With Mounting International Competition for Investment Dollars

No time like the present?

With mounting international competition for investment dollars and growing concerns about fossil fuels, the next 10 years just might mark the height of Newfoundland and Labrador’s offshore boom BY QUENTIN CASEY

Overview of the turret on Terra Nova FPSO (Photo: Suncor)

ONLINE EXTRAS: naturalresourcesmagazine.com NR13 ajor oil and gas companies are currently pursuing billions of dollars’ worth of exploratory work in Newfoundland and Labrador’s offshore, part of a The Hibernia oil field—located approximately Mhunt that could lead to multiple new oil projects. The indus- 315 km east-southeast of St. John’s, try’s offshore pursuit could unlock millions of barrels of oil Newfoundland—uses a fixed structure with three compartments: topsides, Gravity while providing the province with much-needed royalty Based Structure (GBS) and an offshore revenue. loading system. (Photo: Suncor) But the industry’s rosy optimism is also clouded by serious issues that could hinder promised exploration and potential new development, including industry complaints about regulatory delays, geographic challenges, concerns from the fishing industry and, most notably, climate change and calls to abandon the very barrels the industry hopes to bring to the surface. There’s a lot at stake. And timing is critical, with an existential question looming over the entire effort: is this Newfoundland and Labrador’s last and best shot at gener- ating oil riches? Or is it—despite an “an unprecedented level of interest” from global energy companies and billions of dollars in pledged spending—already too late? NO TIME LIKE THE PRESENT?

geologic certainty that there’s going Expensive to be other major projects discovered,” he says. “I guess the question promises… is when and where.” Simply put, Newfoundland and Labrador’s offshore oil and gas sector is expecting significant activity over the next decade. Since 2014, energy companies have committed to spend Current more than $4 billion on offshore work, which represents roughly production… 60 per cent of the total spent in The province currently has four the history of Newfoundland and producing offshore oil projects— “I think it’s almost a Labrador’s offshore industry, dating Hebron, Hibernia, Terra Nova geologic certainty that back to the mid-1980s. and White Rose—which collec- “That’s pretty significant,” says tively boast average production of there’s going to be Jim Keating, executive vice president 340,000 barrels per day, down from other major projects of offshore development at Nalcor 2007’s peak monthly production of discovered. I guess the Energy. The Newfoundland and 426,680 barrels per day, according question is when and Labrador Crown corporation holds to Nalcor. The four offshore proj- minority equity stakes in three of ects have collectively produced 1.9 where.” Jim Keating the province’s offshore oil projects billion barrels of oil since production Executive VP, Offshore Development and is tasked with promotiong the started at Hibernia in 1997. Nalcor Energy sector to international investors. ExxonMobil Corp., Husky Energy In a recent interview, Keating said Inc., and Suncor Inc. are the primary the “unprecedented” interest in new operators in those four producing exploration is partly the result of projects, with Chevron Corp. and new geoscience work and changes Equinor ASA (formerly Statoil ASA) in how licence bidding rounds are also involved. conducted. “I think it’s almost a Husky’s approved West White

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ONLINE EXTRAS: naturalresourcesmagazine.com NR15 Rose project (now under construc- barrels of oil and 199 trillion cubic tion, with first oil expected in feet of natural gas, all within areas 2022) will mark the province’s fifth that make up just nine per cent “So our peak day is producing project. A sixth will mate- of Newfoundland and Labrador’s rialize if Norway-based Equinor offshore area, which totals 1.8 yet to come. It’s not proceeds with its Bay du Nord million square kilometres. inconceivable to me project in the Flemish Pass area, “We’re talking about a provincial that with modern roughly 500 km east of St. John’s. jurisdiction that surpasses that of technology and modern many countries,” Keating added. “We have a vast offshore.” capabilities, that there are not another four projects out there Vast just waiting to be potential… Who’s discovered.” Keating believes the province’s Jim Keating peak output is yet to come, thanks hunting? Executive VP, Offshore Development Nalcor Energy to potential new development. He According to Nalcor, a number of says increased production at Hebron oil and gas players have joined the alone could help generate a new five existing companies in holding production milestone. “So our peak exploration licences. They include: day is yet to come,” he says. “It’s BP Plc., HP Group Ltd. out of not inconceivable to me that with Australia, Houston-based Navitas modern technology and modern Petroleum, and China’s CNOOC capabilities, that there are not Limited (formerly Nexen), which another four projects out there just recently received federal environ- waiting to be discovered.” mental assessment approval for its According to Nalcor, independent exploration drilling program in the resource assessments have iden- Flemish Pass. tified the potential for 52.2 billion ExxonMobil is currently drilling

NR16 NATURAL RESOURCES MAGAZINE | Vol. 22 No. 2 2020 NO TIME LIKE THE PRESENT?

in the Flemish Pass, which marks the first exploration associated with the province’s new licencing setup. “We can’t pin all our hopes on one well because there are literally dozens and dozens and dozens of wells that are likely in the plans of these oil companies,” Nalcor’s Keating says. “But it does mark a transition.” The other eight licence holders are expected to start their exploration programs as early as this year, as well as through 2021 and 2022, says Paul Barnes, a director with the Canadian Association of Petroleum Producers (CAPP), whose membership includes all the companies involved with production and exploration in Newfoundland and Labrador. In all, the companies have proposed 10 drilling projects over the next two to four years, with upwards of 100 wells proposed in their applications. More territory will soon be opened up for explo- Suncor operates the Terra Nova field. TheTerra Nova Floating Production Storage and Offloading (FPSO) is one of the largest vessels ever built. (Photo: Suncor) ration and more licences will be issued. Nalcor says new exploration licence bidding rounds will be held in 2020 and 2021, including for areas off Labrador—a first.

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enr St. St. ons NL AC R 709.722.4074 220 Octerlone St. artmout NS 2 902.469.2667 Atlantic Offshore Medical Services liam.oseaaoms.ca | .aoms.ca make a final investment decision Big potential, but regarding Bay du Nord in mid-2021. Production could start in 2025, if the a new challenge… project is sanctioned, and generate The Bay du Nord project illustrates oil for 10 years and cost $10.9 billion. a new element facing the sector. “It’s a relatively small project,” Fjaer The provincial offshore areas now says. “It’s only 300 million barrels. under, or slated for, exploration are It’s not big.” all further offshore—and in deeper Equinor, based in Norway, has water—than the province’s existing been present in Newfoundland and projects. Labrador since 1997 and is currently Bay du Nord, which Equinor is partnered in three of the four oper- developing with partner Husky, ating projects (the exception is White was discovered in 2013. According Rose). Equinor holds several explo- to Equinor, the project’s 300 million ration licences and plans to drill barrels of recoverable oil are located two exploration wells next year in in water 1,200-metres deep, nearly the Flemish Pass, the area already 500 kms offshore. (For comparison, housing Bay du Nord. the province’s four existing projects are all roughly 350 kms offshore, in depths of roughly 100 metres). “It’s the development that’s the longest from shore and in the deepest Concerns and waters,” Unni Fjaer, a vice president SeaRose FPSO off the east coast of Canada at Equinor Canada, responsible for uncertainty… (Photo: Suncor) the company’s offshore operations The industry’s enthusiasm for new in Canada, said in a recent interview. development is not universally “But it’s not deeper than what we’re shared. The hunt for more oil (and doing in other places in the world.” potentially natural gas) has raised Fjaer says Equinor expects to concerns from the province’s fishing

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NR18 NATURAL RESOURCES MAGAZINE | Vol. 22 No. 2 2020 NO TIME LIKE THE PRESENT? industry. There’s also the threat ORPHAN BASIN of more oil spills off the province, FLEMISH PASS where four spills have occurred since 2018, including 250,000 litres LABRADOR discharged at Husky’s White Rose field in November of that year. And while new oil production will deliver jobs and royalties, it will also contribute to further climate warming. “Making the choice to allow further oil and gas exploration and drilling in the year 2020 is an act of climate denial that puts commu- NEWFOUNDLAND nities here at home and around the world directly in harm’s way,” notes Stephen Thomas, energy campaign coordinator at the Ecology Action Centre in Halifax. Thomas says it has long been understood that 85 per cent of ORPHAN/FLEMISH known oil, gas and coal reserves must remain in the ground “in order to have even a chance of global warming staying below cata- strophic levels”. “Searching for more oil and gas to burn is making this enormous problem even worse,” he EAST JEANNE d’ARC says. Pointing to Nalcor’s resource CARSON BASIN

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ONLINE EXTRAS: naturalresourcesmagazine.com NR19 “An oil and gas company, STRATEGIC LOCATION. obviously, wants to make a return on its investment SKILLED WORKFORCE. as quickly as possible. So if you can do it in other STRONG OFFSHORE SECTOR. jurisdictions more easily than you can in Canada, then that’s where the investment dollars may go.” When you’re ready, we’re ready. Jennifer Penney Paul Barnes We have the space, the means Economic Development Officer Director, Atlantic Canada and Arctic Canadian Association of Petroleum Producers and the infrastructure to help t: (709) 782-3266 your business succeed. e: [email protected]

Newfoundland & Labrador, Canada paradise.ca barrels of oil and 199 trillion cubic feet of gas) Thomas says: “It is abso- lutely insane to have an economic development strategy that relies on drilling for, exporting and burning When Structures Matter these fossil fuels.”

Is time running out? Structural Engineering Both Keating and Barnes said time is the biggest challenge facing the Commercial, Industrial, Institutional industry, but not because climate change is winding the clock down on fossil fuel development. Instead, Buildings/Bridges they point to regulatory delays and the large amount of time required to Design/Reviews get a project to actual production. “It takes much longer in Canada than in other places in the world. That results in a challenge from a competi- tiveness and investment point of view,” Keating says. “Time is a barrier.” Barnes, meanwhile, claims Canada has “unnecessary regulatory delay” compared to other areas. “An oil and gas company, obviously, wants to make a return on its investment as jomaeng.com quickly as possible,” he says. “So if 506.382.5550 you can do it in other jurisdictions Licensed in: NB, NS, PE, NL more easily than you can in Canada, then that’s where the investment dollars may go.”

NR20 NATURAL RESOURCES MAGAZINE | Vol. 22 No. 2 2020 Atlantic Canada's leading International areas competing engineering consultants for with Newfoundland and Labrador BRIDGING THE GAP: for oil and gas development dollars Structural, Civil and Hydraulics: include Mexico, Brazil, Guyana, PRACTICAL SOLUTIONS BASED ON STRUCTURAL Norway, the U.K., Australia, and Bridges • Marine and Coastal • Defence • West Africa, according to Barnes. KNOWLEDGE AND EXPERIENCE Buildings

CIVIL A long-term Highways • Municipal Services Design play… HYDRAULICS Patrick Brannon, the director Culvert Design • Stormwater Modelling • of major projects at the Atlantic Subdivision Design • Environmental Provinces Economic Council, a Permitting • Seawall Design Halifax-based think tank, says the oil and gas industry’s enthusiasm OTHER SERVICES for Newfoundland and Labrador Unmanned Aerial Inspection • appears justified. “There’s certainly Construction Layout & Survey • Forensic • cause for some optimism,” he Project Management • Estimates • says. “We do expect to see a bit of Inspections a ramping up in exploration in the next couple years and some new players… And we do expect oil production to be at a fairly high level over the next few years as well. The momentum is certainly there.” Though he adds: “Anything can certainly happen globally in terms of 420 York St • Fredericton, New Brunswick • E3B 3P7 oil prices or environmental consider- 506.454.4455 | hilcon.ca | [email protected] ations that we’ll have to watch out for.”

If we don’t, others will… Keating argues that as long as oil is being used, particularly in China and India, Newfoundland and Labrador should try to deliver it, and drive the local economy as a result. “I still believe that oil from East Coast Canada will always be the most desirable, both from soci- ety’s expectation on safety and the environment,” he says. Barnes agrees that environmental and safety regulations are stronger in Canada’s oil and gas sector than in other areas of the world. “So why not produce it here in Canada? Why not produce it in Newfoundland if we can do it responsibly?” he says. “If we just stopped, other countries with less environmental and safety records and probably less human rights records will just fill the gap.” |nrm

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