MWANB NOIA OTANS

HARNESSING THE POTENTIAL - ATLANTIC CANADA'S OIL AND GAS INDUSTRY

PREPARED BY: STRATEGIC CONCEPTS, INC. DR. WADE LOCKE AND COMMUNITY RESOURCE SERVICES

JANUARY 1999 Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry i Executive Summary

EXECUTIVE SUMMARY

Offshore Atlantic Canada is now firmly established as one of the bright spots in Canada’s petroleum sector and has started to attract the attention of world- class players in the oil and gas industry. Some of the world’s major oil and gas companies have embarked upon aggressive and ambitious exploration and development programs in Atlantic Canadian waters. Since 1995, more than $700 million in exploration commitments have been announced for four regions within the Atlantic Canadian offshore: the Jeanne d’Arc Basin, Scotian Shelf, Sub-Laurentian Basin and the St. Pierre Bank.

The purpose of this report is to provide a comprehensive overview of Atlantic Canada’s oil and gas industry. As a source document, it demonstrates the importance of oil and gas resources and related industries to Atlantic Canada. Moreover, this report could form the basis for a strategy to optimize opportunities within the region from the oil and gas sector.

The modern era of oil and gas development in Atlantic Canada began in the early 1960s. Since then, more than 300 exploratory and development wells have been drilled in Atlantic Canadian waters. Cumulatively, this drilling and seismic activity alone has generated nearly $8 billion in investment expenditures and has resulted in the creation of more than 100,000 jobs throughout the region. More than $14 billion has been committed to the development of upstream and downstream oil and gas projects since 1990.

The continued growth and prosperity of Atlantic Canada’s oil and gas industry significantly impacts the regional economy and society. As the industry has expanded, the level of participation by Atlantic Canadian businesses and workers has increased. Increased investment in the oil and gas sector has “Looking decades ahead, it is possible, under a spurred continual enhancement of regional infrastructure and capabilities related conducive local environment, that Atlantic to both upstream and downstream activities. Training and research Canada can build the kind of capabilities which today development institutions throughout Atlantic Canada are increasingly being one sees in Stavanger, recognized as world-class centres of excellence. Furthermore, local companies Norway, in Aberdeen, Scotland and, indeed, and professionals have demonstrated that they are competitive at both the Alberta. However, this will require a vision and a national and international levels. With the transfer of technology, expertise and longer term plan and focused commitment on experience to the local businesses and labour, there has been an expansion of the part of our governments” business and employment opportunities to Atlantic Canadians.

Sir Graham Day, 1997 CORE Conference Proceedings Key operators in Atlantic Canada's offshore anticipate a new development project to commence every two to three years throughout the next two decades. Should this transpire, oil and gas production could reach approximately 500,000 barrels of oil equivalent per day. This level of production is equivalent to 50% of Canada’s current light crude oil production

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry ii Executive Summary

and more than 300% of current oil consumption for Atlantic Canada. To achieve this level of production, there could be as much as $55 billion in cumulative capital and operating expenditures associated with the development and operation of these fields. With this level of activity, oil and gas production has the potential to raise Atlantic Canada’s GDP by more than 10% over current levels; thus, within two decades, the economic well-being of one in ten Atlantic Canadians could depend on the oil and gas industry.

Industry associations and provincial governments anticipate downstream projects will make an equally impressive contribution to the regional economy. Industry players are investing in pipelines, transshipment terminals and gas processing plants throughout the region. Perhaps even more telling is the fact that established businesses are investing in support infrastructure including shipyards, fabrication facilities and heavy industrial facilities. These investments are creating new opportunities that are changing the economic realities faced by Atlantic Canada.

This region attracts investment because it offers several critical advantages for petroleum play. East Coast Canada’s strong reserve potential provides an excellent hunting ground; its large potentially hydrocarbon-bearing structures remain virtually unexplored; exploration that has been undertaken has had very encouraging rates of success. Typically, pool sizes have been large and flow rates superior. Atlantic Canada’s stable political environment, including a reliable skilled workforce and predictable fiscal and legislative regimes, enables “A certain clarity of vision, some sense of long-term development and production planning. A growing infrastructure base restraint and a full measurement of complemented by an extremely versatile marine heritage allows for local supply determination. In other words, you need to know of an expanding range of products and services. Coupled with ongoing what you want to do, improvements to offshore technology, this significantly increases the economic understand why you want to do it, and be prepared viability of regional projects and sharpens regional industry’s competitive to use both political and economic clout to achieve advantage. Finally, its geographical proximity to both North America and it. Clear-thinking realism is the order of the day.” Europe afford relatively easy access (by cost-effective marine transport) to John D’Ancona, 1997, two of the largest markets in the world. CERI Conference, Halifax The degree to which the industry expands to capitalize on these advantages will depend heavily on the region’s success in overcoming the challenges to growth identified in this report. A pivotal issue is the lack of a clear vision for the future of Atlantic Canada's oil and gas industry. Therefore, this report recommends that industry associations take the lead role of facilitating an industry vision and implementation strategy. The vision should provide the basis for a common strategy within government, as well as with operators and the supply and service sector.

Regional economic prosperity can be achieved without compromising the cost

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry iii Executive Summary structure for operators through a best-value approach over the life of the resource and a strong commitment to full and fair opportunity for Atlantic Canadian businesses and individuals.

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SECTION ONE - INTRODUCTION

The Newfoundland Ocean Industries Association (NOIA), the Offshore Technology Association of Nova Scotia (OTANS) and the Metal Working Association of New Brunswick are pleased to present “Harnessing the Potential: Atlantic Canada’s Oil and Gas Industry”. Through an assessment of the industry’s past, ongoing and anticipated future developments, this report profiles Atlantic Canada’s oil and gas industry and highlights its substantial contribution to economic growth and prosperity both within the region and

Value Chain throughout Canada. Components of the Oil and Gas Industry The objective of the report is to investigate the extent to which the Upstream
Exploration development of Atlantic Canada’s oil and gas resources does and can provide
Development millions of dollars in revenue for businesses and government as well as
Production thousands of jobs for residents of Atlantic Canada. Since some sectors of the Downstream
Transportation and industry are still in their infancy, the potential exists for even greater storage contributions to regional economic growth from this industry. The analysis in
Refining
Petrochemicals this report is presented in the context of the oil and gas industry’s value chain
Marketing and for both upstream and downstream activities1 and Atlantic Canada’s capacity distribution to satisfy the requirements of the industry at each link of the value chain.

1.1 Report Structure

The report begins by reviewing the current status of the industry, covering the region’s resource potential and the oil and gas developments now underway. Next, the evolution of the oil and gas industry is discussed in terms of its value chain components; this puts in context the current status of industry development within Atlantic Canada. There follows a broad assessment of the region’s supply, labour force, infrastructure, training, and research and development capabilities; development of these capabilities is critical to the ability of Atlantic Canada to capture long-term economic benefits derived from its oil and gas industry. The next section describes the industry’s potential, its regulatory framework and the barriers and constraints affecting industry development. The final section offers recommendations to enhance the industry’s beneficial impact on both Atlantic Canada and Canada as a whole.

1 Upstream refers to all activities up to and including the extraction of oil and gas from the ground. Downstream refers to all activities following the extraction of the oil and gas including transportation, refining and distribution.

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1.2 Industry Status

Atlantic Canada’s oil and gas industry has grown considerably since early exploration activities began off the coasts of Newfoundland and Nova Scotia in the 1960s. Today, it is maturing from a fledgling sector servicing a number of Atlantic Canada’s “Big independent exploration and development projects to a fully integrated Five“ Oil and Gas Projects up to year-end industry incorporating both upstream and downstream activities. This 1998 structural shift is best illustrated by the range of activities occurring throughout
Cohasset-Panuke the region and through all components of the value chain, including:
Hibernia
Sable Offshore Energy Project
a full year of production for the Hibernia field, whose first well set a
Terra Nova
Maritimes and Canadian record for oil flow, peaking at some 50,000 bpd; total production Northeast Pipeline now regularly exceeds 100,000 bpd and is projected to reach 200,000 bpd; Total capital costs of these projects exceed $11
development of the Terra Nova Project, the Sable Offshore Energy Project billion. and the Maritimes and Northeast Pipeline Project, with combined capital Total recoverable reserves of these fields are valued expenditures of $5 billion; in excess of $30 billion.
increasing levels of direct employment in the upstream and downstream sectors, which may reach over 4,000 persons in 1999;
continuing production, which has extended beyond initial estimates, for the Cohasset-Panuke project;
advanced delineation programs for the Whiterose and Hebron fields (the latter now estimated to contain as much as 600 million barrels of recoverable oil);
a growing base of upstream infrastructure, technology and expertise throughout the region;
concurrent development of downstream activities in Atlantic Canada, including construction of an offshore oil transshipment terminal, gas pipelines, natural gas processing facilities and power plant conversions;
a steady supply of clean natural gas for the Maritime Provinces, connection to the North American gas grid, and a structural shift in the region’s economic base resulting from the availability of natural gas;
record values for land sales between 1995 and 1998, with almost $700 million committed in exploration expenditures for the region; and
growing realization by the major oil companies of the long-term potential of Atlantic Canada as an oil and gas producing region, as illustrated by increased offshore exploration on the Grand Banks, the south coast of Newfoundland and the Scotian Shelf, in addition to onshore exploration on Anticosti Island and Western Newfoundland.

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These and other positive signals are occurring almost daily in Atlantic Major Oil Companies That Have Recently Canada’s oil and gas industry. In order for the industry to be developed to its Established Offices in Atlantic Canada fullest potential, however, a forward-thinking and coordinated approach by
Mobil Oil government agencies, businesses and operators is needed. Such an approach
Petro Canada would ensure that opportunities are seized and that maximum economic benefit
Husky Oil for all stakeholders is achieved.
Norsk Hydro Canada Oil and Gas As the industry develops and a critical mass of producing oil and gas fields is
PanCanadian Resources established, the potential for additional upstream and downstream economic activity is increased. This, in turn, enhances the possible economic and social Atlantic Canada is Mobil's largest target for contribution of the industry to Atlantic Canadian individuals, businesses and investment over the next five years. governments. This document provides a broad-based perspective on Atlantic Canada’s offshore oil and gas industry and its potential to contribute to economic development within the region.

Figure 1 Atlantic Canada's Oil and Gas Resources

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SECTION TWO - THE EVOLUTION OF ATLANTIC CANADA’S OIL AND GAS INDUSTRY

Atlantic Canada’s oil and gas industry has progressed significantly. The Selected Significant Discoveries upstream sector is now relatively well advanced, involving numerous Gas exploration and production companies as well as hundreds of supply and Thebaud 1972 Venture 1979 service businesses. The downstream sector is also well established, with a South Venture 1983 base of refineries, service stations and product wholesalers. New investments Glenelg 1983 Alma 1983 in gas pipelines, processing plants, transshipment facilities and industrial Chebucto 1984 North Triumph 1986 conversions are continuing to increase the industry's contribution to the Oil Cohasset 1973 regional economy and society. Hibernia 1979 Hebron 1981 Terra Nova 1984 The following account of the historical development of Atlantic Canada’s oil Whiterose 1985 Panuke 1986 and gas industry is presented in terms of the exploration, development, West Bonne Bay 1998 production and downstream activities. This overview provides a context for an These fields have over 3.5 appreciation of the industry’s potential within Atlantic Canada (see Appendix trillion cubic feet and upwards of 2 billion A for a detailed chronology of the milestones achieved in Atlantic Canada’s oil barrels of potentially recoverable gas and oil and gas industry). reserves.

2.1 Exploration: History and Overview

Activity Atlantic Canada’s oil and gas industry began with exploration in the mid- 1800s, after oil was observed on the surface of Parsons Pond in Western Newfoundland and at various locations in Nova Scotia and New Brunswick. Subsequent exploration took place sporadically, until the onset of the modern era of exploration in the 1960s. Modern exploration has focused on three Exploration Wells* offshore areas: the Jeanne d’Arc Basin, the Scotian Shelf and the Labrador Period NF NS Shelf. More than 300 wells have been drilled since the mid-1960s. Figure 1 65-69 2 3 70-74 43 53 on the previous page illustrates the location of each of these areas. 75-79 22 16 80-84 41 34 85-89 30 19 Since the mid-1990s, preliminary seismic activity has been undertaken in other 90-94 2 22 95-97 9 5 offshore areas, including the Sub-Laurentian Basin and the South Coast of Total 149 152 Newfoundland. Since 1995, exploration has been undertaken in onshore * Includes approximately 12 locations in Western Newfoundland, Anticosti Island and various other development wells drilled since 1990. locations throughout the Atlantic Provinces.

The first significant discovery of hydrocarbons in Atlantic Canada occurred in 1969, when drilling on the Scotian Shelf's Onondaga field resulted in a significant showing of natural gas. This was followed in 1972 by the discovery of the Thebaud gas field - the second largest field within the Sable project. The most significant commercial discovery to date was made in late 1979, when the 3 billion barrel Hibernia field was discovered, marking the second largest discovery in Canadian history. Following that find, exploration activity surged throughout the early 1980s, resulting in a number of significant discoveries in both Newfoundland and Nova Scotian waters.

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2.1.1 Jeanne d’Arc Basin/Grand Banks The Jeanne d'Arc Basin has been the primary target for exploration activities to The Jeanne d’Arc Basin is predicted to have two date and is the location of most of the region’s major oil discoveries. As Table more fields of over 100 million barrels and 20 1 below illustrates, even the conservative figures provided by the Canada- fields containing between 25 and 100 million Newfoundland Offshore Petroleum Board illustrate the enormous potential of barrels. the Jeanne d’Arc Basin.

Table 1 Discovered Oil and Gas Resources in the Jeanne d’Arc Basin1 (Oil in millions of barrels and Gas in billions of cubic feet) Field Oil Gas Highlights The Hibernia discovery Hibernia 666 1,017
In production since November 1997 well was the 60th well
Has already achieved record Canadian production rates drilled off
Mobil’s recoverable reserve estimate increased to 750 million Newfoundland. barrels in late 1997
3 billion barrels of oil in place Terra Nova 406 269
Development began in 1997
First oil by late 2000
2nd largest discovery in North America since 1980 Hebron 195 NA
Appraisal well being drilled in summer 1998
Recoverable reserves may be as high as 600 million barrels, rivaling Hibernia Whiterose2 178 1,509
Recoverable reserves may be up to 250 million barrels; 750 million bbls of oil in place
Pre-development delineation program beginning in the fall of 1998; may include extended production test of up to 10,000 bbls/day
$130 million, 3-year first phase
Total development cost of $1.5 billion
Production could hit 100,000 bbls/day West Ben Nevis 25 NA Since 1979, there have Mara 23 NA been 11 discoveries in
Most of these fields would be developed at onshore locations; North America containing Ben Nevis 19 229 however, with the high capital costs of offshore production, many over 100 million barrels North Ben Nevis 18 115 are not yet feasible as stand-alone developments. As technology of oil; 4 of these are Springdale 14 236 improves, however, these fields may be developed as satellite fields located offshore from other producing operations. The Ben Nevis fields, for Newfoundland. Nautilus 13 NA example, may be developed in conjunction with the Hebron field. King’s Cove 10 NA This concurrent development approach has the potential to result in South Tempest 8 NA the economic exploitation of many additional fields that would not East Rankin 7 NA be economically viable as stand-alone projects. Fortune 6 NA South Mara 4 144 North Dana 0 470 Trave 0 30 Totals 1,592 4,019

Source: Canada-Newfoundland Offshore Petroleum Board 1 Resources are volumes of hydrocarbons, expressed at 50% probability of occurrence, which are assessed to be technically recoverable but have not been delineated and have unknown economic viability. Reserves are volumes of hydrocarbons proven by drilling, testing and interpretation of geological, geophysical and engineering data, which are assessed to be recoverable using current technology and viable under present and anticipated economic conditions. Hibernia is the only field currently classified as containing reserves. 2 Additional information from the Globe and Mail, Dec 16, 1996, pp. B1

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In addition to this conservative reserve estimate of 1.6 billion barrels of The Jeanne d’Arc Basin is discovered resources, the Jeanne d’Arc Basin is expected to contain up to 5 one of 4 basins on the Grand Banks with the billion barrels of recoverable reserves. This recoverable reserve estimate is geophysical characteristics of oil-bearing rock. All of equivalent to 70% of the total conventional oil expected to be found and the discoveries on the produced in the Western Canadian Sedimentary Basin2. Grand Banks to date have been in this basin; the other basins are virtually unexplored. 2.1.2 Scotian Shelf The Scotian Shelf is the Atlantic Canadian offshore area encompassing the six gas fields (highlighted in bold in Table 2) which will be developed as part of the Sable Offshore Energy Project. The discovered resources in the area are impressive, as illustrated in Table 2 below.

Table 2 Discovered Oil and Gas Resources1 Scotian Shelf Oil (millions of barrels); Gas (billions of cubic feet) Field Gas Oil and Field Gas Oil and Condensates Condensates Alma 409 5.0 Primrose (Gas) 122 0.7 Arcardia 157 1.0 Primrose (Oil) 9 1.3 Banquereau 92 0.5 South Sable 5 0.0 Chebucto 386 2.3 South Venture 421 14.7 Citnalta 196 14.6 Thebaud 761 20.3 Cohasset 3 29.5 Uniacke 130 1.3 Glenelg 437 4.2 Venture 1,521 27.1 Intrepid 74 1.2 West Olympia 21 0.6 North Triumph 380 2.0 West Sable (Gas) 175 8.7 Olympia 129 3.3 West Sable (Oil) 14 30.6 Onondaga 156 0.0 West Venture C-62 49 0.2 Panuke 2 18.5 West Venture N-91 105 0.0 Totals 5,754 187.7

Source: CNSOPB Website - Technical Summaries of Scotia Shelf Significant & Commercial Discoveries. 1 The recoverable resources presented above are based on the Best Current Estimate (BCE). The BCEs are based on the probabilistic mean, with a 65% recovery factor for gas and 30% for oil. The Sable Offshore Energy Project includes the development of the Alma, Glenelg, North Triumph, South Venture, Thebaud and Venture fields.

Other east coast basins have over 44 trillion cubic In addition to the 5.8 trillion cubic feet of discovered reserves, the area is feet of undiscovered natural gas resources, believed to contain an additional 12.4 trillion cubic feet of undiscovered equivalent to over 55% of the total undiscovered resources. The estimated total ultimate resource of the Scotian Shelf is over 18 resources in Western Canada. trillion cubic feet of natural gas, representing 15% of Alberta’s remaining (Ken Drummond, East Coast ultimate resource potential. Gas – The Big Picture, April, 1998 CERI Conference)

2 Bruce, Gary, VP Petro Canada, Presentation to NOIA Conference, St. John's, NF, (June 24, 1998)

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2.1.3 Labrador Shelf The third Atlantic Canadian offshore area with significant volumes of discovered hydrocarbons is the Labrador Shelf. Drilling in this area coincided with the Federal Government’s Petroleum Incentive Program in the early 1980s. No significant quantities of oil were discovered, but the gas fields rival those of the Scotian Shelf. The difficulties of transporting this gas to markets from such a remote area have meant that very little activity has been undertaken on the Labrador Shelf since the mid-1980s. As illustrated in Table 3 below, the discovered gas resources on the Labrador Shelf are significant.

Table 3 Discovered Oil and Gas Resources Labrador Shelf Gas (billions of cubic feet); Natural gas liquids (millions of barrels) Field Gas1 NGLs Highlights North Bjarni 2,235 82 The remoteness of the Labrador Shelf has precluded Gudrid 920 6 the economic development of these huge natural gas Bjarni 859 31 resources. Hopedale 105 2 The North Bjarni field alone is 50% larger than the largest field discovered in the Scotian Shelf. Snorri 105 2 Total Labrador Shelf 4,224 123

Source: Canada-Newfoundland Offshore Petroleum Board

2.1.4 Other Exploration Areas and Activities While there was a reduction in drilling and exploration activity in the early CNOPB and CNSOPB Work 1990s, there has been a renewed interest throughout the Eastern Canadian Expenditure Bids ($ millions) offshore in the latter half of the decade. Four wells have been spudded on the Year NF NS west coast of Newfoundland, and offshore seismic, wildcat drilling and 1988 45 NA delineation activities are intensifying on sites throughout the region, including 1989 50 NA 1990 11 3 Whiterose, Hebron, Riverhead, West Bonne Bay, Anticosti, Grand Pre and the 1991 7 0 1992 0 0 French Corridor off Newfoundland’s south coast. 1993 3 1 1994 0 0 1995 96 86 Since 1995, calls for bids by the Canada-Nova Scotia Offshore Petroleum 1996 126 2 1997 98 94 Board (CNSOPB) and the Canada-Newfoundland Offshore Petroleum Board 1998 175 5 (CNOPB) have generated considerable interest and work commitments for the near future. Since that time, the total value of work expenditure bids has approached $700 million.

The CNOPB’s 1998 call for bids, which closed in September 1998, generated the largest amount of exploration commitments to date. A total of $175 million was committed for exploration expenditures over the next five years. Over 620,000 hectares of land were awarded to six different companies, including some of the largest oil and gas producers in the world. Perhaps most significant is the fact that some of the parcels are in previously unexplored deep waters to the northwest of the Jeanne d'Arc Basin and beyond the continental shelf.

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2.1.5 Exploration: Value and Economic Impact

Total exploration expenditures from the early 1960s to the end of 1997 have exceeded $7.9 billion, peaking at almost $1.4 billion in 1984 when 11 wells were drilled on the Grand Banks and 15 on the Scotian Shelf. The overwhelming majority of exploration effort has been concentrated in these areas. The remainder has been spent on the Labrador Shelf, Western Exploration Newfoundland and other less explored areas. Employment in Newfoundland Year # Expenditures 1985 1,441 Table 4 below summarizes the exploration expenditures made in Atlantic 1986 971 Canada since the mid-1960s. 1987 596 1988 724 1989 135 Table 4 1990 150 Atlantic Canadian Exploration Expenditures ($ millions) 1991 124 1967 to 1997 1992 0 Time Period Geological and Drilling Land Other Total 1993 0 Geophysical 1994 0 1967-69 21 9 3 3 35 1995 30 1970-74 81 214 9 0 305 1975-79 90 402 10 0 502 Newfoundlanders accounted for 66% of 1980-84 379 3,814 8 0 4,201 this total; other 1985-89 160 2,307 6 0 2,472 Canadians accounted for another 30%. 1990-94 54 197 18 0 269 1995-97 40 37 7 0 159 Total825 6,979 61 3 7,942

Source: Canadian Association of Petroleum Producers (CAPP), 1998 Statistical handbook

Expenditures of this magnitude have had considerable direct and indirect impacts on the Atlantic Canadian economy. In relative terms, however, exploration expenditures have to date had less significant local impacts than development or production expenditures. This owes to the fact that a large portion of the cost of exploration is attributable to hiring seismic vessels and drilling rigs which are not at this time available in the region, so that these expenditures leak out of the Atlantic Canadian economy. Regional economic impacts result chiefly from crewing and servicing these seismic vessels and drilling rigs. However, an important long-term impact of these exploration programs derives from the information acquired: its value lies in providing the basis for future development and production activities within the region.

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Employment A consistent base of exploration-related employment data is only available for Newfoundland since the CNOPB was established and began collecting such data in 1985. Between 1985 and 1995, employment from exploration has totalled 4,171 person-years. Over this time period, each person-year of employment has been accompanied by an average of almost $350,000 in exploration expenditures. Extrapolating from this estimate, direct exploration employment in Atlantic Canada since 1966 may have totalled 22,690 person- years or an average of over 700 persons per year.

Further adjusting these direct employment estimates through application of an employment multiplier of 4.753 (see Table 5), the exploration industry in Atlantic Canada could have created an additional 85,088 person-years of employment since 1966 for a total of 107,778 person-years of employment. On an average annual basis, this equates to over 3,400 person-years of direct, indirect and induced employment per year over the past 31 years.

Table 5 below lists the multipliers derived by combining the industry-specific employment multipliers from the CERI report with the overall induced multiplier for the industry.

Table 5 Combined Indirect and Induced Employment Multipliers Upstream Downstream Exploration and production 6.59 Service stations 2.15 Drilling and service rig contractors 3.07 Wholesale petroleum products 2.42 Service and supply 3.07 Refineries 12.88 Scientific and technical 2.31 Petrochemicals 4.26 Industrial and construction 4.81 Natural gas distribution 2.37 Pipeline transportation 4.07 Total Upstream 4.75 Total Downstream 3.83

Economic Terms Defined Person-year one full-time job for one person per year (or 2 people working 6 months each) Direct employment persons employed directly by the original project Indirect employment those employed by a supplier directly providing services to the project Induced employment those employed in the broader economy as those employed directly and indirectly spend their incomes

3 The indirect multipliers used throughout this report have been derived from multipliers used by the Canadian Energy Research Institute in its report: “Employment in the Canadian Petroleum Industry”, February 1998. Induced multipliers are taken from the Petroleum Communication Foundation's 1993 publication: “Our Petroleum Challenge: Into the 21st Century”.

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2.2 Development: History and Overview

Activity The first commercial development in the Atlantic Canadian offshore was the Cohasset-Panuke (COPAN) project. Developed jointly by Lasmo Nova Scotia Ltd. and the Government of Nova Scotia, the Cohasset-Panuke project produced the first oil from Canada’s offshore on June 5, 1992.

The next, and most significant, commercial development undertaken in Time Magazine has referred to Hibernia as the Atlantic Canada was the Hibernia project. Beginning in 1990 with the 9th wonder of the modern world. construction of the Bull Arm fabrication site and culminating with tow-out in May of 1997, the Hibernia production platform was an engineering and construction marvel. The $5.8 billion price tag included over 63 million person-hours of work, almost two-thirds of which was filled by Newfoundlanders. What makes the Hibernia platform most impressive is its location in a harsh marine environment. The sheer scale of this ground- breaking project provided the region’s business community with the confidence to invest in and work towards developing a regional oil and gas industry.

The Sable Offshore Energy Project (SOEP) and the Terra Nova Project are the most recent offshore projects. They are now under development and are expected to be in production by year-end 1999 and year-end 2000, respectively. They will solidify the region’s core asset base and have the potential to provide many additional business and employment opportunities for Atlantic Canadian companies and individuals. They also represent the full emergence of a diversified oil and gas industry for Atlantic Canada.

Pace of Development Given the region’s geological endowment (described in Section 2.1 above), it is not surprising that, despite declining oil prices, East Coast Canada continues to attract more and more investment. There are a number of reasons for this continued investment, including the relatively large size and flow rates of the fields and the high probability of finding additional large fields. This large reserve potential with high production rates amply justifies the large investments required.

A corollary effect of such large capital-intensive developments is the reduced likelihood of cyclical downturns due to declining oil prices. In 1996 producing oil wells in other parts of Canada averaged less than 30 barrels per day4. Hibernia's first well peaked at almost 50,000 barrels per day. With such high flow rates, the Hibernia field will continue to produce during price downturns. This ability to withstand price fluctuations supports the “life-of-field” concept now employed in most offshore producing or other capital-intensive regions.

4 Based on 47,093 oil wells producing 1.4 million barrels per day in 1996 (1998 Canadian Oil Industry Directory, Pennwell Publishing, pp. 273.)

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Another reason for the region’s accelerating pace of development and Infrastructure developed along with the Hibernia exploration is the critical mass of infrastructure created in support of the project Hibernia project in Newfoundland and by the Sable Offshore Energy Project in
Bull Arm Site Nova Scotia. The presence of this infrastructure reduces development and
Cow Head Offshore Fabrication Facility production costs, thereby improving the economic viability of other fields. For
Atlantic Seaboard example, the Cohasset-Panuke production platform is now producing oil from Industries a third field (Balmoral) which otherwise could not be developed economically
Offshore Safety and Survival Centre as a stand-alone project. Similarly, the Hibernia platform could potentially be
Centre for Earth used as a support base for exploration in deeper waters off the continental Resources Research shelf. The gas pipeline system now being built for use by the Sable Offshore
Offshore Simulator Energy Project will allow the development of nearby smaller gas fields both offshore and onshore (where exploration has recently been renewed).

2.2.1 Development: Value and Economic Impact

Table 6 below summarizes the Atlantic Canadian projects currently under production, development or at an advanced stage of exploration.

Table 6 Major Oil and Gas Projects in Atlantic Canada Project/ Operator Owner Companies Development Cost Development Period ($ millions) Hibernia1 Hibernia Management Mobil Oil Canada $5,819 1990 – 1997 and Development Chevron Canada Resources Company (HMDC) Petro Canada Canada Hibernia Holding Corp. Murphy Oil Norsk Hydro Terra Nova2 Petro Canada Petro Canada 2,000 1997 – 2000 Mobil Oil Canada Properties Husky Oil Operations Ltd. Norsk Hydro Canada Oil and Gas Murphy Oil Company Ltd. Mosbacher Operating Ltd. Chevron Canada Resources Sable Offshore Sable Offshore Energy Mobil Oil Canada Properties 1,800 – 2,500 Energy Project3 Inc. Shell Canada Ltd. 1997 – 1999 and Imperial Oil Resources Ltd. 2004 - 2007 Nova Scotia Resources Ltd. Mosbacher Operating Ltd. Cohasset-Panuke4 PanCanadian PanCanadian Resources 424 1990-1992 Petroleum Ltd. Nova Scotia Resources Ltd. Maritimes and Westcoast Energy Inc. Westcoast Energy Inc. 1,000 Northeast Pipeline5 Duke Energy 1998-1999 Mobil Oil Canada Whiterose6 Husky Oil Husky Oil 1,500 1998 – 2002 Petro Canada Norsk Hydro Parex

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Project/ Operator Owner Companies Development Cost Development Period ($ millions) Hebron7 To be determined Mobil Oil Canada 1,500 ?? Chevron Canada Resources Petro Canada Norsk Hydro Canada Oil and Gas Total $14,243

1 The Hibernia Development Project Update, July 1996. 2 Terra Nova website. 3 Sable Development Plan. 4 CNSOPB Annual report (Includes post-production capital costs as well). 5 Maritimes and Northeast Pipeline website (Canadian portion of total cost is $544 million). 6 Whiterose cost estimate based on December 7, 1996 Globe and Mail article. 7 Hebron capital cost estimated based on size of reserves and Whiterose estimate. The actual figure could vary considerably from this estimate and has not been verified nor provided by the developer.

Expenditures As illustrated in Table 6, investment associated with offshore oil and gas projects can be very large. The challenges associated with extracting oil and gas resources from a harsh marine environment contribute to these high costs. As a result, the investment expenditures for offshore developments can have substantial impacts on the regional economy. Moreover, the Atlantic Canadian economy has already experienced considerable positive impacts from development activity, as illustrated in Table 7 below.

Table 7 Pre-production Costs and Estimates for the Four Oil and Gas Production Projects Underway in Atlantic Canada (millions of $CDN and person-years) Expenditures Employment Field Dev. Period Total Atlantic Total Atlantic Canada1 Canada1 COPAN2 1990-92 424 166 3,387 2,562 Hibernia 1990-97 5,819 2,700 31,500 21,000 Terra Nova3 1997-2000 2,000 500 – 600 3,850 NA Sable4 1997-1999 1,800 – 2,500 547 4,178 – 6,962 2,920 2,000 (avg.) 5,570 (avg.) 1 Includes amount spent in Newfoundland for the Hibernia and Terra Nova projects and Nova Scotia for the Cohasset-Panuke and Sable Gas projects. 2 CNSOPB, Cohasset Project – 1997 Canada/Nova Scotia Benefits Report (Includes post-production capital costs and employment to the end of 1997). 3 Employment for Terra Nova estimated using the 7.7 million person hour estimate and an average of 2,000 hours per year (Ocean Resources, March 1998, pp. 33). Assuming that 80 to 90% of post-production costs occur in Newfoundland, it is estimated that $500 to 600 million of pre-production costs would occur in Newfoundland. 4 Sable Development Plan Application and Sable Project Overview (includes post-production capital costs).

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The Hibernia project has been the largest contributor to the region’s economy, The peak number of accounting for $2.7 billion in additional expenditure within the Newfoundland people working in Newfoundland on the economy up to the end of 1997 (some 46% of total project expenditures). Hibernia project occurred in September 1995 when Even the smaller Cohasset-Panuke project has injected $400 million into the 6,133 people were Nova Scotia economy since 1990, from its pre-production and operating employed. This is similar to the level of full-time expenditures. employment in Newfoundland’s second largest city. The Sable and Terra Nova project expenditure estimates have been provided by the respective companies in their development plan applications. The actual total expenditures and the amount that will be incurred in Atlantic Canada may vary from these estimates. However, there appears to be lower regional content from these projects when compared to the Hibernia project. Both of these project developers are projecting Atlantic Canadian content in the 25 to 30 percent range for development costs as compared to almost 50% for the Hibernia project.

The location of the Terra Nova engineering team in Leatherhead, England is Location of Terra Nova Contracts having a direct negative impact on the ability of Atlantic Canadian firms to Awarded up to October 29, 1998 succeed when bidding on contracts for the Terra Nova project. The logistical

Location # difficulties for local firms to meet with, discuss procurement requirements and UK 54 generally develop working relationships with the design and engineering team NF 26 Ontario 20 are too costly to overcome. The impact of engineering team location can be Norway 14 Texas 8 measured by a review of the Terra Nova contract awards to date: the majority Other 42 have been awarded to UK-based companies. A review of the contracts let by Total 164 Terra Nova until the end of September 1998 indicate that approximately 33% Source: Terra Nova website of contracts were awarded to UK firms; in total, some 64% of contracts have been awarded to firms outside of Canada. Each major contract is broken out into numerous sub-contracts which are then tendered and awarded at the discretion of the major contractor. When these major contractors are located outside the Atlantic region - indeed outside Canada - the nascent Atlantic Canadian supply and service sector is seriously impeded. In other words, the smaller the contract, the less viable is a trip outside the region to obtain it. The impacts, therefore, of locating the engineering at such distance from the resource far exceed the missed economic value of having the 250 engineers working and living in the region. It is an important factor inhibiting local supplier development and therefore limiting regional industrial benefits. Using a 4.81 employment multiplier, Hibernia alone may have created an additional 80,000 person- The principal and perennial concern regarding development projects is their years of indirect and induced employment in short-term duration. However, Atlantic Canada is insulated against this boom- Canada, many of which and-bust cycle by the scale of its resource base: it has been estimated that a would have occurred in Atlantic Canada. new development will begin every two to three years throughout the next 15 to 20 years 5. That is, there will be a continual and predictable amount of work associated with development projects over the next two decades. The combined impacts of these development projects on the Atlantic Canadian economy should be very significant. It is critical to develop and support a defined engineering capability in the region in order to ensure that maximum

5 Gary Bruce, Vice-President, Offshore Development and Operations, Petro-Canada (NOIA Conference, June 1998).

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positive economic impact from this projected continuum of development will accrue to Atlantic Canadian businesses and workers.

2.3 Production: History and Overview

There are two producing oil fields in Atlantic Canada: Cohasset-Panuke and Hibernia. The Cohasset-Panuke (COPAN) project went into production in mid-1992 and produced its 40 millionth barrel of oil in mid-1998. It is near the end of its production life and current plans call for the decommissioning of the rig during 1999. Initial reserve estimates placed recoverable reserves at 36 million barrels and total production has already surpassed this estimate. The life of the field has since been extended to 1999, and the estimated recoverable oil has been increased to 46 million barrels from original estimates.

The Hibernia project produced its first barrel of oil in November 1997 and is

Producing beyond design on target to produce 25 million barrels during its first full year of operation. capacity is not uncommon The Hibernia platform was designed to produce at a peak level of 150,000 in the North Sea. The Oseberg platform, for barrels per day; however, indications are that peak rates may increase to example, reached 360,000 barrels per day – 50% 200,000 barrels per day. With current reserves, the Hibernia field has an greater than its original estimated life of approximately 20 years and an average lifetime production of design capacity. 100,000 barrels per day.

The pre-production development costs for offshore projects provide significant economic benefits. Additionally, when in operation, each of these projects will - on an ongoing basis throughout its production life - be consuming substantial amounts of goods and services, employing hundreds of people and paying royalty, income, payroll, municipal and sales taxes. Consequently, there is great potential for capture of very significant industrial benefits through companies’ supplying goods and services during these projects’ operations phases.

Production activity in Atlantic Canada is in its infancy. Sustained long-term positive impact, as represented by employment, business opportunities and government revenues, will not be realized until several projects are in production simultaneously.

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2.3.1 Production: Value and Economic Impact

Current production and development projects are summarized in Table 8 below.

Table 8 Production Profile and Operating Costs Estimates for Sanctioned and Probable Projects in Atlantic Canada Field Recoverable Estimated Peak Annual Total Value of Total Post- Reserves1 Life Production1 Reserves2 Production Expenditures3 Cohasset-Panuke4 40 1992-99 9 $914 622 Hibernia5 615 1997-2016 50 14,058 8,350 Terra Nova6 370 2000-2014 42 8,457 2,501 Sable7 3,500 1999-2025 182 7,000 2,000 Whiterose8 250 2003-?? NA 5,715 NA Hebron9 600 NA NA 13,716 NA

1 Millions of barrels of oil and billions of cubic feet of natural gas (Sable). 2 Millions of 1997 CDN$ at $16 (US) per barrel; $2.00 per one thousand cubic feet of natural gas, and $0.70 CDN$ to $1.00 US$. 3 Post production expenditures include development drilling (capital costs incurred after production has commenced), except for Sable. 4 Cohasset-Panuke 1997 Canada/Nova Scotia Benefits Report (to end of 1997). 5 HMDC, “The Hibernia Development: 1996 Project Update”; as-spent dollars; includes $6,258 in operating costs and $2,092 in development drilling. 6 Terra Nova website. As spent dollars. Includes $1,901 million in operating costs and $600 million for development drilling. Does not include potential additional 100 million bbls from Far East field. CNOPB resource estimates from 200 – 405 for the Graben and East Flank and 0 – 250 for the Far East Field. 7 Sable Development Plan and Ocean Resources Magazine, March/April, 1998 8 Globe and Mail article, December 16, 1996, pp. B1. 9 Based on indications that recoverable reserves may be as much as 600 million barrels.

The production of oil and gas resources is a very large industry. It has the At peak production, the combined annual output of potential to generate significant revenues and inject billions of dollars into the Terra Nova and Hibernia will be almost $2 billion; Atlantic Canadian economy. The significance of these developments relative Newfoundland’s GDP in 1997 was less than $10 to both the region’s economy and their contribution to the Canadian oil and gas billion. industry will only be fully appreciated when production from Terra Nova and This production level is Sable begin and other development projects commence. The economic also equivalent to 22% of Canada’s 1995 light crude impacts on GDP will be unprecedented in the region, and perhaps in all of oil production. Canada, with growth rates potentially reaching 5% annually.

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Government Revenues Oil and gas projects also provide royalties and taxation benefits to government. Both Newfoundland and Nova Scotia have established generic royalty regimes that govern the payment of taxes and royalties to the provincial governments. On a net revenue basis, the significance of these royalties to provincial treasuries will be limited by a concurrent reduction in equalization transfer payments from the Federal Government6.

However, in addition to relieving Atlantic Canada’s dependence on transfer payments, the overall increase in economic activity can be anticipated to increase provincial tax revenues. Ultimately, the renewed confidence and prosperity resulting from a thriving oil and gas industry will provide sustained and sustainable benefits to the region.

Employment The Hibernia, Sable and Terra Nova production operations will generate approximately 1,300 direct jobs annually. Using a multiplier of 4.75 (see Section 2.1.1), an additional 4,900 jobs could be created for a total annual employment of over 6,200 persons when these three projects are in full production. Table 9 Production Phase Employment Estimates for Sanctioned Projects in Atlantic Canada Field Total Avg Annual % Atlantic Canadians Cohasset-Panuke1 3,391 424 76% Hibernia2 13,300 700 85 - 90% Terra Nova3 6,600 440 NA Sable4 4,178 – 6,963 161 – 268 96% (NS) avg (5,570) avg (214) 2% (other Can) 1 Cohasset-Panuke 1997 Canada/Nova Scotia Benefits Report (to end of 1997); 8 year period used for avg; actual figures; includes capital costs. 2 Hibernia Frontier Newsletter. Includes development drilling employment. Current Newfoundland employment at 85%; target of 90%. 3 From Terra Nova website; 15 year production life used for avg; 13.2 million person-hours at 2,000/yr. 4 Sable Development Plan; Project Overview.

When Whiterose and Hebron are included, projected direct employment increases to over 2,000 persons and total employment approaches 8,000.

6 Part of the equalization losses will be offset by provisions in the Atlantic Accord, the Nova Scotia Accord, and the generic offset provisions. A detailed explanation of these effects is provided in Appendix B.

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2.4 Downstream History and Overview

Atlantic Canada’s downstream sector has a much longer history than its upstream sector, originating with the establishment of the Imperial Oil Refinery in Dartmouth in 1918.

Refining There are now three refineries operating in the region and, while none were built to process oil from the Atlantic Canadian offshore, they are well positioned to do so as production increases.

Table 10 Overview of Refineries in Atlantic Canada Company Location Opened Crude Source Crude Oil Capacity North Atlantic Come by Chance, 1973 North Sea 105,000 Refining Ltd. NF West Africa South America Middle East Imperial Oil Ltd. Dartmouth, NS 1918 Venezuela 84,000 North Sea Irving Oil Ltd. Saint John, NB1960 North250,000 Sea Africa Venezuela Middle East Western Canada

Source: CAPP Statistical Handbook

Transshipment The region is also home to two transshipment terminals, used for storing and reshipping crude oil. Statia Terminals (located in Point Tupper Nova Scotia) Both Nova Scotia Power stores, blends and processes crude oil and other products from the North Sea and New Brunswick Power are reviewing plans for reshipment to North America markets. The facility will also be home to the to convert oil burning plants to natural gas. natural gas liquids fractionation plant being built as part of the Sable Offshore Energy Project. The Newfoundland Transshipment Terminal was purpose- built for the Hibernia project and other Grand Banks oil developments. It received its first shipment of Hibernia crude oil in October 1998. Both of these facilities add to the region’s capabilities in the downstream sector.

Pipelines The Sable Offshore Energy Project will contribute significantly to Nova Scotia’s downstream gas infrastructure base. The most important piece of infrastructure is the Maritimes and Northeast Pipeline, which will provide the region with a link to the North American gas market. The value of this pipeline transcends the Sable project, as it will provide the Maritimes with a clean alternative to fossil fuels for electricity generation and will make the exploitation of additional gas fields an economically viable prospect.

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Processing The Sable Project will also add two other critical components to the region’s natural gas value chain. When Sable gas comes to shore it will be processed at the Goldboro Gas Processing Plant in Guysborough County, NS, where the natural gas will be separated from the natural gas liquids (NGLs). From there the natural gas will be transported to market through the Maritimes and Northeast Pipeline; the NGLs will be sent through another pipeline to a NGL fractionation plant. This $50 million plant, located at the Statia Terminals property in Point Tupper, will process the NGLs and produce an average of

Sable Spin-Offs 20,000 barrels of butane per day. While developed specifically for the Sable Offshore Energy Project, these two processing facilities are critical
Renewed interest in onshore and offshore components of the region’s downstream value chain infrastructure. exploration
Industrial electricity generation Each of these downstream projects adds its own link to the region’s
Residential electricity downstream value chain capability and will play an important role in the
Reduced dependence development of a fully integrated oil and gas industry. on coal and other less clean fossil fuels
Potential development of onshore coal-bed methane deposits in 2.4.1 Downstream Activities: Value and Economic Impact Nova Scotia
Improves economics of possible gas deposits The region’s downstream sector also provides significant benefits to the off Newfoundland's Atlantic Canadian economy. According to the CERI Report on employment in South Coast Canada’s Petroleum Industry, existing oil refineries directly employed upwards of 1,200 persons in 1996 and indirectly employed thousands of other employees in support industries.

The region’s transportation and storage industry is growing, with ongoing operations and expansions to Statia Terminals in Nova Scotia and the opening of the Newfoundland Transshipment Terminal in October 1998. Each of these facilities employs more than 50 people on a full-time basis.

The development of Nova In the downstream gas industry, the construction of the Maritimes and Scotia's gas industry will provide many additional Northeast Pipeline will provide significant benefits of up to 5,000 direct and opportunities. indirect jobs during the 1998 and 1999 construction seasons. Once this Applications have already been made for lateral pipeline is operational, the direct economic impacts will decrease; however, its pipelines. One lateral is being proposed by Nova impact is wide-reaching and has long-term implications. The lasting value of Scotia Power who want to convert a thermal plant in this project lies in its significant contribution to a fully integrated gas industry Dartmouth to a natural gas for the Maritime Provinces. plant. Other downstream activities, including wholesale and retail distribution, are well established and provide local economic benefits throughout the region. This sector is not dependent on the development of an upstream sector and, as such, is not considered in this report. However, two enhancements are worthy of note. Irving Oil’s planned $600 million upgrade to its New Brunswick Refinery is intended in part to take advantage of natural gas from the Sable Offshore Energy Project. Additionally, modifications made in late 1998 to North Atlantic Refining’s facility at Come-by –Chance has enabled Grand Banks crude to be processed in Newfoundland.

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SECTION THREE - ATLANTIC CANADIAN CAPABILITIES

This section provides an analysis of Atlantic Canada’s capabilities with respect This section is not to the goods, services and expertise required for upstream and downstream oil intended to be an exhaustive document and gas activities. In this analysis, the value chain for the oil and gas industry detailing all of the goods and services required by is segmented into the categories of exploration, development, production, the oil and gas industry. transportation and storage, refining and distribution. Rather, it is intended to provide a broad overview of the industry’s requirements within the In addition to requiring goods and services, the oil and gas industry requires context of Atlantic Canada’s capabilities. expertise, skilled labour, research and development institutions, training institutions, and infrastructure such as fabrication, marine support and other support facilities. Each of these requirements is discussed in terms of Atlantic Canada's ability to provide the goods or services.

3.1 The Oil and Gas Value Chain

Figure 2 on the following page illustrates the oil and gas value chain and delineates the major value chain components in greater detail. A more detailed analysis of some of the major product and service categories as illustrated in Figure 2 is attached as Appendix C. This analysis describes in greater detail some of the specific goods and services required in the value chain and the capabilities of Atlantic Canadian companies to supply them. It is not intended to be exhaustive, but representative of some of the more significant value chain activities. It is also important to observe that many of the goods and services are required in various sectors of the value chain: remote communication services, for example, are used throughout the value chain.

Each of the supply chain requirements for the oil and gas industry is discussed in terms of Atlantic Canada’s supply capability, labour force, training institutions, and research and development capabilities.

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Figure 2 Oil and Gas Value Chain

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3.2 Supply Capabilities

Exploration Atlantic Canadian companies have been providing exploration support services, supplies and equipment to the offshore and onshore oil and gas industry for over 30 years. As a result, the region has developed a supply capability for exploration support services, materials and equipment. However, the largest single expenditure for exploration – rental of seismic vessels and drilling rigs – has typically leaked from the regional economy. Exploration Support Services Most of the other supplies and services are readily available within the Atlantic
Drilling rigs Canadian economy.
Supply vessels
Helicopter services Development
Shorebase The experience acquired from the development of the Hibernia field has
Well testing
Wireline logging assisted Atlantic Canadian industry to acquire expertise and skills applicable to
Cementing other development projects. While the Hibernia platform is unique, the Terra
Drilling fluids Nova Floating Production, Storage and Offloading (FPSO) production system
Wellheads is considered a model for future developments. The Terra Nova project should
Directional drilling
Mud logging transfer technology to Atlantic Canadian firms in the fastest growing field of
Coring offshore oil production – subsea technology. The acquisition of local expertise
Solid controls in this area is critical to the long-term development of the region’s industry.
Offshore This is not only true for subsea technology, but also for other construction and communications
Drilling tools development techniques such as advanced slipforming, fabrication and
Ice data management welding. The successful transfer of such technology will facilitate the
Weather forecasting participation of Atlantic Canadians in the next generation of frontier offshore
Sampling services oil and gas developments, at home and around the world.
Core analysis
ROV services The Sable Offshore Energy Project is another example of utilization of leading-edge technology. The Sable gas fields will be developed through a series of four interconnected production platforms designed to extract gas from six different fields. The project is being developed over a 23-month period, 6 months less than the industry standard for similar projects. Hundreds of Nova Scotian and Canadian firms have won contracts for various components of the Sable Project in all phases of the project from the fabrication of jackets to the construction of the pipelines and onshore processing facilities.

The development of offshore production facilities involves greater financial In July 1998, a joint venture was announced outlays than the development of onshore fields. Consequently, there is great between a Norwegian potential for significant employment and industrial benefits to Atlantic Canada. company and a Newfoundland company The vast scale of these projects also introduces the possibility – if not for the development of key components for Terra probability - that very large components of development projects will be Nova’s subsea production sourced from elsewhere in the world. As the region’s capabilities increase, facilities in St. John's, Newfoundland. however, Atlantic Canadian businesses should be able to take advantage of their geographic proximity to secure contracts without compromising the “best value” principle. With development projects anticipated to occur regularly throughout the next two decades, it is critical for local firms to develop further expertise and experience in designing, engineering, fabricating, constructing and supplying components for offshore production facilities.

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The region has solid base of offshore fabrication facilities, shipyards, deep- water ports, marine repair facilities and other heavy industrial infrastructure to support the development of future projects. For example, Newfoundland’s Bull Arm site, where Hibernia’s Gravity Base Structure was built and mated to the platform’s topsides, has undertaken fabrication work for two of Terra Nova’s topsides modules. Similarly, yards in Nova Scotia are fabricating various components for the Sable Offshore Energy Project. The St. John Shipyard in New Brunswick has produced components for the Hibernia project, as well as for offshore platforms and for drilling and supply vessels.

However, without access to the engineering, design and procurement operations associated with East Coast oil and gas developments, Atlantic Canada’s resident capability is set at a serious disadvantage. The importance of developing heavy industrial infrastructure in the region goes beyond direct employment of skilled workers; it provides Atlantic Canadian suppliers with opportunities to compete for a vast range goods and services contracts. Location of engineering, design and procurement operations within the region will enhance networking and enable Atlantic Canadian businesses to develop relationships with key project functions and personnel, improving their chances of success in the bidding process.

Production By their nature, many production-related business opportunities are captive to the regional economy. Many day-to-day requirements (catering, for example) are most economically provided from the local economy. While these activities can provide positive economic impacts, mechanisms must be put in place to ensure that more than just geographically captive supplies are provided locally. Where the servicing contracts require outside expertise, local firms have formed joint ventures or strategic partnerships with foreign companies. This combination of local experience and technical expertise has proven to be a win-win situation for many Atlantic Canadian companies.

The goal of government and industry should be to ensure that more value- added and knowledge-based business opportunities are captured locally. Such opportunities are often highly profitable and reasonably secure, because competitive advantage lies in knowledge and expertise that is acquired slowly through experience and can not be readily or easily substituted. Furthermore, these skills will endure and are adaptable beyond the producing life of any one particular project.

Downstream In addition to crude oil, refineries require a wide variety of goods and services including energy, chemicals, maintenance and repair services, equipment, support services and transportation services. Atlantic Canada has been supplying refineries for many years and capability exists to supply most of the goods and services required to support the operation of oil refineries.

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The Maritimes and Northeast Pipeline will tremendously increase the region’s downstream capabilities in the distribution of natural gas. The project owners estimate that over 40% of expenditures will be incurred in Nova Scotia and New Brunswick. In addition, lateral pipelines are being considered and plans are being made to convert thermal power plants to natural gas. The planned $600 million upgrade to Irving Oil’s New Brunswick Refinery will enable it to utilize natural gas from the Sable Offshore Energy Project. These developments will form part of a fully integrated natural gas industry in the region.

3.3 Labour Capabilities

A broad range of skills are required throughout the oil and gas value chain. Selected Oil and Gas Industry Positions These range from geologists, to chemical engineers, to production supervisors,
Electrician to drilling rig workers. Indirectly, the industry supports other workers,
Pipefitters including welders, pipefitters, accountants, environmental scientists and
Material handlers lawyers. In addition, for each direct and indirect job created, induced
Crane operators
Welders employment is created as those employed directly and indirectly spend their
Engineers income on food, housing, entertainment, personal services and other activities.
Technicians When all of the potential impacts are considered, the industry can be expected
Millwrights to provide an additional 3 to 4 jobs for every direct job created.
Mechanics
Inspectors
Non-destructive testers Atlantic Canadian workers generally have the skills required for most upstream
Drillers and downstream activities. However, on the Hibernia development project,
Tool pushers some specialized labour, including senior engineering and project management
Mud loggers
Ballast control personnel, was brought in from elsewhere. The need to import these high-level operators skill sets will diminish over time, as the total range of skills necessary to
Radio operators sustain a regional upstream and downstream oil and gas industry becomes
Marine crews
Geologists resident in the region.
Purchasers The experience to date on the Cohasset-Panuke and Hibernia projects indicates that Atlantic Canada has the ability to supply most of the labour required. The Hibernia project, for example, employed over 6,000 people in Newfoundland at its peak during September 1995. This illustrates that Atlantic Canada can

Since 1985, 65% of the provide the majority of the workers required for any development project. For Grand Banks exploration the entire project, over 66% of the direct labour used on the Hibernia project employment has been filled by was from Newfoundland and another 12% from Canada, for a total Canadian Newfoundlanders. content of 78%. Now in its operations phase, the Hibernia project team consists of 700 direct workers, 85% of whom are Newfoundlanders. This percentage is expected to increase toward 100% as succession plans are implemented, moving Newfoundland employees into senior management positions.

The Sable and Terra Nova projects will also employ many local people. As with Hibernia, some expertise will be brought in from outside the region to oversee the development and transfer expertise and skills to the local labour

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force. The long-term goal, however, must remain to train people and transfer technology to the region.

3.4 Training Capabilities Training Programs Available in Atlantic Canada Industry-specific and general trades training is offered at colleges and
Pre-employment Floorhand Training universities throughout Atlantic Canada. Some of the course offerings have
Petroleum Engineering Technology Diploma recently been developed, while others have been in existence for many years.
Well control This section reviews some of the more relevant college and university certification
Basic Survival programs available in Atlantic Canada. Training
Cartography
Geographic College of the North Atlantic Information Systems The College of the North Atlantic is Newfoundland’s public college system
Global Positioning Systems and offers offshore-related programs at a specialized offshore campus located
Right-of-way Surveys
Occupational Health near St. John's. This facility has a full-size refurbished drilling rig and a well and Safety control simulator used for certification training. Through its affiliation with
Remote Sensing
Exploration the Petroleum Industry Training Service (PITS) of Alberta, this facility will be Technology developing certification training programs in other areas. The College’s main
Geomatics Engineering Technology oil-and-gas-specific offering is a three-year Petroleum Engineering
Hydrography and Marine Surveying Technology Diploma course, which trains students in all aspects of the oil and
Engineering gas industry.
Earth Sciences
CAD/CAM
ISIS – Intelligent Memorial University of Newfoundland Sensing for Innovative Structures Memorial University of Newfoundland (MUN) has faculties, research facilities
ACMBS – Advanced and training centres whose activities directly relate to the offshore oil and gas Composite Materials in Bridges and Structures industry.
Environmental Science
Geology
Surveying The Faculty of Earth Sciences offers bachelors, masters and doctoral degrees in geology and earth sciences. It is also home to the Centre for Earth Resources Research (CERR). This $27 million facility was built with a grant from the Canada-Newfoundland Offshore Development Fund. It houses the Faculty’s research labs and equipment used by both the academic community and the private sector.

Memorial University’s Faculty of Engineering is well known throughout Canada as a pioneer in co-operative education. The co-op education program was established in the late 1960s, and since that time over 1,500 students have participated in oil and gas related work terms in civil, mechanical, electrical and environmental engineering. The Faculty has worked in close cooperation with the oil and gas industry through its work term placements and has provided many of the skilled engineers working in the region’s oil and gas industry.

Memorial University’s Marine Institute also offers oil-related courses through its Centre for Marine Simulation (CMS). Utilizing the Centre's six simulators (see Section 3.5 for an overview), the CMS offers courses in areas such as Bridge Resource Management, Advanced Maneuvering, Tanker Loading and

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Crude Oil Washing techniques. With applications in all marine industries, these courses provide Atlantic Canadians with the skills necessary to ensure the development of an integrated oil and gas industry.

Dalhousie University Dalhousie University has had a long commitment to Ocean Studies with programs in oceanography, marine affairs, and marine and environmental law. Building on its Ocean Studies experience, the University has formed The Centre for Petroleum Engineering. It combines the expertise of the University’s Civil Engineering, Oceanography and Earth Sciences departments to undertake basic research and development, to train practicing professionals and to train students to meet the ongoing and future demands of the industry. DalTech - a division of the Department of Civil Engineering - is offering a graduate diploma program in Petroleum Engineering. This program offers university and college graduates an opportunity to learn about the oil and gas industry for employment in any upstream or downstream sector.

Nova Scotia Community College The Nova Scotia Community College (NSCC) system, working in close consultation with industry and regulatory agencies has recently announced a new Gas Technician training program. This nationally accredited program has been developed to the highest standards for training in North America. It will produce skilled technicians who will become an integral component of Nova Scotia’s transition to a natural gas producing and consuming region. The College also has a specialized College of Geographic Sciences providing post- secondary and post-graduate courses in geographic information systems, mapping, surveying, and remote sensing.

The NSCC is also building a new training facility for training in electrical Aberdeen College's identical training facility technologies. The Atlantic Canada Centre for Electrical Technologies was opened in 1988. (ACCET) will provide training in the installation and maintenance of electrical Today, they train over 65% of the UK's trained equipment and systems in hazardous environments. The NSCC is working in workforce in this field. partnership with a division of Aberdeen College - Aberdeen Skills and Enterprise Training Ltd. - to build this $1.2 million facility and establish the training programs.

University of New Brunswick The University of New Brunswick has an Ocean Mapping Group, which has developed proprietary technology allowing for 3-D images to be generated from sonar and other sensors. This system was used to investigate the ocean floor where the Hibernia GBS is now secured. It has also been employed for the Sable Project to map the route for the subsea pipeline.

Safety Training Centres The region is also home to two safety training centres.

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Survival Systems Ltd. of Dartmouth Nova Scotia provides training in Basic Survival Training, Sea Survival, Offshore Survival Craft Training and other marine-related safety training programs. Since its establishment in 1982, the company has trained in excess of 10,000 offshore workers. The company has developed its proprietary Modular Egress Training Simulator (METS) which simulates marine aircraft crashes and has sold 14 units of the system around the world.

The Offshore Safety and Survival Centre (OSSC) is a division of Memorial University of Newfoundland’s Marine Institute. The Centre offers offshore safety and emergency response training for industrial and government clients.

3.5 Research and Development Capabilities

This section assesses the institutional capability within Atlantic Canada to support the oil and gas industry. Institutional capability refers to public and private research and development facilities and institutes. A well-developed R&D capability is critical to the development of a sustainable world-class oil and gas industry in Atlantic Canada. The development of oil fields in a harsh marine environment requires a significant amount of basic – as well as applied - research for both in Atlantic Canada and in the next generation of frontier oil and gas developments.

Table 11 below lists the facilities within Atlantic Canada that provide these critical research and development support services. Further information on each can be found in Appendix D.

Table 11 Atlantic Canadian Research and Development Institutions

Name Location Description Centre for Cold Ocean St. John's, Applied engineering research institute of Memorial University of Resources Engineering Newfoundland Newfoundland (MUN) that undertakes research which “contributes (C-CORE) to the economic development of Canada’s marine resources”.

Bedford Institute of Dartmouth, Canada’s largest centre for ocean research, BIO is the federal Oceanography Nova Scotia government’s first dedicated oceanography research centre. It (BIO) undertakes government-mandated research, advises on marine environments, including hydrocarbon resources, and provides navigational services through the Canadian Hydrographic Service.

Institute for Marine St. John’s, Engineering research lab established in 1985 by the National Dynamics Newfoundland Research Council as Canada’s national centre of excellence for (IMD) ocean technology research and development.

Ocean Engineering St. John’s, Part of Memorial University’s Faculty of Engineering and Applied Research Centre Newfoundland Sciences providing R&D and consulting services focused on offshore and ship-building industries and ice interaction research.

Ocean Mapping Group Fredericton, Based at the University of New Brunswick, the OMG develops 3-D (OMG) New Brunswick visualization and other technologies to support marine activities.

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Name Location Description Alliance for Marine Bedford, AMRS is an international not-for-profit association that develops Remote Sensing Nova Scotia and promotes marine applications of remotes sensing technology, (AMRS) including offshore oil and gas applications. It has over 600 members from 28 countries and provides an important international link in the field of remote sensing.

The Nova Scotia Dartmouth, This provincial crown corporation provides scientific, engineering Innovation Corporation Nova Scotia and business support services to Nova Scotian-based technology (InNOVAcorp) companies.

Canadian Centre for St. John’s, Identifies advanced communications technology with potential Marine Newfoundland marine applications and assists industry in developing technology Communications into commercial marine equipment and services. (CCMC)

Centre for Offshore and St. John's, Part of Memorial University’s Faculty of Medicine, established in Remote Medicine Newfoundland 1982 to carry out R&D related to health aspects of offshore oil, (MEDICOR) marine, diving and other remote environmentally stressful or hazardous industries.

Centre for Marine St. John's, Based at Memorial University's Marine Institute, the CMS has six Simulation Newfoundland marine simulation facilities: Ship Bridge Simulator, Ballast and Cargo Control Simulator, Propulsion Plant Simulator, Navigation and Blind Pilotage Simulator, Global Maritime Distress and Safety System Simulator, and Dynamic Positioning Simulator. Centre for Earth St. John's, A unit of Memorial University's Earth Sciences Department that Resources Research Newfoundland partners with industry on basic research, collaborates on (CERR) international contracts and provides companies with access to equipment and expertise on fair market value basis.

As illustrated in Table 11 above, Atlantic Canada has a sound base of research and development institutions focused primarily on marine-related industries. In the past, these facilities were devoted to other marine areas such as the fishery, or general ocean research. The greater emphasis placed on the offshore oil and gas industry represents the next logical progression in the further development of this world-class marine-related R&D expertise. If leveraged appropriately, this impressive array of research and development capability can be critical to the long-term success of the industry.

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SECTION FOUR – HARNESSING THE POTENTIAL

As has been demonstrated, Atlantic Canada has two important components of a Regulatory Regimes successful oil and gas industry: resource potential and a growing base of Atlantic Accord resident capability and expertise. The reserve potential is exceptional and Nova Scotia Accord signs are encouraging about the supply capability, expertise and ability to Newfoundland Generic participate in regional oil and gas development. Onshore Royalty Regime Newfoundland Generic Offshore Royalty Regime Another important component is a positive and stable regulatory environment. Nova Scotia Generic Such an environment should be designed to balance the commercial Offshore Royalty Regime requirement for operators to remain cost competitive with the regional economic development requirement that “full and fair opportunity” be given to Atlantic Canadian individuals and companies.

To understand how such an environment can be created, an overview of the Norwegian and United Kingdom regulatory regimes is outlined. This overview provides insight into how these regions dealt with offshore oil development and the lessons that Atlantic Canada should learn from their experience.

4.1 The Norwegian Experience7

Norway’s regulatory strategy has three main elements. The first component of

Norway’s Best Practices that approach was to establish Statoil as its technically competent and financially viable national oil company. To achieve this the Norwegian
National oil company formed - Statoil government provided Statoil with special treatment in the licensing rounds,
Success in bidding specified the company as operator on many of the licences, held certain parcels rounds dependant on use of local suppliers of land for Statoil and other Norwegian companies only and arranged for
Encourage foreign foreign companies to train Norwegian personnel. development of local companies The second part of the Norwegian strategy is a requirement that foreign licensees use Norwegian supply companies, subject to quality, pricing and delivery considerations. Operators are monitored according to legislated powers which link success in future licensing rounds to their record of using Norwegian supply companies.

The third and final component of the Norwegian approach is to use licensing to encourage foreign companies to assist in the development of general Norwegian industries.

Norway’s regulatory regime has been credited with the success achieved by its domestic firms in supplying the offshore oil and gas industries. As a result of the regulatory policies implemented in Norway, the share of goods and services accounted for by domestic industries rose above 60 percent in the

7 All references in this section on Norway and the UK are from Nelsen, B., The State Offshore: Petroleum, Politics, and State Intervention on the British and Norwegian Continental Shelves, Praeger, New York, 1991.

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1970s. As a result, Norway has developed world-class expertise in offshore oil and gas production and now is exporting this expertise to other parts of the world, including Atlantic Canada.

4.2 The United Kingdom Experience

The United Kingdom did not intervene in the oil and gas industry to the same degree as Norway. Preference was given to British companies in licensing rounds and British companies were, at times, simply declared as operators. To

UK Best Practices circumvent the possibility that British industry might not be able to make significant inroads into supplying its own oil and gas sector, the British
Establishment of the OSO to oversee government established the Offshore Supplies Office (OSO). supplier development
Provision of financial assistance to suppliers The mandate of the OSO was to audit oil company purchases and provide
Moral suasion financial assistance to supply companies. As suggested by Nelsen “the office
Treatment of was to audit oil company purchasing reports as a non-coercive method of companies during licensing rounds pressuring oil companies to ‘buy British’... If the supplier was not British, the oil company would have to list the UK firms it did approach prior to the purchase and the reason for not choosing them”. Additionally, OSO officials met regularly with oil companies to discuss purchasing plans and to suggest possible British suppliers. This moral suasion and onerous reporting requirement was backed up with the implicit threat “to treat companies refusing to make greater use of UK suppliers less favourably during licensing rounds”. This tacit threat induced operators to go beyond what was expected of them.

4.3 Atlantic Canada’s Regulatory Climate Two regulatory bodies were established to oversee the development The regulatory environment governing the development of Atlantic Canada’s of each province’s offshore oil and gas oil and gas resources was established by the Atlantic Accord and the Canada- resources: The Canada- Nova Scotia Accord. The Accords recognize explicitly the rights of Newfoundland Offshore Petroleum Board and Newfoundland & Labrador and Nova Scotia to be the principal beneficiaries of The Canada-Nova Scotia the oil and gas resources off their shores. They also recognize the equality of Offshore Petroleum Board. both levels of governments (federal and provincial) in the management of the resource. The legislation works to ensure that the pace and manner of development optimizes the social and economic benefits to Canada as a whole and to Newfoundland & Labrador and Nova Scotia in particular. Furthermore, both Accords provide the provincial governments with the right to tax oil and gas resources as if they were on land.

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The legislation implementing the Accords requires that before the start of any work program for exploration or field development, a plan must be submitted. Atlantic Canada is inherently different than The plan must outline the potential employment of Newfoundlanders, Nova the UK and Norway where offshore oil and gas Scotians and Canadians, as well as how the company will provide Atlantic development is handled by one level of government. Canadian suppliers with full and fair opportunity to participate in the supply of Atlantic Canada has a goods and services. Also, benefit plans must contain provisions intended to federal government and two provincial ensure that: oil companies establish an office in the province where appropriate governments involved levels of decision-making are to take place; individuals resident in the province are given first consideration for training and employment; and first consideration is given to services provided within the province and to goods manufactured in the province, where those services and goods are competitive in terms of fair market price, quality and delivery.

This regulatory regime, if implemented effectively, will permit Atlantic Canadians to capture an increasing share of the benefits of developing the region’s oil and gas resources. In order to encourage operator co-operation with the fundamental principles of positive economic impact within the region, the responsible regulatory bodies must develop sensitive, flexible and specific mechanisms of persuasion and approaches to targeting areas for impact.

Since the chief criterion of bid evaluation in an internationally competitive market is “best value”, mechanisms which link project value with regional economic impact value may provide adequate encouragement. The UK and Norwegian practices of tying success in future licensing rounds to local benefits appears to have some merit, as do general techniques of moral suasion and onerous reporting requirements.

By enforcing the spirit of the Accords during the early stages of the industry's evolution, a critical mass of oil and gas capability will be developed in the region. It will serve the interests of exploration, development and operations phase projects to use the locally-developed, locally-resident supply, service and expertise. The capability must be grown on the first few projects; not to do so increases the dangerous possibility that it never has the opportunity to develop.

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Royalty Regimes Provincial generic royalty regimes and federal equalization offset provisions As the lead projects, Hibernia, Sable and Terra allow Newfoundland & Labrador and Nova Scotia to capture economic Nova are not governed by benefits from the industry. The generic royalty regime establishes the fiscal the generic royalty regimes. rules under which companies operate offshore Atlantic Canada. This reduces one element of political risk for the exploitation of petroleum resources. Consequently, the presence of a generic royalty regime should encourage development in Atlantic Canada.

Both provinces have completed their generic royalty regimes, though neither has yet been put into practice. The general consensus among industry, however, is that the regimes are fair and balanced using profit-sensitive taxation and royalty formulae.

The equalization offset provisions (described in Appendix B) ensure that each provincial government will keep some portion of the oil and gas revenue it receives from offshore activity. Equalization entitlements will be reduced, though the offset arrangements contained in the Atlantic Accord and the Canada – Nova Scotia Accord mitigate potential shocks to the regional economies and insulate some portion of provincial oil and gas revenues, potentially leaving them available to address the considerable institutional and infrastructure demands of the emerging industry.

Canada’s equalization program provides for transfers of funds from the Federal Treasury to provincial treasuries. Complex formulae using a standard per capita fiscal capacity and the provincial per capita capacity are used. As revenues from oil and gas royalties increase, there is a corresponding drop in equalization entitlements. To alleviate this outcome for the region’s oil and gas industry, offsetting provisions were put in place.

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4.4 The Outlook for Atlantic Canada

To put the potential impacts from Atlantic Canada’s oil and gas industry in perspective, a scenario has been developed to show how the industry might Scenario Assumptions evolve over the next 15 years. Tables 12 and 13 below summarize the
Hibernia, Sable and Terra Nova to proceed along potential impacts from expenditures and employment. current plans
Whiterose and Hebron to Table 12 begin production in 2003 and 2005 respectively. Illustrative Scenario of Atlantic Canada’s Future Oil
New projects to begin and Gas Industry Expenditures ($ millions) producing in 2008, 2009, Sector 2000 2004 2008 2012 2012, 2014 and 2017 Exploration 136 125 125 125
WR and Hebron Development 1,030 580 570 700 development costs of $1.5 billion Production 679 1,030 1,160 1,190
Avg development cost of Downstream 570 570 570 570 other 5 projects of $1.05 Total Expenditures 2,415 2,305 2,425 2,585 billion
Avg annual operating cost Table 13 of $125 million per project Illustrative Scenario of Atlantic Canada’s Future Oil (except Hebron at $150) and Gas Industry Direct Employment (person-years)
10-year production life for all projects (except 18 for Sector 2000 2004 2008 2012 Hebron) Exploration 389 357 357 357
Pre-production Development 2,102 1,490 1,533 2,280 employment estimated Production 1,165 1,983 2,673 2,788 based on Terra Nova employment Downstream 1,550 1,560 1,560 1,560
Operation employment Total Employment 5,206 5,390 6,123 6,985 estimated at 300 persons for all projects (400 for Hebron)
Exploration estimates In 2012 a total of 7 to 8 projects are expected to be in operation, producing (at based on outstanding commitments and projected a conservative estimate) upwards of 500,000 barrels of oil per day. The level of future activity combined expenditures for production activities should approach $1.2 billion, for a total of over $2 billion in expenditures when development, exploration, See Appendix E for the detailed scenario. and downstream activities are included.

The employment from this activity is equally impressive. Under this scenario, there would be a total of almost 7,000 persons working directly in exploration, production, development and downstream activities by 2012. Using a multiplier of 3.5 additional jobs for each direct job, in less than 15 years more than 24,000 direct, indirect and induced jobs may be attributed to Atlantic Canada’s upstream oil and gas sector alone.

While these figures may seem impressive, they still pale in comparison to the oil and gas industries of the United Kingdom, Norway, and Alberta. Table 14 below compares some of the key operating parameters for each of these oil and gas producing regions.

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Table 14 Comparison of Atlantic Canada’s Upstream Sector with Other Oil Producing Regions Atlantic Canada UK Norway Canada Alberta 1998 2012 Daily oil production (bbls/day) 2,575 3,112 1,857 945 100 400-500 Annual gas production (billion ft3) 3,334 1,388 5,621 4,900 0 150 # of producing wells 978 507 47,093 26,917 >10 NA Estimated oil reserves (billion bbls) 5.0 26.9 8.6 6.2 5.0 - 6.7 NA Estimated gas reserves (tcf) 27 123 65 52 74 - 76 NA Cumulative oil production to end of 14.7 9.7 19.0 13.1 .04 1.5 1996 (billions bbls) Direct employment 51,353 70,072 68,439 NA 2,600 5,000 Total exploration wells 2,500 829 243,322 89,536 300 NA Cumulative investment ($CDN 150 NA NA NA 15.0 NA billions) Investment (recent year) 4.4 9.6 24.9 9.5 2.0 NA

Sources: CAPP Handbook IAEE Web site Alberta Ministry of Energy Energy Statistics Handbook ODIN Web site (Norway) UKOOA Web site (UK) Norwegian Directorate of Labour 1997 Brown Book

By comparison with Norway, the United Kingdom and Alberta, Atlantic Canada’s oil and gas industry is still in its infancy. The fully integrated industries in these jurisdictions cannot in fairness be compared with the current status of the Atlantic Canadian industry. The implicit value of comparing these figures lies in realizing the long-term potential of the region, which, according to both Petro Canada and Mobil, is closer to 20 billion barrels. When coupled with the relatively small size of the Atlantic Canadian economy, the impacts from oil and gas developments should have a much greater relative impact than in any of these larger jurisdictions.

The Atlantic Canadian Advantage
Stable political environment
Large pool sizes
Significant reserve potential
Growing base of infrastructure
Improving offshore technology
Large areas with hydrocarbon potential remain virtually unexplored
Good exploration success rate
Superior flow rates
Geographic proximity to North America and Europe
Marine heritage

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SECTION FIVE – CHALLENGES AND RECOMMENDATIONS

This report has documented the scale and character of the opportunities that the oil and gas industry presents for Atlantic Canada and the capabilities that are in place to assist in achieving them. The prospects are very considerable, having the potential that the direct, indirect and induced effects of the industry, including resource revenues and the transfer of oil-related expertise and technology into other industrial sectors, would transform the region’s economy and society.

However, the degree to which this potential will be realized will depend on Atlantic Canada’s success in overcoming challenges to the growth of the industry and to achievement of the industrial and economic benefits deriving from it. Review of the industry’s capacity and capabilities, together with interviews with stakeholders (including operators, large and small contractors, and government) identified a number of constraints or potentially limiting factors. These include: • lack of a clearly expressed vision of the desired future role of oil and gas industry in the region’s economy, and therefore lack of a cohering strategy for the industry’s growth; • a resultant lack of coherent approach by concerned governments to the offshore petroleum industry in Atlantic Canada; • reduced stability (and hence reduced ability to attract investment to the region) arising from the current ad hoc system, which reacts to differing agendas and often leaves governments and their agencies to make decisions without knowledge of or reference to one another; • among stakeholders, insufficient mutual understanding, exchange of information and understanding of issues; • separation of capital expenditure and operational expenditure project phases (in contradistinction to global trends), which impedes life-of- field design and budgeting and thereby reduces local business opportunities; • inter-provincial barriers which create needless costs and inefficiencies; • inefficient use of Atlantic Canada’s training and research and development facilities, and in some cases inattention to their need to be expanded and upgraded; • shortage of locally-available qualified technical personnel, exacerbated by shortage of new entrants to petroleum-related training; • and, despite successes, a lingering regional inferiority complex.

The following sections discuss these challenges in greater detail and explore the related requirements if Atlantic Canada’s hydrocarbon industry is to fulfil its potential. 5.1 Vision and Strategy

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During the late 1970s and early 1980s governments had clear approaches to optimizing potential benefits of offshore petroleum development in Atlantic Canada, often expressed in terms of Norwegian approaches. As has been described in Section 4, these ensure that petroleum industry initiatives promote national economic and social ends, such as employment creation and business development. They also seek to maximize resource revenues while ensuring that oil companies receive a competitive return on their investment and maintaining the competitiveness, flexibility, efficiency, technological progressiveness and entrepreneurial initiative of the free-market system. This approach is reflected in Newfoundland’s 1977 Act Respecting Petroleum and Natural Gas; it also underlies the Atlantic Accord (1985) and Canada-Nova Scotia Accord (1986), which established the current regulatory framework for the hydrocarbon industry. Such legislation initially inspired considerable innovation and success in producing regional benefits.

However, during the latter half of the 1980s and the early 1990s the federal and provincial governments reduced active intervention in the industry and deficit reduction cut the resources available to the public sector. As a result, while the principles of Canada-Newfoundland and Canada-Nova Scotia benefits established by the Accords remain, a number of problems have developed related to their realization or implementation by governments. Key difficulties identified by stakeholders are:

• internal role conflicts within the petroleum boards, given their responsibilities for resource conservation, regulation and regional economic benefits;

• petroleum boards which do not serve as a single regulatory authority for offshore activity in each province but, rather, as an additional one;

• offshore petroleum boards which lack the resources to actively promote economic benefits or provide up-to-date resource potential estimates;

• little integration of the efforts of federal, provincial and federal/provincial boards, agencies and departments; and

• insufficient industry knowledge and experience among politicians and officials, who are often unaware of how the oil industry works and what local capabilities exist. For example, it was argued that Revenue Canada permitted duty remission on major components of the Terra Nova production system because it was not aware that the work could be done in Atlantic Canada.

In his presentation to the CERI Conference in Halifax in April 1997, John D’Ancona, former Director General of the UK Offshore Supplies Office, argued that national economic interests related to oil and gas activity can only be properly served if there is a careful development of policy based on:

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‘A certain clarity of vision, some sense of restraint and a full measure of determination. In other words, you need to know what you want to do, understand why you want to do it, and be prepared to use both political and economic clout to achieve it. Clear-thinking realism is the order of the day.’

There is no such clarity of vision and purpose in Atlantic Canada at present. As a result there is an unfocused and sometimes inconsistent application of the legislation which, in the longer term, will undermine efforts to optimize the benefits the industry can bring to the region.

The primary conclusion of this research is that there is an urgent need to address this problem. Stakeholders must have a clear vision of the future Atlantic Canadian petroleum industry, one which is beneficial to operators, local supply and service companies and the economy and society of the region as a whole. This vision would have the potential to guide development of a common strategy within government, as well as for operators and the service and supply sector.

It is recommended that NOIA, OTANS and the Metal Working Association of New Brunswick promote and facilitate the establishment of a forum at which stakeholder representatives: review the history, status and prospects of the Atlantic Canadian petroleum industry and current barriers to the optimization of economic benefits; engage in a visioning and strategizing exercise respecting the future of the industry; and recommend approaches and mechanisms for overcoming barriers, realizing this vision and implementing this strategy.

5.2 International Perspectives

Oil companies need a stable business environment, which is an important factor in their investment decisions. Atlantic Canada is competing for project capital with Australia, Russia, Indonesia, Brazil and other oil and gas regions of the world, and the regulatory and fiscal environment here must be competitive. Stability is an important element in this equation. The current system reduces stability and predictability (for example, in the recent cases of foreign labour participation in diving and seismic activity) and hence reduces Atlantic Canada’s ability to attract investment. Given a stable regulatory and fiscal environment, based on a clearly articulated vision and an effective strategy, operators can be strategic in achieving their goals (including through commitments to local benefits). In this regard, many operators speak of the merits of the region’s generic royalty regimes.

The benefits of a stable and rational environment are demonstrated by the example of Norway, which has attracted large-scale investment while developing a strong and internationally competitive oil and gas industry. The

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry 37 same opportunity presents itself in Atlantic Canada. Local companies have demonstrated their competitiveness on Hibernia and other projects. They have a thorough understanding of the industry’s requirements in terms of bidding, technology, quality, management and other critical factors, and increasing numbers are entering export markets. Similarly, world-class facilities such as the Institute for Marine Dynamics are undertaking an ever-wider range of international work. These ventures into international markets have many benefits, not the least of which is reduced vulnerability to fluctuations in the pace of activity in Atlantic Canada.

In conclusion, it is recommended that NOIA, OTANS and the Metal Working Association of New Brunswick continue to promote and facilitate the adoption of an international perspective in planning for the further development of the oil and gas industry across Atlantic Canada.

5.3 Long-Term Approaches

A preoccupation with short-term opportunities can result in boom and bust cycles and inappropriate investments in training, infrastructure and business development. While pursuit of short-term benefits is necessary, longer-term objectives must ultimately govern decision-making.

Sustainable long-term growth requires the identification of current opportunities, monitoring of success in achieving them and identification of (and response to) further opportunities as they emerge. For example, sub-sea technologies are currently seen as presenting significant opportunities: important steps have already been taken in pursuing them, and further requirements have been identified (for example, sub-sea testing and stack-up facilities). The success of such initiatives, as well as industry trends and developments, must be monitored in order to ensure creation of further opportunities.

The development and continued identification of opportunities requires an ongoing transfer of technology. Past approaches have raised local skills and introduced new capabilities, but Atlantic Canada must become an innovator in the industry. The region must aspire to be a globally recognized centre of excellence in selected industry technologies and services.

Achieving long-term goals also requires a continued expansion of engineering and procurement functions in Atlantic Canada. This has the potential to increase local benefit from current projects and build local capabilities to the advantage of future ones. Early design decisions can limit or expand opportunities for local participation: while one set of specifications may prevent local industry from building components of production systems, another set, equally acceptable on technical and economic grounds, would allow high levels of local participation. It is important that design decisions be

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry 38 made locally, with a full knowledge and understanding of Atlantic Canadian capabilities.

It is also important that developers use ‘life-of-field’ approaches. Construction and procurement cost projections must include servicing and maintenance (rather than simply initial acquisition) of components. Separating capital and operations budgets during the design phase obscures the value of local service and supply capabilities, thus undermining the competitiveness of regional businesses in operations-phase tenders. This shortsighted approach is also contrary to the interests of operators, which are increasingly adopting ‘life-of- field’ approaches in the North Sea and Gulf of Mexico.

In conclusion, the vision and strategy must focus on the medium and long term and result in policies which encourage life-of-field development approaches by linking capital and operational expenditures, enhancing local supplier development and ensuring transfer of technology and continual upgrading of regional capabilities.

5.4 Regional Approaches

There is a need for regional approaches to the industry’s development, removing inter-provincial barriers that create costs and inefficiencies. Newfoundland & Labrador companies complain of difficulty accessing Nova Scotia projects, while Nova Scotians feel they do not have a fair opportunity to work in Newfoundland & Labrador. Companies in New Brunswick and Prince Edward Island commonly feel excluded from both. All provinces would benefit from free access and healthy competition within the region.

Several stakeholders argue that the two Atlantic Canadian offshore petroleum boards should be replaced by a single regional agency. Also, they applaud OTANS, NOIA and the Metal Working Association of New Brunswick for undertaking this study as a joint initiative, hoping that it would lead to further co-operation, collaboration and, perhaps, the establishment of a single regional association.

Regional approaches should also put an end to boundary disputes. The Newfoundland-Nova Scotia dispute has delayed exploration in the Saint Pierre Bank area, while the current division of responsibilities between the CNSOPB, CNOPB and provincial agencies has slowed exploration in areas involving a combination onshore, nearshore and offshore lands.

Lastly, some stakeholders want the federal government to work to reduce international barriers. For example, the Jones Act (which requires that trade between US ports must occur in US-built vessels) has reduced the opportunities for Atlantic Canadian shipbuilders. This is detrimental to the future long-term capability of shipbuilders to serve industry needs.

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In conclusion, it is recommended that NOIA, OTANS and the Metal Working Association of New Brunswick continue to promote and facilitate the adoption of regional approaches to the further development of the oil and gas industry across Atlantic Canada, and lobby the federal government to reduce international barriers.

5.5 Education and Communication

A key to the development of an appropriate vision and strategy is broad education and open communication among stakeholders. The need for this increases with the pace of technological and other change in the industry (for example, recent developments in seismic surveys, directional drilling, subsea completions and inter-operator and operator-contractor relationships). Operators, contractors, training institutions and governments have difficulty keeping track of, and understanding the significance of, accelerating changes.

There is particular need for: • adequate resourcing of government departments and agencies with oil and gas responsibilities to ensure their full understanding and appropriate response to the industry. This requires specific training for civil servants, perhaps including secondments into the industry. • understanding among local industry and government regulatory agencies and departments of the business principles underlying operator decision-making. This requires that the operators share these principles and their business plans with local industry. Indeed, some suggested that operators be required to submit five-year plans for the exploitation or development of field prior to approval. • increased communication and Cupertino between operators; each has its own vision, philosophy and concept of core business, presenting the opportunity for the different operators to learn from each other. • increased trust of operators by the supply and service sector and governments; such trust can only be built on increased communication and collaboration, and is critical to the development of a climate friendly to new investment. • understanding within the supply and service sector of the role of alliances and their potential short- and long-term implications.

A vision and strategy for the development of the Atlantic Canada petroleum industry must be grounded in, and evolve from, a co-ordinated exchange of information and mutual education. In particular, it is recommended that, as one element of the work of the stakeholder forum, it should establish mechanisms to facilitate ongoing discussion of areas of common interest and concern.

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5.6 Human Resources

Operators identify human resource issues as a major constraint to the growth of the Atlantic Canadian petroleum industry. There is a shortage of qualified technical personnel and the number of new entrants is limited because students do not consider the oil and gas industry as exciting a career option as, for example, information technology.

Some of these concerns reflect the international situation which, as demonstrated by the European Union’s Marsk (Marine Skills) initiative, sees increasing global shortages of personnel in many specialities (Marinetech, 1997). Part of the solution for Atlantic Canada is to adopt such Marsk recommendations as increasing the universality of training and levels of Co- operation and collaboration between the industry and training institutions. For example, some operators think it critical that local engineering schools put greater emphasis on training industrial engineers, with a stronger focus on management, financial and human resource issues. Others cite a need to train people for future requirements (for example, FPSO crewing) and to promote cutting-edge frontier oil and gas technologies, so as to attract top-rank students.

As has been seen above, the region contains world-class training, research and development infrastructure. Much of this was created using the Canada- Newfoundland and Canada-Nova Scotia Offshore Development Funds, with the goal of ensuring that necessary infrastructure is available to train Atlantic Canadians and otherwise support this growing industry. This infrastructure is an important regional strength and contributor to developing the region as a centre of excellence in selected industry technologies and services. However, there is concern that better use could be made of these facilities and that, in some cases, there is a need to expand them. They must be fully responsive to local requirements and fully competitive in the international market.

In conclusion, it is recommended that NOIA, OTANS and the Metal Working Association of New Brunswick work with industry stakeholders and the operators of research and development and training institutions to ensure that these institutions are fully responsive to local requirements and fully competitive in the international training market.

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5.7 New Attitudes

Lastly, there is still a need to change some international, Central Canadian and local attitudes towards Atlantic Canada. The past performance of Atlantic Canadian companies and personnel is already assisting in this, and few will be unimpressed with the developments and capabilities detailed in this report. However, there is still a need to promote and publicize local skills, capabilities and successes.

Sadly, it is also necessary to overcome a lingering regional inferiority complex; for example, companies involved in the Hibernia construction project noted that locals had some of the lowest expectations of the abilities of Atlantic Canadians. Also, Atlantic Canadian companies were sometimes reticent about working with others from their own community. It is important that such reservations be overcome, especially given the increasing importance of business networks, alliancing and other collaborative approaches. In this regard, NOIA, OTANS and the MetalWorking Association of New Brunswick must continue to promote and publicize local skills, capabilities and successes at the local, national and international levels, and encourage collaborative approaches among their members.

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SECTION SIX - CONCLUSIONS AND RECOMMENDATIONS

The 1990s has been an exciting decade for petroleum activity in Atlantic Canada, with a thriving industry emerging from a series of exploration programs and construction projects. A review of the literature, supported by direct primary consultation with stakeholders, reveals general optimism about the further growth and development of the sector. This has been fuelled by a range of factors, including:

• the high quality of Cohasset-Panuke and Hibernia crude; • a high potential for further major discoveries; • low political risk, attractive local economics and a competitive, stable fiscal regime; • development of local infrastructure, which has reduced and is continuing to reduce full-cycle costs; • low transportation costs owing to proximity to major markets; • the presence of major oil companies, which are less likely to scale back activity during periods when oil and gas prices are low; and • investments in current projects, initiated on basis of conservative estimates.

However, there is also frustration that this potential is not being effectively harnessed to the benefit of Atlantic Canada and its oil and gas industry. Underlying this frustration is a recognition and concern that there is no clearly articulated vision of the desired future shape of the industry in the region and, consequently, no coherent strategy for its development.

The central lesson from this research is that stakeholders must share a clear vision of the future Atlantic Canadian petroleum industry, mutually beneficial to operators, the local supply and service sector and the economy and people of the region as a whole. This vision should provide the basis for a common strategy within government, as well as with operators and the service and supply sector.

Specifically, it is recommended that NOIA, OTANS and the MetalWorking Association of New Brunswick: • promote and facilitate the establishment of a forum at which stakeholder representatives: review the history, status and prospects of the Atlantic Canadian petroleum industry and current barriers to the optimization of economic benefits; engage in a visioning and strategizing exercise respecting the future of the industry; and recommend approaches and mechanisms for overcoming barriers, realizing this vision and implementing this strategy. The vision and

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry 43

strategy must focus on the medium and long term and result in policies that are consistently applied over time. • as one element of the work of the stakeholder forum, it should promote and facilitate the establishment of mechanisms to facilitate discussion of areas of common interest and concern: one such mechanism should be an Energy Resource Centre co-operatively funded by operator companies and government • continue to promote and facilitate the adoption of an international perspective in planning for the further development of the oil and gas industry across Atlantic Canada. • continue to promote and facilitate the adoption of regional approaches to the further development of the oil and gas industry across Atlantic Canada, and lobby the federal government to reduce international barriers. • work with industry stakeholders and the operators of research and development and training institutions to ensure that these institutions are fully responsive to local requirements and fully competitive in the international training market. • continue to promote and publicize local skills, capabilities and successes at the local, national and international levels, and encourage collaborative approaches among their members.

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APPENDICES

Appendix A Chronological History of Major Events in Atlantic Canada’s Oil and Gas Industry

Appendix BOverview of Atlantic Accord and Canada-Nova Scotia Accord’s Equalization Offset Provisions

Appendix C Value Chain Matrix

Appendix D Research and Development Institutions

Appendix E Industry Outlook Scenario

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-1

Appendix A Evolution of Atlantic Canada’s Oil and Gas Sector

Date Event 1812 Oil on the surface noted around Parson’s Pond on the west coast of Newfoundland. 1850s Exploration begins in New Brunswick. 1859 Oil discovered in shallow wells in southeastern New Brunswick 1867 Exploration activities begin on the west coast of Newfoundland. 1869 First recorded well drilled in Nova Scotia near Lake Ainslie, Cape Breton; 19 wells drilled in Nova Scotia between 1869 and 1905. 1909 Stoney Creek oil and gas discovery made in New Brunswick. 1912 Natural gas delivered to customers in Moncton from Stoney Creek gas field. 1943 First offshore well drilled in Atlantic Canadian waters off Prince Edward Island. 1959 Mobil Oil is granted an exploration license for the Sable area. 1960 Mobil Oil conducts first seismic program in the vicinity of Sable Island. 1965 Mobil is granted the first exploration permit issued by the federal government for offshore Newfoundland and Labrador. 1966 First two wells spudded offshore Newfoundland and Labrador. 1967 Mobil drills first well off the coast of Nova Scotia. 1968 Mobil conducts first seismic program in the Bay of Fundy. 1971 Mobil discovers oil and gas from Sable E-48 well. 1972 Thebaud gas field (part of the SOEP) discovered off Nova Scotia. 1973 Mobil Canada discovers the Cohasset field offshore Nova Scotia. Oct 1973 Eastcan Exploration Ltd. terminates the significant discovery well (Bjarni H-81) in the gas fields off Labrador. Oct 1974 Eastcan Exploration Ltd. terminates the significant discovery well (Gudrid H-55) in the gas fields off Labrador. Oct 1975 Eastcan Exploration Ltd. terminates the significant discovery well (Snorri J-90) in the gas fields off Labrador. 1975 Mobil drills Chinampas N-37 well in the Bay of Fundy. 1976 New Brunswick proclaims Oil and Natural Gas Act. 1977 Government of Newfoundland and Labrador enacts Petroleum Regulations and exploration activity off Newfoundland ceases. 1977 Newfoundland Ocean Industries Association established. 1978 First delineation well on Thebaud discovery encounters over-pressured gas reservoirs.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-2

Date Event 1978 Exploration activity resumes offshore Newfoundland after a one-year hiatus. Jan 1978 Mobil obtains a Special Renewal Permit covering a three-year term for its federal permit on the Hibernia offshore acreage. Working interests are Mobil 56.25%, Petro-Canada 25% and Gulf 18.75%. Oct 1978 Chevron Standard Ltd. terminates the significant discovery well (Hopedale E-33) in the gas fields off Labrador. Feb 1979 Chevron and Columbia Gas farm-out arrangements made for the Hibernia field for a 212,468 hectare block, calling for one exploration well. May 17 1979 Chevron spuds the Hibernia discovery well, Chevron et al P-15, the 60th offshore exploration well to be drilled offshore Newfoundland. 1979 Venture discovery (Sable natural gas field) made by the Venture D-23 well offshore Nova Scotia. 1980-82 Chevron conducts extensive seismic programs in the Bay of Fundy. 1980-84 Ongoing efforts to negotiate management and revenue-sharing between the Governments of Newfoundland and Labrador and Canada continue. Both sides argue they have legal jurisdiction but wish to settle the matter by negotiation. No agreement is forthcoming. Oct 1981 Petro-Canada terminates the significant discovery well (North Bjarni F-06) in the gas fields off Labrador. 1981 Mobil drills Hebron I-13 discovery well. 1981-83 Chevron conducts extensive seismic program in the Moncton area of New Brunswick. Feb 15 1982 A winter storm sinks the Ocean Ranger drilling platform. March 1982 Canada-Nova Scotia Offshore Agreement on Oil and Gas Resource Management and Revenue Sharing signed. 1983 South Venture, Glenelg and Alma fields discovered south of Sable Island (part of SOEP). Sept 1983 Chevron drills Cape Spencer well near Saint John, NB in the Bay of Fundy. May 1984 Terra Nova field discovered through exploration well Petro-Canada et al. (Terra Nova K-08) on the Newfoundland offshore. Feb 1985 The Atlantic Accord is signed by the governments of Newfoundland and Labrador and Canada covering joint management of the oil and gas resources offshore Newfoundland and Labrador and the sharing of revenues. Management authority given to the newly established Canada Newfoundland Offshore Petroleum Board. May 1985 Mobil submits the Hibernia Environmental Impact Statement (EIS) to both the federal and provincial governments. It describes two alternate modes of development and their associated impacts. July 1985 Mobil advises government that its preferred mode for the Hibernia project was the fixed production system.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-3

Date Event August 1985 Mobil submits Hibernia Development Project EIS Update. Sept 1985 Hibernia files Hibernia Benefits Plan and Hibernia Development Plan with the Canada Newfoundland Offshore Petroleum Board (CNOPB). Oct 1985 Significant Discovery declared for the Terra Nova field. Oct 1985 Hibernia fiscal negotiations begin. Dec 1985 Report of the Hibernia Environmental Assessment Panel submitted. 1985 Whiterose N22 well drilled offshore Newfoundland indicating small quantities of oil and gas. 1985 National Research Council’s Institute for Marine Dynamics (IMD) officially opens in St. John's. 1985-87 Chevron and Irving Oil drill five wells in the Moncton sub-basin. June 1986 The CNOPB approves the Hibernia Development Plan through Decision 86.01. Aug 1986 Canada-Nova Scotia Offshore Petroleum Resources Accord signed. 1986 Shell discovers the Panuke field off Nova Scotia. April 1987 The Government of Canada proclaims the Canada-Newfoundland Atlantic Accord Implementation Act and the Government of Newfoundland and Labrador proclaims Canada-Newfoundland Atlantic Accord Implementation Act (Newfoundland), thereby implementing the Atlantic Accord. July 1988 The Statement of Principles for development of the Hibernia oilfield is signed. Sept 1988 Columbia Gas sells its interest in Hibernia to Chevron. 1988 The Hibernia partners form the Hibernia Management and Development Company Ltd. (HMDC) to construct and operate the Hibernia facilities. 1988 Whiterose E-09 well finds commercial quantities of oil. 1988 The Canada-Nova Scotia Accord is enacted. Jan 1989 Significant Discovery area for Terra Nova enlarged. 1989 Lasmo Nova Scotia Limited enters into a joint venture with the Government of Nova Scotia to develop the Panuke and Cohasset fields. Dec 1989 Development Plan for Cohasset-Panuke submitted to Canada Nova Scotia Offshore Petroleum Board (CNSOPB). Jan 1990 Canada Nova Scotia Offshore Petroleum Board (CNSOPB) established. Jan 1990 CNOPB declares Hibernia a Commercial Discovery. Mar 1990 CNOPB issues a 25-year production license to the Hibernia consortium. Mar 1990 Hibernia proponents submit the Hibernia Development Plan Update, which incorporates proposed modifications to the original design of the structure, topsides and other information about field development. The update also identifies Bull Arm as the site for construction of the GBS and assembly of the topsides structure.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-4

Date Event Aug 1990 Decision 90.01 by CNOPB approves the Hibernia Development Plan Update subject to four conditions. Sept 1990 The Hibernia Agreement is signed. The two levels of government and the consortium of four oil companies sign agreements to proceed immediately with the Hibernia project. Sept 1990 Mobil Oil Canada Ltd. announces that the contract for the GBS is awarded to NODECO and the contract for engineering procurement/project services is awarded to Newfoundland Offshore Contractors (NOC). Sept 1990 Final approval for the Cohasset-Panuke project to proceed given by CNSOPB. Oct 1990 Work begins on the Bull Arm construction site. Nov 1990 The Hibernia Development Project Act is passed by Parliament and given royal assent. 1990 CNSOPB approves the employment and industrial benefits plan for the Cohasset project. April1991 CNSOPB issues the first production licenses in the Nova Scotia offshore area to Lasmo Nova Scotia Ltd. for the Cohasset project. Aug 1991 Bull Arm construction site completed. Sept 1991 Hibernia fabrication contract awarded for first super module. 1991 The Balmoral M-32 exploration well (the third field in the Cohasset-Panuke area) reported as an oil discovery. 1992 International boundary dispute surrounding St. Pierre-Miquelon settled between Canada and France Feb 1992 Gulf Canada Resources announces it is withdrawing from the Hibernia development. Project activities are retrenched and project schedule delayed by approximately one year. Feb/Mar 1992 Lasmo files revised development and benefit plans for Cohasset. Mar/Apr 1992 CNSOPB approves the revised Benefits and Development Plans for the Cohasset field. June 5 1992 First oil produced from the Atlantic Canada offshore at Cohasset-Panuke. April 1992 Hibernia GBS dry-dock completed. Aug 1992 Continuation Agreement signed by the project partners for the Hibernia project after Gulf Canada Resources withdraws. Nov 1992 Hibernia GBS construction commences. Dec 1992 Construction of wellhead module begins at Bull Arm. Jan 1993 Murphy Oil (6.5%), Mobil (5%), Chevron (5%) and the federal government (8.5%) take over Gulf’s 25% share of the Hibernia Project, permitting it to proceed. Jan/Feb 1993 Hibernia fabrication contracts awarded for four super modules.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-5

Date Event March 1993 Hibernia concrete structure and module fabrication officially begins at Bull Arm. April 1993 Mobil, Chevron and Petro-Canada release “The Hibernia Project: A Background Paper”. It provides an update on reserves and costs. Production estimates are now based on recoverable reserves of 615 million barrels rather than 525 as in the 1985 and 1990 development plans. Also, estimated project costs are reduced. May 27 1993 The ceremonial pouring of cement for the Hibernia GBS. Sept 1993 Hibernia Offshore Loading System design and engineering begins. Nov 1993 Pouring of concrete for the Hibernia GBS slab completed. 1994 Hibernia partners announce $1 billion cost overrun. April 1994 Hibernia project start-up moved back an additional 5 months to Dec 1997. June 1994 Royalty regime for onshore petroleum development is announced for Newfoundland. Sept 1994 Hunt Oil and PanCanadian spud Port au Port -1 well on west coast of Newfoundland. Nov 1994 Hibernia GBS towed to deep water site. Jan-May 1995 Sable Offshore Energy Project (SOEP) and Maritimes and Northeast Pipeline (M&NP) formed. March 1995 20th million barrel of oil is produced from the Cohasset project. March 1995 Hibernia employment peaks at 8,836 people and 2.125 million person-hours. May 1995 Hibernia monthly expenditure peaks at $144 million. July/Aug 1995 SOEP Environmental Impact Statement and related studies commence. Sept 1995 Hibernia employment in Newfoundland peaks at 6,133 people. Sept 1995 Hunt Oil and PanCanadian Petroleum spud second exploration well (Long Point M-16) on the west coast of Newfoundland. Oct 1995 SOEP announces proposed pipeline landfall, gas plant and liquid facilities. Oct 1995 The Panuke field stops producing due to high water cuts, mechanical difficulties and the inability to pump the wells or perform workovers. Oct 1995 Supply base contract for the Hibernia project awarded to Harvey CSM Offshore Services of St. John's, Newfoundland. Nov 1995 Amoco Canada announces intentions to spend $90 million in exploration of the Jeanne d’Arc Basin Nov 1995 Exploration license awarded to Mobil consortium for $86 million in work expenditure west of Sable Island. Dec 1995 Petro-Canada and partners announce plans to develop Terra Nova. Jan 1996 Lasmo Nova Scotia sells interest in Cohasset-Panuke to Pan Canadian Petroleum Limited.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-6

Date Event Jan 1996 Fiscal negotiations commence for Sable natural gas project. Jan 1996 Hunt Oil and PanCanadian Petroleum abandon well (Long Point M-16) on the west coast of Newfoundland. Jan 1996 Initiation of review of Georges Bank moratorium on petroleum activity. Feb 1996 Husky Oil announces plans to conduct an extensive delineation drilling and formation flow testing program for Whiterose. Feb 1996 Maritimes and Northeast Pipeline files application with the US Government FERC for the construction and operation of a new pipeline for the US portion of the Maritimes and Northeast Pipeline Project. Feb 1996 Talisman spuds well (Long Range A-09) on west coast of Newfoundland. Feb 1996 The Cohasset Balmoral field goes into production. March 1996 Chevron purchases Norcen’s interest in Hebron, Ben Nevis, West Ben Nevis and other properties offshore Newfoundland. May 1996 SOEP royalty framework established with Province of Nova Scotia. May 1996 Hunt Oil and PanCanadian Petroleum spud well A-36 on the west coast of Newfoundland - the first well to be drilled at an onshore location in Western Newfoundland. June 1996 Newfoundland government announces a generic royalty regime that will apply to all offshore discoveries with the exception of Terra Nova and Hibernia. June 1996 Mobil, Shell, Imperial and Nova Scotia Resources apply to CNSOPB for approval to develop and produce gas from the Sable project. June 1996 Talisman Energy abandons its wildcat well on west coast of Newfoundland. July 1996 Sable awards contract for Front End Engineering Design (FEED). July 1996 Hunt Oil and PanCanadian Petroleum abandon their well on the west coast of Newfoundland. July 1996 Mobil swaps acreage with Petro-Canada increasing Mobil’s interest in Scotian shelf properties. As part of the deal Mobil acquired Petro-Canada’s 18% interest in the SOEP. Aug 1996 Terra Nova Development Plan application submitted to CNOPB. Aug 1996 Hibernia partners announce they will be using a transshipment terminal. Sept 1996 Mobil, Chevron and Petro-Canada announce plans to construct an offshore oil transshipment terminal at Whiffen Head, Newfoundland and register project with the Newfoundland Department of Environment and Labour. Oct 1996 Maritime and Northeast Pipeline Management Ltd. submits proposal to the Joint Public Review Panel for the Canadian portion of the Maritimes and Northeast Pipeline project. Nov 1996 Major construction activities completed for Hibernia. Dec 1996 Environmental Review Panel commences review of Terra Nova project.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-7

Date Event Dec 1996 Transshipment terminal released from Newfoundland’s environmental review process. Dec 1996 Petro-Canada and Norsk Hydro sign a strategic alliance agreement where Norsk Hydro acquires a 15% share in Terra Nova and 5% share in Hibernia. Dec 1996 Petro-Canada announces its selection of a steel monohull floating production facility as its preferred option for the Terra Nova project. The Grand Banks Alliance is chosen to execute the preproduction phase of the project. Dec 1996 The Joint Review Panel for the SOEP announces that formal public hearings will be held commencing April 1997. 1997 MariCo Oil and Gas Corporation spuds three wells near Hillsborough, New Brunswick. Jan 1997 Sable gas royalty regime made public. Feb 1997 Hibernia mating of topsides and GBS successfully completed. Mar 1997 SOEP awards drilling contract. May 1997 SOEP offshore fabrication services and onshore facilities contracts awarded. May 1997 Amoco Canada establishes office in St. John's to oversee drilling program on West Bonne Bay property. May 1997 Hibernia platform tow-out begins. May 1997 Delpet Resources spuds Big Spring #1 well in Hare Bay on the west coast of Newfoundland. May 29 1997 Cohasset project produces its 35 millionth barrel of oil. June 1997 Update to Terra Nova application submitted. June 1997 Hibernia platform moored in place on the Grand Banks. June 1997 Harvey CSM Offshore Services supply base opens. July 1997 First production well on Hibernia spudded. July 1997 Amoco Canada spuds the West Bonne Bay C-23 well in the Jeanne d’Arc Basin. Aug 1997 Newfoundland Department of Mines and Energy releases poor drilling results on Hunt Oil and PanCanadian’s Port au Port -1 well drilled on the west coast of Newfoundland. Aug 1997 Terra Nova EIS panel submits its report. Oct 1997 Joint Public Review Panel recommends approval of Sable Gas projects. Nov 1997 First oil produced at Hibernia; early production rates substantially exceed projections. Nov 1997 Increased recoverable reserves from 615 million bbls to 750 million bbls announced for Hibernia by Mobil Oil. Dec 1997 National Energy Board (NEB) provides environmental approvals to Sable Gas projects.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix A-8

Date Event Dec 1997 Government of Newfoundland and Labrador announce a labour relations regime to govern oil production platforms in the Newfoundland offshore oil and gas industry. Dec 1997 First oil shipped from Hibernia. Dec 1997 CNOPB land sale results in $98 million commitment in exploration activity over the next five years on four parcels of land in the Grand Banks and offshore Western Newfoundland. Jan 1998 SOEP construction begins. Feb 1998 Project sanction announced for Terra Nova. Feb 1998 SOEP partners officially sign documents formally committing themselves to the project. Feb 1998 Husky Oil announces resumption of drilling on the Grand Banks and establishment of office in St. John's to oversee activities. March 1998 PCL Industrial Contractors sign deal to lease Bull Arm for 34 months to build two major topside modules for the Terra Nova Project. April 17 1998 Irving Oil Ltd. signs 15 year contract to buy 86 mcf per day of SOEP production. May 1998 Chevron confirms potential of Hebron field at 600 million barrels; up from 1981 estimates of 195 million barrels June 1998 CNOPB declares Amoco’s West Bonne Bay C-23 well to be a Significant Discovery. Oct 1998 Newfoundland Transshipment Terminal opens.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix B-1

Appendix B Equalization Offset Provisions

Exploitation of hydrocarbon resources will impact the treasuries of the Atlantic Provinces in various ways. Specifically, the provinces of Newfoundland &Labrador and of Nova Scotia will garner royalty and tax revenues from production of oil and gas and will incur costs related to increased infrastructure and maintenance requirements. Regardless of the balance between oil and gas revenues and associated costs, as revenues rise, both provinces will receive lower equalization transfer payments. In order that the region not experience an immediate decrease in available fiscal resources while pursuing greater economic independence for the long term, equalization offset provisions were established. Atlantic Accord In recognition of the fact that provincial equalization entitlements would be significantly reduced by the revenues accruing to the Newfoundland & Labrador treasury from the development of oil and gas resources off its shores, the Government of Canada and the Government of Newfoundland & Labrador included a provision in the Atlantic Accord to partially offset these reductions. These provisions, known as equalization offset payments, comprise a two-part formula in effect for a 12 year period, commencing when cumulative production reaches 15 million barrels. Part I payments are equivalent to the floor provisions in effect for general equalization payments when the Atlantic Accord was signed. These floor provisions ensured that provincial equalization entitlements could not fall from one year to the next by more than a defined percentage. The maximum percentage reduction permitted from one year to the next was contingent on the provincial fiscal capacity relative to the national average fiscal capacity. Specifically, if the province’s fiscal capacity was 70 percent or less of the national average fiscal capacity, then the province was guaranteed to receive a floor equalization entitlement that was 95 percent of the previous period’s entitlement, or its equalization entitlement could fall by no more than 5 percent from one year to the next. If on the other hand, the province’s fiscal capacity fell between 70 and 75 percent of the national average, the floor guarantee fell to 90 percent. This floor was lowered to 85 percent for those provinces with a fiscal capacity that exceeded 75 percent of the national average. Basically, Part I offset payments were designed to top up the province’s equalization entitlement to ensure that it did not fall below the floor guarantee. That is, Part I offset payments were equal to the amount by which provincial equalization entitlements fell below the floor amounts.

The Part II payments were designed to partially protect the province from decreases in a defined base from one year to the next for a period of 12 years. The base used in this calculation was the sum of actual equalization entitlements and any Part I offset payments received. For the first four years, the Part II payments were equal to 90 percent of any reduction in this base. After four years, the level of protection was decreased by 10 percentage points per year, until it was completely phased out after the 12th year. The sum of Part I and Part II equalization offset payments constituted the size of the grant received by the provincial government to ensure that it did not lose equalization dollar-for- dollar with the revenue it received from offshore oil and gas projects. There are two important things to note about this accord: first, once it came into effect, the cause of any drop in equalization became irrelevant in that all reductions in equalization entitlements were protected; and second, despite the complexity in the formula, the level of

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix B-2 protection afforded the provincial treasury was low. This resulted from the fact that the formula protected only actual falls in equalization entitlements from one year to the next. The level of the reduction would depend on the incremental increases in revenue flowing to the provincial treasury, not the absolute amount of revenue. Also well, any nominal growth in equalization entitlements that otherwise would have occurred would have the effect of eroding part of the protection provided under these offset provisions.

Canada-Nova Scotia Accord The Nova Scotia treasury was also protected against decreases in equalization entitlements associated with oil and gas revenues. The specific formula used differed from that contained in the Atlantic Accord. This difference had the effect of providing more protection for oil and gas revenues. The Nova Scotia arrangement worked by calculating what equalization entitlements would have been had only 10 percent of the oil and gas revenue been included in the first year. The difference between this amount and the equalization entitlement when 100 percent of the oil and gas revenues are included would be equal to the offset payment received by the Government of Nova Scotia in the first year of commercial production. For each subsequent year, the proportion of oil revenues included in this calculation rose by 10 percentage points. Consequently, after the tenth year, no additional equalization offset payment would be available to the Nova Scotia treasury.

Generic Offset Provisions In recognition of the low level of protection provided under the Atlantic Accord and the Canada-Nova Scotia Accord, in 1994 and retroactive to 1993 the federal government introduced a generic offset provision. Under this provision, if an equalization-receiving province has 70 per cent or more of an equalization base, then the revenues subject to equalization would be scaled back by 30 per cent in all provinces. This effectively ensures that the most Newfoundland or Nova Scotia could lose from offshore oil and gas would be 70 per cent of its revenues. It is important to note that should, in any year, the generic formula provide a lower offset than would those provided under the Atlantic Accord or the Canada-Nova Scotia Accord, the affected province may opt to use the offset provisions of its specific Accord.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry Appendix C-1

Appendix C Value Chain Matrix

This appendix contains a listing of over 60 categories of goods and services required by the oil and gas industry. It is not intended to be an exhaustive document detailing all of the goods and services required by the oil and gas industry. Rather, it is intended to provide a broad overview of the industry’s requirements within the context of Atlantic Canada’s capabilities.

The format of the matrix is a listing of categories of goods and services in the first column. The second column provides a description of the type of good or service and the third column discusses Atlantic Canadian supply capability and the value-added potential. The value-added potential refers to the amount of the expenditure which stays in the region as income. For example, engineering services with a high labour component have a high level of value-added for the region. The supply of machinery that is manufactured outside the region has a much lower value-added component due to the import of the piece of machinery - a cost which leaks out of the regional economy. All things being equal, higher value-added supply opportunities are preferable over low value added opportunities.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-2

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Administration Services Word processing, clerical support, drafting, photocopying, graphics, AC companies and individuals are well positioned to avail of these courier services and computer services opportunities which typically have a high value-added component.

Catering Services and Supplies Provision of catering and housekeeping services, both personnel and Capability exists within each of the Atlantic provinces to provide the supplies complete range of catering services and supplies. The value-added component is relatively high for the labour component, but lower for the food and supplies component. Cathodic Protection Reduces seawater corrosion on marine structures. A popular method of Capabilities include both supply and service with the emphasis on servicing. corrosion control is achieved through the use of sacrificial anodes Supply capability is available in AC but not widespread. Value added potential is relatively high.

Cementing Services Consists of pumping cement down a well between the casing and A service company typically would supply the cement and additives, as well formation in order to protect the casing, prevent vertical formation as equipment and personnel, including both labour and engineering water flow and isolate the producing formation. personnel. Cementing services and supplies are readily available throughout AC. Chemical Cleaning/ Pressure Inhibits corrosion on piping systems and tanks and typically involves: Numerous AC companies provide these goods and services, which have an Testing degreasing, pickling and water removing/drying, hot oil flushing and overall mid-range value-added component. pressure testing. Pressure testing services are required on equipment such as piping systems, tubulars, wellheads, christmas trees, manifolds and other pressure-sensitive components. Typical equipment required includes: test pumps, test cabinets consisting of monitoring equipment and control panels, pressure-temperature recorders, test manifolds, dead weight testers and test flanges. Pressure testing is typically performed in conjunction with chemical cleaning services and hot oil flushing services. Chemicals Includes monoethylene glycol, antifreeze preparations, detergents, A wide variety of chemicals are required throughout all phases of the value nitrogen chain from exploration to refining. Supply capability exists within AC, but most chemicals are imported and therefore the value-added component is relatively low.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-3

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Coatings Includes coatings for impact resistance, anti-corrosion, anti-fouling and Coatings are widely available throughout AC through industrial suppliers. passive fire protection. Coating services are required for the custom Few are manufactured in AC and thus the value added consists of project coating of gratings, bends, random straights, ties and insulation management, coating services, warehousing and distribution. materials. Coating services use polypropylene, polyethylene, thermoplastic, powder, foam, copper, nickel, fusion-bonded epoxy powder, neoprene, EPCM elastomeric and other materials. Coating materials and procedures must meet the requirements of great water depth and high operating temperatures. Fireproofing materials include vermiculite cements, magnesium oxychlorides, mineral fibres, epoxy intumescents, water-based intumescents, subliming compounds, silicate board systems and silicone foams. The application generally involves spraying and/or trowel work. Coating standards are rigidly controlled and inspected during application. Occasional re-application would be required if the coating were removed for any reason. Painting is required for all offshore platform structures and equipment and includes the painting of materials such as aluminum, enamel, plastic, polyurethane and zinc. Technical specifications are project-specific and must be reviewed regularly. General specifications for paint required on offshore structures include that it be waterproof, rustproof and flame retardant and resist corrosion, heat, alkali and acid. Related services include surface preparation and the supply of paint and painting equipment and facilities. Communications Services, Cellular phones, wireless communication services and equipment, 2- The capability exists in AC to provide high value-added communications Systems and Equipment way radios, pagers, remote e-mail service services and support and the lower value-added equipment.

Compressors Supply, inspection, maintenance and repair of air and gas compressors Supply capability exists throughout AC. Value-added on equipment is typically low while servicing would have a higher value added component.

Computer Hardware Supply of computers, servers, printers, scanners, networks and other Available throughout AC. computer hardware. Intense competition and continually declining prices provide low value-added component. Typically provided in conjunction with software. Computer Software Development of software for various operational requirements such as If custom-designed programs are required, the value-added potential could materials handling, inventory control, management of procurement, be high if regional firms are hired. Off-the-shelf software would have a general office functions, personnel records, maintenance and supply lower value-added component, however, servicing, training and upgrading vessels and interactive training programs. requirements would remain

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-4

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Control Systems and Fire and gas detection systems, HVAC control systems, power control The high value-added component of this opportunity stems from the design, Equipment systems and process control systems. This opportunity includes the installation and servicing of control systems. AC has a significant number of design, supply, installation and servicing of control systems. companies providing control system equipment and services.

Coring Services Also referred to as diamond coring, wireline coring and sidewall Coring is typically undertaken by the drilling contractor. Sub-contract coring, the process involves cutting a core and sending it to a laboratory opportunities may exists for core preparation, logging, the provision of for analysis. Various techniques are then used in the lab to determine geophysical teams and laboratory analysis. There are no laboratories in AC, permeability, porosity, pore-size distribution, fluid content and however if the industry expands, the critical mass may develop to support mineralogy of the formation. such facilities. Corrosion Control/Corrosion Corrosion inhibitors are various and include: fusion-bonded epoxy There are a limited number of suppliers of corrosion control products and Monitoring powder, polypropylene and polyethylene thermoplastic coatings, services in AC. The specialized nature of the products requires potential neoprene, elastomeric coatings and anti-fouling coatings. Corrosion is suppliers to have a number of platforms to service. The import component of controlled by the use of corrosive inhibitors. In drilling, compounds the goods results in a low value-added component. including film-forming amines, sodium sulfite and zinc compounds can be added to the drilling mud to inhibit corrosion. Linepipe, flowlines, risers, clamps, manifold pipework, braces, caissons and J-tubes also require anti-corrosive coatings. The extent of corrosion and the effectiveness of the coatings, must be continually monitored through a variety of testing services (e.g. failure analysis, ultrasonics, radiography and topsides and downhole corrosion studies). Cranes and Heavy Lifting Sales, service and rentals of deck cranes, blow-out prevention BOP Cranes are used in a number of industries and therefore are readily available Equipment cranes, mobile cranes, winches and catheads, forklifts, overhead cranes throughout AC. The value added component is medium low with greater and hydraulic winches. value added opportunities stemming form the design and servicing of custom cranes. Descaling Descaling involves the removal of deposits of hard adherent salt from Descaling involves both the supply of materials and the provision of platforms and platform equipment surfaces and the removal of deposits descaling services. It is a good example of the type of operational in oilfield tubular goods. The descaling service is also supplemented by requirement that requires a good mix of value-added services and a supply the application of inhibitors that prevent the build-up of calcium of goods. sulphate and calcium carbonate. It is related to the corrosion control Descaling services are currently being provided in the region. service category. It typically would be provided in addition to other related services such as corrosion control. Diving Services and Equipment There are three classifications of diving required for subsea tasks: The value added component is relatively high and there are a number of atmospheric diving, air diving and saturation diving. Diving services suppliers in AC as diving services extend beyond the oil and gas industry. are required for platform inspection, maintenance and repair, corrosion surveys of piping and equipment, subsea pipeline repairs, subsea equipment installation and repair, wet welding and other tasks. They are typically required in conjunction with other services as they are a means to an end, not an end product in themselves.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-5

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Downhole Drilling Services Mud logging, measurement while drilling, mud treatment, well Given AC’s long history of offshore exploration, the capability to provide completion services, well logging, well testing, well workovers, well many drilling services are found locally. completion and fishing services. Well servicing incorporates a number of preparatory and maintenance requirements of production wells. Well completion is required to prepare a well for production after drilling and testing and includes casing, perforating, running tubing, installing pumping equipment, flowlines and separators, dewaxing, swabbing, acidizing and fracturing. Ongoing maintenance and repair services are also required including repair or replacement of the downhole pump, sucker rods, gas lift valves, tubing, packers and other equipment. Wireline methods are frequently used (wireline tools include packers, valves, swabs and pressure-temperature-flow measurement equipment. Fishing services, or operations to remove material that has fallen, or is stuck in the bottom of a well, can also be included in well services. Servicing is also required during abandonment. Drilling services are conducted by the drilling contractor, however, sub-contract opportunities may be available for any of the tasks listed above. Drilling Contractors Rig rentals, personnel and equipment supply. Drilling contractors With the exception of the drill equipment, many of the labour-intensive provide the services of skilled labour, maintenance and drilling support services for drilling can be found in AC. These represent high-value equipment to conduct the drilling operations on offshore platforms for added activities. the drilling of programmed wells. Ancillary services include a workshop for repair of drilling equipment, drillpipe inspection services and consumables such as lube oil, hydraulic oil and protection safety equipment. Drilling Equipment Packers, drill tools, tubulars casing and tubing, drill pipe, hangers, drill Drilling equipment is required by the main drilling contractor and sub- bits, drill collars, fishing tools and stabilizers contractors. Opportunity exists for Atlantic Canadian companies to stock and service drilling equipment. The value-added component is low for the supply of equipment and higher for servicing. Drilling Equipment and For example: IMR of: drill derricks and associated equipment, draw The capability exists in AC for repairing and maintaining drilling equipment Tubulars - Inspection works, cooler and rotary tables, mud pumps, cementing units, cuttings and with a high value-added component, it should represent a good Maintenance and Repair cleaning equipment, diverters, BOP and control equipment, BOP opportunity for AC firms. cranes, christmas trees, mud treatment equipment, drilling manifolds, rig skidding equipment, drag chains, mud burner booms, winches and catheads, hoses and agitators. Inspection, maintenance and repair of drilling equipment will be required on a periodic basis. It is typically performed either by the drilling contractor directly, or may be contracted out to sub-contractors.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-6

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Drilling Fluids Three types of drilling fluids are commonly used: water-based muds, Opportunities exist to supply fluids to drilling contractors, however, most oil-based muds and gas. Drilling fluids are circulated down the well fluids must be imported to the region and therefore the value-added during rotary drilling to cool and lubricate the drilling bit and to component consist of the storage, handling and distribution of the materials. remove the well cuttings. Drilling fluids can also be used to control sub-surface fluids. Drilling Supplies Drill bits, drilling mud, pipes, drilling fluids Various supplies are required by the drilling contractor. These are readily available throughout AC, however, most are imported leaving a low value- added component for AC suppliers.

Electrical Equipment Alarm systems, electric motors, electric generators, electric motor There is sufficient supply capability within AC to supply most of the rewinding and repairs, controls switch gear, motor control centres, electrical requirements of the offshore oil and gas industry. The value-added power transformers, distribution transformers, power distribution potential is high given the servicing required. control systems, panelboards, batteries, cable transits, power and control cables, cable trays, local control stations, lighting fixtures, heat tracing equipment and navigational aids. Electrical equipment is required through all phases of the value chain. In the development stage, the focus is on the supply of equipment, while in operations, the focus is on maintenance and repair of equipment. Electrical Equipment - e.g. IMR of: switch gears, motor control centres, power transformers, Electrical equipment is utilized in many industries beyond the oil and gas Inspection, Maintenance and distribution transformers, power distribution control systems, industry and therefore, AC firms have the capability to service all types of Repair panelboards, batteries, cable transits, power and control cables, cable electrical equipment. They are not dependent on exclusively servicing the oil trays, local control stations, lighting fixtures, heat tracing equipment and gas industries and therefore this service represents a good opportunity and navigational aids. for AC firms. The value-added component is relatively high with the high labour component involved with servicing electrical equipment.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-7

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Engineering Services Design, procurement and project management services Engineering expertise for offshore development projects is becoming more widely available in AC. With the successful completion of Hibernia, significant expertise has been gained by AC engineering firms. However, given the large size of oil development projects, most AC companies are not large enough to undertake projects without joint venture partners. As such, AC companies have established relationships with larger engineering firms with offshore expertise to position themselves for future development work. The value-added component is relatively high given the high proportion of labour involved with engineering services. Environmental Services The design and implementation of programs to monitor the AC firms have developed world-class expertise in environmental services, environmental effects of offshore activities including how ice, weather, particularly related to the offshore oil and gas industries. The timing of the storms, waves and currents affect the operation of the platform and Hibernia project in terms of the parallel development of stringent supporting infrastructure. This value chain activity also includes environmental regulations allowed AC-based firms to develop leading edge hydrogeology, EIS preparation, geotechnical engineering, site expertise in environmental monitoring and management. As such, the assessments, and biological surveys. capability exists to undertake most environmental services within AC and as with engineering services, the high labour content means a high value-added component as well. Equipment Rentals e.g. generators, compressors, engines, heaters, transformers, cable, The rental of equipment represents a good opportunity for AC suppliers with abrasive tools, deburring tools, descaling tools, wrenches, chain pipe a relatively high value-added component and recurring business. As with wrenches, vices, pipe threading and bending equipment, pipe tools, some other opportunities, the ability to service this requirement would be spark-resistant hand tools, nylon insulated hand tools and non-magnetic facilitated with the operational additional production platforms. Having only tools. two operating projects does not provide the economies of scale to provide all types of equipment, especially those that are unique to offshore operations. Most equipment, however, is used in other industries, thereby creating the critical mass required to provide this service. Fire Fighting Equipment and aqueous fire-fighting foam AFFF systems, fire fighting equipment, fire The ability to respond quickly to fire emergencies is obviously a critical Supplies protection sprinklers, fireproofing equipment and fire and gas detection capability on offshore platforms. As such, a significant amount of systems firefighting equipment and supplies are required. In addition to the supply opportunities, the equipment must be maintained and serviced on a regular basis, thus providing enhanced value added opportunities for AC firms, several of whom have been providing this service to other industries for many years and have now moved on to service, supply and maintenance of offshore systems.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-8

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Fluids and Lubricants Includes calendar, compressor, engine, gear, high-temperature, Suppliers exists in AC but for the most, they represent low-value-added industrial, mandrel and mold, metal working refrigeration, rubber, seal, activity textile and water tolerant lubrication. Also includes other fluids such as fuel, chemical intermediates, greases, hydraulics, metal coating, plasticizers, process fluids Freight Forwarding Freight forwarding covers the complete spectrum of transport and AC firms are well positioned and experienced in the provision of freight shipping services including shipping, clearing, international freight forwarding services as they are required in many other industries and the forwarding, warehousing and logistics. Complementary opportunities provision of services to the oil and gas industry provides the industry with include weather forecasting, ship routing, safe haven selection, another stable source of business. Freight forwarding has good value added environmental consulting, route analysis (i.e. to predict the effect of capability as it is primarily a service. conditions on vessels), pre-voyage planning, continuous voyage monitoring, post-voyage performance evaluation, speed and consumption monitoring and speed and consumption claim analysis. Heating, Ventilation and Air HVAC equipment includes: air handling units, fire dampers, grills and Routine maintenance and repair will likely be undertaken by the operator's Conditioning Equipment and diffusers, fans, humidifiers, attenuators, terminal units and domestic hot personnel while major equipment repairs will likely be performed by Services water skids. specialist companies, usually the original manufacturer or supplier. Opportunities exist for AC firms in the supply of equipment and in maintenance services. The capability exists throughout AC for the supply and servicing of HVAC equipment. Helicopter Services Helicopter services are an obvious necessity in the offshore oil and gas Helicopter services is a capital-intensive industry that have well-established industry. Since the early exploration days of the 1960s, AC companies and prominent suppliers in AC. Related opportunities such as the provision have been supplying helicopter services to the offshore. They are of fuel and weather forecasting services may also be available for smaller required primarily during production operations. Atlantic Canadian companies. Instrumentation Equipment - Includes IMR of control systems, fire and gas detection systems, Servicing the valves represents the greatest potential opportunity for local Inspection, Maintenance and emergency control systems, wellhead control systems, corrosion firms. Valve servicing will include inspection, maintenance (e.g. cleaning, Repair monitoring systems, and sand monitoring systems. Also included in shot-blasting, painting and polishing, testing and recertification of valves). this opportunity is IMR work associated with: valves, metering Atlantic Canadian companies are well positioned to service valves and much equipment, flow meters, orifice plates, venturi tubes, pilot tubes, other instrumentation equipment. The value-added component is relatively transmitters, switches, controllers, temperature gauges, regulators, high on the servicing of these items and some of the skill requirements are transducers, instrument cables, tube fittings, junction boxes and vendor-specific, thus commanding higher charges and more value added. instrument housing Insulation and Fireproofing Typically provided as part of the fabric maintenance contract. AC firms are well positioned to provide insulation and fireproofing supplies and services to offshore fields. The value-added capability is high for the service side and less for the supply of insulation and fireproofing supplies.

Insurance Insurance is very important for the offshore oil industry and represents AC firms have the capability of acting as brokers for insurance, however, a significant cost given the dangerous work environment and the the underwriting of such large insurance contracts would typically be valuable production facilities. undertaken by larger national or international insurance agencies.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-9

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Machinery and Equipment - e.g. IMR of: pumps, generators, compressors, coolers, heaters, pressure The range of equipment requiring IMR is broad and thus the capability of Inspection, Maintenance and vessels, knock out drums, filters, centrifuges, skimmers, scrubbers, Atlantic Canadian firms to service all of the varied equipment used o Repair separators, coalescers, elevators and various system packages e.g. offshore production facilities is also broad. In general, however, the potable water, diesel fuel treatment, produced water, methanol capabilities exist within Atlantic Canadian firms to provide IMR services on injection, oily water treatment, chemical injection, injection water all equipment. For specialized equipment, AC firms would form filter, sewage treatment and helicopter fueling. partnerships with vendors and act as vendor representatives for servicing and supplying equipment. Machining Services This category includes the machine and rebuilding services required for Machine and electrical shops exist throughout AC to supply machining various components of offshore platforms, including pumps, valves and services for the oil and gas industry. The mobile shop service may be less hydraulic rams. The machining services include rethreading and boring developed than the onshore shop service, however, as more fields get among other custom requirements. Both mobile and shop service will developed, the ability to provide mobile machining and advanced oil and gas be required. machining services will grow. Marine Transportation Services Marine transportation services are required to transport people and Services provided by marine vessels include: standby support, logistics, supplies to and from offshore platforms, as well as for the delivery of iceberg control, oil spill assistance, fire protection and tanker assistance. parts and equipment to and from storage facilities and suppliers. Supply Modifications may also be required for the supply vessels, meaning boats, barges, tug boats, support vessels and stand-by boats are some of opportunities for AC shipyards. Other opportunities include inspection, the vessels required. maintenance and repair services,, as well as the supply of consumables. Stevedoring, pilotage, repairs and maintenance and ship supply will also be required. With their long maritime history, AC firms are well positioned to provide marine transportation services to the offshore oil and gas industry. Marine Vessels and Rigs - IMR will be required at regular intervals for various marine vessels AC firms are well positioned to service marine vessels of all types. The Inspection, Maintenance and including anchor handling tug supply vessels, standby vessels, supply region’s long maritime history has resulted in the development of world- Repair boats, shuttle tankers, semi-submersible drilling rigs and monohull class expertise in marine vessel maintenance and repair. It is anticipated that floating production systems. much of this work will be done in the region. The value-added component is relatively high with a significant amount of local labour involved. Medical Services and Supplies Medical services include medical and health supplies and supplemented There are extensive suppliers for medical services and supplies. by associated medical services.

Nondestructive Testing and Non-destructive testing NDT refers to the inspection of materials for Complementary business opportunities are available for companies that deal Inspection Services defects using technical devices and processes in a manner that does not with safety and inspection, corrosion services and engineering and technical damage the materials. NDT involves the use of technologically companies. This is an oil and gas industry-specific service and requires advanced equipment for radiography, ultrasonics, infrared specialized equipment, supplies and skills that AC firms are beginning to thermography, vibration analysis, magnetic particle, leak testing, develop as the oil and gas industry grows. acoustic emission monitoring and alloy analysis.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-10

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Oil Spill and Pollution Control Includes the provision of supply vessels, containment and absorption There are a number of companies providing these services to other industries Services equipment sales and rentals, containment and absorption materials and as well and therefore the oil and gas industry will provide another revenue labour. Oil spill and pollution control services will be required in the source for these companies in a high value added segment of the industry. event of an oil or chemical spill. The need to respond immediately means that this service will be provided locally. Pipelines - Inspection, IMR will be required on all pipelines, including export lines and This is a specialized service that is new to Atlantic Canadian firms, Maintenance and Repair intrafield flowlines. With current technology, inspection of pipelines however, as more projects get developed, local companies will gain more can be expensive and cannot be fully guaranteed, especially if the expertise in this important service. flowline is buried. New techniques for measuring the wall thickness of pipelines are encouraging and once these techniques are improved, then considerable savings through the reduction in the use of subsea excavation units for buried flowlines and diving support vessels, could be possible. Pipes Steel pipes, line pipe, pipe fittings There are numerous suppliers for pipefitters and related services within AC.

Piping Equipment – Inspection, Piping equipment requiring IMR includes: valves ball, gate, globe, As with other IMR opportunities, piping equipment represents a good long Maintenance and Repair check and butterfly, pipes, fittings, bends and flanges molybdenum, term opportunity for AC firms. The service is fairly specialized to the oil duplex, titanium, low alloy, GRP and carbon steel, pipe connectors, and gas industry, however, when multiple fields are in production, the hoses, strainers, gaskets, bolting materials and wellhead manifolds. operating costs will get lower and the value-added component should increase. Professional Services Accounting, customs brokerage, financial/banking, insurance, project As the oil and gas industry moves into the information age, the demand for management, legal services, laboratory analysis, training, human professional services increases. The range of services is diverse and since resources recruiting, photographic services, information systems, travel many are required in other industries, most are available in AC. The value agents and strategic planning consultants. added potential is high in these industries because of the services are information related and provided by skilled professionals. Research and Development Research and development involves providing goods and services AC has some of the world’s finest R&D facilities for cold ocean research related to improving operational efficiency. It is particularly important located throughout the region. Supported by both public and, increasingly for the Atlantic Canadian oil and gas industry that operates in such a private, sector money, these facilities are developing new technology for use harsh environment as the Grand Banks. In terms of the offshore oil and in harsh marine environments with applications throughout the world. gas industry, it includes new drilling methods, iceberg monitoring and control, remote communications, offshore medicine and the design and testing of offshore structures.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-11

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability ROV Services Remote operated vehicles ROVs are used for underwater observation Opportunities exist for the inspection, maintenance and repair of the ROVs, tasks and specific working tasks. ROVs are utilized for a variety of as well as the supply of spare parts. A number of Atlantic Canadian firms inspection, maintenance and repair tasks for platforms, pipelines and provide ROV services as they have applications beyond the oil and gas subsea production systems. ROVs are used in a number of applications: industry and therefore have been provided in AC for a number of years. pipeline surveying, construction support, drilling support, platform inspection, repair, tooling and intervention tasks, installation of subsea production systems, completion operations, platform modifications, production support, non-destructive testing, salvage, diving support and observation, wellhead intervention, debris removal, cable cutting and cleaning, hazardous environmental intervention, dredging and hydro acoustic meteorology. ROV services are often provided in conjunction with diving services and are generally long-term (3 years or more). A company will generally operate a number of ROVs, each having different capabilities and capable of being equipped with task-specific equipment. Safety Equipment and Supplies Includes: life saving equipment, lifeboats, safety supplies, protective The supply capability exists within AC to provide virtually of the standard clothing, CO systems, deluge packages, navigational aids, safety equipment required. Some of the more specialized equipment used 2 environmental monitoring equipment, fendering systems and buoyancy specifically on offshore oil and gas operations may be less widely available. products. The emphasis placed on safety is evident throughout companies in the offshore oil and gas industry and thus represents a good long term supply opportunity for AC businesses. Scaffolding Standard scaffolding including hoarding frames, arch frames, standard Several national and international scaffolding firms have operations scaffold frames, ladder frames, putlogs, guardrails and guardrail posts. throughout AC. While some requirements of the oil and gas industry are Other components including braces, outriggers, coupling pins, safety unique, scaffolding is required in many other industries and is thus readily clips, jack/sleeves, jack/baseplates, ladders, handrails, platforms, decks, available throughout AC. stairways, planks, erection and dismantling services, swing stages, shoring systems and forming systems. The provision of scaffolding typically entails a turnkey operation from the supply of equipment, to labourers to engineering design. Major jobs would employ various types of scaffolding and therefore suppliers must have access to a braid range of inventory to be able to accommodate requirements on demand. Scaffolding is required during both the development and production phases for periodic inspection or servicing work. Security Services Security services are required for shore based facilities including Security services are readily available throughout AC and given the relative heliports, warehouses, offices and supply bases. amount of labour involved, the value added capability is above average. The provision and servicing of security systems is also an opportunity in this field and one which is also readily available throughout AC.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-12

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Seismic and Geophysical Most major oil companies employ their own exploration teams who are Seabed sampling, in conjunction with high resolution seismic, has been Services responsible for most of the testing and surveys undertaken throughout provided by Atlantic Canadian firms for offshore oil projects in the past. The the exploration and production stage and the subsequent interpretation operator typically contracts out the seismic survey and processing to a of the results. They are directly responsible for the operator's technical geophysical contractor. Offshore Newfoundland conventional programs decisions. The process of conducting seismic surveys includes data average $800 to $1000 per line kilometer. Typical surveys have ranged from acquisition, processing and interpretation. Seismic surveys are used to $1 million to $20 million. 3D ranges from $300 to $500 per kilometer and map subsurface geological structures, identify subsurface lithologies past programs have averaged $6 to $8 million. A typical high resolution and to explore for petroleum reservoirs. Most of the data that the in- seismic well-site program ranges from $200,000 to $500,000.Interpretation house technicians use is obtained through surveys, tests and processes is usually undertaken in-house by the operator, but some potential exists for that are contracted out. Geo-surveys and specialized consulting work is consultants to be brought in by the operator for specialized interpretation. also commonly required for particular studies. Technical specialists are Many geophysical contractors use their own vessels, but potential also exists often called in on contract by major exploration companies for for the lease of seismic survey ships. specialized interpretation (in conjunction with in-house staff). With the computerization of interpretive techniques, geoscientific- interpretational software development is a new area of growth. Storage Tanks Includes the supply of tanks for storage of potable water, salt water, The supply of tanks is a good opportunity for AC firms as they continually production/drilling chemicals, liquid nitrogen, fuel and drilling mud. need to be maintained, repaired and replaced. The value-added potential is Tanks are also required for oil treating and special waste disposal. high if the tanks are fabricated within the region. Related opportunities include: tank design, fabrication, installation, servicing, maintenance, quality control, parts supply, cleaning, testing, supply of valves, sight measuring gauges, heating, temperature probes, level switches, external cladding, tank mixers and tank-mounted reciprocating compressors. Subsea Systems - Inspection, There are four main types of subsea control systems: Subsea electronic Critical elements of subsea wells are their control systems or pods and the Maintenance and Repair modules SEM, hydraulic and electrical interfaces, hydraulic manifold inspection, maintenance and repair of these important production facilities and mechanical/structural components. Subsea production systems provide opportunities for AC companies. consist primarily of subsea christmas trees and can be of the wet or dry tree variety. The wet tree system, which is serviced by divers, has the subsea christmas tree connected by flowline to a manifold which joins to a production riser and finally to the platform. The dry tree system has a chamber surrounding the wellhead cellars and manifolds and it can be serviced by a diving support vessel, diving capsule or remote operated vehicles for repair and maintenance of equipment. IMR will be required at periodic intervals and will require a wide range of services from divers to diving support vessels to manned diving systems to unmanned ROVs. Maintenance and repair will require activities such as: damage assessment, structural analysis, fracture analysis, structural and material testing, repair design and engineering, fabrication, fabrication support, installation, installation assistance and underwater welding.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-13

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Supply Base Services The provision of onshore storage and warehousing facilities and The opportunity has good value-added potential, particularly as the number services. Complementary business opportunities include the supply of of projects increases and economies of scale can be achieved. labour, supplies, material handling equipment, rigging equipment and containers. Surveys – Dimensional Stringent dimensional control surveys and checks are quality control Firms providing these services also undertake work on land, highway and measures undertaken in large construction projects to ensure that all of marine surveys (gravity, geodetic and positioning) by satellite. The field is the components fit together and that the specification tolerances are now highly computer based and opportunities exist in software development adhered to through all phases of construction. Techniques can be as and communications. As with other knowledge-based industries, the value- simple as using traditional plumbline and tape while advanced jobs added potential is high as the use of specialized labour is a significant part of with tight tolerances might require lasers, theodolites and/or specialized the service. electronic equipment. In the offshore oil and gas industry, dimensional and geometric control is required during the fabrication of concrete and steel structures throughout all stages from prefabrication of parts to the final survey and as-built documentation of the total structure. Surveys – Directional Directional surveys are downhole surveys that chart the inclination of AC has extensive supply capability with respect to its large network of wells. The survey can be either magnetic or gyroscopic (used in a surveyors. magnetic environment). True vertical depth and north and east coordinates are calculated from measured depth, inclination and direction observations. Advance computer programs are valuable tools in the design, planning and interpretation of data. Directional drilling is often undertaken by the lead drilling contractor, however it may be contracted out. Tools and Accessories Drills, drilling supplies, screwdrivers, wrenches and other small tools A wide variety of both specialized and general tools and accessories are required during the production phase. Supplying such tools and accessories is relatively low value added opportunity, however, given that tools are widely used among other industries, this opportunity represents additional work for companies that supply tools and accessories. Valves ball valves, gate valves, butterfly valves, control valves. Many types of With the number of valves required throughout offshore production valves are required during both the development and production platforms, this is a significant opportunity for AC companies in both the phases. During development, valves must be supplied and installed supply and servicing of valves. while during production, the valves must be serviced, maintained, repaired and replaced. Waste Disposal Services Includes waste management, as well as the removal and disposal of Services will be required for the disposal of waste material generated on domestic garbage, hazardous materials, oil-based drilling muds, oily offshore platforms.. Related opportunities include incineration services, bilges and other miscellaneous chemicals or by-products holding facilities and onshore storage and/or treatment facilities. The value- added capability is relatively high as this is primarily a service, which requires labour as a primary input.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix C-14

Value Chain Activity Description Atlantic Canada (AC) Value-Added & Supply Capability Weather Forecasting Weather and ice condition forecasting and monitoring are required This is also a typically high value added activity that relies primarily on during both exploration and production phases. It is necessary for skilled labour. scheduling the loading of shuttles and the transport of personnel to and from the offshore structures. Welding Services Includes automatic and manual hyperbaric welding services in addition There are numerous suppliers for welding services within AC. to wet and dry welding services. Welding is required for tasks such as platform and pipeline construction, structural repair and pipeline tie-in and repair. It is typically provided through long term contracts due to the recurring nature of the activity. Related business opportunities include the provision of ROVs and diving support services, inspection, maintenance and repair of welding equipment, research and development of welding techniques and the testing of welders and welding procedures.

MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix D-1

Appendix D Research and Development Institutional Capability

Name/Location Description Alliance for Marine Remote • The Alliance for Marine Remote Sensing is an international not-for-profit Sensing association that develops and promotes marine applications of remotes sensing (AMRS) technology, including offshore oil and gas applications. • It has over 600 members from 28 countries and provides an important international Bedford, Nova Scotia link in the field of remote sensing. Members come from academia, government and industry. • Offers technical services and collaborates with members on R&D projects. • Membership has doubled in each of the last two years.

Bedford Institute of Oceanography • The Bedford Institute of Oceanography is Canada’s largest centre for ocean research (BIO) • Owned and operated by the Federal Government through the Department of Fisheries and Oceans. Dartmouth, Nova Scotia • Located on a 40-acre waterfront site in Dartmouth, NS. • Canada’s first dedicated oceanography research centre. • Undertakes government-mandated research, advises on marine environments, including hydrocarbon resources, and provides navigational services through the Canadian Hydrographic Service. • Also undertakes research in habitat ecology, fisheries research, marine chemistry, marine environmental geoscience and seabird research and management.

Canadian Centre for Marine • Incorporated in 1989. Communications • Identifies advanced communications technology with potential marine applications. St. John’s, Newfoundland • Assists industry to develop the technology into marine equipment and services. • Also acts as an industry association. • Funded mainly by Federal Government with in-kind support from MUN and Marine Institute. • Membership fees are token source of revenue; however, CCMC is beginning to receive royalties from research and development work.

Centre for Cold Ocean Resources • Applied engineering research institute of Memorial University of Newfoundland Engineering (C-CORE) (MUN), founded in 1974. • Undertakes research that “contributes to the economic development of Canada’s St. John's, Newfoundland marine resources”. • 50 employees. • Areas of expertise: ice engineering, remote sensing, geophysics, centrifuge modeling, space systems, intelligent systems, geomechanics, acoustic sensing, subsea sensing, marine robotics, offshore aviation, pipelines and other subsea structures, remote iceberg sensing, ice management, iceberg towing, ice structure interaction, and ice design characteristics of offshore structures. • No less than 12 marine high-tech companies have spun off from C-Core since its inception, including Northern Radar Systems, Instrumar, Canpolar East Inc. and CoreTec Inc.

Centre for Earth Resources • Unit of Memorial University’s Earth Sciences Department. Research (MUN) • Constructed in 1988 through a $27 million contribution from the Canada- Newfoundland Offshore Development Fund. St. John's, Newfoundland • Collaborates with industry and government on earth resources research activities • Facilities and equipment are made available to private sector and government researchers at fair market cost. • Provide professional development training. Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix D-2

Name/Location Description Centre for Marine Simulation • Five marine simulation facilities: Marine Institute of MUN • Ship bridge simulator; • Ballast and cargo control simulator; St. John's, Newfoundland • Propulsion plant simulator; • Navigation and blind pilotage simulator; • Global maritime distress and safety system simulator; • Dynamic positioning simulator. • Provides over 11 different training courses. • Undertakes basic and applied research and development in ship automation, ice class vessel design, port and waterway design, and behavioral studies. • Facilities valued in excess of $12 million.

Ocean Mapping Group • Based at the University of New Brunswick in conjunction with Interactive (OMG) Visualization Ltd. (IVS) • Has developed a system whereby data from sonar can be visualized in 3-D images Fredericton, New Brunswick resulting in significant cost savings for operators • System used by Petro Canada to investigate location for Hibernia GBS and for tracking the ocean route for the Sable gas pipeline • Used in offshore oil and gas operations in Australia and the Far East

Centre for Offshore and Remote • Established in 1982 with a 4-part mandate: Medicine (MEDICOR) • to carry out R&D related to health aspects of offshore oil, marine, diving and other remote environmentally stressful or hazardous industries; St. John's, Newfoundland • to provide resources for the development of these industries; • to develop and foster teaching and training programs for them and to collaborate with others in furthering these activities; and • to provide consulting services to government and industry. • Part of MUN’s Faculty of Medicine. • Facilities include a 4-chamber hyperbaric facility with a 300-metre depth capacity. • Directs research efforts to medical concerns of industries operating in remote locations. • Fosters the development and delivery of programs in health, education and research. • Occupational health and safety in the ocean industry.

The Nova Scotia Innovation • InNOVAcorp is a provincial crown corporation that provides scientific, Corporation engineering and business support services to Nova Scotian-based technology (InNOVAcorp) companies. • The company operates a full-service business incubator and has the capability to Dartmouth, Nova Scotia provide financial assistance through an investment fund. • Provides scientific services in chemistry and microbiology through its chemistry laboratory facilities, which are currently being accredited with the Canadian Association for Environmental Analytical Laboratories Inc. • The company’s microbiology lab is certified by Agriculture and Agri-Food Canada to perform tests on food for export. Harnessing the Potential - Atlantic Canada's Oil and Gas Industry Appendix D-3

Name/Location Description Ocean Engineering Research • Part of MUN’s Faculty of Engineering and Applied Sciences. Centre • R&D and consulting services focused on offshore and ship-building industries. • Scale-model experiments, numeric modeling, software development, and structural St. John’s, Newfoundland testing. • Sea-ice and ice structure interaction, hydrodynamics, wave structure interaction, offshore structures and ocean monitoring and instrumentation research. • Staff includes research engineers, technologists, software specialists, graduate students and administrative staff. • Facilities include: • 58 metre wave tank; • structures laboratory; • five cold rooms for ice mechanics testing; • CAD centre; • wave-soil interaction tanks; • remote sensing lab for digital image processing; • model fabrication, welding and machining shops.

Institute for Marine Dynamics • Engineering research lab established in 1985 by the National Research Council as (National Research Council) Canada’s national centre for ocean technology research and development. • R & D for the performance of vessels and offshore structures in wind, ice, wave and St. John’s, Newfoundland currents. • Full scale and model tests of above and under-sea vessels and structures. • Two main areas of research program: • Hydrodynamic investigations; • Marine ice and arctic vessel research. • Facilities include: • 76 metre ice tank; • 200 metre clear water towing tank; • Model ocean basin; • Shallow-water maneuvering basin; • Variable-depth towing tank; • Cavitation tunnel; • Model manufacturing workshops; • Electronics laboratory for the design of data collection equipment; • Computer facilities. • Has performed tests on the Hibernia platform, semi-submersible drilling rigs, Hibernia’s shuttle tankers, the Terra Nova floating production system and a new semi-submersible drilling platform for Friede Goldman Ltd. Appendix E Appendix E-2 Projected Employment in Atlantic Canadian Offshore to 2012

Pre 98 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1998-2012 1) Exploration Exploration to date 22,746 ------CNOPB 1995 Land Sales - 5 5 5 5 5 5 ------165 CNOPB 1996 Land Sales - 7 1 7 1 7 1 7 1 ------286 CNOPB 1997 Land Sales - 5 7 5 7 5 7 5 7 5 7 ------286 CNOPB 1998 Land Sales - - 101 101 101 101 101 ------503 CNSOPB 1996 Land Sales - 5 1 5 1 5 1 5 1 ------206 CNSOPB 1997 Land Sales - 5 3 5 3 5 3 5 3 5 3 ------266 Other exploration - - - - 5 7 200 286 357 357 357 357 357 357 357 357 357 3,757 Total Exploration Employment 22,746 288 389 389 391 411 386 357 357 357 357 357 357 357 357 357 5,467

2) Development Hibernia 43,114 - - Cohasset-Panuke - - Terra Nova 7 0 401 1,404 1,935 201 ------3,940 Sable 5 8 7 1,714 3,269 ------4,983 Whiterose - 103 116 116 898 1,412 1,078 128 ------3,850 Hebron - - 5 1 103 642 1,668 1,258 128 ------3,850 Development (2004) ------104 207 907 1,607 570 104 - - - 3,500 Development (2006) ------110 330 963 1,595 303 - - 3,300 Development (2009) ------128 640 960 1,280 3,008 Development (2011) ------133 1,000 1,133 Development (2014) ------Total Development Employment 43,771 2,218 4,788 2,102 1,202 2,053 2,746 1,490 336 1,017 1,937 1,533 1,827 943 1,093 2,280 27,564

3) Production and Post-Production Capital Hibernia - Post-prod Capex - - 232 232 232 200 200 200 200 200 200 200 200 200 200 9 3 2,789 Hibernia - Opex 8 0 0 700 600 600 600 600 600 600 600 600 600 600 600 600 600 9,300 Cohasset-Panuke - Opex 3, 387.0 - Terra Nova - Post prod Capex - 260 300 220 290 145 260 220 430 290 220 145 145 2,925 Terra Nova - Opex - 260 260 260 260 260 260 260 260 260 260 260 260 3,120 Sable - Post prod Capex - - - 9 3 9 3 9 3 9 3 9 3 9 3 9 3 9 3 9 3 9 3 - - - 933 Sable - Opex 240 240 240 240 240 240 240 240 240 240 240 240 240 3,120 Whiterose 150 300 300 300 300 300 300 300 300 300 2,850 Hebron 200 400 400 400 400 400 400 400 3,000 Development (2004) 150 300 300 300 300 1,350 Development (2006) 150 300 300 300 1,050 Development (2009) 150 150 Development (2011) - Development (2014) -

Total Production Employment 3,387 800 932 1,165 1,685 1,693 1,763 1,983 2,038 2,353 2,313 2,673 2,833 2,820 2,745 2,788 30,588

4) Downstream NF Transshipment terminal 4 0 4 0 4 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 5 0 670 North Atlantic Refining 6 0 0 600 600 600 600 600 600 600 600 600 600 600 600 600 600 9,000 Irving Refinery 6 0 0 600 600 600 600 600 600 600 600 600 600 600 600 600 600 9,000 Imperial Oil Refinery 2 0 0 200 200 200 200 200 200 200 200 200 200 200 200 200 200 3,000 Statia Terminals 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 4 0 600 Maritimes and Northeast Pipeline 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 3 0 0 Lateral pipeline projects 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 3 0 0 Other downstream 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 2 0 3 0 0 Total Downstream Employment - 1,500 1,540 1,540 1,540 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 1,550 23,170 - Grand Total Employment 69 ,904 4,806 7,649 5,196 4,818 5,708 6,446 5,380 4,281 5,278 6,158 6,113 6,567 5,670 5,745 6,975 86,789

MWANB NOIA OTANS