Offshore oil interest grows as pipeline woes sink Alberta price

N.L. sees record interest in drilling bids

Canada’s offshore oil industry, a sliver of the country’s crude sector, is drawing rising investment interest due to an aggressive push by Newfoundland and Labrador as prices plummet in oil-rich Alberta due to pipeline problems.

Offshore interest in the Atlantic province stands in contrast to Western Canada’s oilfields, where foreign companies have sold some $23 billion worth of assets this year due to depressed prices.

Last month, Exxon Mobil’s Hebron platform off Newfoundland became the country’s first new producing offshore oil project in 12 years.

Newfoundland’s offshore petroleum board has also issued exploration licences worth nearly $2 billion in promised spending since 2015, its biggest-ever threeyear total.

The next round, to be held in autumn, has attracted a record-large 38 nominations for parcels to be made available for exploration in a single region.

Winning a bid entitles a company to explore the parcel for six years.

Offshore interest comes as western Canadian pipeline and rail capacity fills up, driving prices to four-year lows.

The volume of crude in storage has hit record levels in Western Canada driven by increased supply and a leak on TransCanada Corp.’s Keystone export pipeline last month.

Oil flowing from offshore Newfoundland by contrast is priced similar to Brent crude at a rich premium over western Canadian oil.

The investment spilling into Canada’s icy waters is at least partly due to an aggressive promotional push by Newfoundland’s energy corporation, Nalcor, and frustration with western transportation problems, said Paul Barnes, a Newfoundlandbased director with the Canadian Association of Petroleum Producers.

Oil companies “are likely taking some of that money that may have been earmarked for Alberta and putting it into offshore,” Barnes said.

Exxon Mobil is a “longterm investor” in Newfoundland, and is also pursuing a potential exploration drilling project, spokeswoman Margot Bruce-O’Connell said.

Jim Keating, Nalcor’s vice-president of oil and gas, said he does not see a link between Alberta’s pipeline problems and Newfoundland’s appeal.

Companies that have recently invested offshore, such as BP PLC and Anadarko Petroleum Corp., are different than those most-active in the oilsands, he said.

To be sure, Eastern Canada produced 213,000 barrels per day in 2016, the amount Western Canada pumps every 90 minutes. But further offshore capacity is already in the works. Husky Energy is expanding its Newfoundland project and expects first oil in 2022.

Wood Mackenzie analyst Nathan Nemeth said he does not link offshore interest with Alberta’s bottlenecks, noting that Canadian Natural Resources and Suncor Energy have increased oilsands investments while reducing offshore exploration.

Newfoundland’s appeal includes its relatively shallow water depths, a string of successful exploration wells, and a prospective basin size equivalent to the U.S. Gulf of Mexico, said Mark Oberstoetter, Wood Mackenzie’s director of upstream Canada.

“Being on tidewater is a huge advantage,” said Andrew Bell, chairman of Newfoundland and Labrador Oil & Gas Industries Association.

Norway’s Statoil ASA said in December, 2016, that it would sell all of its oilsands assets, even as it works on its Bay du Nord offshore discovery and holds stakes in three producing offshore fields, but there is no connection between the two strategies, spokesman Erik Haaland said.