Hebron Agreement Signals New Era in Provinces History

Hebron Agreement Signals New Era in Provinces History

Wednesday, August 20th 2008

Marking a new era of partnership in oil development in the province, the Honourable Danny Williams, Premier of Newfoundland and Labrador, and the province’s oil industry co-venturers today announced and signed the final deal for the development of the province’s fourth offshore oil project, Hebron. The Premier was joined by: the Honourable Kathy Dunderdale, Minister of Natural Resources; Mark Nelson, President of Chevron Canada, the designated project operator; Ed Martin, President and Chief Executive Officer of the province’s energy corporation; Glenn Scott, President, ExxonMobil Canada; Alan Brown, Vice-President, East Coast, Petro-Canada; and, Bruce Brummitt, Senior Vice-President Offshore, StatoilHydro Canada.

“Hebron is a breakthrough agreement for the province and this is a day that all Newfoundlanders and Labradorians can take pride in and celebrate,” said Premier Williams. “The signing of this agreement reflects a bold new era of partnership between government and our industry partners. We have real and meaningful ownership of our resources in the form of an equity stake in this project and a new super royalty regime. We have achieved significant commitments for local benefits for fabrication and engineering, and are now embarking on a major industrial project that will fill our fabrication yards and employ thousands of Newfoundlanders and Labradorians. This marks our emergence as a full participant on the global energy stage and we are pleased to join with our industry co-venturers in the commencement of this project.”

The Premier added that Newfoundland and Labrador has turned a financial corner, and its economic prospects have never been brighter. “We are soon to become a have province, and finally Newfoundland and Labrador is being recognized for the long-standing contributions we have made to the Canadian federation,” said the Premier. “These contributions will continue and expand as the Hebron project comes on stream.”

The Hebron project, located approximately 350 kilometres offshore the island portion of Newfoundland and Labrador, is a joint venture among the province’s energy corporation, on behalf of the Government of Newfoundland and Labrador, Chevron Canada, ExxonMobil Canada, Petro-Canada and StatoilHydro Canada.

“Today represents a major milestone toward the successful development of the Hebron project,” said Mr. Nelson. “The co-venturers look forward to progressing the project through the various stages of front-end engineering to sanction and execution. During construction and throughout the production phase, the Hebron project will deliver significant benefits to the people of Newfoundland and Labrador, generate a competitive rate of return for Chevron and our co-venture companies, including the province’s energy corporation, and provide additional energy supplies for the North American marketplace.”

Under the agreement, the Provincial Government, through its energy corporation, has become an equity owner with a 4.9 per cent stake. In addition to an equity stake, the province has also negotiated major local industrial and employment benefits and a super royalty regime of an additional 6.5 per cent on net revenues whenever monthly average oil prices exceed US$50 West Texas Intermediate after net royalty payout occurs.

Based on the Budget 2008 oil price estimate of $87 per barrel with a two per cent allowance for inflation, the Provincial Government estimates that the 20-25 year project could generate approximately $20 billion for the province and that the Federal Government and other provinces are expected to receive more than $8 billion revenues from the project. At today’s prices, and allowing for inflation of two per cent, this could be a project worth approximately $28 billion to the province.

“The Hebron project will provide the opportunity for as much work as our fabrication facilities, including Bull Arm and Marystown, can handle,” said Minister Dunderdale. “The Gravity-Base Structure (GBS) will be constructed in the province and is expected to generate over four million person hours of construction employment alone. The Hebron project commits more fabrication work within the province than the Terra Nova or White Rose projects as a result of the world-class expertise and capacity that we have developed here. It also commits more engineering work and provides more revenues than either Terra Nova or White Rose. As a result of the world-class expertise and capacity developed at Terra Nova and White Rose, significant fabrication and engineering work, as well as economic benefits, will remain in the province.”

“Hebron is a cornerstone acquisition for our portfolio and contributes significantly to our production and cash flow objectives,” said Mr. Martin. “It is a high-quality asset that will also provide us with a strong reserve position. As this province’s energy corporation, we are pleased to be a partner. The project is an excellent fit for our long-term strategy and there is also tremendous value for our shareholder and the people of the province. Hebron will allow us to continue to grow our industry expertise and market it around the world.”

The proponents have committed to begin mobilization of the project team and to establish a Hebron project office in St. John’s as soon as reasonably possible to begin detailed project planning. First oil is expected between 2016 and 2018 with production reaching a peak of approximately 150,000 barrels per day two years later. The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) estimates that the development contains 581 million barrels of recoverable oil. The agreement also commits $120 million for research and development over the life of the project to advance the industry in this province.

The Provincial Government is paying $110 million for its 4.9 per cent equity share in the development and will pay its share of the pre-production and construction costs associated with the project.

The Provincial Government also announced today that it is transferring ownership of the Crown-owned Bull Arm fabrication, construction and deep-water facility to the energy corporation. The transfer will ensure the facility is ready and available for the Hebron project.

The Bull Arm facility was constructed by the Hibernia Management and Development Company in 1990 for the Hibernia project and was transferred to the province in 1998. Since that time, fabrication and other work associated with the Terra Nova FPSO, White Rose project, Voisey’s Bay nickel project and the Henry Goodrich drill rig have been completed at the site. The engineering and energy expertise available within the energy corporation will assist to ensure this key asset is available to maximize the benefits to the province from the number of large-scale construction and fabrication projects on the horizon, including work associated with Hebron, the Voisey’s Bay nickel processing facility at Long Harbour, a possible new refinery, liquefied natural gas transshipment facility in Placentia Bay, and the Lower Churchill hydroelectric project.

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