Over a rare business lunch (he prefers meeting for coffee in his office), Nalcor Energy’s president and CEO explains why he isn’t concerned about cost overruns at Muskrat Falls
The interview jumps right over the appetizer and straight into the main course. The question on the table: at what point does Muskrat Falls become uneconomical?
It’s a fair question. As the CBC reported on Sept. 29, 2015, the 824 megawatt hydroelectric project in Labrador was behind schedule: first power had been pushed back from December 2017 to 2018. Construction costs had ballooned to $7.65 billion, and Martin was quoted as saying there could be even more cost overruns in the future. So, to return to today’s question — at what point does the project cost more than it’s worth?
Responding with his trademark composure, Martin acknowledges that some costs have increased, but notes there have also been savings. “We picked up an extra $500 million in financing value over and above what we had expected, and an extra $300 million in sales of excess energy. So while we have some cost issues on one side, we have some offsets on the other. We’re still in a very good spot with this project.”
As a born and bred Newfoundlander, a province steeped in resentment over Churchill Falls, Martin keenly feels the pressure to not deliver another bad hydro deal. “For the past 40 years, we’ve given 95 per cent of the benefits of Churchill Falls to Quebec and kept five per cent.” Muskrat Falls, he vows, will be different.
“We’re financing this ourselves and it’s going to be paid off in its entirety in 35 or 40 years. And all of the power is here for us. What we’re not using, we’re selling. We fully control this, top to bottom,” says Martin.
Control, he maintains, is essential to the province’s successful development of its natural resources. When he arrived at Nalcor 11 years ago, Martin says he compared Newfoundland and Labrador’s offshore development to Norway and the United Kingdom. “They started in the business around the same time that we did. They’ve drilled over 4,000 exploration wells and their production has gone through the roof. We’ve only drilled a couple of hundred exploration wells and our production is sort of … okay, but nowhere near what they’re doing.”
Getting from here to there, he determined, would require moving three levers. The first was scheduled license rounds, to take control of the bidding system. The second was to create competition among the oil companies by giving them valuable resource information. Third was to establish clear fiscal terms and royalty rates, so oil companies knew what to expect. “We’ve done all that,” he says.
Getting the province’s resource house in order, he says, is already paying off. The November 2015 call for bids saw record work commitments of $1.2 billion for seven offshore properties. The best part, says Martin, is that this is just the beginning.
“It’s not going to be like it was in the past. Hibernia, take a break. Terra Nova, take a break. White Rose, take a break. I think it’s going to stack up like it did in Norway, like it did in the U.K.”
That confidence, he says, isn’t based on gut instinct, but fact. Nalcor, along with two Norwegian companies, has invested a quarter of a billion dollars on offshore seismic work. “What we’re seeing in that seismic is tremendously exciting in terms of size and scale. You take that information, you marry it with the scheduled license rounds and you bid a portion of that, take control of it, give all this information to the oil companies — I predict you’re going to see a constant drilling program which will yield multiple finds which will lead to multiple projects.”
With so many items checked off his to-do list, does that mean Ed Martin (57) is considering retirement? “I feel accountable to get those things to a certain point. Then it’s my responsibility to step aside and pass it off to younger people to carry it further. It’s not a date (for retirement) as much as it is ensuring a series of things are in place. And we’re getting there.”
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