OTTAWA Aug 22, 2007 (Dow Jones)
Newfoundland Premier Danny Williams said Wednesday the province will pay C$110 million for its 4.9% equity stake in the C$6 billion Hebron offshore oil project.
Speaking at a press conference in St. John's, Williams added that, based on current oil prices, the project would contribute C$16 billion to the provincial economy over its 25-year life.
Hebron will also generate C$7 billion for the Canadian economy, Williams said, basing these projections on crude oil prices of $70 a barrel and assuming 2% inflation.
This revenue contributions will be a result of a new "super-royalty" regime linked to rising oil prices. The consortium behind Hebron will have to pay 6.5% of net revenues after the net royalty payout when oil prices hit a monthly average of $65 a barrel, Williams said.
This was a major sticking point in discussions between the province and the consortium, led by Chevron Corp. (CVX). Williams said the enhanced royalty rate was 0.5% less than the government had been asking for as a concession to the industry.
There will also be a "slight postponement" of royalty payouts from the consortium, who have dropped their demands for tax breaks, Williams added, but declined to clarify further. He also declined to comment when asked which of the project partners had to surrender part of their share to contribute to the province's 4.9% stake.
Chevron Canadian arm is the project leader with a 28% share, ExxonMobil Corp.'s (XOM) Canadian unit has the majority stake of 37.9%, and Petro-Canada (PCZ) holds 23.9%. Norsk Hydro ASA (NHY) held the remaining interest, which will transfer to Statoil ASA (STO) following the merger of the two companies' oil businesses later this year.
Initial engineering work could start within 18 months, with construction beginning as early as 2010, Williams said.
The agreement also includes a new oil rig to be built in the province, boosting the local engineering and manufacturing industries, Williams said.
Negotiations stalled last year after Williams refused to back down on his equity and super-royalty demands, but restarted two months ago.
The C$6 billion Hebron project would be Newfoundland's fourth offshore development, after Hibernia, Terra Nova and White Rose.
Copyright (c) 2007 Dow Jones & Company, Inc.
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