Thursday, September 07, 2006

 

Ed Hollet's Mad Dash for the cash

Just heard our infamous Ed Hollet on vocm Night line with Linda Swain.

I won't get into minute detail about what he said but you can imagine. I will paraphrase what he said or didn't say.

He was throwing numbers around like the VOCM mad dash for the cash.

There were two numbers that struck me in particular

He stated that if Danny were to get the Revenues stake like he has been asking (two out of three will make the deal, revenues stake, Oil refinery, or increased royalties) for it would only amount to about 1.5 billion over the life of the project. Probably on the 10-20 year range? In addition to the expected 10 Billion? we would already be receiving from previous agreements in royalty revenues.

Then in another episode of number slinging he said that the .5 Billion that ESSOn and company were asking for in tax concessions was a pittance in comparison to the back end loaded royalty agreements already in place. Which I believe he stated would be somewhere in the range of 10 Billion over the life of the project for NL.

But look at it this way the 1.5 Billion over the life of the project our Premier was asking for in a revenue stake in comparison to the .5 Billion that the oil companies were asking for annually in tax concesions is a pittance.

I'm sorry but I don't get it. At no time did he mention the revenues the Oil companies were expected to get. He was only providing one side of the coin when it comes to profits. At no time did I hear him mention how much the oil companies were expected to make over the life of the project.

According to Ed our royalties are set up on a sliding scale starting out at around 5% in the begining until the cost of development is recovered by the oil companies then ratchets up to somewhere in the range of 30% once the development costs have been recovered by the oil companies.

Then there was his the sky is falling mentality that if we don't develop now we will lose out. I'm sorry but the oil isn't going anywhere and will be there for our use if and when the revenues best suit us. It's only been a couple of months and already the Liberals are looking for a way to give it away for short term gain, continuing our history of long term pain.

Ed please feel free to correct me if I have misrepresented any of the numbers you spoke of, but I wrote this immediately after hearing you on VOCM so I'm pretty sure they are correct.

Remember the audit Danny had done on ESSOn's existing projects it painted a very rosy profits picture for ESSOn.
http://www.releases.gov.nl.ca/releases/2006/exec/0712n01.htm
Some of the preliminary work done by Navigant on Hibernia to date indicates that:
# Operating revenues have increased approximately six times over official projections from $1.692 billion to $10.070 billion;
# Reserves have gone from 525 million barrels to 1.244 billion barrels;
# Gross revenues have increased to $19.9 billion, up from $14.6 billion;
# Production has nearly doubled;
# Capital cost is eight per cent less than projected;
# Operating cost is 57 per cent or $2.4 billion less than projected;
# Field life has gone from 18 years to approximately 30 years;
# Price of oil is up;
# Exchange rate is up;
# Inflation is less than expected;
# Royalty return has averaged less than five per cent to government after deduction of all project capital and operating costs and indexation (including federal grants of approximately $1 billion);
In 2005 alone, partners netted $2.744 billion, with ExxonMobil receiving $906 million and the Government of Canada receiving $1.097 billion;
# Newfoundland and Labrador total cumulative royalties to date on the project have been $587 million since first oil in 1997.

"The time has come for these oil and gas companies to start sharing more of the tremendous financial benefits from our province’s resources," added Premier Williams. "Indeed, the province has benefited from our oil and gas industry, but it is clear from the preliminary work we have done that our share is a mere pittance compared to that of the companies. In these times of extremely high oil prices where consumers are bearing the burden and companies are taking in exorbitant profits, the time has come for new arrangements for projects on a go-forward basis. This clearly includes the Hebron development."
Comments:
Take a look at Bond Papers. That same evening I posted some comparison figures including a comparison of revenue shares (as net cash flow) for the three parties.

It's pretty clear that the province's royalty arrangments as they stand right now give the province a substantial share of the fields. In fact it is EXACTLY the same share that the Peckford administration planned to take under an entirely different approach using a Crown corporation.

If you want to talk about flinging numbers - and meaningless numbers at that - then you did a fine job by parroting the stuff thrown out by government.

Their numbers are out of context and also do not give accurate information on what Danny Williams sought or what the benefit of the Hebron project - as proposed - would have been to NL.

The numbers I gave have not been disputed:

$10 plus billion in royalties for the province.

Plus 3-5 billion in consurtuction most spent here.

Plus another few billion (perhaps upwards of $5.0) in additional royalties from development of the other two fields.

The Premier has given us no reason why he refused a deal that was worth more than 10 times his "equity position". He has never told us what the overriding value of the equity position was, especially when the other revenues he rejected were over 10 times greater.

At no time has he given any accurate information that is directly relevent to the project. In fact, he has on several occasions deliberately misrepresented events to make it appear that something was happening 9the companies seking a resumption of talks) when such was not the case.

Glad to know you were listening. I tossed out some numbers - accurate numbers. I tossed out a bunch of other relevent factual information as well. Too bad you chose to ignore it.


And by the way, I am not the one involved in the mad dash for cash who flings out numbers that are confused and confusing. You quoted the people doing that. You just didn't point out the madness of their dashing about to avoid the painfully obvious: we walked away from the very best revenue deal ever in the history of the province...

for nothing.
 
only number that counts is the roman numeral one(X) we'll get to use that one in a years time. : )
 
only number that counts is the roman numeral one(X) we'll get to use that one in a years time. : )

In what? The election that defeats Danny Williams? Or the referendum that Chairman Dan dreams of calling?
 
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