In another significant advancement in the province's petroleum industry, the Provincial Government has delivered its Energy Plan goal of a 10 percent equity stake as well as a top royalty rate of 50 percent in the Memorandum of Understanding (MOU) reached with its oil industry partners to develop the Hibernia Southern Extension.
"Hibernia South will increase and sustain production from the Hibernia field, preserving employment levels while providing a significantly greater royalty return for the province than any previous project," said the Honourable Danny Williams, Premier of Newfoundland and Labrador. "With this MOU, we have achieved an unprecedented royalty rate and equity interest. Our government is pleased to join our co-venturers in taking our first oil development to the next level and I thank them for their commitment to our industry and to the province. The revenue to the Provincial Government from the Hibernia Southern Extension project, from all sources, is estimated to be $10 billion based on forecasts by the international energy consulting firm PIRA. We could not be more pleased to have achieved such tremendous benefits for the people from this resource."
Premier Williams also noted the significance of this expansion in comparison to the original Hibernia field. "The original Hibernia field has produced 670 million barrels to date and the provincial treasury has seen $3.9 billion from that production. We expect a further $13 billion from the remaining main field production and this extension adds an estimated $10 billion more in revenue for the province," said the Premier. "In addition, Canada will once again see revenue from Newfoundland and Labrador resources with the development of the Hibernia Southern Extension. On this deal alone, we expect the Federal Government and rest of Canada will see more than $3.5 billion in revenue."
The Hibernia Southern Extension contains an estimated 220 million barrels of oil. The Provincial Government, through Nalcor Energy Oil and Gas, will acquire a 10 percent equity interest in the estimated 170 million barrels that will be produced using a subsea tie-back on terms consistent with the Energy Plan. The remainder will be produced from the existing Gravity-Based Structure (GBS) at an enhanced royalty rate to the province of 42.5 per cent on every barrel of oil.
"The Hibernia Southern Extension terms will be precedent setting, building on the Energy Plan objective of a new era in resource development in this province," said the Honourable Kathy Dunderdale, Minister of Natural Resources. "This is a growth project that will utilize infrastructure already in place and it demonstrates the maturing of our industry. We are developing new fields and finding ways to more fully develop maturing and existing fields. We expect the lion's share of the work required for this extension will be completed in this province. As well, all the partners in the project remain committed to ensuring the highest safety and environment standards."
The signing of the non-binding MOU was announced today by Premier Williams in his address to 700 delegates at the annual Newfoundland and Labrador Oil and Gas Industries Association (NOIA) conference in St. John's. The partners in the Hibernia Southern Extension are ExxonMobil, Petro-Canada, Chevron, Murphy Oil, Canada Hibernia Holding Corporation, StatoilHydro and, upon signing of the formal agreements, Nalcor Energy Oil and Gas.
The Premier also confirmed today that after nearly 12 years of production, the Hibernia project is now in "payout," meaning that on the main part of the original Hibernia field the province is now receiving a royalty of 30 percent of net revenues.
In addition to the unprecedented equity stake, three new super royalty areas are included in the MOU. The first is for new license areas (PL1005 and EL 1093), for which the top royalty rate will now be 50 percent. This super royalty is incremental to the royalty rates of 30 percent and 42.5 percent, and will be paid out in two steps -- an additional 2.5 percent when oil is equal or greater than US $50 West Texas Intermediate (WTI) and another five percent when oil reaches US $70 (WTI), which brings the total royalty to 50 percent.
The second is for the portion of Hibernia South that is contained within the original license area (PL 1001), but will be developed with the new subsea facilities. This new super royalty is on top of the payout royalty rate of 30 percent and will be paid out in two steps -- an additional 7.5 percent when oil is equal or greater than US $50 (WTI) and another five percent when oil reaches US $70 (WTI), which brings the total royalty to 42.5 percent.
Finally, for the part of Hibernia South where oil will be produced from the existing GBS, an additional 12.5 percent has been applied, effective immediately. This new enhanced royalty of 42.5 percent has no price trigger.
Using the Hebron agreement as a template, this MOU also contains a commitment to implementing a Gender Equity and Diversity Program for all phases of the project. This program will ensure full access to employment opportunities for qualified women and disadvantaged groups by creating proactive programs and practices that will contribute to an inclusive work environment and corporate culture. The research and development guidelines set by the Canada-Newfoundland Offshore Petroleum Board will also be met for the Hibernia Southern Extension.
The MOU also resolves the decade-long dispute over the deduction of transportation costs by the proponents for royalty purposes. For many proponents, this resolution accelerates payout, resulting in higher royalties for the province in this fiscal year. With the past settled, going forward the proponents will use the same cost eligibility rules as negotiated for the Hebron Project.
The text of the Premier's address to NOIA is available at
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