John Alexander

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I thought it would be interesting now to re read this article from Wendy Stueck from the Globe and Mail on just what to expect on development moving forward on the Site C Dam. Published October 15, 2014 it has argueable insights of how this baby is going to roll.

First Nations challenge to Site C approval could make dam a test case

 

BC Hydro has cleared major environmental hurdles for its Site C megaproject, but opposition from First Nations is almost certain to result in new court action. And that could make the dam a test case for the thorny legal question of when and how public interest can trump aboriginal claims.

“It will be one of probably dozens of projects where that question comes up,” Gordon Christie, an associate professor with University of British Columbia’s Faculty of Law, said on Wednesday, adding that, “I have a hard time seeing how this won’t end up in court.”

A model of the proposed Site C Dam at the Community Consultation Office in Fort St. John, B.C.
First Nations in the Peace River and BC Hydro's Site C dam

In a conference call Tuesday, B.C. Environment Minister Mary Polak said First Nations do not have a veto on Site C and emphasized the mitigation and accommodation measures included in the province’s environmental assessment certificate for the project.

“Our understanding of our obligation is meaningful consultation, accommodation where it is appropriate – we don’t believe that constitutionally there exists such a thing as a veto,” Ms. Polak said.

But some First Nations leaders questioned whether the province is heeding the latest legal developments, including a landmark Supreme Court of Canada decision in June that granted the first declaration of aboriginal title in Canada to B.C.’s Tsilhqot’in Nation. That landmark case, often referred to as the William case after plaintiff Roger William, found government incursions on aboriginal title must be justified on the basis of a “compelling and substantial public interest” and is widely seen as having strengthened First Nations’ role in land-use decisions.

Grand Chief Stewart Phillip, head of the Union of B.C. Indian Chiefs, on Tuesday accused the province of denying First Nations’ constitutional rights by pushing ahead with a “grandiose energy plan.”

Both the provincial and federal governments this week issued environmental approvals for Site C, a $7.9-billion hydroelectric project that would become the third dam on the Peace River and generate enough electricity to power about 450,000 homes a year.

The approvals come with dozens of conditions designed to mitigate impacts on First Nations whose lands would be affected by the project, which would flood 83 kilometres of the Peace Valley to create a reservoir.

The project would have the greatest impact on seven B.C. aboriginal groups that are signatories to Treaty 8, an 1899 pact that also includes signatories in Alberta and the Northwest Territories. BC Hydro is negotiating with five of those seven groups and has made offers to the two others.

Treaty rights in B.C. are broad and typically include the rights to hunt, trap and fish, said Drew Mildon, a partner with Woodward and Company, a Victoria law firm that represented the Tsilhqot’in Nation in its recent court case.

If the Site C debate winds up in court, the province could find it challenging to argue the project is in the public interest, Mr. Mildon said.

“To justify that infringement, it seems to me, is going to be a very difficult step. Because you have to essentially know that there is going to be enough undisturbed natural habitat for there to be a harvestable surplus of species.”

Treaty rights would be a key element in any court case, Dr. Christie agreed.

“That’s the thing they [plaintiffs] will hinge their arguments on, the extent to which the flooding of this territory will make hunting and fishing problematic,” he said.

Those issues are already playing out in Alberta, where some First Nations have challenged oil sands expansion in court, Dr. Christie said.

The Site C debate also involves the question of cumulative impact of resource developments, he said, adding that the oil and gas industry has already had a major impact in the form of roads, wells and pipelines in northeastern B.C.

At a press conference in Vancouver Wednesday, Energy Minister Bill Bennett said he hopes First Nations will recognize the economic opportunities that could come along with the dam if it is built.

“Government needs to make sure that enough engagement is happening with Treaty 8 First Nations so we can get to a point where even if the First Nations are not comfortable supporting the project, then at least they have recognized the opportunities that are there if we decide to build the project,” Mr. Bennett said.

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A US$70 billion takeover of BG Group Plc by Royal Dutch Shell Plc could bode well for Shell’s liquefied natural gas project in Kitimat, but not so well for BG’s own LNG proposal for Prince Rupert, say industry analysts.

Shell confirmed the takeover pf BG Group PLC April 8.

Of the 19 LNG proposals in B.C., the $40 billion LNG Canada project proposed by Shell and PetroChina is considered one of the ones more likely to be built.

Analysts say the merger does not bode well for BG Group’s own Prince Rupert LNG project.

“I certainly agree that the deal casts a lot of doubt on the BG project proposal, and I had heard that it was probably not one of the more likely ones to go ahead anyway,” said Brad Hayes, president of the petroleum consulting firm Petral Robertson Consulting Ltd.

“Shell will focus on what they’ve already got there.”

Some analysts have speculated the company will be occupied with the merger for months to come, which could push back the LNG Canada project. There were also concerns that that might happen anyway, given current energy prices.

Earlier this year, Shell and PetroChina walked away from the Arrow LNG project in Australia.

But Hayes said Shell has already made significant investment in the LNG Canada project and Canada in general, and in making the announcement, Shell’s CEO confirmed that LNG will be an important part of the company’s business going forward.

“Shell is a very long-term and committed player in Canada,” Hayes said. “They’ve been in Canada since the 40s and they’re going to stay here for the long-term.”

“I think that it’s highly unlikely that it will be cancelled. I think it would be shuffled up and down the priority list a little bit, but the fundamentals of there being a long-term big demand for LNG are there.”

Christopher Goncalves, the LNG, natural gas and power group leader for Berkeley Research Group’s, said Shell and BG Group each have substantial global footprints, shipping capabilities and marketing networks in the LNG sector.  He characterized the merger as “a doubling down” on Shell’s LNG business.

He said a rationalization of some of the companies’ projects and activities is to be expected. If one of the projects that cut through rationalization is one of the LNG projects in B.C, it leaves the other in a stronger position.

“There may be one project instead of two, but the strength behind that project will be much more substantial,” he said.

nbennett@biv.com

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What E&P M&A Means For Oil Service & Drilling... Spoiler Alert, It's Not Good

Following the Shell/BG deal announcement yesterday morning, we've fielded some incoming questions from Oilpro readers asking what this transaction means for the rest of the oil and gas industry.

For starters, it is confirmation that M&A is heating up during this phase of the downcycle. In a presentation we gave last week, we conveyed the notion that M&A deals are about to become much more frequent across the O&G value chain.

Our channel checks suggest a burgeoning deal pipeline. While few transactions may come close to the size of Shell for BG ($70bn), we do expect smaller scale consolidation to add up to a meaningful trend this year and next.

Consolidation in E&P is not great for the service industry and vice versa. The reasoning is best explained by Porter's Five Forces. 2 of the 5 tenets of Porter's philosophy are i) bargaining power of suppliers and ii) bargaining power of customers.

When E&Ps consolidate, they have more leverage over their suppliers (i.e. the oil service and drilling contractors). When contractors merge, they are able to push prices higher for E&P operators and sometimes quality can be adversely impacted. A rising concentration of players in any one sub-segment of the industry generally hurts the other side.

And in the E&P industry in particular, scale achieved via consolidation can lead to overall capex reductions, reduced exploration activity, and deferrals of some projects that once were high priorities requiring service / drilling contractor support. For example, if two operators exploring offshore West Africa merged, they might reduce the size of their contracted deepwater rig portfolio - via combination they can deploy assets across the play more efficiently. And in larger portfolios, return profile variation can create shifts in the timing of investment decisions for specific projects. Takeout premiums are often rationalized by the development pipeline of the target, which can curtail the future exploration activity of the buyer.

Shell & BG Will Reduce Oil Service & Drilling Spend Post-Deal

So turning to the Shell/BG combination in particular, here are three points from the companies' management team that are relevant to the oil service and drilling industry outlook:

  • 1. Capex Falling. The combined entity will moderate organic capital investment, and management is looking at deferrals, cancellations, and divestments. The company will also examine its supply chain and procurement processes on a combined basis looking for efficiencies (read less opportunities for contractors).
    • 2. Cutting The Fat. Priorities in 2015 and beyond include acheiving $2.5bn in synergies, accelerating the reset of the supply chain, and looking at new options for capital efficiency. While the elimination of redundant internal resources will play the leading role in achieving synergies, external savings via enhanced bargaining power will have a cameo appearance in the synergy drama.  
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  • 3. Less Exploration Activity. Following the deal, Shell will reduce exploration activity and exploration spending to focus on BG's development pipeline. This impacts the entire front end of the oil service/drilling spectrum from seismic arrays to core analytics to drilling rigs and stim crews.  
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