DEADLINE APPROACHING FOR HIBERNIA DECISION

Members of the group preparing for development of Hibernia oil field off Newfoundland face a decision by the end of this month on whether to proceed or shelve the project. An indemnity agreement with Ottawa and the Newfoundland governments would give them 75% of what they have spent since last May to a maximum of $185 million (Canadian) if the project is mothballed. The agreement expires at the end of this month. Cost of mothballing the project is estimated at $200-300 million. About $1

Jan. 19, 1993

3 min read

Members of the group preparing for development of Hibernia oil field off Newfoundland face a decision by the end of this month on whether to proceed or shelve the project.

An indemnity agreement with Ottawa and the Newfoundland governments would give them 75% of what they have spent since last May to a maximum of $185 million (Canadian) if the project is mothballed. The agreement expires at the end of this month.

Cost of mothballing the project is estimated at $200-300 million. About $1 billion has been spent to date.

Meanwhile, Ottawa and the Hibernia partners continue efforts to seek new funding to take up the slack left by Gulf Canada Resources Ltd., which is dropping its 25% interest. Texaco Inc. confirmed earlier this month it had decided against taking part in the $5.2 billion project after lengthy negotiations (OGJ, Jan. 11, Newsletter).

Present division of interests is Mobil Oil Canada Ltd. 28.125%, Chevron Canada Ltd. 21-875%, and Petro-Canada 25%.

Murphy Oil Corp. declined to comment on reports it is considering taking a 5% interest in Hibernia for more than $200 million.

OTTAWA'S DECISION

A decision on Hibernia will be one of the first issues facing Bill McKnight, a native of Saskatchewan, Canada's new energy minister. He replaces Jake Epp, who plans to leave federal politics.

Ottawa has invested about $2.7 billion in grants and loan guarantees to support Hibernia development.

McKnight, whose background is in farming, has held a number of federal posts in northern affairs, defense, and agriculture.

The new minister said the federal government must evaluate the costs and benefits of Hibernia.

"I hope the project can be saved, but there must be net benefits to Canada or it won't," McKnight said. "Hibernia is important to Newfoundland and the energy industry, but the people of this country cannot afford uneconomic investments."

McKnight will have to evaluate conflicting claims by opponents that Hibernia is uneconomic and by supporters who argue it is a good long term investment.

Newfoundland Premier Clyde WeLls said the cost of recovering Hibernia crude will be about $14 (U.S.)/bbl, and both his government and Ottawa will gain direct revenues and spinoff benefits during the 20 year life of the project.

He said all costs will be recovered if oil is priced at $15 (U.S.)/bbl or more in 1997. Wells called estimates that recovery costs could be $30 (U.S.)/bbl "irresponsible and inaccurate."

Hibernia, with estimated reserves of 525-650 million bbl, is scheduled to begin producing 110,000 b/d in 1997.

On other issues, McKnight said he favors increased streamlining of regulations related to the industry and supports western Canada producers in a gas price and contract dispute with California regulators.