In the early 1990s, newfoundland and Labrador was seen as the next Canadian energy powerhouse. Construction had begun on the multibillion-dollar Hibernia offshore oil project and realtors in St. John’s were anticipating a petroleum-fired extravaganza in new homes and businesses.

Confidence grew in tandem with an employment boom, until the freezing winds of recession unexpectedly blew across the North American economy. Plunging oil prices suddenly made Hibernia oil a lot less attractive to investors. The situation became so bad that Gulf Canada Resources Ltd. suddenly withdrew from the Hibernia consortium. Construction slowed and the project would have been abandoned if the Canadian government and Hibernia’s three private-sector partners had not acquired Gulf Canada’s share of the project.

Oil prices eventually rebounded, and Hibernia is reaping handsome profits for its owners while earning billions of dollars in royalties and sales revenue for Ottawa and the province.

Today, Premier Danny Williams brims with the certainty of those who, in the early 1990s, believed oil prices would top $100 a barrel. Williams is so certain oil prices will remain at current levels throughout the next 25 years that he harbours no qualms about investing hundreds of millions of public dollars in the Hebron and Whiterose offshore oil projects.

The details of the agreements made with the Hebron and Whiterose consortia are not being disclosed, but Williams has said Newfoundland and Labrador will receive a “super royalty” from the Hebron project when oil prices top $50 a barrel. In return, the province will receive a reduced royalty from Hebron should prices slip below $50 a barrel. Newfoundland and Labrador will also own approximately 4.9% of Hebron, as well as a portion of the undeveloped sections of the Whiterose field.

For a province heavily dependent on oil revenue, these agreements offer the potential for accumulating massive wealth from the resources industry. But the risks are also apparent, even though Williams has downplayed the negative consequences of betting wrong on future world oil prices. If prices crash, the provincial government will not only lose out on royalties, but will also have to pay its share of operating the oilfields.

His hard-won agreements with the oil companies obscure an unfortunate truth about Newfoundland and Labrador’s petroleum industry: not a single commercially viable offshore oil or natural gas field has been discovered in more than 20 years. There is little probability of finding a new Hibernia, as the last exploration rig left Newfoundland waters for the Gulf of Mexico this summer.

This has obvious implications for provincial government revenue. Net oil production from offshore projects is set to peak this year and new production from Hebron and Whiterose will only postpone the inevitable decline — unless new discoveries are made soon.

Williams has won the admiration of many people in Canada for his get-tough stance with the oil industry. Surely it was not a coincidence that Alberta’s government began musing about increasing its royalty rates in the wake of Williams’ success in wrestling better terms from the Hebron consortium.

But unlike Alberta, Newfoundland and Labrador does not have the resources base to sustain an oil and gas industry for more than 20 to 25 years. Canada’s easternmost province has that much time to create new wealth. Failure to do so will mean Williams’ successes will have been for naught. IE