Executive Council
Natural Resources
August 20, 2008
Hebron Agreement Signals New Era in
Province�s History
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 in 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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Media contacts:
Elizabeth Matthews
Director of Communications
Office of the Premier
709-729-3960
elizabethmatthews@gov.nl.ca |
Roger Scaplen
Press Secretary
Office of the Premier
709-729-4304, 727-0991
rogerscaplen@gov.nl.ca |
Tracy Barron
Director of Communications
Department of Natural Resources
709-729-5282, 690-8241
tracybarron@gov.nl.ca |
Tim Murphy
External Affairs Manager (Atlantic Canada)
Chevron Canada Limited
709-757-6108, 728-9146
timmurphy@chevron.com |
Dawn Dalley
Manager, Corporate Communications
Newfoundland and Labrador Hydro
709-737-1315, 727-7715
ddalley@nlh.nl.ca |
|
BACKGROUNDER
The Hebron Project
The Hebron oil field was discovered in
1981 and contains in excess of 581 million barrels of recoverable
resources, based on estimates of the Canada-Newfoundland and Labrador
Offshore Petroleum Board (C-NLOPB).
The initial development is expected to be
the Hebron field and the West Ben Nevis field with future potential for
development of Ben Nevis. The C-NLOPB estimates that the three fields
contain in excess of 700 million barrels of recoverable resources.
The Hebron project could be valued in
excess of $50 billion for the province, proponents and the Federal
Government (assuming a price of US$87 per barrel adjusted for inflation
at two per cent per year).
Hebron is located in the Jeanne d�Arc Basin, 350 kilometres southeast of
St. John�s, the capital of Newfoundland and Labrador. It is
approximately eight kilometres north of Terra Nova, approximately 31
kilometres southeast of the Hibernia development, and approximately 46
kilometres from White Rose. The water depth at Hebron is approximately
92 metres.
With the official signing of the formal
agreements, the Government of Newfoundland and Labrador, through its
energy corporation, will acquire a 4.9 per cent equity stake in the
project with ExxonMobil assuming 36 per cent, Chevron 26.7 per cent,
Petro-Canada 22.7 per cent and StatoilHydro the remaining 9.7 per cent.
The Provincial Government, through the
energy corporation, will purchase its equity ownership position of 4.9
per cent at a price of $110 million.
Chevron Canada is the designated operator
for Hebron.
Construction and fabrication of the
Gravity-Base Structure (GBS) is expected to begin at Bull Arm in 2012.
First oil is expected between 2016 and
2018 with peak production of approximately 150,000 barrels a day
expected within two years from startup.
BACKGROUNDER
Hebron Agreement Highlights
Acquisition Agreement
-
The Government of Newfoundland and
Labrador has acquired a 4.9 per cent equity stake in the Hebron
Project for $110 million.
-
A new subsidiary has been created
within the province�s energy corporation to hold and manage this
interest on behalf of the province.
-
The energy corporation subsidiary (�OilCo�)
will pay its share of ongoing project costs and receive its share of
all project revenue.
-
The Provincial Government is
providing a guarantee for OilCo�s obligations during the
construction phase (estimated at 4.9 per cent of $4 - 6 billion, or
$200 - $300 million). A liability guarantee is also in place with a
capped amount of $250 million during the production phase for OilCo.
Fiscal Agreement
-
The existing generic oil royalty
regime will apply with the following modifications:
-
An additional super royalty of
6.5 per cent on top of existing rates any time after net royalty
payout where the price of West Texas Intermediate exceeds US$50
per barrel. This results in a top royalty rate of 36.5 per cent
when the price of oil exceeds US$50 WTI/bbl.
-
The basic royalty rate remains at
one per cent of gross revenue until project costs are recovered
(i.e. simple payout).
-
Based on the Budget 2008 oil price
estimate of $87 per barrel with a two per cent allowance for
inflation, the province estimates that the project could be worth
$20 billion to the province.
-
At today�s oil prices and allowing
for inflation of two per cent, this could be a project worth
approximately $28 billion to the province.
Benefits Agreement
-
Fabrication and Construction in the
Province
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Concrete Gravity-Base Structure (GBS)
and GBS mechanical outfitting (estimated 4.1 million person
hours)
-
Topsides drilling support module*
-
Topsides drilling derrick *
-
Accommodations module*
-
Flare boom
-
Helideck
-
Lifeboat stations
-
Hook up and commissioning
-
Topsides and GBS mating
-
Structural steel riser components
and assembly of offshore loading system components: riser bases,
rigid risers, tie-in spools and buoys
-
Subsea drilling template and
field mooring system
(*Subject to reasonable physical capacity and human resource
availability.)
-
Front-End Engineering and Design
(FEED)
-
At least 50,000 person hours of
GBS FEED-phase engineering will be done in Newfoundland and
Labrador.
-
Engineering / technical or other
professional positions will be made available to residents of
the province to work in contractors� offices outside the
province for any FEED done outside of the province.
-
Proponents will provide a travel
fund of $1 million, to begin during the pre-sanction FEED phase,
for travel of Newfoundland and Labrador contractors/suppliers to
visit engineering offices for work done outside the province.
-
Detailed Engineering
-
Detailed engineering for GBS
(including GBS mechanical outfitting) and topsides components to
be constructed in the province will be done in the province.
-
At minimum, there will be 1.2
million person hours of detailed engineering in the province.
-
Late FEED will be transitioned to
the province for all components to be fabricated in the
province.
-
Engineering / technical or other
professional positions will be made available to residents of
the province to work in contractors� offices outside the
province for any detailed engineering undertaken outside the
province.
-
Project Management Office in the
Province
-
Project management office will be
opened in the province as soon as reasonably possible.
-
At minimum, there will be one
million person hours of project team activities prior to first
production performed in the province.
-
First consideration to
Newfoundlanders and Labradorians when staffing this office.
-
Procurement and Contracting
-
The operator and the main
engineering, procurement and construction contractors will have
a contracts and procurement office in the province which will
co-ordinate and manage procurement and contracting activities.
-
Proponents will conduct early
supplier development workshops for the local service and supply
community so contractors can prepare for bidding and establish
joint ventures, and promote and encourage technology transfer
opportunities.
-
Request for Proposal (RFP) and
bid packages will require bidders to use standards that meet the
requirements of Canadian authorities.
-
Research, Development, Education and
Training
-
A commitment of $120 million for
research and development over the life of the project provided
such commitment meets the C-NLOPB�s requirements.
-
Includes commitment of $1 million
pre-sanction to College of North Atlantic and Memorial
University to enhance skills training.
-
Gender Equity and Diversity
-
The operator commits to:
-
Full access to employment
opportunities
-
Implementation of proactive
programs and processes to create inclusive work environment
and corporate culture
-
Promotion of accountability
and responsibility for diversity
-
A comprehensive Gender Equity
and Diversity Program
-
Women�s employment plan
and business access strategy in which the operator will
establish quantifiable objectives and goals for the
employment of women throughout the project.
-
Diversity plan that
addresses training and recruitment of disadvantaged
groups.
-
Implementation, monitoring
and reporting for these commitments to
C-NLOPB, with emphasis on continuous improvement.
Bull Arm Lease Agreement
-
The Provincial Government will
transfer ownership of the Bull Arm fabrication facility to the
province�s energy corporation. The Bull Arm Site Corporation will be
a subsidiary of the energy corporation.
-
Full and timely access to the Bull
Arm Site
-
Proponents have an option to
lease the site, which ensures the facility is available for
Hebron work.
-
The option fee is $1.5 million
per year.
-
Option terms permit alternate
users on the site if it does not interfere with the Hebron
project schedule.
-
Once the option is exercised, the
lease period will be six years, with ability to extend on an annual
basis if required for Hebron work.
-
During the six-year lease, the lease
rate is two per cent of estimated total contracted value of project
work at the site.
BACKGROUNDER
Bull Arm Site Corporation
The Bull Arm Site was constructed by the
Hibernia Management and Development Company (HMDC) in 1990 for the
construction of the Hibernia project and the Gravity-Base Structure (GBS).
Upon conclusion of the Hibernia construction phase, HMDC transferred
ownership of the Bull Arm Site to the province for $1 and the Bull Arm
Site Corporation (BASC) was formed. At the time the ownership was
transferred in March 1998, the Bull Arm Site was leased by PCL
Industrial Constructors for the fabrication, hook-up and commissioning
work on the Floating Production Storage and Offloading (FPSO) vessel for
the Terra Nova offshore oil development.
In 2003, a portion of the Bull Arm Site was leased to North Eastern
Constructors Limited (NECL) to fabricate work related to the White Rose
Development Project, the province's third offshore oil field. NECL also
used Bull Arm to fabricate work for Voisey�s Bay. In 2005, another
portion of the site was leased by Penney Energy to complete a refit of
the semi-submersible drill rig, the Henry Goodrich.
The site is located close to the communities of Sunnyside, Arnold's Cove
and Come By Chance and has provided employment and economic spin-off
benefits through the purchase of goods and service to this area. The
site is a key asset for the province and it has provided broader
benefits to the province through new infrastructure; technical knowledge
and expertise; technology transfer; and, an experienced labour force.
In Budget 2008, the Provincial Government announced an investment of
$2.75 million into the Bull Arm Site for maintenance and upgrades, as
well as to establish a new management structure.
The transfer of the site to be operated as a subsidiary of the
province�s energy corporation will ensure the facility is ready and
available for the Hebron project, as well as the other major industrial
projects on the horizon. 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 these
developments.
2008 08 20
12:10 p.m.