Tuesday, June 05, 2007

Exxon & Chevron Delayed in Newfoundland

Exxon (NYSE:XOM) and Chevron (NYSE:CVX) received some hard news that they already knew about. Canada's easternmost province wants 5% equity of any development in the very massive offshore oil fields located incredibly close to North American markets and customers.

The 5% stake is considered standard by international practices. The model is similar to that followed by Norsk Hydro the highly respected Norwegian State Oil company as well as other entities. The added advantage is the political stability offered by this environment. Both Canada federally and Newfoundland & Labrador provincially have democratically elected governments.

Both Exxon and Chevron have dispersed their development teams and refused to negotiate leaving the projects on hold while energy customers suffer geopolitical supply risks.

The politicians are encouraging the oil companies to come back to the table now. An election is planned in the fall and the electorate may ask for substantially more. A few hurricanes and international problems and we will probably see the oil companies back at the table.

Big oil may feel it has the upper hand and is most likely overplaying it. Newfoundland and Labrador feels that they have been mistreated and are probably prepared to keep this project on ice for decades if required.