 deal.
Husky’s demand to re-open the Contract was the Government’s opportunity to say, “We want changes, too. We want some of what former Premier Tom Marshall gave away.”
Indeed, the Minister could have said to the Company, “Unlike 2013, the Bull Arm site is empty. Perhaps you might want to fabricate all — or most — of the ‘topsides’ at Bull Arm and Marystown.”
Husky would have turned tail at that prospect in a New York minute!
Premier Ball boasts a 72% increase in the person-hours of work over that contained in the original deal. But that wasn’t something he won. The larger GPS is an improvement Husky wanted.
And it wasn’t sufficient reason to forgo a major benefit of the 2013 Agreement — the retractable gates, which Nalcor failed to install at Bull Arm — and have Exxon Mobil pay for it.
Now, at Argentia, the entrance to the Graving Dock, where the Concrete Gravity Structure (CGS) will be built, will be just a hole in the ground — filled with water — like any other Bay in NL.
|Graving Dock Site Location (Photos Credit: Husky Energy)|
The gates would have made this third world solution unnecessary. They would have made Argentia a highly attractive deep water construction site. They would have made it feasible for far smaller projects when Husky exits.
The compradors had those gates — worth $120 million installed — in their sights for some months now, ready at every opportunity to convince the politicians, and the other short-term thinkers, that they were easily worth sacrificing to help along Husky’s view of project economics.
The sad part is, when Husky leaves Argentia, we will have not just one, but two poorly developed facilities — capable only of doing future work that some other desperate Government can negotiate using the advantage of proximity to the resource and the Atlantic Accord.
Float Out of CGS From Graving Dock (Photo Credit: Husky Energy)
Notice the absence of retractable gates.
The Government’s Press Release makes no mention of the dropped gates.
Instead they announced “Contribution of $60 million to an Innovation and Business Development Fund… for strategic investments to grow industry capacity” paid (ostensibly) by Husky of over a period of ten years.
The actual Agreement read: “… upon payment, these contribution amounts shall qualify as and be classified as eligible capital costs for the WHP Proponents, for the purpose of calculating royalty payable under the Royalty Regulations, 2003.”
In other words, much of the money constitutes a “loan” from Husky. It will be paid back to the Company as “eligible capital costs” from royalty payments. Husky saves $120 million by dropping the gates, the Government gets credit for having negotiated the $60 million development fund, and the NL public gets to pay it back.
Are you clapping now?
There are other examples of the same duplicity.
In enumerating the benefits from the Extension Agreement, the Government Press Release listed “Engineering and fabrication of the accommodation module in the province”.
But they didn’t tell the public that Husky was allowed to take substantial work out of that module, which the 2013 Agreement contained. The amended agreement states:
In addition, the following term shall have the following meaning:
“Facilities Service Block” means the two floor module below the accommodation modules, containing the central control room, local electrical and instrument rooms, and ancillary systems.
To quote one professional engineer familiar with the deal: “Not just the gates and foundations are gone — $120 million and a future for the Argentia service base. We allowed Husky to dumb down the topsides living accommodation module by putting the control rooms and other Mechanical & Electrical equipment in the GBS, taking the work out of NL.”
The Minister had the nerve to suggest that we have never fabricated this type of topsides before. She seems not to know that every GBS or CBS is a new design. None of them come off the shelf.
Besides, if we adopt her attitude, no fabrication would ever occur in NL.
But interestingly, while the Minister doesn’t know seem to know much about anything, she is willing to let Husky reduce the amount of engineering design work to be performed in the Province too.
Ball did ‘win’ one thing.
The deal states:
“This Second Amending Agreement shall terminate and be of no force and effect if (a) Project Sanction of the Wellhead Platform Project does not occur within forty five (45) days of the date of execution of this Second Amending Agreement…”
Husky could have whatever they wanted, as long as they sanctioned the project right away.
A desperate Government. Dumb, too.
But you have to ask: where is the media?
How is it that almost none of this got reported?