Why Newfoundland and Labrador’s provincial government is breaking up Nalcor

I know it’s been a while since my last blog post, and during that time I’ve missed writing about several developments.

Anyway, I’m back and yesterday’s announcement by Dwight Ball’s government that it’s going to break up Nalcor Energy and turn it’s oil and gas arm into a separate government-owned company is interesting development indeed.

It’s only been 24 hours since Newfoundland and Labrador’s Finance Minister Tom Osborne made the announcement in his budget speech.

As a result there are few details on how long the transition will take, how much it will cost, how many new jobs will be needed – if any – to staff the new venture. Even the company’s name isn’t known.

In his budget speech, Osborne said the Crown corporation will “work directly with the Department of Natural Resources to accelerate the growth and opportunity of our petroleum industry, returning significant value to the people and economy of Newfoundland and Labrador.”

Nalcor’s oil and gas division has been pretty successful working under the current structure, where it’s a subsidiary of Nalcor – the government-owned company that manages the province’s energy resources.

It’s possible the new company will be even more successful promoting and developing the province’s oil and gas riches and potential as a stand-alone operation. But that will only happen if the government is going to increase staffing and funding to it, so the company can do more than it’s already been doing.

Right now, Newfoundlanders and Labradorians don’t know if that will be the case.

The move is also about optics, and distancing the government’s oil and gas business from the mess that is the Muskrat Falls hydro project.

The less the province’s residents associate what the government is doing, and spending, on oil and gas initiatives with what’s going on with the overbudget and overdue hydro project, the less likely they are to object to them.

Or at least that is what it’s hoping.

Royalties watch

Tuesday’s budget speech also saw the government provide an update on how much oil royalties it took in during the 2017-2018 fiscal year and how much it thinks it will reap in 2018-2019.

For the 2017-2018 fiscal year the government says oil and gas royalties were approximately $920 million, which is not far off it’s estimated figure of $903 million from the 2017 budget.

The Liberals are also estimating it will take in $974 million in oil royalties during the 2018-2019 fiscal year. This is based on Brent crude prices – the blend Newfoundland and Labrador’s oil trades at – averaging US$63 during that period.

If the government gets lucky and prices average a few dollars more during that time frame, oil royalties could reach the $1 billion mark for the first time since 2014-2015 when the province raked in $1.7 billion in royalties.

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