Some royalties could be repaid
If project doesn’t proceed, province will be required to reimburse millions to oil companies
If the Terra Nova offshore oil project is not restarted, the provincial government will have to repay more than $150 million in royalties when a decommissioning plan for the project is finalized, the House of Assembly heard on Tuesday.
As of press time, there had been no word from the oil companies involved in the project on whether a decision about the project’s future had been made.
Tuesday was the deadline set by Suncor Energy, the project operator, for a decision.
Lloyd Parrot, Progressive Conservative industry, energy and technology critic, wanted to know the details of what royalties would have to be repaid if the project does not proceed.
“If the Terra Nova FPSO is decommissioned, taxpayers of this province will be on the hook for hundreds of millions of dollars in royalties to the partners,” Parrot said, in reference to an industry article.
“How much money will the province have to pay, and when?”
Andrew Parsons, minister of Industry, Energy and Technology, said there would be a royalty credit that has to go back to the partners if and when a decommissioning plan is approved.
“It would be in the range of roughly $150 million,” Parsons said. “I don’t have a timeline on that right now. Our attention and focus has been on trying to get the deal to go ahead.”
In an emailed statement issued by the department later on Tuesday, it explained that “costs incurred under a decommissioning plan are eligible for royalty deduction, similar to other project costs, and results in a recovery (repayment) of some royalties previously paid by the project owners.
“The amount will be dependent on the actual abandonment activities required by the Canada-newfoundland and Labrador Offshore Petroleum Board (CNLOPB) and the costs incurred by the project owners to undertake those activities.”
The statement also noted that if there is a decision to abandon the project, abandonment plans would have to be approved by the CNLOPB. “The project owners are required to file an abandonment plan with the province that would outline their detailed cost estimates associated with meeting the activities prescribed by the board,” the statement read.
“Consequently, any estimates on abandonment costs and royalty implications are subject to revision based on input from the board with respect to their regulatory requirements. The CNLOPB, itself, has not yet had experience with the actual decommissioning of a project in the Newfoundland and Labrador offshore. Consequently, until the actual abandonment activities are prescribed and costed, the actual royalty impact is unknown.”
There was still hope expressed by members in the House of Assembly Tuesday that a deal can be reached to see the project continue.
The Newfoundland and Labrador Oil and Gas Industries Association (Noia) has stated that if the Terra Nova floating production, storage and offloading (FPSO) vessel is not refitted to continue to capture the estimated 80 million barrels of oil left in the field, about 1,000 direct jobs will be affected. In addition, more jobs will be affected through the service and supply sector.
An extension of the project could see work continue in the field for another decade.
The project owners are Suncor Energy (operator), Exxonmobil, Equinor, Husky Energy, Murphy Oil, Mosbacher Operating and Chevron Canada.
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 FPSO vessel, which can store 960,000 barrels of oil and accommodate up to 120 people while in production.
The Terra Nova FPSO is a double-hulled, ice-reinforced vessel that was designed for the tough North Atlantic environment in which it operates.