The second provincial Oil and Gas company is out of control.
That’s the real story from a report by Auditor General Denise Hanrahan released last week.
But scratch a bit more and you have a problem with the Auditor General’s report itself.
And then there’s the bigger problem that Hanrahan ignored: why is there a second oil company anyway?
Buckle up.
This one’s a doozie.
Let’s start with the media coverage. Most ov the traditional media reported what the Auditor General said, which is good in one sense but none of it is really news, which is the problem with traditional media. Many possible reasons for that sorry state. We don’t need to get into it in detail. Let’s just say that if you want the better stories, VOCM had a longer piece that was pretty good on the basics but the allnewfoundlandlabrador.com version is a more thorough summary. That one should be your first stop anyway for government and business news and this is an example of why.
Anyway…
Ask ChatGPT, the notorious “artificial intelligence” application to explain the Auditor General’s report on OilCo:
“I can't provide specific information on an Auditor General's report on Oilco Newfoundland as it may be a fictional entity or a recent development beyond my last update in January 2022.”
That’s actually *more* accurate than the CBC story on the AG review of OilCo.
But we’ll get to that in a moment.
Let’s start by saying CBC’s story about the recent Auditor General’s report on the second provincial oil and gas company is not fundamentally, factually wrong. It just missed the real story. That’s not because the writer is relatively new to the Content Assembly business. In fact, in Content Assembly, accuracy, veracity and all those other pesky journalism values go out the window in favour of slamming together words to fill space fur reasons othervtgan informing andenlightening. So from that standpoint, which is increasingly what the mainland-driven media tends to like, this one is a winner.
It just isn’t news.
Or journalism.
It’s misinfirmation.
CBC’s editors - all with way more experience and education than the earnest and capable writer who got the byline - clearly have no idea what is going in the local world. They are run from Toronto and reflect the Toronto head sheds’ general ignorance of the world beyond its own buttcheeks. And to be brutally frank, this is not bew. CBC’s Content Assembly Facility in Newfoundland and Labrador has a long history of shagging up simple government stories like the infamous Russell Wangersky expense limits fiasco 30 years ago. So, there's that, too.
“Business-class travel, smartwatch data among excessive expenses flagged in AG report on OilCo” hits the superficial stuff, misses the real story and, for good measure, just gets facts wrong.
Like saying that the provincial energy corporation called NALCOR is “now-defunct.”
There’s an explainer paragraph part way down the CBC story. OilCo is, supposedly, “the fledgling Crown corporation, which had operated as part of Nalcor Energy until Nalcor was dissolved in 2021. The Liberal government shut down Nalcor over its handling of the Muskrat Falls hydroelectric project, putting non-petroleum assets under Newfoundland and Labrador Hydro.”
Not true.
In fact, that paragraph is false. NALCOR is not dissolved. Not shut down. And without Hydro as the parent.
NALCOR exists in all its former ignominy doing what it's always done. It just hides under the name of one of its subsidiaries, NL Hydro. And the story of how the current crowd running the place said one thing and haven’t delivered is just another angle on this story in itself that points to even bigger problems in government.
There’s still a NALCOR board and a NALCOR Chief Executive Officer. They are one-for-one the same as the NL Hydro Board and CEO. Regular readers know the story.
Check the Background links for a better explainer and then carry on.
Background…
[Back to regularly scheduled programming…]
So no, the government didn’t dissolve NALCOR. Didn’t shut it down, either.
Nor did they put the “non-petroleum assets” of NALCOR under Hydro while spinning off the oil assets under OilCo. Literally none of what CBC reported as factual and true ever happened at all. Nothing even close to it, in fact, since NALCOR still exists and is legally the parent of Hydro and every other subsidiary company.
That also leads us to an unsound governance angle on this story - all yhe interlocking bosrds like ENRON - but that’s way beyond the scope of this piece. Let’s just remember that the truth - the honest, factually accurate reality - is NALCOR still exists and NALCOR still owns all the oil and gas assets for the provincial government. The assets were a big part of the scheme to pay for Muskrat Falls, the most recent version of which government and NALCOR announced a couple of weeks ago. If they'd have gone back a bit further in the CBC archives, someone would have found stories that reported, a year or so *after* GNL announced the plan to break off the oil company from NALCOR, some bright bunny figured out the government couldn’t do that because those oil stakes were intimately connected to Muskrat Falls.
Sure the official excuse was to protect oil and gas from the taint of NALCOR and Muskrat, but since that wasn’t possible, GNL set up a second oil company, gave Jim Keating a nice new job, and set him and a bunch of others about doing something or other. As we learned from the Auditor General’s report, one of the jobs the government gave this new Keating oil company was managing the oil assets it doesn’t legally hold.
That means that OilCo, made up at the top almost entirely at the top by former NALCOR executives and managers, gets paid by NALCOR to do something that legally and in every other way NALCOR could and should be doing itself. OilCo also owns Bull Arm, which used to be one of NALCOR’s direct subsidiaries. Beyond that, OilCo doesn’t do very much and whatever it is doing, all could be done cheaply and more efficiently - if it needed to be done at all - by NALCOR.
So what is that now, two or three bigger stories that everyone’s ignored in all this? It gets better.
The AG didn’t mention any of this in her report.
That’s four, if you are counting and it could morph into five or more when you realize that Denise Hanrahan was intimately involved in the whole fiasco of creating OilCo in the first place. She held a seat on the OilCo board of directors in her former job as deputy minister of finance, alongside then-DM of natural resources Ted Lomond.
That’s not mentioned in her report, either, which is troublesome and another angle on the story. Might help explain why the AG report misses out the strategic issues and plays down the significance of the chronic financial mismanagement.
By chronic financial mismanagement, we mean what the AG reported: NALCOR officials were able to port their salaries, contracts, bonuses, perks etc to OilCo and were unhindered by rules changes at NALCOR that ended bonuses. OilCo was supposed to bring its salaries in line with government standards. Still hasn’t and won’t since after five years and a two-year long audit by the AG, nothing has changed on those fronts. In fact OilCo rejected the AG’s recommendation on that flatly.
The mismanagement extends to the Treasury Board bit of the AG’s former responsibilities, which did nothing but send reminders every now and again to the OilCo bunch about stuff they weren’t doing. Nothing else. Whether that’s a bureaucratic failing, a political failing, or tgst both bureaucrats znd politicians didn’t think it was important enough to… dunno…maybe… fire someone over this, remains to be sorted out.
And after you get through all that, we can talk about the stupidity of paying a law firm over $400 an hour to type up minutes of a meeting and all the other stuff that the AG’s accountants busied themselves with for two years.
Make no mistake. All the stuff in the report *is* serious. That’s what makes the failure to enforce directives or even create the fiasco in the first place all the more serious. Like directives to classify jobs but no action when OilCo refused.
The failures are significant and familiar:
OilCo brought over 16 people from NALCOR and kept their pay where it had been. They came across with pay and bonuses approved by Treasury Board. Yes. *Approved* by cabinet ministers.
For new hires, “OilCo often made use of alternative forms of staffing, including external service providers and secondments; without exception, these resources cost more than hiring employees.” That’s basically external contractors like the ones made infamous with Muskrat Falls.
“OilCo paid a service provider a 265% premium per hour for Controller services, and 208% premium per hour for accountant services, as compared to a comparable government employee.”
“OilCo paid a law firm a 295% premium per hour for legal services, as compared to the top of annual scale salary for a comparable government employee. Some of the legal services provided were unnecessarily and included expenses such as $430 an hour for tasks such as the preparation and review of meeting minutes and agendas.”
“OilCo paid excessive rates for the lease of its headquarters, which included paying over 31% more per square foot than the average rate for office space in St. John’s, and over 53% more than the average rate paid by government for office space in St. John’s.”
“OilCo’s Board of Directors Mandate did not specifically require an annual written conflict of interest disclosure, and OilCo did not provide any formal conflict of interest training to board members, employees, or contractors.”
There are way more detailed failings in the report and until 2023 - at the end of the AG’s investigation - OilCo hadn’t done anything to correct any of the numerous and obvious problems with basic corporate governance and sound financial management.
There are so many serious issues here, so many fundamental failures that it is hard to find a thread to start that’s better than the others. Maybe it’s good enough to start with the fact that five years after its creation, OilCo has no real purpose other than to spend money. It is a self-licking ice cream cone, something that has no purpose other than to sustain itself.
All of this taxpayer money’s gone out the door and there’s literally nothing OilCo is doing that could not be done either inside the energy bits of Andrew Parson’s department or at NALCOR, which in case you missed it, still lurks out of sight waiting to re-emerge. Rather than consider selling this off - as government is still officially doing - they seem to have never considered just winding the whole thing up and sending Jim and the rest of the folks there off to their next jobs in the private sector doing real work at soneone else's expense.
Just think about it for a second. All of the arguments about spending and oversight come back to the idea that the OilCo is competing for talent with the private sector. But it isn’t. Not at all. OilCo isn’t an oil company and never was. Never will be. Even in the version of NALCOR announced almost 20 years ago, the provincial government had no clear idea what the whole company would do let alone NALCOR Oil, which still exists in addition tobthis second OilCo without a real purpose.
Heck the whole energy corporation thing itself was a pile of nonsense that no one could really explain. After all, why did Danny and his crowd settle for a mere five or 10% equity position rather than go Full Venezuela and actually start taking over oil fields or exploring and developing oil fields itself. That was on the table before 2006, for those who recall the Ed Byrne days, but when Kathy Dunderdale took voer the energy job, things got vague. Really vague.
Related stuff from the archives
The sound of silence (2014)
The Liberals were no different in 2019 from the Pea Seas a decade and more before. In fact, they are so lacking in any idea what OilCo does that they have not given it anything but the generic name someone came up with when they first had the brain fart to break Keating and his merry band off from NALCOR and give them their own private patch to live in at considerable taxpayer expense.
So shut the thing down.
Lay everyone off.
Either sell Bull Arm or shift it back to NALCOR.
The only other asset seems to be seismic data, which can simply be posted for download or given to the offshore regulatory board to manage.
There’s literally nothing else to the place and given there’s no sense in the province running an oil company anyway, killing off this miserable cesspool would be a start to fixing a whole bunch of other, related issues back at NALCOR.
But that, dear readers, would take more than a bigger axe. It would take the political vision and sheer guts no politician in the province seems to have. And if you haven’t figured that out, scroll back up and read from the start. Everything from Denise Hanrahan’s unacknowledged conflict of interest in this audit to OilCo’s existence are part of a fundamentally broken system of public accountability.
You can only miss *that* gigantic story because you don’t want to see it.