Monday, 5 June 2017

FLAWED HUSKY DEAL GOES LARGELY UNREPORTED

If any member of the public as much as frowned last Monday when the Ball Government and Husky Energy announced agreement on the White Rose Extension project, they might have risked exile to the Funks or worse. Politicians, industry officials, hangers-on, the compradors (fixers and agents) and, of course, the media were all found ‘cheek to jowl’. 

Ditched, along with the champagne corks, was even the tiniest bit of perspective on the flawed deal even if, admittedly, it was an important one.

There is no question that the failure of OPEC to keep prices as high as Ed Martin had decreed, the end of the Vale and Hebron projects, and the consequent downturn in the housing sector, have everyone longing for the good “old” days. But economic challenges are not a time for governments to lose their minds, or embrace a future with a duration running only until the next election.

Siobhan Coady seemed within a nudge of shouting “we got it”, her restraint tethered only by the star of Galway who long ago appropriated the phrase with dubious claim.

The truth is the Premier and the Minister had only Husky’s ‘win’ to announce.  
Had they been forthright and said to the public, “we negotiated hard… we would like to have gotten more… but the Province needed this project,” we might have appreciated the honesty if all cards had been laid on the table. That’s not what occurred. Instead, they gave the public a false story.

Husky Energy, on the other hand, had a good news story to give their shareholders.

Let’s take a look.

On the same day that the company announced the White Rose Extension, the public was informed of a “new” oil find close to the White Rose field; it might even be a new field. Given the thickness of the “pay zone” 100+ metres it certainly has quite significant potential.
Husky Energy Investor Day Presentation May 2017
Remember that the Company was faced with declining reserves at White Rose. Without the “Extension”, the substantially drained reservoir would soon be uneconomic.

It is true that the capital cost of the project met headwinds from an uncertain oil market. The new ‘find’ injects the possibility of a new field, at worse a tie-back opportunity (and better scale economies). Either way, a savvy Government might have concluded that this is not a Company about to run away from the Newfoundland offshore.

For the Premier and the Minister of Natural Resources, the new find should have constituted leverage to get more work from Husky which should have been part of the original deal.

Too much work is going to South Korea or to the U.S. Gulf States, as it is.

The Government's vision could not see beyond getting the project going now. Like most third world governments, they couldn’t shake short-termism.

There is another reason why the Husky deal needs context, even while we will forego asking why a June 2013 deal was still “current” for Husky but not for the Government?

Some might remember though evidently not the NL Trades Council that the 2013 deal was negotiated at a time when the province’s economy was booming, the skilled labour force fully committed to other projects. Bull Arm was occupied giving rise to Argentia as a new offshore fabrication centre. 

Siobhan Coady told the public that the topsides arrangement she announced last week was agreed to in 2013. But the Minister wasn’t telling the truth.

It was Husky not the Government who requested that the deal be re-opened. The Company wanted out of their ‘legacy’ project to Argentia: the retractable gates. They also wanted to perform less topsides work than that contained in the 2013 deal.

Husky’s demand to re-open the Contract was the Government’s opportunity to say, We want changes, too. We want some of what former Premier Tom Marshall gave away.

Indeed, the Minister could have said to the Company, Unlike 2013, the Bull Arm site is empty. Perhaps you might want to fabricate all or most of the topsides at Bull Arm and Marystown.

Husky would have turned tail at that prospect in a New York minute!

Premier Ball boasts a 72% increase in the person-hours of work over that contained in the original deal. But that wasn’t something he won. The larger GPS is an improvement Husky wanted.

And it wasn’t sufficient reason to forgo a major benefit of the 2013 Agreement the retractable gates, which Nalcor failed to install at Bull Arm and have Exxon Mobil pay for it.

Now, at Argentia, the entrance to the Graving Dock, where the Concrete Gravity Structure (CGS) will be built, will be just a hole in the ground filled with water like any other Bay in NL.
Graving Dock Site Location (Photos Credit: Husky Energy)

The gates would have made this third world solution unnecessary. They would have made Argentia a highly attractive deep water construction site. They would have made it feasible for far smaller projects when Husky exits.


The compradors had those gates — worth $120 million installed — in their sights for some months now, ready at every opportunity to convince the politicians, and the other short-term thinkers, that they were easily worth sacrificing to help along Husky’s view of project economics.


The sad part is, when Husky leaves Argentia, we will have not just one, but two poorly developed facilities — capable only of doing future work that some other desperate Government can negotiate using the advantage of proximity to the resource and the Atlantic Accord.

Float Out of CGS From Graving Dock (Photo Credit: Husky Energy)
Notice the absence of retractable gates. 
The Government’s Press Release makes no mention of the dropped gates.

Instead they announced “Contribution of $60 million to an Innovation and Business Development Fund… for strategic investments to grow industry capacity” paid (ostensibly) by Husky of over a period of ten years.

The actual Agreement read: “… upon payment, these contribution amounts shall qualify as and be classified as eligible capital costs for the WHP Proponents, for the purpose of calculating royalty payable under the Royalty Regulations, 2003.”

In other words, much of the money constitutes a “loan” from Husky. It will be paid back to the Company as “eligible capital costs” from royalty payments. Husky saves $120 million by dropping the gates, the Government gets credit for having negotiated the $60 million development fund, and the NL public gets to pay it back.

Are you clapping now?

There are other examples of the same duplicity.

In enumerating the benefits from the Extension Agreement, the Government Press Release listed “Engineering and fabrication of the accommodation module in the province”.

But they didn’t tell the public that Husky was allowed to take substantial work out of that module, which the 2013 Agreement contained. The amended agreement states:

In addition, the following term shall have the following meaning:

“Facilities Service Block” means the two floor module below the accommodation modules, containing the central control room, local electrical and instrument rooms, and ancillary systems.


To quote one professional engineer familiar with the deal: “Not just the gates and foundations are gone — $120 million and a future for the Argentia service base. We allowed Husky to dumb down the topsides living accommodation module by putting the control rooms and other Mechanical & Electrical equipment in the GBS, taking the work out of NL.”
The Minister had the nerve to suggest that we have never fabricated this type of topsides before. She seems not to know that every GBS or CBS is a new design. None of them come off the shelf.

Besides, if we adopt her attitude, no fabrication would ever occur in NL.

But interestingly, while the Minister doesn’t know seem to know much about anything, she is willing to let Husky reduce the amount of engineering design work to be performed in the Province too.

Ball did ‘win’ one thing.   

The deal states:

“This Second Amending Agreement shall terminate and be of no force and effect if (a) Project Sanction of the Wellhead Platform Project does not occur within forty five (45) days of the date of execution of this Second Amending Agreement…”

Husky could have whatever they wanted, as long as they sanctioned the project right away.

A desperate Government. Dumb, too.

But you have to ask: where is the media?

How is it that almost none of this got reported?

20 comments:

  1. And there is also the question of carbon taxes, how this gets treated, taxed that will be mandated as required by the federal government,but likely handed back to the same same oil company to make improvements going forward to reduce their carbon footprint.(instead of being used for residents of this province to reduce their carbon footprint via house energy reductions, credits for more efficient cars etc.
    So really letting the oil industry continue to worsen climate change, instead of other uses, including renewable energy.
    To stop climate change some 80 percent of known reserves are to stay n the ground.....but we do our bit here to assist Donald Trump,in negating the Paris Climate Accord........Trumps view: Climate Change is a Chinese conspiracy to make America less competitive..... sounds good for any oil producing province.
    Fact: though Canada`s population is small in relative terms, Canada`s emissions, per person average, is among the worse in the world for CO2 emissions. On moral grounds, and fairness, we do not deserve a pass to pump every barrel of oil out. And do we not also flare vast amounts of gas into the atmosphere offshore......daily adding to the CO2 levels in the atmosphere........Oh, right....that just blows toward Ireland, not our problem.
    Winston Adams

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    1. Just think of it; Atlantic Canada, by virtue of the NL offshore is self-sufficient in oil.

      The fact that this deep oil production is fed South to make "American great again", and self-sufficient in oil. What a complete balls up, and some Canadians think an East Pipeline is OK while Canada's GHG and carbon emissions struggle higher. When will carbon taxes kick in to reduce pollution? Drill some geothermal and convert Holyrood to Renewable.

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  2. The Ball government is in full re-election mode and has been for the majority of the past year. The recent cut back the fuel taxes, did not do any serious public sector layoffs or other spending cuts, still proceeding with many construction projects, signing this oil agreement under any terms to get some people working in time for the next election, etc.

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  3. I had never used Face Book, and do not own a cell phone or iPad.....I just manage with this laptop keyboard. I used to think typing was for secretaries........who had training for that, and slow typing is so tedious.
    But on April 23, I had 2 children, oil industry workers, excited enough to take my grandchildren to see the Hebron rig ready to be towed out of Trinity Bay. They sent photos of the huge rig to my wife on her iPad, via Face Book.
    I asked if I could respond, and she reluctantly agreed. I managed to somehow navigate the procedure to bring up the keyboard, write a message and send it. It went something like this: `Today is Earth Day. Today we have 150,000 people in Washington marching as to Climate Change. We have only one Mother Earth. Our grandchildren will suffer the consequences. Stop oil production off Nfld now.`
    My wife was rather upset at me. My children make good incomes from the oil industry.
    The response to my message was 2 dislikes, no likes, and a comment from my daughter, which read : Dad has managed to use Face Book, a feat probably bigger than the building of the Hebron rig.
    I thought the comment amusing, with some truth to it.
    Meanwhile I wonder if I have unwittingly cursed this Hebron project. The rig has been unable to leave Trinity Bay due to unusual ice conditions, costing some 20 million in delays with 8 tug boats on standby. After finally leaving 2 days ago, I pondered if the cold northeast winds yesterday might cause more delay.......seems so...the rig is again stalled. The power of Face Book......who would have thought. A month before we set a record for the longest period of continuous fog, 62 percent longer than the prior record.
    Of course, a curse has a best before date, and will likely soon run out. Ice that stops oil rigs also hinder fishermen.......and the higher powers always like to side with fishermen, who have so much to lose with climate run amuck. Hebron promised to pump oil before year end.........anyone counting the CO2 parts per million......despite 30 years of talk and Accords, it continues to climb up. And the nut case in the US of A wants to burn more coal....as do Nova Scotia, wanting to reopen a closed coal mine.
    How about refurbishing the Kyle.......the last of our coal burners!
    Winston Adams
    Winston Adams

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  4. "But you have to ask: where is the media?" Corporate media supports corporate interests. That means they distribute propaganda and suppress the truth.

    If by media, you mean journalism, then the answer is here. You are journalism. Blogs and social media are the only outlets of truth left.

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  5. On your Android TV box there is a movie called All Governments Lie. They give the media half the story and the media reports only what suits their corporate image so we who pay the bill never get to know the whole truth.

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  6. Beatrice Hunter ......our political prisoner held in a facility enclosed by barber wire, after being TRANSPORTED away from her home land and family and friends. Was it about 1817, two centuries ago that Mary March was brought to this town if St. John`s, after her husband was murdered, and her baby soon died. And now the government wants their sculls returned from Scotland! Why now......because we suddenly have remorse and shame over what happened for 3 centuries of mistreatment toward the Beothic.........or to show off these relics in a museum somewhere, as a tourist attraction.........
    Imprisonment of Beatrice ,not unlike the treatment of Nelson Mandella, except Mandella had considered acts of violence against the state. Beatrice has merely protested that her people`s way of life and life itself has been endangered by Nalcor and the Muskrat Falls project, especially after recent flooding.
    What has the media said on this matter:
    1. Yesterday, Patty Daley on VOCM said it was inappropriate that she was jailed then transported out of Labrador to the lockup and then to the jail at St. John`s . Today it the subject of VOCM question of the day. So far with about 2200 people responding, about 49 percent said that the action against her is inappropriate, 45 percent say it is appropriate. Let VOCM rerun that question once the power rates double on this island, and consider who, more that Beatrice, stood up to the bullies at Nalcor.
    CBC, both TV and online has given considerable coverage this past 2 weeks on this.
    The Telegram had been silent. But today it has a short piece titled `HMP`s female unit `like a separate prison` Parson say. The article gives no opinion whether the action against Beatrice Hunter is appropriate......it just quotes the Justice Minister Parsons saying `As minister, I have no involvement`
    Interesting that no name of anyone at the Telegram appears as filing this piece. Could be be Russell, who has already found no fault with Justin Blake of the Independent being charged! Does Russell hide on stating his opinion on Hunter`s situation.
    The Independent.ca site has a well reasoned argument on this subject. Hans Rollman has a piece titled ` Colonialism in the justice system: Who`s to blame`
    He argues that Nalcor is responsible for Hunters situation. That Gilbert Bennett signed the affidavid initiating the charges, and that charges had been dropped against some others. He argues that Premier Ball has ultimate responsibility for the actions of Nalcor, and could intervene with Nalcor, but not directly with the court.
    But Ball and Parsons use the excuse that they can do nothing.
    Now, in my opinion, Ball stated that he would get to the bottom of the flooding that occured, flooding that was life threatening for the people there, and that he would establish an independent investigation.
    Well, is this not the rationale for freeing Hunter: Set her free until the investigation proves or disproves that Nalcor was fully or partially responsible for the flooding, and that Nalcor dam safety is adequate. Stay the proceeding against Beatrice until this investigation is made public. What is the make up of experts doing this independent investigation and time frame for Ball getting to the BOTTOM of this flooding situation! Have it made public within 60 days.
    Getting to the bottom of that question would likely get to the bottom of whether Hunter`s cause is a just one, and that delay of that investigation is delay of justice for Beatrice Hunter.
    I suggest readers go to the Independent.ca and read Hans Rollman`s well reasoned piece on colonialism in the justice system.
    Winston Adams

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  7. This kind of incompetent, short sighted and possibly corrupt deal making will continue until the general population revolts and is willing to install a new political party with non-compromised candidates which in turn completely overhaul the bureaucracy and crown corporations. Unfortunately, at this point a messiah could arrive and there would be maybe a few dozen followers. I hate to be cynical and say that the general population deserves our government. I hope that a critical mass will be eventually be reached so that when good people finally get together and form a new political party that they will also find sufficient grass roots support to overthrow the status quo.

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    1. The kind of movement you describe will usually come from the Left. I can't recall in my 79 years a genuine Left Reform movement in NL politics, (closest I suppose was Coaker, Co-ops, the odd Bolshie like young Smallwood, Hope Simpson, maybe Horwood). They brought about some real progressive change.
      This partially explains the current malaise. Too many Tories! Too much Tory-mindedness. The Greens, with only 17% of the popular vote, is about to upset the Tories long run in BC. Keep an eye open for hopefully, a similar movement in NL.

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  8. Even Alberta is progressing towards a smart grid with Renewables.

    http://www.pembina.org/pub/levelized-cost-of-energy-storage-and-operational-ghg-performance.

    Has Pembina done a write up on NL Renewable Energy potential lately?

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  9. Not sure if this deal is the best deal available for NL. It is never a good time to negotiate oil projects when oil prices are lower and the provinces finances are weak. Especially not when combined with close timing to the next election, as it is now.

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  10. One cannot really be surprised that companies push hard to have work done outside the province, with the track record local labor unions have for causing huge project cost overruns. If the unions weren't so focused on ripping industry off in the short term, there'd be much better prospects for future work here. Since the unions haven't demonstrated the ability to think long-term, I believe that we need government to reign in some of the power of the unions and allow us to have a competitive labor force.

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    1. Wage suppression by the establishment government is exactly what I mean by Tory-mindedness. Trickle down theory. Do some research regarding trends in wages vs cost of living vs corporate profits vs executive salaries, and you will have a different point of view. Has your own income track kept up with cost of living? Give a thought to those who work hard and are falling behind. The oil business is heavily subsidized by taxpayers, and are quick to move work offshore, so to speak, to avoid paying taxes and maximize profits. All at the expense of the wage earner.

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  11. More and more of the rhetoric on this blog (especially in the comments) remind me of tenants of Socialism. Surely, if history has taught us anything, it is that Socialism is bad. Capitalism might not be perfect but is the reason many of us in the Western world have the freedom and privilege that we do today.

    https://www.forbes.com/sites/modeledbehavior/2017/02/12/socialism-is-bad/#6b8f62eb3d79

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    1. Mike, I could not access this article. I assume you meant it for my educational benefit as a "tenant of socialism." Do you not agree that part of the current debate over government subsidies to the oil business and NALCOR represent "Bad Capitalism"?

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    2. Hey Robert, "Most" Governments are atrociously bad at big capital projects, and indeed Capitalism in general. Too many conflicting interests and really bad project management. These types of projects are better left to the private sector.

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    3. I agree on the bad project management comment. Why do you think NALCOR were not held to the public tender protocol thereby giving the competitive benefit to the ratepayers? I have seen much tender manipulation of the private sector bids in my day as well.

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  12. Does not look good for progressive change.

    http://www.thetelegram.com/news/local/2017/6/7/tories-edge-out-liberals-in-poll.html

    Ball, who is acting like a Tory in government, is losing the poll to the real Tories. You deserve the government you vote for, and the consequences are more deals on offshore, and resource development that the public refer to as enrichment of the few at the expense of the many. This trend has been in effect since 1949.

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  13. The no dam way to stop this project Tory/Liberals are using their 40% plurality heavy hammer to deny economic analysis and review.

    http://www.cbc.ca/news/canada/british-columbia/delay-site-c-dam-1.4149947

    What advice would you people give to the gov. in waiting?

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  14. Think its bad now, wait till all technical tradespeople leave and not look back. more in newfoundland than iron workers and laborer's. I'm truly disgusted as a man in my 40's, a tradesman. This bunch couldn't co ordinate a cluster f**k. :(

    Thank u Des.

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