Offshore investment helps turn the tide for Newfoundland
Bids to explore off province’s coast soar in quest to discover next ‘monster fields’
After three rough years, Newfoundland and Labrador’s offshore oil industry is in recovery mode as the Hebron project gets ready to produce first oil, the West White Rose project starts construction and exploration activity surges, fuelling hope of another major development.
Among those leading the charge are international companies that cooled off on the landlocked oilsands — Norway’s Statoil ASA, France’s Total S.A., China’s CNOOC Ltd. and the U.K.’s BP PLC — but are motivated to find the next monster Canadian offshore fields.
“With the level of activity in the next six years, we should probably see another project on the horizon,” Jim Keating, executive vice-president for offshore development at provincial Crown corporation Nalcor Energy, said in an interview while visiting partners in Calgary this week.
Bids to explore in the Atlantic off the province’s coast have soared — in the last three years, the region has received half of the $5.2 billion in exploration spending commitment made since 1977-78 — even as oil companies were cutting back programs elsewhere.
Newfoundland tends to compete for capital with other offshore regions like the Gulf of Mexico or offshore Brazil rather than with other Canadian plays like the oilsands or shale gas, Keating said.
However, its potential to hold giant oilfields, positive attitude toward development, easy access to global oil markets through tankers rather than pipelines have been helpful, he said.
“The fact that we are at tidewater, we sell at Brent (oil prices), we are in a global market already, we have opportunities of scale, and that there is probably a simpler pathway to development, all those factors come into play,” he said.
Interest in the region perked up after Statoil and partner Husky Energy Inc. discovered Bay du Nord in 2013 in the Flemish Pass basin. Further exploration wells are planned this summer.
Meanwhile, the offshore region will see the largest 3D data capture in its history this summer, Keating said.
Cape Freels, a new deepwater prospect in the West Orphan basin, is also getting a lot of attention. The field has super-giant potential with four to five billion barrels of estimated recoverable reserves and is analogous to the Marlim field in offshore Brazil, Keating said.
“This is likely — and we heard this from a number of companies — the most attractive undrilled prospect in the world today,” said Keating, noting oil from the field appears to be seeping onto the ocean’s surface.
In comparison, Hibernia, the largest discovered field in Newfoundland’s offshore, has estimated recoverable reserves of 1.6 billion barrels, while Bay du Nord has 300 million to 600 million barrels.
BP and partners Noble Energy Inc. and Hess Corp. could be ready for an exploration well to size up Cape Freels in 2019, Keating said.
While lower oil prices are dampening spending on other big oil projects, there is still interest in discovering “monster fields” that remain attractive to produce because of their scale, he said.
The exploration rush is being supported by changes to the land tenure system that encourage new entrants and new seismic data acquired by Nalcor that confirms the potential of large fields.
In the last 18 months, seven companies entered the region for the first time: Anadarko Petroleum Corp., Hess and Noble from the United States; Navitas Petroleum from Israel; as well as CNOOC, BP and Total. They joined established operators Chevron Corp., Exxon Mobil Corp., Husky, Murphy Oil Corp., Statoil and Suncor Energy Inc.
Nalcor holds the province’s interests in three projects — 4.9 per cent of Hebron, five per cent of the White Rose expansion areas, and 10 per cent of Hibernia South — which together yield about 10,000 to 12,000 b/d for the government. The oil is sold to refineries on the East Coast of Canada and the United States, Europe and as far as Asia.
Newfoundland experienced a double economic shock in the last three years due to low oil prices and declining production from its three legacy fields — Hibernia, Terra Nova and White Rose.
Production volumes declined from a high of 370,000 barrels a day in 2007 to 176,000 b/d in 2015.
In an outlook made public Tuesday, the Canadian Association of Petroleum Producers said the offshore region’s production is poised to increase until 2024, then decline if no new projects are started.
Two new projects are in the queue. Hebron is set to start producing oil at year’s end. Husky announced last month it’s moving ahead with the West White Rose project after cost savings and negotiations with the provincial government improved its attractiveness. First oil is expected in 2022.
After a deep recession that is expected to continue until 2018, “we are pragmatic and realistic” about the future of Newfoundland’s oil industry, Keating said. “Exploration is a game of patience and there will be some disappointments along the way, but eventually you will be successful.”
The fact that we are at tidewater ... we are in a global market already, we have opportunities of scale ... all those factors come into play.