NL holds firm, secures $150M in Hebron dispute
October 11, 2012
The Government of Newfoundland and Labrador will collect $150 million to resolve a dispute concerning in-province fabrication of a third module for the Hebron Project.
Today, the Honourable Kathy Dunderdale, Premier of Newfoundland and Labrador, was joined by the Honourable Jerome Kennedy, Minister of Natural Resources, and the Honourable Tom Marshall, Minister of Finance, to make the announcement.
“We negotiated the Hebron Benefits agreement to maximize benefits for the people of the province, and we have strongly advocated the importance of Newfoundlanders and Labradorians being the main benefactors with respect to our natural resources,” said Premier Dunderdale. “It is important that commitments are honoured, and we must ensure we are respected and treated fairly. We were firm with our position, and presented an argument that will result in compensation of $150 million which compares favourably to the value of fabrication of the third module in the province. Compensation will be strategically invested for the benefit of all Newfoundlanders and Labradorians.”
The Hebron oil field contains in excess of 704 million barrels of recoverable resources, based on estimates of the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB). Current analysis indicates the total value of Hebron to the province to be in excess of $20 billion. Peak employment is estimated at 3,500 persons, and current estimates are that approximately 11 million person-hours of employment will occur in the province exceeding expectations at the signing of the Benefits Agreement due to the overall growth of the project. As a result of 20 to 30 per cent growth in topside weight, additional employment is anticipated with in-province Hebron work even with the third module fabricated out of province.
The provisions in the Hebron Benefits Agreement provided opportunity to address disputes related to in-province fabrication. Following mediation, the Provincial Government and project proponents ExxonMobil, Chevron Canada Limited, Statoil Canada Limited, Suncor Energy Inc., and Nalcor Energy – Oil and Gas Inc. settled on compensation.
“The intent of the Hebron Benefits Agreement was to ensure that maximum benefits stayed in the province, and we are pleased that the process has worked in our favour,” said the Minister Kennedy. “We had a strong case, but arbitration has risk. The settlement is a good, responsible one, and is a direct result of having a benefits agreement in place that dealt with disputes related to fabrication capacity.”
The payment will be made to the province on June 30, 2016, as agreed to by the project proponents and is the most probable future date at which time any replacement work awarded through arbitration would reasonably commence. Like module fabrication costs, the payment will be treated as a capital cost to the project for the purposes of royalty calculation.
Two of the three modules related to Hebron will be built in Newfoundland and Labrador. These include the Drilling Support Module which has been identified for fabrication in Marystown, and the Accommodations Module which will be fabricated at Bull Arm. The third module which was under dispute was the Drilling Equipment Set which will now be fabricated out of province.
Strategic investments will be made in the province’s education and healthcare systems for the benefit of Newfoundlanders and Labradorians. The settlement will help fund the development of a new science centre at Memorial University, and address the need for high-end laboratories and additional space. A portion of the payment will establish two new operating rooms at the Bliss Murphy Cancer Clinic in St. John’s, and support extensions to the existing long-term care facilities in Happy Valley-Goose Bay. The settlement will provide funds to support geoscience initiatives in the province’s offshore which will help deliver comprehensive data that minimizes the level of risk and costs associated with exploration in Newfoundland and Labrador. Funds will also support retrofit work on a papershed and building at the former Stephenville mill site for future industrial fabrication and potential offshore developments.
“As a result of the compensation, our province will have the opportunity to invest in initiatives which will provide employment, strengthen our educational and healthcare systems, and enhance exploration,” said Minister Marshall. “These infrastructure initiatives will create employment and remain in the province. For example, we anticipate that the construction of the new science centre will create nearly 1,440 direct and indirect person years of employment, and approximately $94 million in labour income.”