4 Min Read
CALGARY, Alberta (Reuters) - The Hebron oil field, Newfoundland's fourth offshore project, will start producing in the next eight to 10 years after Chevron Corp (CVX.N) and its partners agreed to formal terms giving Newfoundland a share of the bounty.
The deal to go ahead with the C$5 billion to C$7 billion ($4.7 billion to $6.6 billion) project caps years of talks -- and negotiation breakdowns -- over Newfoundland's desire to wrest bigger rewards from North Atlantic oil development.
Hebron is expected to add C$20 billion to Newfoundland's coffers over its 20-25 year life, Premier Danny Williams said at a signing ceremony in the provincial capital of St. John's on Wednesday.
The agreement comes 12 months after the province and oil companies agreed in principle to a fiscal arrangement.
Chevron, the No. 2 U.S. oil company, and its partners came back to the negotiating table last year after breaking off talks in 2006. Subsequently, Newfoundland set a policy that mandated it take a 10 percent in all new projects.
Williams has long complained that Newfoundland has been shortchanged while oil companies and Ottawa reap rewards from oil megaprojects off its coast.
"We have achieved the breakthrough agreement that signals a new era of partnership in the development of the province's energy resources for the long-term benefit of the people of Newfoundland and Labrador," he said.
The province will pay C$110 million for a 4.9 percent interest in the 400 million to 700 million barrel project.
Hebron will also be subject to a 6.5 percent super-royalty on net revenue, which kicks in when oil prices exceed $50 a barrel, on top of the standard royalty. Benchmark U.S. oil was worth more than $113 a barrel on Wednesday.
Mark Nelson, president of Chevron's Canadian unit, said the terms are not as onerous as in some of the jurisdictions around the world in which the oil major operates.
"Although it's hard to go back over time and make sense of all of it, I think the exciting part is that some of the history had something to do with getting the deal done," Nelson said in an interview.
"When all parties walked away from the table I think it made us all very resolute to find solutions."
Hebron, discovered in 1981, would follow the Hibernia, Terra Nova and White Rose projects. All are in the Jeanne d'Arc Basin, about 350 km (220 miles) southeast of St. John's.
Plans call for first oil in 2016-2018, reaching a peak of 150,000 barrels a day. The oil would be produced through a massive concrete gravity base structure, similar to Hibernia's. The structure will be built at the province's Bull Arm construction yard.
Up to 3,000 workers will be on site during construction.
The Newfoundland oil service industry is preparing for a rush of spending in the sector amid high oil prices.
Besides Hebron, new projects include Husky Energy Inc's (HSE.TO) C$1.3 billion North Amethyst extension at White Rose, the planned Hibernia South development, which still requires government approval, and a proposed C$2 billion expansion of Harvest Energy Trust's HTE_u.TO Come-by-Chance refinery.
Editing by Peter Galloway