OTTAWA MAY EASE RULES FOR HIBERNIA

The Canadian Government is opposed to increasing its financial support for the Hibernia oil field development project off Newfoundland but is willing to make it easier for other investors to buy in. Gulf Canada Resources Ltd., Calgary, a 25% partner in Hibernia, exercised an option to withdraw from the $5.2 billion project (OGJ, Feb. 10, Newsletter). The company said it can no longer afford costs involved to develop the field scheduled to come on stream in 1996.

Feb. 17, 1992

3 min read

The Canadian Government is opposed to increasing its financial support for the Hibernia oil field development project off Newfoundland but is willing to make it easier for other investors to buy in.

Gulf Canada Resources Ltd., Calgary, a 25% partner in Hibernia, exercised an option to withdraw from the $5.2 billion project (OGJ, Feb. 10, Newsletter). The company said it can no longer afford costs involved to develop the field scheduled to come on stream in 1996.

Other partners in the Hibernia group-Mobil Oil Canada Ltd., Petro-Canada, and Chevron Canada Resources Ltd.--said they remain committed to the project, and it will proceed. Federal and Newfoundland government officials said the Gulf pullout does not place Hibernia in jeopardy. They also remain committed.

Gulf has been seeking a buyer for its interest for some time. The company is committed under a development agreement to remain in the group for as long as 8 months and to meet its financial obligations under the agreement while seeking a buyer. Gulf could wind up spending more than $300 million.

Gulf said Hibernia would require about 40% of its capital budget in 1992 at a time when low oil prices are shrinking cash flow. The company also is a 25% interest partner in a $1 billion development program in Siberia.

Gulf Pres. Chuck Shultz said proceeding with its full interest in Hibernia would commit too large a portion of Gulf's resources to a single project.

Petro-Canada also has been seeking buyers for part of its 25% interest for some time. Neither Gulf nor Petro-Canada have found buyers for their interests.

GOVERNMENT ROLE

Federal Energy Minister Jake Epp said Ottawa will not increase the $2.7 billion in grants and loan guarantees it is providing for Hibernia. But Epp said Ottawa and the remaining partners are willing to be flexible on terms for new investment. The minister is prepared to consider increased non-Canadian ownership as an option.

Under current federal regulations, foreign investors cannot acquire oil and gas companies with assets of more than $5 million. An exception can be made if a company is in serious financial trouble. Ottawa is reported to be considering an increase in the ceiling to $150 million and changing the financial distress rules.

Epp said profitable Canadian companies that have large deferred tax credits or owe the government taxes could use these liabilities against the purchase price of a share in Hibernia.

Under the original Hibernia agreement, non-Canadian companies can hold no more than 50% interest in the project. All other companies have to be listed on the Toronto Stock Exchange. Epp said Ottawa is now prepared to drop this requirement.

Epp said a number of options, including slowing the development schedule for Hibernia, are being considered.

Initial site work began on Hibernia more than a year ago. Contracts worth more than $1 billion have been let and a number of major contracts are to be let this spring (OGJ, Jan. 20, p. 18).