Hope for a `have-not' province. With over 17 percent of its labor force unemployed and many others working for low or seasonal wages, Newfoundland has long been Canada's poorest province. But a new agreement to develop the Hibernia oil field 200 miles offshore could - if world oil prices cooperate - offer some of the prosperity that was promised when the field was discovered in 1979.
St. John's, Newfoundland
``One day the sun will shine and have-not will be no more.'' That bit of rhetoric was used by Newfoundland Premier A. Brian Peckford July 18, when Canada and the province of Newfoundland and Labrador signed a framework agreement with the Hibernia oil consortium for the $8.5 billion (Canadian; US$7 billion) development of the Hibernia oil field about 200 miles southeast of here on the Grand Banks.
With 17.7 percent of its labor force unemployed and many others working for low-cash incomes, Newfoundland has long been Canada's worst ``have-not'' province.
Newfoundland's offshore oil finds are seen by Mr. Peckford and others as, if not economic salvation, something close to it. He describes the anticipated development of Hibernia and other offshore fields as ``the addition of a whole new economic chapter to Canada's history.''
Since the announcement, however, house prices in St. John's, the capital of this province of 580,000, have risen only 5 percent or so. Office space remains relatively cheap. ``There is lots of space kicking around,'' notes Paul Bugden, executive director of the Economic Council of Newfoundland and Labrador.
One reason is that when Hibernia was first discovered in late 1979 at the time of OPEC ascendancy, many Newfoundlanders expected a big boom right away. Property prices soared. Many businessmen invested money in joint ventures with oil-industry firms from Norway, the United Kingdom, or the United States. Then oil prices declined. Nothing happened. Some ventures failed. The years rolled by.
``This time around people in the business community were more cautious,'' notes Gordon Gosse, deputy minister of the provincial department of energy.
The positive side of the lengthy delay has been that Newfoundlanders, as individuals and firms, have learned much more about the oil business during the last eight years.
``We are much more prepared now,'' says Mr. Gosse. ``We have a chance to do it right.''
More Newfoundlanders will be ready to take oil jobs. The government has sent hundreds of its ministers and civil servants to the United Kingdom and Norway to learn from their offshore oil experience.
The July agreement spells out how the consortium and two governments will share the oil revenues.
``This will have a tremendous impact on the province over time,'' says Gosse. ``I'm not sure when we will become a `have' province. But it has always been our hope to get away from receiving handouts or equalization payments.''
Newfoundlanders are highly dependent on seasonal employment, especially in the fishing industry. Only 39 percent of the population holds year-round jobs, compared with 59 percent for Canada as a whole, a Royal Commission on Employment and Unemployment has noted. After a short summer of work on the boats or in fish plants, thousands live on unemployment insurance, spending their time building their own houses, repairing their automobiles, hauling firewood, setting gardens, picking berries, and hunting, fishing, and trapping for their own consumption.
Newfoundland receives on a per capita basis larger ``equalization payments'' (money from the federal government to equalize basic government services such as education and health benefits) than any other of Canada's 10 provinces.
Ron Dawe, provincial minister of intergovernmental affairs, talks of using oil revenues to improve such government services as health care, education, and highways.
He is convinced that the consortium, headed by Mobil Corporation, will sign a legally binding agreement on time, that is, by next March 31 - barring a complete price collapse to $8 or $9 a barrel.
``They have committed themselves,'' says Mr. Dawe.
Others are less sure of a quick project launch.
``I think it is still very iffy,'' says Douglas House, an economics professor at Memorial University of Newfoundland and chairman of the 1985 Royal Commission. ``The whole international gas and oil scene is very uncertain.''
If the project goes ahead, it will mean that the federal government, Mobil, and its partners will take a huge gamble on oil rising above its current price of about $14 a barrel by the time production begins (in 1995, it is hoped.)
The federal government will contribute 25 percent of pre-production capital costs, up to C$1 billion US$820 million), and guarantee loans for 40 percent of these costs, to a maximum of $1.66 billion.
The consortium, consisting of Mobil (28.1 percent), Gulf Canada Corporation (25 percent), Petro Canada Inc. (25 percent), and Chevron Canada Resources Ltd. (22 percent) will put up the rest of the estimated $5.2 billion cost of getting production started. An additional $3.3 billion will be spent after start-up.
Producing oil in the Hibernia field will be enormously expensive. The field lies under what has been termed ``iceberg alley.'' So the field is to be developed using a concrete ``gravity base structure'' capable of both storing 1.45 million barrels of oil and resisting the impact of a large iceberg.
Economically recoverable reserves are estimated conservatively at about 525 million barrels, to be pumped out over 18 years, with a peak production rate of 110,000 barrels a day.
Provincial officials have calculated that at a price of US$15 a barrel, provincial royalties and taxes will amount to $1.5 billion over the life of the field, stretching out to 2015. But at $25 a barrel, the province would get $5.3 billion. The deal includes an extra 12.5 percent royalty, should oil prices rise sharply.
The federal government will receive similar revenues ($4.7 billion at $25 a barrel, for example). It might also see some of its unemployment insurance and other subsidies to Newfoundland drop.
With the Hibernia consortium committed to spending 40 to 50 percent of the development expenditures in Canada, including construction of the production structure in the nearby port of Come-By-Chance, Newfoundland is counting on 35,000 direct and indirect new jobs from Hibernia during the development phase and 3,500 permanent jobs.
More than that, the province hopes that Hibernia will be only one of several already-discovered oil fields to be developed offshore.
Professor House says oil will not solve all of Newfoundland's problems, but will give its economy a boost.
Says Premier Peckford: ``The bread will not be long in coming.''