N.L. blocks plan to drill into Hibernia South

With hundreds of millions of dollars in potential oil-based royalties at stake, the Newfoundland and Labrador government has turned down a regulating agency's approval of a plan to drill for more oil near the Hibernia field.

Natural Resources Minister Kathy Dunderdale said the government needs more information from Hibernia's partners before it backs an amendment to the original Hibernia plan.

In December, the Canada-Newfoundland Offshore Petroleum Board gave conditional approval to a bid by Hibernia's partners to tap into a large area known as Hibernia South.

However, Dunderdale said government needs more information from Hibernia's partners on how the field believed to hold at least 223 million barrels of recoverable oil can be exploited, and what benefits the provincial government can expect.

"This is about government as stewards of our resources ensuring their proper management in the long term, including maximizing overall benefits for the people of the province," Dunderdale said.

The CNLOPB a Crown agency founded by the federal and provincial governments approved an application made last spring by Hibernia Management and Development to treat Hibernia South as an extension of the original development.

Hibernia's partners include operator ExxonMobil, and Chevron, PetroCanada, and Norsk Hydro. The federal government also owns a stake in the consortium.

In the past, government sources have described Hibernia South as being a separate field from Hibernia which would make it subject to a different royalty regime than was crafted for Hibernia in the 1980s.

However, Dunderdale downplayed that aspect during a Wednesday news conference, and suggested the government is willing to negotiate with Hibernia on a benefits package and development plan.

Hibernia, discovered in 1979, did not go into production until 1997, in part because of a protracted tangle with government over royalties and other benefits.

The Newfoundland and Labrador government accepted a significantly lower royalty regime on Hibernia than it was able to negotiate for the subsequent Terra Nova and White Rose fields.

Dunderdale said the provincial government cannot approve the CNLOPB decision because it does not have enough information from the partners on how Hibernia South would be developed.

The government also cited the lack of what it called a benefits plan amendment.

Estimates of the size of Hibernia have been revised

Dunderdale drew attention to the fact that official estimates of the size of the Hibernia field itself have been revised over the years.

In 1986, when the development was initially approved, the field was estimated to hold about 522 million barrels.

Last year, the official estimate was boosted to 1.2 billion barrels of recoverable oil, up by about 250 million barrels from the previous estimate.

Dunderdale said the size of Hibernia South could well be substantially greater than currently thought.

Negotiations overHiberniaroyaltieswere made long before the field went into production, when the estimated size of the field was considerably smaller.

Dunderdale said the government hopes negotiations with Hibernia's partners can "resolve the province's concerns."

Margot Bruce-O'Connell, a communications official with Hibernia Management and Development, said the company looks forward todiscussions with the province.