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Canada: New Offshore Oil Agreement Reached by Newfoundland and Labrador Province

(Sept. 3, 2008) Although there is a moratorium on offshore drilling for oil off of Canada's west coast, a number of projects off the east coast have been approved by the federal government under the authority of an array of federal and provincial laws that includes the Canada-Newfoundland Atlantic Accord Implementation Act (1987 S.C. c. 3,
(last visited Aug. 22, 2008). Acting upon the authority conferred upon it by this statute, the Government of the Province of Newfoundland and Labrador recently signed an agreement with an oil consortium for the development and operation of the new offshore Hebron project. Under the agreement with a group that includes ExxonMobil, Chevron, Petro-Canada, and Norsk Hydro, the province will have a 4.9 percent equity stake in the project, which is expected to begin production in 2017 and have a lifespan of approximately 25 years. The Government expects to receive approximately Can$20 billion (about US$18.8 billion) in royalties and gain up to 3,500 new jobs from the offshore drilling. The project is located about 200 miles southeast of the capital city of St. John's and is expected to produce up to 200,000 barrels of heavy oil per day. (N.L. to Gain up to 3,000 Jobs, $20 Billion in Royalties from Hebron Oil Deal, CANADIAN PRESS, Aug. 8, 2008, available at

The consortium plans to use much of the technology that was developed for the Hibernia oil project, which is already in production and has helped transform the economy of Newfoundland. Long the poorest of Canada's provinces, Newfoundland and Labrador was hit hard by the collapse in the 1980s of the fisheries that had traditionally sustained the populace. However, the oil boom has saved the province from losing more and more of its residents and infrastructure. The premier of the province has even proclaimed that Newfoundland and Labrador is on the verge of becoming a “have” province. (Id.) In Canada, the provinces that have average income above the national average are considered to be “have” provinces, and they are generally required to pay into an equalization fund that is distributed to the “have not” provinces. Newfoundland will not necessarily be required to pay into this fund if it does become a “have” province, however, as it has a special arrangement with the federal government that excludes much of the revenue earned from offshore drilling. (Nova Scotia and Newfoundland and Labrador Additional Fiscal Equalization Offset Payments Act, 2005 S.C. c. 30, <a href="

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On the west coast, since 2004, the federal government has been considering lifting its unofficial policy of refusing to grant exploration licenses adopted in 1972. (The Canadian Chamber of Commerce, 2004 Policy Resolutions: Environment and Natural Resources (2004), available at