This article was originally published in Maclean's Magazine on March 3, 1997
Hibernia Rig Prepares to Drill
John Cabot could never have imagined anything like this. When the Anglo-Italian explorer arrived at the Grand Banks in 1497, the schools of codfish were so thick, they literally stopped his ships in the water. It was a wonder of the age: fishermen flocked to the Grand Banks, and England laid claim to the "New Found Land" beyond them. Now, as Newfoundlanders mark the 500th anniversary of Cabot's voyage, the cod are mostly gone, and a vessel of quite a different ilk is headed for the same waters - this time in pursuit of oil riches trapped in rock formations more than 3,700 m below the sea.
The $5.8-billion Hibernia offshore oil platform - one of the biggest and most expensive production rigs in the world - is scheduled to arrive in the Jeanne d'Arc Basin near the Grand Banks in early June. This week, weather permitting, the project will mark a crucial turning point, as the two major components of the platform perform a delicate mid-water mating ritual - the culmination of a six-year-long construction marathon. And as with Cabot's voyage half a millennium ago, others are set to follow. Already, there are plans to develop two more major oil discoveries in the Jeanne d'Arc Basin - the Terra Nova and Whiterose fields - shortly after the turn of the century. Those will add significantly to the 615 million barrels of oil that Hibernia is expected to pump out over its 20-year lifespan. At the same time, what seems destined to become the world's largest nickel-mining operation should be under way at Voisey's Bay, Labrador, providing at least 1,400 jobs and new royalty wealth to the province. The recent flurry of resource activity is even fuelling the sentiment that maybe - just maybe - the perpetual hard-luck province is about to get a break. "There's a growing bubble of confidence," says Newfoundland Premier Brian Tobin, "that this time we're going to seize the moment."
This being Newfoundland, however, there is also a lurking suspicion that something or someone will come along to burst that bubble. "There seems to be a very ambivalent attitude," says Bill Rowe, a onetime provincial cabinet minister and host of the province's most popular open-line radio show. "On the one hand, people say, 'Oh, finally, we're going to arrive economically.' On the other, there seems to be a dire pessimism and cynicism that we're not going to get anything like our just rewards." In a similar vein, Wade Locke, an economist at Memorial University in St. John's, ticks off several reasons why there should be better days ahead for Newfoundland, but then quickly adds: "We can always do things to screw it up. That's always a possibility."
Newfoundlanders have learned to take little for granted. After generations of watching their fortunes rise and fall with the price fetched for fish, trees, minerals and hydro power, they are innately wary of anything that boasts of being the next big play. Memories of past disappointments are simply too fresh. In the 1970s, there was the Come By Chance oil refinery, the brainchild of New York City promoter John Shaheen. The province sank millions into the poorly conceived project before it suddenly went bankrupt and closed (the refinery eventually reopened under new managers in 1987). In the 1980s, there was the saga of the Sprung greenhouse, an attempt to transplant hydroponic growing techniques to the island. It was bedevilled by production problems, including a lighting system designed to compensate for the cloudy weather that instead caused cucumbers to grow out of control, crushing tables and snapping support cables. By the time the greenhouse went into receivership, taxpayers had lost more than $20 million.
But those fiascoes pale beside the enduring bitterness over the 1969 agreement that allowed Hydro Quebec to buy power generated from Churchill Falls, Labrador, with no price increase for 65 years. Events quickly conspired to give Quebec a multibillion-dollar windfall while Newfoundland made do with ever-dwindling profits. Last fall, Tobin launched a cross-Canada public relations offensive aimed at shaming Quebec into reopening the deal. The rhetoric cooled after discussions last month between Tobin and Quebec Premier Lucien Bouchard during the Team Canada trade mission to Asia. Senior officials of both governments are now engaged in preliminary talks aimed at resolving the dispute and paving the way for developing new hydroelectric sites in Labrador.
Megaproject misadventures aside, there is a growing recognition among Newfoundlanders that no single development, however grandiose, is going to wash away their economic woes. Officially, the province's unemployment rate stands at 20 per cent - the highest in the nation. Unofficially, it is much higher, as the 1992 moratorium on the northern cod fishery - which instantly threw more than 30,000 fishermen and fish-plant workers out of jobs - continues to cast a pall over the 600 communities that dot the coastline. Newfoundland still relies on $1 billion a year in equalization payments from Ottawa. And as other federal transfer payments are reduced, the provincial government finds itself increasingly hard-pressed to provide basics such as health care, education and road maintenance.
Yet for all of that, there is little doubt that the recent resource activity is chipping away at the gloom. For one thing, Hibernia has already injected an estimated $2.2 billion in direct investment into the province, provided up to 5,000 construction jobs and given a number of Newfoundland engineering and high-tech firms a shot of hope. Jerry Bishop, president of BFL Consultants Ltd. of St. John's, says that without Hibernia, his engineering firm would still have a staff of perhaps 20 people scrambling to compete on the few major capital projects that come along. Instead, he says, BFL now employs 60 people and is using the expertise gained through Hibernia to compete for work at Voisey's Bay and Nova Scotia's Sable Island gas project. "You can have all the staff and talent you like, but it's no good unless you have the opportunity," says Bishop. "Well, finally in Atlantic Canada, we can look forward to some big opportunities."
Similar optimism can be found in Arnold's Cove, a fishing community of about 1,500 located 10 km west of Hibernia's Bull Arm construction site. Residents are now pinning hopes for new jobs on two imminent developments - the $250-million facility for shipping Hibernia crude that is to be built five kilometres north of Arnold's Cove, and the $1.5-billion Voisey's Bay nickel smelter and refinery slated for Argentia, 60 km south of the town. "People are generally upbeat," says Arnold's Cove Mayor Tom Osbourne. "There's more positives happening in the province than there has been for quite some time." But even here, the old Newfoundland skepticism creeps in. "People tend to be a little apprehensive at times and wonder if it's all real," allows Osbourne. "But of course we know that it is; it's just a matter of waiting for things to happen."
Certainly, Newfoundlanders had to wait long enough for Hibernia - all the while wondering, as the project lurched from crisis to crisis, if it would ever come to pass. Chevron Canada Resources Ltd. drilled the first hole in the huge offshore field in 1979. But tumbling oil prices in the 1980s and the high costs of extracting the offshore crude meant that it took another 11 years of haggling before four oil giants - Mobil Oil Canada Ltd., Chevron, Petro-Canada and Gulf Canada Resources Ltd. - cobbled together an agreement to exploit the reserve. Even then, it required a number of government concessions. Newfoundland agreed to reduce its royalty take in exchange for new jobs. And the former Conservative government in Ottawa coughed up $1 billion in grants and another $1.7 billion in loan guarantees - a move that, to this day, leads critics to charge that the project was little more than a sop to the oil companies and a blatant attempt to buy votes in Atlantic Canada.
Key to securing the financing was John Crosbie, then the senior Newfoundland member of the federal cabinet. In a recent interview in his St. John's law office, Crosbie recalled how the 1990 Hibernia deal was doubly controversial because of its timing. Former Newfoundland premier Clyde Wells had just played a critical role in killing the Meech Lake accord, said Crosbie, and "many of our members, especially from Quebec, were completely pissed off. There was opposition to having been kicked in the arse by Wells and turning around and putting billions into Hibernia." Crosbie eventually prevailed, but the government delayed the legislation enshrining the Hibernia agreement for several months to give Quebec MPs time to cool off.
Crosbie also became embroiled in the next setback to hit Hibernia - Gulf's decision, in February, 1992, to withdraw its 25-per-cent stake in the project. A year later, Ottawa agreed to do what it had said it would never do, and assumed an 8.5-per-cent equity position in Hibernia, at a further cost of $340 million (Chevron and Mobil each took on another five per cent, while a new partner, Murphy Oil Corp., assumed the remaining 6.5 per cent). By this point, says Crosbie, Canadians were tiring of bailing out Newfoundland. Only a few months earlier, Ottawa had kicked in $1.5 billion for fishermen affected by the cod moratorium. "The feeling was that the cute little Newfoundlanders had gotten enough," says Crosbie. "We were no longer looked upon as so amusing any more."
The setbacks for Hibernia were not over yet. In the spring of 1994, the partners acknowledged that the megaproject was $1 billion over budget and one year behind schedule. Much of the blame lay with unforeseen complications in constructing Hibernia's massive gravity-base structure, which is to anchor the platform to the ocean floor. The choice of a gravity base, rather than a much cheaper floating platform, had long been controversial. Newfoundland had pushed for the gravity base, partly for safety reasons, but also because of the number of construction jobs it would create. By contrast, Petro-Canada will use a $2-billion floating platform to drill for the 400 million barrels of oil in the Terra Nova field.
For all its past woes, most financial analysts now conclude that Hibernia will turn a tidy profit for its owners. Some even predict that Canadian taxpayers will see a return on their hefty investment. "The economics of this project have been sound for a number of years," says Duncan Mathieson, an oil and gas analyst at Gordon Capital in Toronto. "But just trying to make people believe that is a challenge."
When former Newfoundland premier Joey Smallwood began touting the Churchill Falls project in the 1950s he described it as "a grand imperial concept." These days, Newfoundland politicians know better than to raise expectations too high. And so when the province's energy minister, Rex Gibbons, is asked in an interview if the rapid succession of Hibernia, Terra Nova, Whiterose and Voisey's Bay represent a new "mainstay" for the Newfoundland economy, he responds as if he has been urged to utter an obscenity. "Oh, I wouldn't even use that word," replies Gibbons. "This is just the development of another sector."
Instead, the buzzword in St. John's is one that has been heard for at least a decade now: diversification. Unless the province can wean itself from its historical dependence on natural resources and federal transfers, the argument goes, it is destined to fail. Douglas House, a sociologist at Memorial University, recently ended a six-year stint as head of the Economic Recovery Commission, a body set up to study ways of diversifying the economy. Among other things, the commission encouraged opinion leaders to promote the province as a good place to invest. "The main thing," says House, "is to get out the message that there's a lot more to Newfoundland than fog and cod and abused kids at Mount Cashel."
House adds that, as welcome as they are, the 800 permanent jobs that Hibernia produces or the 1,400 promised by Voisey's Bay, are "a drop in the bucket compared with what is needed." Much more must be done, he says, to build on the success Newfoundland has already enjoyed in emerging fields such as marine technology, aquaculture and telecommunications. House points to the example of Derrick Rowe, a young St. John's native who has built Stratos Global Corp. over the past decade into a leading provider of satellite communications.
Rowe, whose company has several international offices, says that distance from markets is not an obstacle in the high-tech sector. And it simply makes economic sense, he adds, to keep his head office near St. John's, where property prices are low, wages are competitive and the university provides a steady stream of bright graduates. "If we keep our smart people working here, we'll be rewarded," says Rowe. "If we don't, we'll pay the consequences."
But not everyone is qualified to work in the high-tech field - or, for that matter, for one of the major resource companies. And among those in Newfoundland's oldest industry - the fishery - there are concerns that the times are passing them by. Tom Best, a fisherman from Petty Harbour near St. John's, says that not nearly enough is being done to prepare for when the cod fishery reopens on a limited basis. Like most others, Best expects that fewer fish will mean fewer jobs - especially for those who used to work in dozens of fish plants in the smaller communities. "Four years into a moratorium," he warns, "there's been no serious discussions about how we are going to fish in the future and who is going to get priority."
Politicians, says Best, are focusing far too much on resource megaprojects, at the expense of the industry that helped create Newfoundland. "We have to look at our renewable resources, rather than the ones that get extracted for the benefit of a small group of people for a short period of time," he says. "There's a lot of people who will suffer for this and a lot of communities that will die." Similar warnings have been sounded for generations in Newfoundland. And no amount of bullishness about oil and gas and nickel is likely to still those voices soon.
See also OIL AND NATURAL GAS.
Maclean's March 3, 1997