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.
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| 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.
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| 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?