Newfoundland, Labrador Goverment takes 10% slice of Hibernia South extension

The Provincial Government of Newfoundland and Labrador signed formal agreements with its industry partners to develop the Hibernia Southern Extension, solidifying the province’s 10 percent equity stake in the project, through Nalcor Energy – Oil and Gas, and a top royalty rate of 50 percent. 

“Hibernia has been a tremendous resource and a great project for investors, the province and the people of Canada,” said the Honourable Kathy Dunderdale, Acting Premier and Minister of Natural Resources. “Finalizing the agreements for the extension of this pioneer field is another example of the potential that exists in our offshore. This deal demonstrates the ability of the Provincial Government and its partners to work together in good faith to successfully reach final agreements that are consistent with the principles enshrined and agreed to in our Memoranda of Understanding (MOU).” 

The deal formalizes the MOU reached in June 2009. The Hibernia Southern Extension is estimated to return approximately $13 billion to the Provincial Government in royalties, return on investment through Nalcor Energy – Oil and Gas and corporate income tax. This estimate is based on an updated oil price forecast by the international energy consulting firm PIRA. 

The Provincial Government, through Nalcor Energy – Oil and Gas, has acquired a 10 percent equity interest for $30 million in the Hibernia Southern Extension project that will be produced using a subsea tie-back. In addition to its working interest in the project, Nalcor Energy – Oil and Gas has also acquired a significant amount of valuable high-quality geological data for the entire Hibernia field that will be useful in identifying possible future expansions. 

The deal resolves the decade-long dispute over the deduction of transportation costs by the proponents for royalty purposes. This resolution accelerates payout, resulting in higher royalties for the province in this fiscal year. The same transportation cost eligibility rules as negotiated for the Hebron project will apply going forward.
As part of the deal, the proponents will comply with the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) requirements on research, development, education and training. The proponents will spend $10 million within three years of first commercial production on one or more legacy projects in these areas. The deal also includes a Gender Equity and Diversification Program for all phases of the project.
The Development Plan Application for the Hibernia Southern Extension was filed with the C-NLOPB by the project operator on February 1, 2010. This development will extend production from the main field by an additional five years. 

“The oil industry is the engine that drives our economy, representing nearly 40 percent of the Gross Domestic Product,” said Acting Premier Dunderdale. “This particular deal with its 10 percent equity stake and top tier royalty rate will ensure significant economic gain for all Newfoundlanders and Labradorians during the project’s entire lifespan. This is the third MOU that we have negotiated to conclusion through formal binding agreements. Together with our industry partners, we have now reached agreements for the stand-alone project of Hebron and the extensions of White Rose and Hibernia. We have done so on principle, and we have been consistent and thorough in our approach. The increased royalties and equity stakes the Provincial Government has gained as a result of our negotiation approach have already proven their worth to the province in terms of revenue, participation and partnership and will continue to provide significant value in the years to come.”

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