Canadian governments will provide a financial backstop for development of Hibernia oil field off Newfoundland while a new partner is sought.
Mobil Oil Canada Ltd., Chevron Canada Resources Ltd., and Petro-Canada, all of Calgary, have been looking for new money since Gulf Canada Resources Ltd. notified its three partners it planned to withdraw from the project. Hibernia is not expected to begin production until 1997.
Ottawa and Newfoundland will pay as much as $127 million or 75% of development costs incurred by the companies from May 15 to Nov. 1, 1992. That figure could rise to $185 million if an agreement is extended to Jan. 1, 1993, by mutual consent.
The governments will pay only if the project on the Grand Banks is suspended or terminated and buyers can't be found for Gulf's 25% interest. The federal government agreed to pay two thirds of the indemnity, Newfoundland one third.
A federal spokesman said Ottawa does not expect to have to pay the funds. The agreement represents an insurance policy for participating companies.
Under the original agreement covering the $5.2 billion development project, Ottawa is to provide 25% of costs up to $1 billion. It also is providing extensive loan guarantees.
Hibernia development investment stood at $640 million at the end of June, including $160 million in federal funds. Federal Energy Minister Jake Epp said in late June negotiations on participation were continuing with two companies, including Texaco Inc. Epp said he expects talks to be completed with Texaco this fall.
The pace of spending on development and construction work for the project was cut by about 50% after Gulf gave notice last February it planned to withdraw from the project.
Ottawa is reported to be working out a separate cash incentive program of as much as $200 million that would compensate a foreign company investing in Hibernia. Such a company would not be eligible for the same investment tax credits as a Canadian operator.
A construction camp has been completed at Bull Arm, Newf., and construction is under way on a gravity base for Hibernia's production platform.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
