With the sanctioning of West White Rose, is Newfoundland and Labrador’s offshore oil sector poised to boom yet again?
The wait is over.
Two-and-a-half years after putting the West White Rose project on hold, Husky Energy has finally pulled the trigger on it. The Calgary-based oil and gas company announced on May 29 that it will develop West White Rose, a ‘satellite’ field of the White Rose offshore oilfield located 350 kilometres east of St. John’s on the eastern edge of the prolific Jeanne d’Arc Basin.
Back in December of 2014, Husky deferred its decision on West White Rose and there were questions if it would ever be developed. It was Rob Peabody’s job as Husky’s chief operating officer to tell reporters and analysts listening in on that conference call that it was not going ahead with the project. But in late May, Peabody had better news for Newfoundland and Labrador. “Over the years, the Atlantic business has provided some of the strongest returns in the company’s portfolio and West White Rose is the next chapter,” Peabody, now Husky’s CEO, said in a May 29 press release.
West White Rose is not only the next chapter for Husky Energy, but for Newfoundland and Labrador’s oil and gas industry as well. The story has been full of drama, plot twists, and highs and lows. However, the most recent chapters in this tale have not been happy ones for the province. As global oil prices dropped from their US$100 (and more) per barrel perch in 2014 to US$50 and worse, the province saw operators scale back spending and lay off staff. The price collapse also poked a sizeable hole in the provincial treasury, producing a billion dollar-plus deficit that forced the Liberal government to unveil a harsh budget in the spring of 2016 full of tax and service fee hikes and civil service layoffs.
Even Statoil Canada, who announced its Bay du Nord discovery in the Flemish Pass Basin in 2013 to great fanfare, seems to be hedging its bets in the region. It hasn’t committed to developing Bay du Nord yet, even though the discovery contains 300-600 million barrels of oil. Statoil Canada’s president Paul Fulton says Bay du Nord isn’t economic yet. The breakeven price to develop it is still too high, he says.
Husky’s decision to develop West White Rose changes the narrative somewhat that Newfoundland and Labrador’s offshore oil industry is in a slump. And it comes at an opportune time, as the construction phase of ExxonMobil’s Hebron offshore project, which employed hundreds of Newfoundlanders and Labradorians, has ended. The province needs a new project to boost the economy, and West White Rose provides it. “This is a big deal,” says Bob Cadigan, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association.
It’s a big deal indeed. West White Rose is no ordinary satellite field. Husky expects peak production to be 75,000 barrels per day and the project will cost $3.2 billion. “This project is on a scale approaching the original White Rose development,” Husky’s Peabody said in the press release. Husky and its partners in West White Rose (Nalcor Oil & Gas and Suncor Energy) will use a fixed wellhead platform to suck the oil out of the field. It will be a concrete gravity structure supported platform that will include drilling facilities, utilities, support services and accommodations for the 250 people who would work on the platform. The structure will be tied back to the SeaRose floating production, storage and offloading vessel located at the White Rose site.
Husky also says it has made another discovery at the White Rose field. The well, known as White Rose A-78, was drilled approximately 11 kilometres northwest of the SeaRose in the first quarter of 2017 and delineated a light oil column of more than 100 metres. Husky is still assessing the discovery and didn’t say how much oil it thinks it’s found or what the prospects are of developing it. But it shows new resources keep being found.
White Rose at a glanceThe White Rose offshore oil field discovery, made in 1984 in water depths of about 120 metres, is the gift that keeps on giving since commercial production began on November 12, 2005.
- 275 million barrels of oil has been produced from White Rose as of March 31, 2017.
- More than $3 billion paid by Husky Energy in royalties and taxes to date from White Rose.
- North Amethyst was the first White Rose satellite field that went into production in 2010.
- In 2015 South White Rose became the second satellite field to go into production.
- Husky expects to reach peak production of 75,000 bpd at West White Rose by 2025.
- The company says incremental operating costs for West White Rose are expected to be less than $3 per barrel over the first 10 years of the project
Husky estimates that work will result in more than 10 million person hours of employment during the engineering and construction phase of West White Rose. A graving dock was built in Argentia, located on the southwest coast of the province’s Avalon Peninsula, where the structure will be built. Construction will start in the fourth quarter of 2017 and first oil is expected in 2022.
Rob Greenwood, executive director of Memorial University’s Leslie Harris Centre for Regional Policy and Development, says the project comes at a crucial time with Hebron heading into the operations phase and no other big offshore oil projects in the development queue. “If you can have a new field come onstream every five-to-10 years, it can sustain the economy,” he says. “Newfoundland and Labrador needs another boom.”
The town of Placentia, which includes Argentia and four other amalgamated communities, is certainly looking forward to the boost West White Rose will give its economy. “The direct and indirect economic impacts associated with this project will provide many positive benefits to this community,” Placentia mayor Wayne Power said in a press release.
There are also signals that the oil and gas industry is finding ways to make offshore projects, especially in deep water basins like the Flemish Pass where the Bay du Nord discovery was made, more competitive with onshore oil plays. A recent report by energy consultancy Wood Mackenzie estimates that on average global deep-water project costs have fallen just over 20 per cent since 2014 and some of the most attractive ones are now competing with U.S. tight oil plays.
“This is not just the result of cheaper rig day rates. Of far greater impact are the steps … the industry has taken to reevaluate project designs and improve well performance,” says Angus Rodgers, Wood Mackenzie’s Asia- Pacific upstream research director. “We are now seeing scaled-down projects with less wells, more subsea tiebacks and reduced facilities and capacities. This all translates into lower break-even [costs.]“
NOIA’s Cadigan credits Husky with doing plenty of cost-cutting of its own to make West White Rose attractive enough for it to sanction in a US$50 oil environment. He says the federal government’s current review of the environmental assessment process is creating angst in the oil and gas industry that investors won’t be able to bring Canadian resources to market in a reasonable time frame if changes are made. However, he says the sanctioning of West White Rose, the results of recent land sales in offshore Newfoundland, and the fact fields like Hibernia and White Rose continue to perform above original expectations, has caught the attention of global players in the oil and gas sector.
“The world is noticing. I think there is a little more confidence in the long-term prospects in the Jeanne d’Arc Basin as well as our deep-water basins,” Cadigan says.