Ottawa and the government of Nova Scotia have reached a deal that ensures the province will never lose the benefit of the Atlantic Accord on offshore resource revenue.

Prime Minister Stephen Harper and Nova Scotia's Premier Rodney MacDonald made the announcement Wednesday in Ottawa.

Calling it an "historic breakthrough," Harper said the deal was a sensible way to overcome a long-running dispute.

"It has never been this government's intention that Nova Scotia or Newfoundland ... would lose benefits agreed to under the Atlantic Accord," Harper said.

In the 2007-08 federal budget, the federal Conservative government changed the equalization formula.

Nova Scotia and Newfoundland and Labrador had the option of keeping the old equalization formula and the 2005 Atlantic Accords, or the new, enriched formula -- at the price of clawbacks of offshore revenues and a fiscal cap.

Nova Scotia, which agreed to the new formula, claimed the new system could cost it up to $1 billion over time. The feds claim the arrangement provided the province with an immediate benefit of $100 million.

"We will ensure these provinces keep any such benefits by allowing them to effectively switch back to the 2005 accord under those particular circumstances," Harper said.

"But once again, while this gives greater flexibility to Nova Scotia's choice -- and Newfoundland's choice -- these provinces must still choose between the two equalization arrangements. They cannot have both."

Harper said the principles of the budget hold that the equalization formula applies equally to all provinces.

"Today's announcement helps us on the path to a stronger Nova Scotia and a stronger Canada" by ensuring the province remains the principal beneficiary of its offshore petroleum resources, MacDonald said.

"I've always told Nova Scotians we would not lose one red cent from the Accord. Our two governments are reaffirming that here today."

Bill Casey, a Nova Scotia Conservative MP, got kicked out of caucus by voting against a procedural motion related to the budget to register his support of Nova Scotia's position.

Harper said this deal will not clear the way to Casey's return to the federal Tory caucus.

"Mr. Casey is not welcome into our caucus ... when there is a next federal election, there will be a Conservative candidate in Mr. Casey's riding, and it will not be Mr. Casey," he said.

In offering thanks, MacDonald mentioned Nova Scotia Tory MPs Peter MacKay and Gerald Keddy, but he didn't mention Casey by name.

Dispute with Williams

Robert Fife, CTV's Ottawa bureau chief, told Newsnet the deal will help the federal Tories in Atlantic Canada, particularly in Nova Scotia.

"Of course, the next step is to solve this dispute with Danny Williams, who won this enormous victory last night," he said.

Premier Williams' Progressive Conservative party won 43 of 48 seats in N.L.'s provincial election held Tuesday.

In his victory speech, Williams addressed the equalization issue: "The people of Newfoundland and Labrador stood behind us in the disagreements with Steven Harper. The people of Newfoundland and Labrador stood behind us in the disagreements with the oil companies.

"So there's a message here, Steve: If you want to take me and my team on, you gotta take on all the people of Newfoundland and Labrador!"

Harper had kind words Wednesday for the outspoken Williams, and he offered Newfoundland the same deal as the one worked out with Nova Scotia.

"Notwithstanding what differences we have, I think the premier and the government have provided strong leadership for the province," said Harper.

But Williams does not appear to be in reconciliatory mood. He's giving a thumbs down to the Nova Scotia deal.

"The bottom line here is that Nova Scotians have said yes to less,'' he said. "Stephen Harper has a way for preying on the weak. ... He sees in Nova Scotia a minority government that is in difficulty and he's talked them into taking this ... It's not something I'm prepared to take.''

The deal also isn't sitting well with Saskatchewan Premier Lorne Calvert. Saskatchewan has its own concerns about the Harper budget and is taking the government to court.

Calvert told CTV Newsnet Wednesday Harper has reneged on a promise that there would be no side deals with individual promises.

"Anybody who says this isn't a side deal, I ask, then what, are french fries at McDonald's? I mean, it's a side deal."

Crown share

Another part of Wednesday's deal is an agreement to have a three-member panel study something called the Crown share.

The Crown share is a cash royalty agreed to in the province's original 1985 offshore deal with Nova Scotia. That royalty has never been paid since offshore energy production began in the early 1990s.

Nova Scotia could expect a large cash payment as a result. MacDonald said the payment could be valued in the hundreds of millions of dollars.

"The two levels of government have not been able to agree on the value of these payments, or a method for calculating them," Harper said.

Each party will appoint one panel member, and a third consensus pick of the two parties. The panel will report by year's end.

Harper called this a "historic breakthrough and a thoroughly sensible way to overcome a dispute that has bedevilled successive provincial and federal governments for over 20 years."