In His Words: Natural Resources Minister Ed Byrne Speaks

This is the full text of an interview I did with Ed Byrne for a piece published in the recent Natural Resources Insert of Atlantic Business Magazine. Once again, while the medium of paper is bounded, cyberspace in unlimited so here is the full and unedited peice as originally submitted. Some of the stuff is a little bit dated now (ie the Hebron talks have since tanked) but you can get a sense of the government's thinking from one of the most senior ministers of this administration.

I've been commissioned to do a major piece for an upcoming issue so stay tuned. I'll post it here one it's been published in ABM.

=======================================

For more than a decade, successive Newfoundland and Labrador governments have promised an energy plan that will guide decisions on resource development and enable industrial development. Since last year, the Danny Williams government has been studying the issues and consulting stakeholders, developing the plan that will be unveiled later in 2006. However, neither government nor industry can wait in suspense; things are happening in Newfoundland and Labrador’s energy sector, and Natural Resources Minister Ed Byrne spoke with us about what his government has done to date, why, and what to expect over the coming months.

Overview

Some of the things we’ve been up to will be reflected in the long term in the energy plan. Part and parcel of that Energy Plan we’ll be dealing with the oil and gas industry - specifically on how we incent or entice more exploration.

I think there are two things we need in the province: We need the next development which we’re now into negotiations with respect to Hebron. And we need another discovery. We’re looking forward to the drilling in the Orphan Basin by Chevron and Exxon in the first quarter of 2007. And certainly in the Laurentian and sub-Laurentian Basin, the 3-D seismic work that Conoco Phillips finished up with this past year.

On top of that we are involved right now in coming to a conclusion on a natural gas royalty regime. That’s important for proponents to get a clear understanding of this government’s view on what we expect from the development of that resource, because that’s a lot closer today than it was two years ago.

On another front, from the point of view of the Premier and myself as minister, we’ve seen last week a consortium of companies. They are spending US$7 million of their own money to look at the feasibility of building another refinery of the province with an output of about 300,000 bopd. That’s critical. We believe we need to get into more secondary and tertiary processing.

So, generally speaking, we are excited about what’s occurring in offshore oil and gas.

Onshore in the west coast we are working to improve our understanding of the geology of the area and get that information out to potential exploration companies and proponents. If you look at the type of approach that was used in the past, the Department in concert with MUN did a piece of work on the Orphan Basin that really outlined the potential and size of the structure. It also led to the biggest landsale in our history in 2003 - $673 million.

What’s the status of the provincial Energy Plan?

We have three or four more public consultations that were postponed due to inclement weather. We should have that phase concluded by the middle or end of March. We’ll look forward to a 4 -7 month period after that [when] the plan will be tabled for the people of the province to have a look at.

Will a natural gas royalty regime be part of that?

That is certainly the plan - to have the gas royalty regime in place so that people like Conoco Phillips and others who are into the gas play right now... understand the environment they’re working in. So that (gas royalty regime) will be part of the plan, there’s no doubt about that.

What are the plans for Labrador Gas?

There are proponents who have had licenses there dating back 30 years. We know there are significant gas reserves there. What are the potential changes we need? To look at the way our regulatory system or legislation works or the changes we need to make that will put companies that have significant discovery licenses in a position where they must "use it or lose it" in a certain period of time.

That happens in other jurisdictions and we’re looking at that as we speak but no decision has been made on that.

What will happen to the gas? Pipelines? Gas transport ships? Or brought onshore?

All of that is under consideration in the Energy Plan. From our point of view, we want to add as much value to our resources as possible. The Premier has talked about the potential, down the road, of a secondary petrochemical industry. Bodies of work are being done on gas-to-wires, for example. All of this fits into the provincial Energy Plan.

But also it’s part of the initiative that the Premier is leading with his colleagues across the country through the Council of the Federation for a Pan-Canadian energy plan that will see how Newfoundland and Labrador can be hooked up to the national grid. That’s one of the things we want to accomplish as a public policy objective. We believe that should happen.

What role do you envision for NL Hydro?

Over the last year and a half we have moved NL Hydro and the Department of Natural Resources, particularly the Energy Division, to more of an integrated approach with each other, particularly on the bigger files and the big public policy issues.

We’ve moved Hydro towards an energy corporation that could potentially participate in the oil and gas play, both offshore and onshore.

We’ve invested heavily in Hydro. We have a new CEO who comes from the oil and gas industry (Ed Martin, formerly of PetroCan) and a new Vice-President of Business Development (Jim Keating, formerly of Norsk Hydro Canada Oil and Gas), also with a significant background in the oil and gas industry. Both Newfoundlanders and Labradorians.

At the same time we’ve supplied a significant amount of additional resources within the Department, Energy Division, from a human resource point of view, so we can compete when we are dealing or negotiating with (proponents) so our body of knowledge is strong.

Are you turning Hydro into an oil company?

No, we’ve talked about Hydro becoming more an energy corporation that moves beyond what it has traditionally done in building dams and burning oil.

Like doing seismic work and drilling in the offshore?

I’m not sure that’s where it’s going. But certainly if there’s a legitimate business opportunity that will provide a benefit to the province and revenues to Hydro, and thus to the province, we won’t turn anything down.

But all that is being assessed, and we are at the ground floor of that right now

What is the province’s plan for Hebron?

We’ve received a proposal from the proponents, and we are in the position where we will be responding to that. But negotiations are at a critical stage right now, and we are hoping to find an arrangement that works for everybody.

Do you see Hydro taking an equity stake in Hebron?

That’s a public policy position we’ve laid down that as a province - we’d like to have some equity stake in the emerging oil and gas industry - not unlike what’s happened in Norway, not unlike what’s happened in other jurisdictions in the world. Those are some of the things up for discussion right now.

The government’s position seems to have concentrated on refineries, equity stakes and royalties. It sounds like local benefits are not the same priority as in other projects.

I wouldn’t say necessary say that. Local benefits are extremely important.

Do you want the GBS to be built in the province?

Absolutely. What’s really interesting is that the media has captured that we’ve moved in a direction where no other government has moved in terms of equity share and potentially higher royalties based on where the price of where the price of oil is now.

That should in no way diminish, or lead anyone to conclude that we’ve diminished, the importance of industrial local benefits because that is paramount from our point of view.

Don’t royalties already represent our equity stake?

From our point of view, equity is important from this perspective: it puts us at the table and helps us develop an intellectual capacity that doesn’t necessarily exist within the provincial structure right now. It puts in the seat as a legitimate bona fide partner in developments. It helps us gain further insight, expertise and knowledge into the oil and gas industry.

It has worked successfully as a model in other jurisdictions and there’s no reason to think why it wouldn’t here. Other jurisdictions are both equity partners and royalty partners.

So while there is some legitimacy in saying that equity is represented by royalty, there are other benefits associated with being an equity partner.

That sounds like the original justification for the development of crown-owned PetroCan - as government’s window on the oil industry.

We have no intention of setting up a corporation that’s going to go out and be a proponent of a project at this stage. What we are saying is that as a province and a resource holder and owner, that we want to have an equity stake in projects as they go forward.

How generic is the generic royalty regime if it changes for each project? Is it really generic at all?

Well I think it is. We happen to live in a time when prices per barrel of oil are continuing to rise. Some analysts are predicting it will rise even higher. From our point of view it should not handcuff us in any way shape or form from taking advantage of the environment today.

The regime was developed in 1996. We are now ten years later. Where the prices per barrel of oil then were US$22-23, now they’ve peaked at US$62-63. So we need to look at regimes that reflect the realities of the time we’re living in and that help us take advantage of those realities.

The Steele committee report has presented recommendations for changes to the CNLOPB and has suggested Max Ruelokke as the new Chair. Will that name stand or will the process start over again?

There were a couple of recommendations that the (Steele) panel made. I guess that the process was held up with the federal election. Now there’s a new [federal] minister of Natural Resources who will be hopefully bringing that to a conclusion in the very near future. But it was held up for most of January and part of February simply because of the federal election. Obviously a political discussion needs to take place on that, based on the recommendations the panel made.

We’ll be doing that at the earliest opportunity.

Is the government prepared to accept those recommendations?

No, I never said that. I just can’t get into speaking about it at this point, simply because we haven’t had the opportunity with our federal colleagues to discuss those recommendations. As soon as we do we will be making a decision, hopefully together, and then moving on.

Is this government friendly to business and welcoming to new investors? You don’t think any of these conflicts between levels of government and with industry might frighten them off?

We are dealing with huge multinationals that operate in every jurisdiction on the planet under a variety of different structures and royalty regimes and realities. So they understand the world, as we do, and our view is that we want to make sure that the place is competitive otherwise, if it were not, you wouldn’t see any activity. So there’s a balance.

But at the same time we feel we have an opportunity, because this industry is going to go on for some time, to add greater value to it. And in order to do that we need to be strategic about it and set out certain principles on which we wish to take industry in.

And there you have it: Newfoundland and Labrador’s oil and gas industry is here to stay, and government will be working hard to increase the province’s involvement in its value chain. From the Minister of Natural Resources - in his own words.