The big picture

The big picture

With resource announcements coming one at a time, it’s easy to forget they’re singular parts of an impressively larger field. Natural Resources Magazine takes a step back to see why international investors are committing billions of dollars to regional developments

The ocean, slate black, waves pulsing in every direction. This is the commute, loud and long, after the helicopter pushes off from St. John’s and heads east, to where the oil is. When they fly past the oil companies’ corporate offices, and over the supply vessels tied up in St. John’s harbour, the helicopters are daily reminders of the work taking place offshore. With production platforms 200 kilometres out to sea, these flights are all we see.

And yet, oil is everywhere in Newfoundland. It’s in every economic update; it’s bankrolling basic government services; its company logos are adhered to myriad post-secondary and community sponsorships. Oil is the elephant in every political office, the reason for realtors’ Facebook posts. It hums in the background, but unless you work in the industry, it’s not always easy to understand what you’re looking at.

Industry news trickles out with the driest of headlines: C-NLOPB releases results for call for bids NL18-CFB01.

Statements like this mean something to only the narrowest tranche of oil industry watchers. But if we take the time to understand that jargon-y set of numbers, what’s being offered is a section of the ocean. When the CNLOPB calls for companies to bid for exploration rights on offshore land parcels, the company makes a detailed proposal, seals it and submits it. They explain in the proposal how much money they plan to spend to prove this oilfield, and then the largest bid wins the rights.

One section, in particular, garnered considerable attention this year: a mostly square-shaped 269,799-hectare swatch, located north and east of the Jeanne d’Arc basin. An Australian company, BHP, won the rights to explore this section of the ocean for six to nine years, and in the process committed to spend a record $621,021,200 in the process. To be clear, that’s more than half-a-billion dollars.

It’s a huge number, one that tends to overshadow the bigger picture—Newfoundland oil is in transition, moving from the relative comfort of the Jeanne d’Arc basin (host to all four currently producing projects: Hibernia, Hebron, White Rose and Terra Nova), and into a more challenging region: the deeper water outside Newfoundland’s 200 mile limit.

So, just how much oil are we talking about? What will this next stage look like?

Nalcor Energy’s Jim Keating is responsible for getting some of these answers. He runs Nalcor’s oil and gas division, scheduled to become a standalone organization on January 1, 2020. Keating says the new entity will be comparable to a state-owned company in Norway called Petoro. “It’s non-operating, it doesn’t drill its own wells,” he says. One of the things they will do is the mapping that’s used to entice companies to bid on further exploration.

Companies hoping to find oil offshore Newfoundland and Labrador used to conduct their own seismic work to map the ocean floor, but that changed in 2011. Nalcor contracted with two seismic companies to do the mapping, then made that information public. The move simultaneously decreased upfront costs for exploration activity and increased international interest in specific parcels—and was likely a significant factor in BHP’s record-setting bid for NL18-CFB01.

Keating takes it a step further, saying there’s a direct correlation between their seismic work and the intensifying interest in Newfoundland’s deepwater regions. But even with having mapped 190,000 line kilometres of 2D seismic data, which Keating says is one of the largest continuous survey areas in the world, that’s only 10 per cent of Newfoundland and Labrador’s 1.9 million sq. km. offshore jurisdiction.

“We’re at a key point,” he says. Jeanne d’Arc is just one of 20 basins in the Newfoundland offshore that holds potential oil. “Really not much is known about our other basin potential.” In other words, Newfoundland’s oil production is in its infancy.

In the previously scheduled license round between 2015 and 2018, Keating says 49 billion barrels of oil potential and 194 trillion cubic feet of natural gas were labelled “un-risked,” essentially as close as the industry has to a sure thing. “The sum of that data has attracted over $3.9 billion of investment—and most of the bidding occurred during the downturn of the industry.”

IF THERE’S A SINGLE AREA that all eyes are watching, it’s Equinor’s Bay du Nord project in the Flemish Pass. Located 500 kilometres from St. John’s, N.L., the field holds an estimated 300 million barrels of recoverable oil. Equinor is an international oil and gas development company that’s based in Norway and 67 per cent owned by the Government of Norway.

“Bay du Nord might be the first project to ever occur outside a country’s 200-mile limit,” explains industry watcher Rob Strong, from Rob Strong Associates. The distance is a challenge: it takes 18 hours to get there by ship, significantly longer than projects like Hibernia and Hebron. And because it’s outside Canada’s jurisdictional limit, Strong says, “There’s a certain royalty structure payable to the United Nations.” That’s right—if Equinor’s project proceeds, the U.N. will take a cut.

Because of the distance and the related complications that brings, Equinor has called the project “marginal,” but Strong says they suspect there are opportunities for what’s called tie-back (subsea flowlines that connect oil fields to nearby production facilities). “Hibernia had one about five years ago,” Strong explains. Hibernia Southern Extension, with 200 million barrels of oil, didn’t justify its own development platform but was feasible when linked to the existing Hibernia GBS.

“Husky is doing the same thing with the White Rose project. And there’s talk in St. John’s of Hibernia doing another tie-back called BNA (Ben Nevis Avalon),” says Strong.

One of the most talked-about risks as projects move further offshore is the distance that helicopters will have to cover as they transport workers out to the field. However, Cougar Helicopter’s chief operating officer Hank Williams says this obstacle may not be as difficult as it seems.

“We’ve been flying there for the last seven years when it comes to exploration and drilling,” Williams says. “And not just occasionally, but daily flights. (The) aircraft that we fly are really suited for that area.”

Logistically speaking, the longer the helicopters have to fly, the fewer passengers they can carry. While they can transport 16 or 17 passengers to the Jeanne d’Arc basin, they can’t take more than seven or eight to the Flemish Pass.

Projects like Bay du Nord, which is a two-hour flight each way, “that’s sort of what I call the outside perimeter. Further than that, you’d be carrying no passengers.”

Essentially the issue is fuel. “When we leave the St. John’s base you must have what you call an alternate,” he explains. “When we get there if it’s foggy, you can’t see the platform, you must carry enough fuel to come back to base. It’s not like us driving to Gander. You get to Gander, you can gas up your car.”

WHEN NEWFOUNDLAND AND LABRADOR’S provincial government signed their Bay du Nord equity agreement with Equinor, they took a 10 per cent equity. In exchange, says Rob Strong, they allowed Equinor to build almost everything in Asia. “Cheap labour,” he explains. “They only committed to do 5,000 tonnes of steel in Newfoundland.”

“If I was a 30-year-old welder with a wife and two children… I’d be frustrated as all hell.”

While Charlene Johnson, CEO of NOIA (Newfoundland Offshore Industries Association), agrees that the province could have been a tougher negotiator, she’s also aware that there are greater rewards on the near horizon.

“We have 10 projects going through EA (environmental assessment) right now, and two that were just released in July,” Johnson says. “From only seven per cent of what’s been explored, we have 50 billion barrels of un-risked reserves. The Jeanne d’Arc is only three to four per cent of our entire offshore.”

What she’s saying is, picture more rigs… many, many more rigs.

The Newfoundland and Labrador offshore has been found to contain “larger fields comparable to Brazil,” she says. “One find like that could completely change the economics of our province.”

That’s certainly what the provincial government is hoping for. When they released Advance 2030 (their plan to grow Newfoundland and Labrador’s oil and gas industry), the document turned a lot of heads among people who weren’t following the exploration and bid process.

Jim Keating summarizes the government’s 23-page plan in a dozen words: “600,000 barrels a day by 2030 and hit some 100 wells”. He acknowledges that it’s a “significant stretch target” compared to the current level of activity, but says that it’s a very definite possibility. “Hebron can produce 150,000 barrels a day, so all we would need are two standalone projects, and we would make it.”

Continues Keating: “We’ve produced 1.9 billion barrels of oil since 1997. On just four projects that are all between 30 and 40km apart. When you look at it from that perspective, I don’t think (the government’s goal) is much of a stretch target at all.”

The provincial government got significant attention for Advance 2030, but in fact the process of exploration and drilling and building floating platforms is so drawn out that essentially the plan was already underway by the oil companies themselves.

IF NEWFOUNDLAND AND LABRADOR has so much resource potential, and if organizations like Nalcor Energy are providing free seismic data to stimulate interest, why is it taking so long for the industry to develop?

Johnson points a finger directly at the Government of Canada’s assessment process. “It typically takes about 12 years to get from exploration to production,” she says, referencing two applications that had been under review for years. “Both of those were in environmental (review) for over 900 days… for an exploration well that will typically take 45 days (to drill).”

In Norway, she says, the average wait time for the same review is 79 days; in Australia, it’s 144.

Plans are underway for a Regional Assessment for the entire offshore (the current process requires per-project assessments). “That should speed up the process,” Johnson says.

Wishes, successes, complaints, and numbers fly fast and furious around this industry. People start comparing our offshore to Norway, to Brazil, to Australia and Guyana. We have unimaginable quantities of crude sitting on the continental shelf, but we also have unusual weather, long-distances to travel (getting longer), and we have a perplexing regime of environmental assessments that last years longer than those of most other countries.

“I certainly think it’s critical that we get as much exploration as possible in the next 10, 15 years,” Johnson says. “There is going to come a point when exploration is going to be on a downward trend.”

According to Jim Keating, Newfoundland and Labrador’s 49 billion barrels under discovery is already more than most proven oil and gas countries and it’s more than what remains in all of Norway. All of it is located in 80,000 square kilometres of the Flemish Pass, Orphan, and West Or-phan basins.

Nalcor Energy, meanwhile, is already casting its eye further afield. “We’re sort of moving our way north,” says Keating. “Labrador will have its first 3D seismic soon. Two areas south of the Flemish Pass, the Parsons and Solar basins, are next up for seismic exploration.”

At this point, Keating says, the companies doing the seismic work have an almost never-ending list. “The only reason they stop is because of pack ice in the winter.” •

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