Wednesday, January 17, 2018 was not a great day for Calgary-based Husky Energy or the Newfoundland and Labrador offshore oil and gas industry.
The Canada-Newfoundland and Labrador Offshore Petroleum Board issued a press release that day announcing it was suspending petroleum operations at Husky’s SeaRose Floating, Production, Storage and Offloading vessel at its White Rose field 350 kilometres east of St. John’s because of “serious issues respecting Husky’s ice management, management systems and organizational decision-making.”
The concerns are based on an incident that occurred March 29, 2017 when an iceberg entered the 0.25 nautical mile Ice Exclusion Area of the SeaRose FPSO.
The Board says in accordance with Husky’s Ice Management Plan (IMP) filed with the C-NLOPB, the SeaRose FPSO should have disconnected and sailed away from the threatening iceberg.
But that didn’t happen. Instead, the press release says ‘personnel were at one point instructed to muster and ‘brace for impact’.’ At the time, the SeaRose had 84 personnel and approximately 360,000 barrels of crude stored on the vessel.
The iceberg did not make contact with the SeaRose or subsea infrastrucure and there were no injuries or damage sustained.
But a formal enquiry into the matter was started on May 9, 2017, and the preliminary report findings from it were serious enough for the Board to take the step of ceasing operations at the vessel until it’s “confident that corrective and appropriate actions to address the findings related to its ice management, management system and organizational structure have been addressed to the satisfaction of the chief safety officer and chief conservation officer, in a manner that ensures the safety of personnel and the protection of the environment.”
The oil and gas industry is one of the most scrutinized sectors in the world because of the amount of money that’s at stake, how much petroleum products are used in every day life and the potential impact it can have on the environment.
Operators in the province always point out how much worker safety and protecting the environment are key priorities of theirs. However, in this case these concerns were sorely lacking and it’s given the industry a big black eye.
The suspension is costly for Husky. The company loses approximately 27,000 barrels per day of production while the SeaRose is shut down.
The company won’t say how much money it isn’t bringing in because of the deferred production. But with Brent crude – the blend Newfoundland and Labrador oil typically is priced at – trading at about US$68 per barrel on Friday, the total could be well over US$1 million in revenue daily.
The province also loses out. The CBC reported on Thursday that the provincial finance department says stopping oil production at the SeaRose amounts to about $200,000 in deferred revenue.
That production and revenue will come to both of them eventually because the oil not being produced now will be produced once SeaRose is operating again – and it may turn out both parties will actually make more in the long run if oil prices continue to climb.
But for now, the lost revenue is a drain on both coffers, and there is no word on how long the suspension of operations could last.
Was the prospect of losing revenue a key factor in the decision not to disconnect the SeaRose from the production wells and sail away from the iceberg, as the CBC suggests?
It’s a troubling question, and one that Husky will have to answer for not only to the C-NLOPB, but in the court of public opinion.