Terra Nova partners, government at impasse
Minister says risk too great for province to take equity stake in remaining years of offshore project
The remaining reserves in the Terra Nova offshore oilfield are not enough to grease a deal to extend the life of the project and reactivate thousands of jobs the project accounted for in this province.
Nor is the provincial government’s offer of up to $500 million in aid to the project over its remaining life span enough to butter up the project partners.
Without the provincial government buying a 15 per cent equity stake in the project, the project could be dead in the water.
“We are at an impasse,” Andrew Parsons, minister of Industry, Energy and Technology, said Thursday. “Despite significant efforts on the part of all parties and a significant financial offer by the provincial government, the future of the Terra Nova project remains uncertain.”
Decreasing worldwide demand for oil, low oil prices and the COVID-19 pandemic have played havoc with the oil and gas industry, causing many projects to stall.
In January, the provincial government announced that a non-binding memorandum of understanding (MOU) had been reached with the project owners — Suncor Energy at 37.675 per cent (operator); Exxonmobil, 19 per cent; Equinor, 15 per cent; Husky Energy, 13 per cent; Murphy Oil, 10.475 per cent; Mosbacher Operating, 3.85 per cent; and Chevron Canada, one per cent.
Parsons said that to support the long-term viability and benefits attached to the Terra Nova project, the provincial government had committed more than $500 million in financial assistance over the remaining life of the project through the direct contribution of $205 million from the Newfoundland and Labrador Oil and Gas Industry Recovery Assistance Fund, as well as changes to the royalty structure valued at over $300 million.
The terms were not accepted without the province possibly taking on the equity stake.
Parsons said the province has a duty to all residents, and given the province’s fiscal situation, the government cannot support the Terra Nova project at all cost.
“While the provincial government had discussed terms on taking an equity stake in the project, the risk has proven to be too great for a project which is late in its useful life, given an equity share would come with the associated costs of abandonment,” he said.
“We cannot reconcile the risk that comes with it. We didn’t feel it was fair to the people of this province to make this investment related to equity. The risk was too great for us to take on. We saw a lot of downstream issues that we would be faced with that we wouldn’t be willing to incur in the future.”
The Terra Nova field is located offshore approximately 350 kilometres southeast of Newfoundland. Discovered in 1984, the oilfield was the second to be developed on the Grand Banks offshore Newfoundland. Production from the field began in 2002, using the Terra Nova floating production, storage and offloading (FPSO) vessel.
In May 2019, Suncor and the Terra Nova joint venture owners sanctioned plans to proceed with a project that would extend the life of the FPSO vessel to approximately 2031. The asset-life-extension project was expected to allow the FPSO to capture approximately 80 million additional barrels of oil.
Noia CEO Charlene Johnson said the organization’s members were hoping for positive news on the Terra Nova asset-life-extension project.
“This situation impacts hundreds of Newfoundlanders and Labradorians who work both offshore and onshore for the operating partners,” she said in a statement. “Those impacts extend to thousands of people who are involved in the supply and service sector such as helicopters, supply vessels, environmental monitoring, human resources, catering, maintenance, health, safety and medical services, and on and on.
“If your household is not directly impacted, you will have family and friends who are.”
Johnson is encouraging the Terra Nova partners and the government to try again.
“Every effort must be made to ensure we maximize resource recovery and value for our province, as per the mandate of the Canada-newfoundland and Labrador Offshore Petroleum Board,” she said. “Our natural resource development projects should not end in this manner, leaving resources and people stranded.”
Noia has commissioned a study to examine the economic impacts of the Terra Nova FPSO asset-life-extension project, and preliminary results show that, at a minimum, benefits to the province would be more than $1 billion over the 10-year life of the project, Johnson stated.
NDP Leader Alison Coffin said the announcement could be a signal of the inevitable collapse of the province’s oil industry in which workers will be left unemployed and searching for alternatives, which the provincial government has failed to produce.
“The auditor general has been calling on this province to divest from oil and gas for decades. It’s deeply frustrating that successive Liberal and Conservative governments chose to ignore this, and now workers are going to be left with little alternatives,” Coffin said. “This government continually fed the electorate falsehoods about ‘clean’ and ‘low-carbon’ oil being a sought-after resource … now look where we are.”
Heather Elliott of the Coalition for a Green New Deal NL said Thursday she takes no pleasure in the fact the Terra Nova project may fail.
“It’s unfortunate under any circumstances when almost 1,000 people are going to be put out of work,” she said.
But she added that the news is just one more indication of where the world is headed.
“We kind of saw the start of it with layoffs in Alberta over the last couple of years, so it was really just a matter of when the wave reached here,” she said.
“Overall, it really should be seen as a wakeup call, that this is an industry that obviously we need to start moving away from.”
Elliott said she understands the panic about jobs and fiscal stability, and realizes why workers accuse groups such as the coalition as being against them.
“They’re scared. I understand that,” she said.
But she says the government needs to acknowledge reality — that climate change is real and people’s attitudes are shifting.
“Whatever money was essentially being looked at being invested into further oil and gas would be better redirected into programs to really start to help people transition away from the oil and gas sector, to do retraining,” Elliott said.
“We saw what happened in the ‘90s when an entire industry here shut down and people here were left flailing for the first little while that the government tried to figure everything out,” she said, referring to the northern cod moratorium. “That’s not what we want. What we want is for there to be a plan to acknowledge that this is a direction we are going to have to go. And it is going to be uncomfortable, and it is going to be difficult.”