Presentation
by
The Honourable Walter Noel, MHA
Minister of Mines and Energy

Making our Region more attractive for Exploration

Good afternoon ladies and gentlemen. It�s a pleasure to participate in your Spring Seminar and have an opportunity to speak about issues we are all working on. I have always had a great interest in our petroleum industry. I�ve also admired the commitment and skill NOIA has brought to promoting its development. I am enthusiastic about assuming governmental responsibility for this industry, and intend to do all I can to help in your efforts - and, more specifically at present, work to help bring more exploration to our region.

All Newfoundlanders and Labradorians value this industry. All benefit indirectly, and many directly, from it. Our government is committed to ensuring we maximize benefits for our province, while doing everything necessary to help you attract investment and expand our potential. I am committed to helping in your promotional efforts, doing everything my office can to encourage development, and working with the federal government and the CNOPB to improve and streamline our regulatory system. We will also work as co-operatively as possible with Nova Scotia and other partners to make East Coast Canada a great destination for the petroleum industry.

One of my first activities as minister was to share in the launch of your Oil and Gas Week, and participate in your February luncheon - enjoying Craig Dobbin�s admirable assessment of federal/provincial relations, trying to sort out his views on our petroleum industry, and learning how out of touch he is with a number of issues in our province today. I have also had an opportunity for discussions with representatives of your industry, and to attend a Global Offshore Conference in Houston. I�ve met with the Board of the CNOPB and senior management of companies including Husky, Petro Canada, and Norsk Hydro.

Just this morning I met with Mr. Tim Cutt, President of the Hibernia Management Development Corporation. He updated me on current activities, including some detail about their tremendous safety record. What a world class project to have in our own backyard!

I�ve also been pretty involved in trying to increase White Rose work being undertaken here. And I�ve met with the Mayor of St. John�s and his officials to help ensure we work as productively as possible together. I am learning something about your endeavours and challenges, and the role our department has to play.

We have a very busy department. We are about to finalize regulations to implement our generic royalty regime for offshore oil.

They have been drafted in consultation with industry, and will be submitted for Cabinet approval soon. These regulations will make clearer what is expected of industry, and help companies decide whether or not to proceed with exploration and development.

Clarity regarding royalty requirements will expedite the process of investment in our offshore. It will eliminate the need for ongoing royalty negotiation for individual projects.

We are also making good progress creating a fiscal regime for development of a natural gas industry. In keeping with a commitment made last fall, the Province has drafted the framework of a royalty regime for natural gas. It will be established in consultation with our partners in industry, and should be completed this year. Clarification of these fiscal ground rules should facilitate earlier development of the next phase of our offshore industry.

Of course, there are more immediate rewards of an offshore royalty regime which we are currently enjoying. Hibernia is producing at about 220,000 barrels per day. This fiscal year the province expects to receive $85 million in royalties. We expect Terra Nova will produce 55 million barrels, and generate $52 million in revenues. These revenues will continue to grow as production increases. By 2005, when White Rose comes onstream, we could receive $250-300 million per year, and $450 million per year when production from our three projects peaks around 2009.

These are substantial returns on our resource and investment.They are made possible as a result of financial risks taken by companies investing in these multi-billion dollar projects, who often don�t see returns on their investment for ten years or so. Companies who can spend as much as $600 million before even making a discovery...and another $200 million to determine economic viability.

Now the people of our province would be a lot happier if we benefitted more from these revenues. There is a great deal of debate over the current equalization formula and the extent to which clawbacks reduce the value of resource revenues. We want changes in the program to allow us to use our non-renewable resource revenues to develop other economic opportunities which will provide goods, services and jobs long after these resources are depleted.

We have made our views known clearly, and frequently, on this matter, and will continue doing so. Unfortunately, the federal government, and many Canadians, including people in our province, do not properly understand how the country works, or the case we are making. Equalization is a way of sharing benefits some provinces derive through Confederation with those which do not. Ontario profits enormously through our federal system. There would not be any cars built in Ontario if Canada did not exist. Ottawa would be no more than a farm service centre instead of one of the strongest regional economies - as a result of government and government service businesses concentrated there. But these Ontario benefits are not spelled out the way our equalization payments are. Most Ontarians do not understand how other Canadians contribute to their welfare. Equalization is not interprovincial welfare. It is an inadequate program for sharing the benefits of Confederation. Unlike Alberta, which truly contributes more than it receives, Ontario is the primary economic beneficiary of Confederation.

However, we hope rewards from our non-renewable resources will continue far into the future, and we�re confident they will. We will do everything reasonable to help you ensure these assets are properly exploited. Getting more exploration must be our top priority. Without new discoveries, there will not be new developments. But it�s not enough to have resource potential. Investors demand at least two other things from government - which we can provide.

First - and this one�s easy - a stable political and investment climate. We have that, a strong, secure and stable climate for investment, especially compared with other oil producing regions of the world, as recent events demonstrate.

Secondly, we need an effective and efficient regulatory regime. A streamlined and timely approval process means exploration and development sooner rather than later. It means that companies doing business in our offshore can begin to see returns on their substantial investments as soon as possible. That�s good for industry and government.

Our current regulatory system must be improved. The Canadian Association of Petroleum Producers has identified a number of regulatory obstacles which are affecting investment decisions in our offshore.The signing of the Atlantic Accord in 1985 launched both levels of government on the development of a single regulatory window for offshore projects. Unfortunately, it has not materialized.

The Canada-Newfoundland Offshore Petroleum Board was designed to be that window. Both the C-NOPB and the provincial government are committed to an effective and stable regulatory regime, one which invites new activity in our offshore. But the province�s commitment has not been shared by Ottawa. We are not on the same page when it comes to priorities. Oil and gas is a big deal in Newfoundland and Labrador. It�s literally fueling our economy.

However, it has not been a priority in Ottawa, where a myriad of issues and industries compete for attention; where the crisis of the month prevails, and the more routine business of regulatory issues in small provinces gets pushed aside. A small province with too little influence in our national government doesn�t get the attention our issues require. That is why our federal system has to change. That is why we need an effective Senate like they have in the United States where the smallest states have as much say as the largest. We have appointed the Royal Commission on Renewing and Strengthening Our Place in Canada to find answers to these problems. Hopefully, the report, due by the end of June, will help us achieve solutions. I believe it will confirm my belief that we are net financial contributors to Canada.

But, getting back to the issue at hand. Without fanfare, or much public attention, federal legislation has encroached on oil and gas activities previously thought to be protected under the mandate of the Atlantic Accord Acts. The area of environmental assessment is a good example. Another is the potential of other federal ministries, such as Fisheries and Oceans, or Transport Canada, to override the Accord Acts legislation. For example, offshore development is now subject to environmental assessment under both the Canadian Environmental Assessment Act and the Accord Acts. Such a complexity of processes are an obstacle to new developments in our industry. Different federal acts, each claiming paramountcy in the offshore, are illogical and counter-productive. They create additional layers of regulatory burden, delays and unjustifiable costs, making us less competitive and jeopardizing investment.

Roundtable Resolution:

But we may be making some progress in solving these problems. Last November federal and provincial energy ministers, along with regional ministers and representatives from industry, met in Halifax for an �Energy Roundtable� to discuss the problem of regulatory overlap.

A steering committee of senior officials from industry and government was struck to recommend improvements to the offshore regulatory regime. The Committee has already established a workplan of priority issues. Another full Roundtable is slated for the fall.

Our position is that we must establish - and maintain - consistency in offshore regulation. Investors need to know up front what the process will be, and likely time frames. We have to provide maximum certainty - certainty that industry will be subjected to a single review process, certainty that the rules won�t change, and certainty that we won�t continue to add layers of regulation in midstream. It takes years to move from exploration to development. Delay and duplication cost money and momentum.

We have great resources. But so do many other parts of the world, many of which are cheaper and less challenging to develop. We have to compete successfully with these alternatives for investment. We have to be as competitive as possible. We will not approve developments which do not provide proper benefits for our province, but we will do everything possible to remove unnecessary obstacles.

Last fall�s Energy Roundtable also addressed the issue of industrial opportunities. A second Steering Committee was struck to identify strategies for both supplier growth and research and development.

A detailed workplan has been prepared and will be presented for approval on the 28^th of this month.

Local suppliers have to ensure they have the proper quality and safety programs in place to satisfy the requirements of companies.

Local businesses have to be world-class in their commitment to quality and delivery. I know that is your objective, and generally accomplished.

To ensure local participation reaches its maximum requires that engineering, design, purchasing, and project management occur in the province. This key commitment was negotiated with Husky Energy for the development of the White Rose project. More than 62 per cent of the White Rose management and technical positions are held by Newfoundlanders and Labradorians, impressive statistics for a province in the early stages of its oil and gas industry. More and more people are finding careers in the industry and remaining in our province.

Another key factor when determining the level of local benefits is the quality of fabrication facilities. This province is fortunate to have major fabrication capabilities at Marystown, Bull Arm and St. John�s. All are benefitting from the White Rose project.

In March of 2002, project proponents, Husky Energy and Petro-Canada made a commitment to complete 80 per cent of the topsides engineering, fabrication and integration work in the province. And they are delivering. Most of the work is scheduled to be done at Marystown. However, so far, we�ve been able to get an additional contract awarded to North Eastern Constructors Limited which means the re-activation of the Bull Arm Fabrication facility. Work on two of the topside modules will employ up to 150 people there over a 12-month period.

Our department worked hard to make this happen. I want to congratulate the companies, unions and officials responsible for reopening Bull Arm. We will continue working to secure maximum benefits for our citizens as we develop our resources. Many people are getting jobs through these efforts. That is why we have the most people ever working in our province today. But too many remain unemployed, or have to leave home to earn decent incomes. We cannot rest until we succeed in providing maximum opportunities for our citizens.

And it�s not enough to provide work for the current workforce and available skills. We have to make sure we keep pace with the industry.

This is where oil and gas companies can provide additional help...by continuing to invest in the province�s educational centres, as well as its research and development facilities, as required under the Accord. We appreciate how committed the industry is to these objectives. Research, development and education are essential to keep us on the cutting edge of technological advances.

But to achieve our objectives we have to make sure new projects happen. We believe the Canada-Newfoundland Offshore Petroleum Board is doing a good job in fulfilling its mandate; with an operating approach which is both flexible and effective. It continues to have an excellent working relationship with both levels of government. We understand that is the case with most of industry as well, though not with Mr. Dobbin according to his speech at your last luncheon.

This year�s provincial budget provided for increased funding to the Board of approximately $300,000.00. This demonstrates our commitment to, and confidence in, our regulatory body. We must be responsive to the growth in our industry, and ensure that the C-NOPB is prepared to deal with the resource management and regulatory issues imaginatively and effectively.

Which brings us back to exploration. Hibernia, Terra Nova and White Rose represent tremendous accomplishments. But they are only the beginning. Just yesterday 14 new offshore land parcels were issued in a call for bids. We anticipate significant interest in these new areas, and look forward to hearing the results before the end of the year.

Energy is a global industry. We must continually say and do what is necessary to make international corporations want to invest in our economy. We have to keep making sure that our business, regulatory and political environments are internationally competitive. Our government - my department in particular - continues to promote our offshore potential with companies directly, and at national and international oil and gas events.

Exploration is continuing. The deepwater drilling rig - the Eirik Raude - is exploring the deep waters of the Flemish Pass. Petro-Canada and En-Cana will drill two wells this year, in depths of 1000 metres.

They�re targeting two prospects - each with potential reserves in the range of 500 million barrels of recoverable oil.

We have to turn exploration licenses into activity. Only with exploration will we see new discoeries and new developments. The Laurentian Sub-Basin has to open for business soon. It�s been a year since the Federal Tribunal settled the boundary dispute between this province and Nova Scotia. That decision has yet to become law. A technicality, essentially, is holding it up. We continue to push for the final rubber stamp from Ottawa. We�ve been assured it�s about to happen. It must happen soon to ensure exploration next year. 700-800 million barrels of oil could lie beneath its surface, according to the Geological Survey of Canada, along with 8-9 trillion cubic feet of natural gas. A powerful incentive.

And speaking of incentives, we are all focused on Hebron/Ben Nevis - the province�s fourth major oil discovery. It is more of a challenge because the oil is heavy, and the field fragmented. But 400-700 million barrels of oil is quite an incentive for finding the right technology to develop it.

As I said earlier, I�ve met with officials from Norsk Hydro and Petro-Canada. I am arranging meetings with Chevron and Exxon-Mobil. I want to see what we may be able to do to assist in moving this project forward. It�s too valuable a project not to aggressively pursue every option for early sanction. We have built a momentum with our first three projects - a momentum which must be maintained to build our international reputation, and to produce jobs and economic benefits for Newfoundlanders and Labradorians.

We want to follow the White Rose project with another - without interrupting the flow of fabrication work. We will work closely with you to facilitate the development of this project. It is a priority for all of us. I have heard some encouraging views about what could be happening. I hope they prove accurate, and will be doing everything I can to contribute to the efforts being made.

I hope my understanding of your ambitions and challenges is in keeping with your own views of government�s role in helping develop our petroleum industry. I encourage you to let me know any time you feel I can help in your endeavours. It has been suggested that we look at establishing an Advisory Council to formalize such discussions. I would be happy to pursue that if there is sufficient interest.

It is a very interesting time in our province. So many people are doing well. So many opportunities are developing. But we must not rest on our laurels. Our government is committed to developing our economy and providing the standard of services people want. You know where we stand. You know our objectives. You know our abilities. And later this year you will be asked to decide whether we�ve earned your confidence enough to continue governing.

We are proud of what we are helping accomplish. We are inspired by your successes and those of so many of our fellow citizens.

You are the industry leaders, the forward-thinking proponents of developing our resources for the common good. There�s no question that oil and gas development will be a cornerstone of future growth and prosperity.

I believe we agree on the essentials for success. We have to identify and eliminate barriers to new investment. We have to maintain momentum.

We have to improve regulatory efficiency and effectiveness. We have to continue maximizing industrial benefits, while maintaining a competitive edge. We intend to take our place as a major player in the global petroleum community.

Thank you for all you are doing to achieve these objectives. I look forward to working with you.