The next 10 years just might mark the height of Newfoundland and Labrador’s offshore boom

The next 10 years just might mark the height of Newfoundland and Labrador’s offshore boom

Major oil and gas companies are currently pursuing billions of dollars’ worth of exploratory work in Newfoundland and Labrador’s offshore, part of a hunt that could lead to multiple new oil projects. The industry’s offshore pursuit could unlock millions of barrels of oil while providing the province with much-needed royalty revenue.

But the industry’s rosy optimism is also clouded by serious issues that could hinder promised exploration and potential new development, including industry complaints about regulatory delays, geographic challenges, concerns from the fishing industry and, most notably, climate change and calls to abandon the very barrels the industry hopes to bring to the surface.

There’s a lot at stake. And timing is critical, with an existential question looming over the entire effort: is this Newfoundland and Labrador’s last and best shot at generating oil riches? Or is it—despite an “an unprecedented level of interest” from global energy companies and billions of dollars in pledged spending—already too late?

Expensive promises…
Simply put, Newfoundland and Labrador’s offshore oil and gas sector is expecting significant activity over the next decade. Since 2014, energy companies have committed to spend more than $4 billion on offshore work, which represents roughly 60 per cent of the total spent in the history of Newfoundland and Labrador’s offshore industry, dating back to the mid-1980s.

“That’s pretty significant,” says Jim Keating, executive vice president of offshore development at Nalcor Energy. The Newfoundland and Labrador Crown corporation holds minority equity stakes in three of the province’s offshore oil projects and is tasked with promotiong the sector to international investors.

In a recent interview, Keating said the “unprecedented” interest in new exploration is partly the result of new geoscience work and changes in how licence bidding rounds are conducted. “I think it’s almost a geologic certainty that there’s going to be other major projects discovered,” he says. “I guess the question is when and where.”

Current production…
The province currently has four producing offshore oil projects—Hebron, Hibernia, Terra Nova and White Rose—which collectively boast average production of 340,000 barrels per day, down from 2007’s peak monthly production of 426,680 barrels per day, according to Nalcor. The four offshore projects have collectively produced 1.9 billion barrels of oil since production started at Hibernia in 1997.

ExxonMobil Corp., Husky Energy Inc., and Suncor Inc. are the primary operators in those four producing projects, with Chevron Corp. and Equinor ASA (formerly Statoil ASA) also involved.

Husky’s approved West White Rose project (now under construction, with first oil expected in 2022) will mark the province’s fifth producing project. A sixth will materialize if Norway-based Equinor proceeds with its Bay du Nord project in the Flemish Pass area, roughly 500 km east of St. John’s.

Vast potential…
Keating believes the province’s peak output is yet to come, thanks to potential new development. He says increased production at Hebron alone could help generate a new production milestone. “So our peak day is yet to come,” he says. “It’s not inconceivable to me that with modern technology and modern capabilities, that there are not another four projects out there just waiting to be discovered.”

According to Nalcor, independent resource assessments have identified the potential for 52.2 billion barrels of oil and 199 trillion cubic feet of natural gas, all within areas that make up just nine per cent of Newfoundland and Labrador’s offshore area, which totals 1.8 million square kilometres.

“We’re talking about a provincial jurisdiction that surpasses that of many countries,” Keating added. “We have a vast offshore.”

Who’s hunting?
According to Nalcor, a number of oil and gas players have joined the five existing companies in holding exploration licences. They include: BP Plc., HP Group Ltd. out of Australia, Houston-based Navitas Petroleum, and China’s CNOOC Limited (formerly Nexen), which recently received federal environmental assessment approval for its exploration drilling program in the Flemish Pass.

ExxonMobil is currently drilling in the Flemish Pass, which marks the first exploration associated with the province’s new licencing setup. “We can’t pin all our hopes on one well because there are literally dozens and dozens and dozens of wells that are likely in the plans of these oil companies,” Nalcor’s Keating says. “But it does mark a transition.”

The other eight licence holders are expected to start their exploration programs as early as this year, as well as through 2021 and 2022, says Paul Barnes, a director with the Canadian Association of Petroleum Producers (CAPP), whose membership includes all the companies involved with production and exploration in Newfoundland and Labrador.

In all, the companies have proposed 10 drilling projects over the next two to four years, with upwards of 100 wells proposed in their applications. More territory will soon be opened up for exploration and more licences will be issued. Nalcor says new exploration licence bidding rounds will be held in 2020 and 2021, including for areas off Labrador—a first.

Big potential, but a new challenge…
The Bay du Nord project illustrates a new element facing the sector. The provincial offshore areas now under, or slated for, exploration are all further offshore—and in deeper water—than the province’s existing projects.

Bay du Nord, which Equinor is developing with partner Husky, was discovered in 2013. According to Equinor, the project’s 300 million barrels of recoverable oil are located in water 1,200-metres deep, nearly 500 kms offshore. (For comparison, the province’s four existing projects are all roughly 350 kms offshore, in depths of roughly 100 metres).

“It’s the development that’s the longest from shore and in the deepest waters,” Unni Fjaer, a vice president at Equinor Canada, responsible for the company’s offshore operations in Canada, said in a recent interview. “But it’s not deeper than what we’re doing in other places in the world.”

Fjaer says Equinor expects to make a final investment decision regarding Bay du Nord in mid-2021. Production could start in 2025, if the project is sanctioned, and generate oil for 10 years and cost $10.9 billion. “It’s a relatively small project,” Fjaer says. “It’s only 300 million barrels. It’s not big.”

Equinor, based in Norway, has been present in Newfoundland and Labrador since 1997 and is currently partnered in three of the four operating projects (the exception is White Rose). Equinor holds several exploration licences and plans to drill two exploration wells next year in the Flemish Pass, the area already housing Bay du Nord.

Concerns and uncertainty…
The industry’s enthusiasm for new development is not universally shared. The hunt for more oil (and potentially natural gas) has raised concerns from the province’s fishing industry. There’s also the threat of more oil spills off the province, where four spills have occurred since 2018, including 250,000 litres discharged at Husky’s White Rose field in November of that year. And while new oil production will deliver jobs and royalties, it will also contribute to further climate warming.

“Making the choice to allow further oil and gas exploration and drilling in the year 2020 is an act of climate denial that puts communities here at home and around the world directly in harm’s way,” notes Stephen Thomas, energy campaign coordinator at the Ecology Action Centre in Halifax.

Thomas says it has long been understood that 85 per cent of known oil, gas and coal reserves must remain in the ground “in order to have even a chance of global warming staying below catastrophic levels”. “Searching for more oil and gas to burn is making this enormous problem even worse,” he says. Pointing to Nalcor’s resource assessment (potential for 52.2 billion barrels of oil and 199 trillion cubic feet of gas) Thomas says: “It is absolutely insane to have an economic development strategy that relies on drilling for, exporting and burning these fossil fuels.”

Is time running out?
Both Keating and Barnes said time is the biggest challenge facing the industry, but not because climate change is winding the clock down on fossil fuel development. Instead, they point to regulatory delays and the large amount of time required to get a project to actual production.

“It takes much longer in Canada than in other places in the world. That results in a challenge from a competitiveness and investment point of view,” Keating says. “Time is a barrier.”

Barnes, meanwhile, claims Canada has “unnecessary regulatory delay” compared to other areas. “An oil and gas company, obviously, wants to make a return on its investment as quickly as possible,” he says. “So if you can do it in other jurisdictions more easily than you can in Canada, then that’s where the investment dollars may go.”
International areas competing with Newfoundland and Labrador for oil and gas development dollars include Mexico, Brazil, Guyana, Norway, the U.K., Australia, and West Africa, according to Barnes.

A long-term play…
Patrick Brannon, the director of major projects at the Atlantic Provinces Economic Council, a Halifax-based think tank, says the oil and gas industry’s enthusiasm for Newfoundland and Labrador appears justified. “There’s certainly cause for some optimism,” he says. “We do expect to see a bit of a ramping up in exploration in the next couple years and some new players… And we do expect oil production to be at a fairly high level over the next few years as well. The momentum is certainly there.”

Though he adds: “Anything can certainly happen globally in terms of oil prices or environmental considerations that we’ll have to watch out for.”

If we don’t, others will…
Keating argues that as long as oil is being used, particularly in China and India, Newfoundland and Labrador should try to deliver it, and drive the local economy as a result. “I still believe that oil from East Coast Canada will always be the most desirable, both from society’s expectation on safety and the environment,” he says.

Barnes agrees that environmental and safety regulations are stronger in Canada’s oil and gas sector than in other areas of the world. “So why not produce it here in Canada? Why not produce it in Newfoundland if we can do it responsibly?” he says. “If we just stopped, other countries with less environmental and safety records and probably less human rights records will just fill the gap.” •

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