Ottawa may sell offshore oil stake

John Ivison

When a politician says, ‘that’s a good question,’ it’s a rule of thumb that he or she is about to blurt out something they didn’t intend to.

Jim Flaherty was knocked off his talking points and bought time by resorting to the telltale phrase during an interview on CBC Radio, when the sale of federal government assets was raised.

“There’s been a lot of work done on that. That’s a good question (chuckle). We’ve done a lot of work on that, and there’s more to be said about that before too long,” the Finance Minister said, in a moment of unusual candor.

It wasn’t entirely shocking news, last year’s budget was clear about the potential for asset sales in businesses in which the Government decided taxpayers didn’t need to hold an ownership stake. This year’s budget reiterated that divestment remains an option. But in the interview, the Finance Minister made clear there are ‘substantial opportunities’ out there and, by his own account, they will be realized before long.

Given this year’s $54-billion deficit, and the Government’s distaste for Crown corporations in general, it’s no surprise that the feds want to get out of certain businesses. But they only profit if the sale price exceeds the book value in the public accounts. Taxpayers could pay the price for bad deals for years to come, in the shape of reduced revenue.

So which assets would raise enough cash to justify a sale? Much of the buzz in Ottawa is focused on the Hibernia oil field, off the coast of Newfoundland, which has long been high on the list of potential sales circulated within government. Ottawa holds an 8.5 pecfe stake, held by the Canada Hibernia Holding Company, for which the Government paid $290-million in the early 1990s. In 2008-09, the feds reaped $288-million in profit when the oil price was north of $100 a barrel. The previous year, when oil was closer to today’s price of $80, the dividend was $151-million. In the past seven years, the federal Government has pocketed more than $1-billion in profit.

Even for an oilfield with a limited lifespan, it’s clear that Ottawa’s stake has considerable value, something recognized by Newfoundland and Labrador Premier Danny Williams, who has said his province would pay market value for the shares.

Sources say that there have been no serious discussions as yet, partly because the federal Finance Department is reluctant to sell such a rich revenue source (and partly because it is not disposed to doing the province any favours after years of wrangling over equalization).

But there are political considerations at play here too. The Conservatives were shut out of Newfoundland and Labrador at the last election and the sale of the Hibernia stake would be well received on the Rock.

“It would be a significant symbolic gesture and would come with some dollars in the bank. Like the original investment, politics will decide this move,” said one Government source.

As the Liberals acknowledged with the $3.2-billion sale of Ottawa’s stake in Petro-Canada in 2004, stranded minority ownership stakes in resource projects are not core functions of federal Governments. Another similar investment that could be divested is a one-third stake in the Norman Wells Proven Area Agreement, a partnership with Imperial Oil in the Northwest Territories.

The agreement granting Imperial extraction rights is obscure but lucrative for the feds, the public accounts show it paid a $125-million dividend last year. The list of potential sales is virtually endless, given that 89 percent of all land in Canada is owned by the provincial and federal Crown.

Canada Lands Company has some premium assets, such as the CN Tower, the Metro Toronto Convention Centre and Toronto Stadium Lands (which owns the land under the Rogers Centre), that would all attract bidders. Other prospects include Pickering Lands, 19,000 acres of prime real estate northeast of Toronto that have been owned by the Canadian government since 1972 when it was expropriated to build an international airport that never came to fruition. One asset already on the auction block is Atomic Energy of Canada Limited’s CANDU reactor division.

The number of others that make it to market will depend on the performance of the economy. If Sunny Jim Flaherty’s expectations are met, the economy will roar ahead at 3% a year and the cuts he’s already announced will bring the budget close to balance within five years. But if growth falters, the temptation to cash in now, at the expense of future revenue, may prove irresistible.

National Post