Chevron’s Canadian unit and its partners signed a deal with Newfoundland on Wednesday to develop the Hebron oilfields in the North Atlantic, ending two years of wrangling over the Canadian province’s demand that it own a stake in the project.
The two sides beat Wednesday’s deadline for the agreement after the province paid $110m for a 4.9 per cent stake in the project, which is estimated to cost at least C$5.8bn (US$5.5bn). The companies will also pay a 6.5 per cent royalty to the province when oil sells for more than $50 a barrel. The project’s potential overcame previous concerns over the province’s demands.
“The Hebron Project is key to our Canada growth strategy and is one of many projects in our North American portfolio that will allow us to grow our reserves and production,” Gary Luquette, president of Chevron North America Exploration and Production, said in a statement.
Chevron will operate the project and own a 26.6 per cent stake. ExxonMobil Canada owns a 36 per cent stake, while Petro-Canada and StatoilHydro Canada Oil & Gas are also partners with a 22.7 and 9.7 per cent stake respectively.
The Hebron oilfields, off Newfoundland’s coast, are estimated to contain up to 720m barrels of oil. The project is expected to begin producing oil between 2016 and 2018, and at its peak produce about 170,000 barrels of oil daily.
Initial negotiations to develop the fields were held up by Newfoundland premier Danny Williams’ demands. He argued that oil royalties were going to the companies and the federal government but not to the province, which was long Canada’s poorest.
At current oil prices, Mr Williams estimated the province will earn about $28bn over the project’s 25-year lifespan. “We are launching a new era of energy projects in which we, the people of Newfoundland and Labrador, are stepping forward and proudly taking our place as full partners and active participants in energy resource development,” Mr Williams said. This year, several companies, including Husky Energy, Norway’s StatoilHydro ASA and Petro-Canada, began exploration off Newfoundland’s coast.
Mr Williams has said that his government will demand 10 per cent ownership of future oil and gas projects. The companies softened their opposition in light of increasing pressure to halt declining oil and gas output and reserves. On August 1, Chevron said it would likely not meet its 2008 production targets.