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Cablegate: Newfoundland-Labrador Premier Announces Multi-Billion Dollar

VZCZCXRO9150
RR RUEHGA RUEHQU RUEHVC
DE RUEHHA #0061 2361149
ZNR UUUUU ZZH
R 241149Z AUG 07
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 1209
RUEHOT/AMEMBASSY OTTAWA 0463
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUEHHA/AMCONSUL HALIFAX 1281

UNCLAS HALIFAX 000061

SIPDIS

SIPDIS

STATE FOR WHA/CAN, EB/ESC/ISC, EB/PPD
USDOE FOR IA (PUMPHREY, DEUTSCH)

E.O. 12958: N/A
TAGS: ENRG EPET ETRD PGOV CA
SUBJECT: NEWFOUNDLAND-LABRADOR PREMIER ANNOUNCES MULTI-BILLION DOLLAR
DEAL ON FOURTH OFFSHORE OIL FIELD


1. SUMMARY: Newfoundland-Labrador will see a much-welcome new
offshore oil development project now that Premier Danny Williams
has worked out a deal on the Hebron project. With an
anticipated 400-700 million barrels of oil, Hebron promises to
be a massive boost for the province, both for the local economy
and for a Premier who is moving towards a re-election bid. END
SUMMARY

2. Newfoundland-Labrador Premier Danny Williams announced in a
press conference on August 22 that his government reached an
agreement for the development of Hebron-Ben Nevis, the fourth
oil field to be developed off his province. While not revealing
the entire contents of the Memorandum of Understanding with the
project's owners -- Chevron, ExxonMobil, Petro-Canada and
Norsk-Hydro -- the Premier said the province will purchase a 4.9
percent equity stake in Hebron at a cost of C$100 million.
Williams also said the province will receive more than C$16
billion in royalty payments over 25 years, with the federal
government getting C$7 billion. As with the Hibernia project,
the developers will use a gravity-based structure (GBS) versus
the floating platform which is in use in the Terra Nova and
White Rose developments. The GBS will generate significantly
more economic spin-offs than the floating systems, a welcome
boost for Newfoundland-Labrador which suffers from Canada's
highest unemployment rates.

3. Summary of the Hebron Offshore Oil Field Project:

--Type: Heavy oil
--Location: Jeanne d'Arc Basin, 350 km southeast of St. John's
--Estimated Reserves: 400-700 million barrels
--Operator: Chevron Canada Resources
--Detailed Geological Information:
http://www.nr.gov.nl.ca/mines%26en/oil/
--History: Discovered in 1980, Hebron was first deemed
non-commercial before three appraisal wells drilled in 1999 -
2000 yielded promising results. In February 2002, after a
two-year evaluation, the project was considered too expensive
and technically difficult to develop using existing technology.
Then in 2004 an air of optimism surrounded the development when
Chevron hired a project manager and opened an office in St.
John's. That optimism was further fueled in April 2005 when
Chevron and partners signed a Joint Operating Agreement with the
aim of advancing the evaluation of the project. Momentum built
with the joint evaluation focusing on a Gravity Based Structure
(GBS) concept similar to Hibernia. Attention then turned to
working out a development agreement with the provincial
government.

4. Comment: As widely reported in the national media, Williams
had broken off talks with the Hebron partners in the spring of
2006 over his stance that the province would not receive enough
benefits from the development. The Premier resurrected
negotiations earlier this summer in a move which pundits were
quick to link to the upcoming provincial election on October 9.
The announcement of a deal may pave the way for what pollsters
are predicting will be a cakewalk election victory for the
Premier. Williams has enjoyed unprecedented and consistently
high rates of support from the electorate, leading even some
Liberal party foes to publicly predict that their party is going
to face near annihilation at the hands of Danny Williams and his
Tory party. Nonetheless, Liberal Opposition leader Gerry Reid
was quick off the mark in his reaction to the news of the MOU,
speculating that the Premier did not reveal more specifics of
the deal due to political expediency rather than proprietary
business information. Reid predicted in a press interview that
the electorate will not hear the full details of the deal until
after the election. Regardless of the political ramifications,
this announcement is welcome news to the province's offshore
industry which had been very concerned on what the future might
have held without the Hebron deal. End comment

FOSTER

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