Bright lights, big boom

Bright lights, big boom
Photo by Destination St. John’s

A bustling offshore oil and gas industry has transformed the economy of Newfoundland and Labrador. Nova Scotia is hoping to cash in as well

Ask St. John’s mayor Dennis O’Keefe how the offshore oil and gas industry has changed his city and his province, and the lifelong Newfoundland and Labrador resident says the transformation has been as much psychological as it’s been economic.

“The optimism and confidence people have in their future in this city and this province is the highest I’ve ever seen,” says the 70-year-old O’Keefe. “And I see that in older people, younger people and business people.”

Yes, the offshore oil and gas industry has been good to The Rock. A province that had known nothing but economic hardship since joining Canada in 1949 has become a success story since its offshore oil fields – Hibernia (1997), Terra Nova (2002), White Rose (2005) and North Amethyst (2010) – went into production. The Canadian Association of Petroleum Producers says the oil and gas industry spent $2.5 billion on exploration and production in 2012. And during the 2013-2014 fiscal year, offshore royalties brought in $2.05 billion to the provincial treasury, by far the greatest revenue source Newfoundland and Labrador has.

As it enjoys its oil and gas-fueled prosperity, one of it neighbours to the west, Nova Scotia, looks longingly at its provincial cousin. But what will be gained, and perhaps lost, if it somehow hits the offshore oil and gas jackpot? That depends very much on what is found below the North Atlantic in the near future.

For Nova Scotia, whose offshore oil and gas industry has lagged badly behind Newfoundland and Labrador, hopes of unlocking its hydrocarbon riches lie squarely with Shell Canada and BP Canada (Exploration) Limited. In 2012 the two companies acquired 12 parcels (Shell snatched up eight, BP Canada four) for nearly $2 billion.

Both companies went ahead with 3D seismic survey programs to evaluate the geology below the seabed on its leases, all with the goal of potentially identifying areas that may contain oil and natural gas. Shell completed that work in 2013, while BP Canada began its program this spring.

In October of 2013, Randy Hiscock, Shell Canada’s manager of business development and new ventures, stood before an attentive crowd at the annual Core Energy Conference in Halifax. The attendees were undoubtedly hoping to hear Hiscock say that Shell would be drilling exploration wells on its Nova Scotia offshore leases in the near future. As it turned out, Hiscock didn’t deliver that news, but he did make it clear Shell has seen the future and it lies in lightly explored offshore areas like Atlantic Canada. “Shell has an expanding position in the offshore deepwater in the Americas,” Hiscock said. “The low-hanging fruit has basically disappeared. That’s why we are pushing into deepwater offshore.”

Hiscock’s comments reflect a prevailing view among the world’s big oil and gas companies. The multi-million (and billion) barrel oil fields companies require to replace the reserves they use up annually are getting harder and harder to discover. And to find those reserves, companies are going where few companies have gone before – the Arctic, eastern Africa’s offshore and Atlantic Canada.

At the Core conference, Hiscock said Shell’s seismic program in Nova Scotia had acquired 10,000 square kilometres of data and the Dutch-based company was now analyzing it. “I always get asked, ‘You’re drilling, right?'” Hiscock said. “By (2014) we will have a much better view of what the exploration prospectivity is. But we’re feeling pretty positive about the early effects of the seismic program.”

The province could certainly use the jolt offshore activity would bring. Nova Scotia does have two producing natural gas fields, the Sable Offshore Energy Project and Deep Panuke. But Sable, which is producing approximately 200 million cubic feet per day of natural gas, is nearing the end of its life. ExxonMobil, one of four owners of the gas field, says planning work for the abandonment of the field is expected to begin in 2015. The owners haven’t said when the field will be shut down, however. Meanwhile, Deep Panuke reached full production of 300 mcf/d late in 2013. The field has been a big moneymaker for owner Encana Corp. (Deep Panuke contributed US$395 million to the Calgary-based company’s operating cash flow in the first quarter of 2014), but it’s expected to have a lifespan of 13 years. Nova Scotia currently has no other oil and gas fields in the development queue.

When Nova Scotia’s Department of Finance released its 2014-2015 budget in April, its figures showed the province brought in $20.09 million in petroleum royalties in 2013- 2014. The government expects to bring in $31.9 million in 2014-2015. But that’s chump change compared to the $2.05 billion in royalties Newfoundland and Labrador reaped from its offshore in 2013- 2014, and the $2.4 billion it expects to collect this fiscal year. Money doesn’t solve everything, but if some large oil fields are discovered and developed in Nova Scotia’s waters, the royalties will be substantial. That money could then be used to hire more teachers, doctors and nurses, to fix the province’s crumbling rural roads and it could be invested in other needed infrastructure.

Certainly St. John’s, and Newfoundland and Labrador to a degree, is a much different place now than it was 15 years ago when the offshore oil and gas boom had yet to hit. That can be seen in the average price of a home in the province, which the Canadian Mortgage and Housing Corporation forecasts will be $290,000 in 2014. The CMHC predicts the average price of a home In Nova Scotia will be $217,500 in 2014.

It can also be seen in average weekly earnings data. It’s no surprise that Alberta has the highest in Canada, at $1,145.83 per week. However, average weekly earnings in Newfoundland and Labrador were third highest among all provinces and territories at $969.28 as of December 2013, according to Statistics Canada. Nova Scotia ($822.53 per week) was ranked tenth in average weekly earnings among all provinces and territories. Only P.E.I. workers earned a lower average weekly wage than Nova Scotians.

Mayor O’Keefe has witnessed firsthand what ample offshore oil and gas activity has done for his city. New office buildings, like the “351” project (a six-storey, 168,000 square foot office tower being built in downtown St. John’s) are fully leased before they open. The St. John’s Convention Centre is also being expanded at a cost of $65 million. “Before the boom, downtown looked fairly desolate and there were a lot of people who didn’t have a lot of hope for it. Now all kinds of restaurants and hotels are opening up,” O’Keefe says. “All of this can be traced back to the oil and gas sector.”

O’Keefe notes that success tends to beget more success. The wealth and opportunities the offshore oil and gas industry has created has fostered more of an entrepreneurial spirit among city residents than O’Keefe remembers being present pre-boom. He says there has been a lot of growth in the city’s research and development sectors. The Centre for Arctic Resource Development is one example of this trend. Established in 2010, CARD was formed to carry out research activities to fill the gaps currently making many Arctic developments prohibitive.

Of course, economic booms have their downsides, and St. John’s is experiencing those – an increase in homelessness, more crime, more alcohol and drug addictions, and a scarcity of affordable housing. But given a choice between dealing with the challenges economic prosperity brings versus the ones that come when poverty prevails, O’Keefe will choose the former every time. “The bottom line is it means more opportunities, more wealth and more positivism,” O’Keefe says.

Back in Halifax, Halifax Chamber of Commerce president and CEO Valerie Payn says bring on the oil and gas boom. The city is already expecting to be busy with the construction of the $1.52 billion Maritime Link subsea cable project, the redecking of the city’s MacDonald suspension bridge in 2015, and as work ramps up as Halifax-based Irving Shipbuilding Inc. begins building combat ships for the Canadian military. But Payn says the city can always stand to be busier. “Growth is a good thing,” Payn says. “Offshore oil and gas activity would provide a considerable economic lift. We’re ready for it.

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