Editorialist, heal thyself

Today's column from Brian Jones is a peculiar one. For the first 7/8's or so, he excoriates the Liberal opposition, lambasting them not reforming their give-away mentality, most notably demonstrated through Voisey's Bay.

Oddly, he can't seem to provide any real evidence for that "giveaway" other than repeating the same old hoary Williams government unexamined claim that it is one.

He also conveniently ignores that all the millions upon millions of dollars flowing into the provincial treasury every year, the same millions which allow this government the financial cushion to turn their back on new projects, were negotiated under Liberal governments.

Are the Liberal taking the political hit in this new "No Giveaways" public environment? They certainly are. But the problem with this "No Giveaways" public environment is that it is unsustainable for the province.

First, the position is predicated on a negative. What government claims as their guiding principle is the equivalent of "We won't do stupid things." And that's great, as fine as it goes. Not doing stupid things is a fine and laudable goal. No government wants to do stupid things and no government comes into office planning to do stupid things (with rare exceptions like the Khmer Rouge or the Ontario NDP).

Second, there is only one way to not do stupid things and that's to do nothing at all. As long as official government policy is to fight fight fight no matter what, then there really is no chance of committing to anything stupid.

There is also no chance of committing to anything smart.

Third, as long as government is rewarded for the fight fight fight and enough people of the province feel no cost to that fight, then government will keep it up.

Finally, fighting is easy because it involves making no choices. While fighting makes you popular, making deals means give and take and choosing among what's the most important. Hibernia made the choice of balancing infrastructure development (Bull Arm) and jobs (gravity base) and put off royalties; Terra Nova chose higher and more immediate royalties and lower local job activity.

Voisey's Bay also entailed a delicate balance of choices.

It's too easy to assail Hibernia for low royalties while ignoring the development of world-class infrastructure and the thousands of jobs it created just as it's too easy to lambaste Terra Nova for the engineering jobs that never came while ignoring the steady flow of funds into the provincial treasury.

It's easy and it's cheap. And it happens all the time from people who should know better.

Fighting for everything at once means never having to choose. And making choices and balancing off rewards means spending political capital; and this government is a miserly one.

Mr. Jones ends his editorial with these lines:

The premier has achieved almost rock-star status, even though he's only half right in the ongoing Battle of the Atlantic Accord. Like too many others, the Liberals opted to become Williams' cheerleaders on that issue, instead of challenging him to produce some hard facts and numbers to support his case. They seem to be afraid to challenge the accord hysteria and Dannymania that has gripped the province.

Out of touch, and gutless to boot - it doesn't sound like a winning platform.

Of course Mr. Jones has already acted as a Williams cheerleader in virtually every paragraph in his piece up to that point. At no point does he ask any hard questions preferring instead to swallow the government bait whole.

And then he criticizes the opposition for doing the same and for refraining from issuing the challenge that Mr. Jones himself cannot issue?

The point missed is that as long as the public environment leans towards taking government at it's word without critical analysis and generating and reinforcing myths and revisionist history thereby creating an attitude which encourages a socially enforced consensus (speaking with one voice), opposition comes at a cost.

It's a political cost and it's a personal cost. After a while, even the strongest get fed up with speaking out with only bricks to the head for acknowledgement.

That doesn't mean that there should be no legitimate opposition and responsible alternative point of view. It just means that the province is not ready to listen to one yet.

Hebron will get done: premier

It's worth checking out this story in the Telegram today. In it, Premier Williams works to dispel the view that Hebron will come in time and things are OK in the meantime. As an exercise in damage control, it's pretty superficial and falls back on hoary cliches, bombast and semi-facts to ward off public discussions he's keen on tamping down.

Let's look at what he says.

First, as I mentioned yesterday, government is quick to be vague about mysterious "ongoing talks". Formal talks closed a year ago amidst much public acrimony on the province's side and the partners have since been disinclined to carry on under the last set of conditions laid down by government. The Telegram reports:

Williams said Tuesday officials with his government and Newfoundland and Labrador Hydro are in discussions with partners in the project "all the time."

He wouldn't go into details of those discussions.

Interestingly, Premier Williams does not specifically claim that the discussions with the partners have anything to do with Hebron although he does try to leave that impression. In fact, both government and the Hebron partners (who are also the Hibernia and Terra Nova partners: ExxonMobile, PetroCan, Chevron et al) talk all the time over operational issues, Hibernia South and other non-Hebron projects without ever talking about Hebron itself.

So are there talks ongoing all the time about Hebron as the Premier wants people to believe?

The last time government tossed up these kind of vacuous and bland reassurances, media follow-up with the partners revealed that as far as they were concerned there were no kinds of discussions at all; while they were ready to reopen talks, they were very firm that there had been no talks on Hebron going forward since the break-down.

It would be interesting now to go back to the partners, present them with the Premier's quotes and and ask them about the status of Hebron negotiations. As long as the Premier refuses to go into details, he can be as vague and misleading as he wants and that's exactly where his interest lie.

Then there is William's hollow statement that the companies will come back and he notes:

"If we're naive enough to think they're going to walk away from us for 15 to 20 years, then I think we're making a mistake," Williams said.

It may be trite to say that when he calls that statement naive, he's being naive himself but it would still be true. The companies will stay around and maximize their investment in Hibernia South (currently held hostage by government) and White Rose because they can expand that production with little capital or engineering outlay.

But when it comes to a whole new project, especially one at the cutting edge of technology and the marginal end of the economic spectrum (Hebron only makes sense if prices stay very high), there are lots of projects in the world which involve lower capital outlay, more government predictability and higher returns.

In fact, there are more such projects in the world than the major oil companies have people and money to develop them. With 15-20 years considered near-term in the oil majors planning process, obstinance has costs to this province both real and opportunity.

On the matter of the lost jobs and lost opportunities, Premier Williams is caught in a bind. On one side, Hebron represents literally thousands of person-years of work all over the province and $10-12 billion in government revenues. Yet Williams tries to minimize the effects of not having the project through remarks like "St. John's can take the hit" or, as reported yesterday:

"If there doesn't happen to be a job for someone in St. John's in an engineering firm, that's unfortunate. I'm not happy with that. But there has to be some price paid in the short term," he said.

So how unhappy is he with that state of affairs? Clearly not sufficiently unhappy to actually open real talks and do anything about it.

The reality is that we are not talking about one engineer in St. John's, we are talking about hundreds of engineers and support staff in St. John's alone. We are talking about thousands of fabricators in Marytown and Bull Arm, a region that really needs the work. We are talking about uncounted people across the province suddenly getting busy with real and well-paying jobs here in this province instead of out there in Alberta*.

While Premier Williams cavalierly dismisses that one job in St. John's, he pointedly ignores the fact that the oil and oil-related business and associated jobs in the province is province-wide. The Hibernia platform alone, for example, employs people from 90 different communities across the province.

But the most disturbing thing about this story is how Premier Williams casually squanders the one-time limited resource that is oil revenues while proudly using government spending as a substitute for real economic development. Again, as reported in the Telegram:

He said those surpluses are being reinvested into the province's infrastructure.

While things may have slowed in the oil and gas industry, Williams said, paving companies, construction companies and education and health boards are benefitting.

"There's a lot of work going on around the province," he said.

More roads to maintain, more teachers and doctors on salary, and overall more money spent on just maintaining government operations by an administration who can boast a larger public service, in absolute and relative terms, today than when it took office.

At the same time the private sector is in retreat across the province with the latest reports showing that Newfoundland and Labrador will see a decline in private sector capital spending intention and an overall GDP dipping to the lowest in Canada in 2008.

It's the long term spending by private capital that will make the difference in ensuring that this province is a going concern over relating it to the status of a bedroom suburb of Fort McMurray.

And there is still no resource money allocated on an ongoing basis to lowering the provincial debt.

In this interview, Premier Williams is pandering to the 70% who continue to approve of his actions as long as they believe they are paying no cost for them. For the foreseeable future and into the next election, facts will play no role in this debate because of the way this province has divided into two camps.

There are those who don't know or care about the economic impact of this government's actions as long as they can bob along proudly in the glorious wake of Premier Williams' latest jihad.

And then there's those in the real world who have businesses to maintain, homes to keep up and children to feed. And those are the ones leaving for Alberta so they won't be voting anyway.

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*And make no mistake - there is an exodus of trained and capable workers out of this province because there is no substantial work for them to do. Empty palliative government programs dealing with a skilled labour shortage cannot place of actually producing jobs to attract and keep those workers. You can put this program in the same bin as the provincial immigration strategy which will fail for the same reason government is ignoring: It's the economy, stupid.

Pre-Development Projects: Hibernia South

This is the 3rd of 4 stories on energy projects to come recently published in the Natural Resources Magazine supplement to Atlantic Business Magazine.

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On January 17, the Newfoundland and Labrador government issued a letter to the Canada Newfoundland Offshore Petroleum Board (CNLOPB) rejecting an application by partners (HMDC – Hibernia Management and Development Company) in the huge Hibernia offshore project to expand the development to a southern pool, saying not too little information was provided to assess the proposed development plan.

Minister of Natural Resources Kathy Dunderdale said the application didn't properly outline items such as why HMDC isn’t planning to upgrade its existing offshore platform to handle production from Hibernia South. The application also neglected to include an outline of new benefits for the province, such as work for the province's offshore industry.

In a letter to the CNLOPB, Dunderdale stated that until the province received the information on how the oil companies plan to resolve concerns about processing capability at the platform and an explanation about why there was no amendment to the benefits plan for the project, the application could not go forward. Dunderdale invited the companies to provide answers to several questions, so development could proceed.

The application was conditionally approved by the CNLOPB in December 2006, on the understanding that more information would be forthcoming as the project moved forward.

All this was in response to the May 2006 application by HMDC to tap into an estimated 223 million barrels of reserves, potentially much more, in an area called Hibernia South that had not been part of the original Hibernia development plan.

The new development is important to Hibernia's owners because production appears to have peaked. In 2004 output reached more than 200,000 barrels a day. In 2006 it averaged about 180,000 barrels. In December 2006 Petro-Canada, a Hibernia partner company, said the field's average daily production had dropped to 150,000 barrels, due to natural depletion of the field.

The development plan for Hibernia South would have accessed first oil from the extension in 2008, lengthening Hibernia's production life by some ten years (to 2030 from 2020). When Hibernia commenced production in 1997, recoverable oil was estimated at 520 million barrels. That figure is now 1.2 billion barrels, a jump due in part to Hibernia South.

Because this production would come after project pay-out, this oil would be subject to the higher 30% royalty and would represent, by some estimates, some additional $6 billion to the provincial treasury.

That additional $600 million or so per year would come to the province at an opportune time. Unless Hebron comes back on track, government revenues from all the existing projects are projected to go into a steep decline. The provincial government’s dependence on offshore oil revenues was recently demonstrated when the province tipped from surplus to deficit because of the longer than scheduled Terra Nova maintenance shutdown.

This public veto of a CNLOPB decision by the provincial government is unprecedented. Up to now, government and operators negotiated benefits and development plans directly with each other with little, if any, involvement of the CNLOPB.

Only once that process was completed would the operators then apply to the CNLOPB, expecting eventual approval from government in the knowledge that government had already signed off on the contentious issues.

Some observers have noted that if government wanted more information from the companies, the best opportunity would have been during direct negotiations, long before any application to the CNLOPB as was done in the past. The fact that this iteration of the Hibernia South development application was so publicly rejected suggests that the established process has broken down.

Complicating the public environment is the already difficult and acrimonious relationship between government and the Hebron Ben-Nevis consortium. While not identical in membership, the Hebron consortium has several major players in common with the Hibernia consortium - including Chevron Canada, Petro-Canada, Norsk Hydro and most notably ExxonMobil.

The latter was publicly accused by Premier Williams of being the main stumbling block in the Hebron negotiations.

On Hibernia South, the Government of Newfoundland and Labrador has taken a different and more reasoned public tone than on Hebron. Williams himself has mostly stayed away from media microphones on this file, relinquishing the point position to Minister Dunderdale. Government has taken pains to assure both the public and oil companies that there is no connection between this veto of the Hibernia South application and the previous collapse of Hebron negotiations.

Others are not so sure. As early as mid-December, some media were reporting industry sources as saying the Williams government may be linking its approval of Hibernia South to getting Hebron back on the negotiating table.

At last report, HMDC has met with Minister Dunderdale and agreed to re-file its application with the additional requested information sometime in the next few months.