BUSINESS

Hibernia postponed

Newfoundlanders’ dreams of oil wealth are fading

JOHN DALY July 24 1989
BUSINESS

Hibernia postponed

Newfoundlanders’ dreams of oil wealth are fading

JOHN DALY July 24 1989

Hibernia postponed

BUSINESS

Newfoundlanders’ dreams of oil wealth are fading

Once again, Canada’s poorest province seems destined to endure an overwhelming economic disappointment. Earlier this year, Newfoundlanders evidently believed that an agreement to develop the rich Hibernia oilfields off the island’s southeast coast had at last been reached. But the March 31 deadline for the $5.2-billion deal involving the province, the federal government and a consortium of oil companies passed without a final agreement being signed. Prime Minister Brian Mulroney and then-Premier Brian Peckford agreed to the deadline last July, when they signed a preliminary accord, but the Tory governments in Ottawa and St. John’s could not resolve many of the complex issues that remained unsettled in time. Then, in April, the newly elected Liberal government of Clyde Wells called the provisions of the proposed deal into question, saying that Newfoundland would be paying too much and receiving too little. As hope for a speedy resolution of the debate began to wane, federal Energy Minister Jake Epp last month called for a reduction in the cost and scope of the project. And last week, one of

the two remaining oil rigs in Newfoundland waters—both idle—prepared to leave for the North Sea, where active drilling is under way. Now, Newfoundlanders must face the prospect that the 3,000 jobs Hibernia was expected to create may be significantly reduced or indeed may never materialize.

The stalemate is the latest setback in a 10-year struggle to make retrieval of the hardto-reach Hibernia oil a worthwhile economic proposition.

The prospect of the massive development means badly needed jobs and government revenue for Newfoundland’s perenially weak economy.

And despite the differences of opinion between the two levels of government, both say that they remain committed to the agreement. But even as they struggled to salvage the deal, all drilling activity off Newfoundland’s east coast ceased in May. Last

i

year’s euphoria among offshore suppliers evaporated along with their work orders. Craig Dobbin, chairman of St. John’s-based Canadian Helicopter Corp., last summer rejoiced after Mulroney and Peckford announced their agreement. But last week, Dobbin lamented that “hundreds of service companies have either folded up their tents or are just hanging on by their fingernails.”

It was the federal government that dealt the hardest blow to the Hibernia proposal. In a June speech to the Newfoundland Ocean Industries Association in St. John’s, Epp said that “while industry and governments were prepared to proceed with Hibernia on the basis of a $5.2-billion estimate, we would all feel more comfort at a lower cost.” To that end, Mobil Oil Canada Ltd.—the leader of the four-company consortium that has agreed to develop Hibernia—is completing a redesign of the project’s massive main produc-

0 tion platform. Epp promised

1 that the redesign “will be x cheaper by several hundred ^ million dollars.”

The redesign raises the almost certain prospect of fewer jobs for Newfoundlanders. Until this spring, Mobil had planned to build a platform made up of 20 service modules that would sit atop a

giant,470,000-ton concrete base resting on the ocean floor. Under the terms of the MulroneyPeckford agreement, the platform was to be assembled in Newfoundland, guaranteeing the province three million manhours of construction work.

Mobil executives say that the new design calls for just five mammoth modules and that they can be assembled more cheaply abroad. If that happens, Newfoundland Energy Minister Rex Gibbons said that his province stands to lose two-thirds of the originally planned construction work. Gibbons added that he would like at least one of the new supermodules to be built in Newfoundland and that fewer jobs for Newfoundlanders is still the main issue dividing the two governments.

For his part, Sean O’Dell, director of frontier and nonpetroleum projects for the federal department of energy, mines and resources, said, “It may be that, you lose jobs in some aspects and gain some in others.”

And while the negotiations drag on, offshore contractors based in St. John’s are suffering through their worst year since 1977. Over the past 15 years, about 140 wells have been

drilled off the coast of Newfoundland. But only two have been drilled so far this year, and no more drilling is scheduled. Chevron Canada had hoped to drill a well this summer, but so far

it has been unable to secure financial backing from its consortium partners. As a result, The Maersk Co. (Canada) Ltd., which had contracted to do the drilling, was preparing its idle rig in the southern Newfoundland port of Marystown last week for departure to the North Sea.

Canadian Helicopter’s Dobbin said that none of the 15 helicopters he operates in Newfoundland are doing work associated with Hibernia. Dobbin bought his first helicopter in 1980 in anticipation of the contracts that would flow from the project and now operates 265 in Canada and in 14 other countries around the world. He said that Canada risks losing offshore expertise in Newfoundland if the politicians do not come to an agreement quickly.

But even if Epp and Gibbons reach a new agreement this year, production at Hibernia could not begin before 1996. And there are no shortterm alternatives for the hard-pressed contractors. Petro-Canada executives say that they hope to develop their Terra Nova discovery, located 25 miles southeast of Hibernia, at a cost of less than $2 billion. But they add that production could not begin there until at least 1993. Until then, the province’s oil riches will remain locked under 250 feet of water on the fish-rich Grand Banks.

JOHN DALY

RUSSELL WANGERSKY