Why Canada oil bonanza lies untapped

Canadians have suffered another setback in their frustrating attempt to convert a crucially needed oil bonanza from a tempting promise to a reality. The focus of this long drama is the Hibernia oil field, a 1.8 billion-barrel find under the Atlantic near Newfoundland, the island province off the country's east coast.

Three years after its discovery, the huge offshore reserve has assumed increasing importance as Canada's other possible options for new supplies have faded. Canada now imports about 250,000 barrels of crude a day and this need is expected to grow.

The dispute centers on which government - federal or provincial - would get the lion's share of billions of dollars in revenues from the Hibernia oil field.

After months of fruitless talks, the federal and Newfoundland governments in January appeared to be close to solving their differences on offshore resource jurisdiction. But the talks broke down at the last minute, leaving the two governments and anxious oil companies to await a resolution in the courts.

What that means is that Hibernia's development, and the economic benefits from the project desperately needed to perk up Canada's ailing economy, will be further delayed. Planning to bring the offshore field into production will be held up until at least next summer or fall, when a decision is expected from the Supreme Court of Canada.

Newfoundland Premier Brian Peckford sees the offshore oil as the key to providing the province with a new era of prosperity. Newfoundland's 600,000 people, tied largely to a diminishing fishing industry for their livelihoods, have been among the poorest of Canada's 24 million people.

Under Canada's decentralized federation, the 10 provincial governments hold constitutional ownership of resources within their boundaries, with the central government controlling resources on the continental shelf. But Newfoundland claims it is an exception, and that the province, not Ottawa, has jurisdiction over oil in waters off its coast.

Peckford's reasoning is based on the fact that Newfoundland is the only province that was once an independent state. He argues that his province never gave up its sovereign rights, such as control of resources, when it joined Canada 34 years ago.

Ottawa disagrees and is expected by many scholars to win the argument in the courts eventually, if a negotiated settlement is not reached. The federal government has offered Newfoundland a large chunk of the huge tax revenues that would accrue from the Hibernia field. But Peckford says the federal formula is not generous enough.