Undiscovered country

Undiscovered country

 

Could new data and a revised land tenure system pique Big Oil’s interest in deep-water Labrador?

Less than four years after the BP Macondo disaster resulted in an estimated 4.9-million barrels of oil being spilled into its waters, the Gulf of Mexico is booming again.

In November of 2013, Houston-based oilfield services giant Baker Hughes said 56 rigs were operating in the Gulf, up from 41 at the start of 2012. And during a U.S. Bureau of Ocean Management lease sale for the central Gulf of Mexico in March of 2013, companies offered up $1.6 billion for the rights to drill in this offshore area. The Bureau said the results of that sale made it the sixth highest grossing central Gulf auction since area wide leasing began decades ago.

At the head office of Nalcor Energy in St. John’s, Newfoundland and Labrador, the Crown corporation’s vice-president for oil and gas, Jim Keating, can only dream of his province’s offshore generating that kind of industry interest. “If you look at where Newfoundland and Labrador and Canada are at, we’re only getting one per cent of the world’s deep-water expenditures,” Keating says. “What we need to do as Canadians is make sure we are capturing more of that investment because right now we’re in competition with 60 or 70 countries in terms of offshore exploration.”

Keating would dearly love some of that investment to focus on three new oil and gas basins off the coast of Labrador that Nalcor announced it discovered in January of 2013. And the basins could pique the interest of the oil and gas industry’s biggest players. It’s new and unexplored, so the potential is there to find multi-million barrel “elephant” discoveries, which are getting harder to unearth. The basins are also large and unlicensed, so there is plenty of acreage available. But a year after the new deep-water basins were unveiled, will the oil and gas industry eventually belly up to the bar?

Like any new product on the market, quality will only take it so far. Consumers won’t buy a product if they don’t know it exists, and selling acreage in the oil and gas business is no different. That’s why Nalcor has hit the road promoting the Labrador basins since it announced they had been found over a year ago. Keating says Nalcor has made trips to Calgary, Houston and London, England to speak directly to potential clients about the province’s offshore oil and gas potential. And it’s had management attend and speak at major geoscience and exploration conferences since the basins were unveiled.

Nalcor has also armed itself with seismic data as it promotes the Labrador basins, and the rest of its offshore, to the world. In December of 2013, the company completed a three-year seismic program that shot nearly 50,000 square kilometres of two-dimensional seismic in Newfoundland and Labrador’s waters. With the seismic data in hand, Nalcor can now show interested companies (for a fee) what oil and gas potential might lie under the ocean’s surface. Keating says having that data gives companies more information from which to make a decision on whether to invest in the province’s offshore. “It’s not just us talking about what a great place we have to invest in,” Keating says. “We had to bring data.”

Gathering that data has coincided with a modernized land tenure system. The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) announced in December that it had changed how oil and gas licenses would be awarded for the province’s offshore. “The system provides additional time for exploration companies to conduct geoscientific assessments of the hydrocarbon prospectivity in the lesser explored basins of the Newfoundland and Labrador offshore area,” the Board said in a Dec. 19, 2013 press release.

The province’s old licensing system, where the C-NLOPB would issue a call for nominations and call for bids that lasted about 12 months from start to finish, was considered too rushed to generate anything more than tepid interest from oil and gas companies. The argument was that companies needed more time to assess the merits of acquiring acreage in Newfoundland and Labrador’s more unexplored offshore basins before they would consider investing millions of dollars in the jurisdiction.

The new licensing system provides that time. It now operates in four-year, two-year and one-year cycles and is designed to take into account differences in the available data as well as the knowledge which industry has on Newfoundland and Labrador’s various offshore basins. In the case of basins slotted in the “Low Activity” category (the others are “High Activity” and “Mature”), industry will now have four years between when a call for nominations is issued and when a call for bids is concluded for a particular offshore area.

“Low activity” certainly describes Labrador’s offshore. According to the C-NLOPB, a mere 28 wells have been drilled in these waters and no drilling has occurred here since 1983. The activity did lead to some significant finds, with 4.2 trillion cubic feet of recoverable natural gas discovered. But this drilling was done in the shallow waters of the Labrador Shelf. The new basins Nalcor has discovered are in the Labrador Sea’s deep-water.

The C-NLOPB currently has a call for nominations out for the Labrador South region. By November of 2017, the board will know if it’s had any bids on the acreage there and the board’s deadline to issue any licenses is January 15, 2018. Andy McConn, upstream analyst, Canada and Alaska, for energy consultancy Wood Mackenzie, has been following the developments in Newfoundland and Labrador and he says changing the land tenure system is a positive move for the province. “There is only so much a government can do [to generate industry interest], but companies will take any help they can get,” McConn says. “The new land terms that provide companies more time to evaluate these frontier areas was a good step.”

McConn says that with fair fiscal terms, and stringent but not onerous regulatory oversight, Newfoundland and Labrador is just as attractive an investment destination as other offshore areas like Alaska’s Chukchi Sea, Greenland, and deep-water Brazil – as long as oil prices remain at least in the US$90-$100 per barrel range. Statoil’s 2013 announcement that it had discovered an estimated 300-600 million barrels of oil in Newfoundland and Labrador’s Flemish Pass should help convince Big Oil that large discoveries can be found beyond the Jean d’Arc Basin, where the province’s Hibernia, White Rose and Terra Nova fields reside. “Success drives more exploration, and as companies push out from the Jean d’Arc Basin to more frontier areas, there is more potential to find big discoveries compared to satellite discoveries that are being found in the mature fields,” McConn says.

The marketing of the new Labrador basins, and the province’s offshore potential in general, seems to be bearing fruit, if Keating is to be believed. While he says he can’t reveal who the companies are, he says “well over” 15 have expressed interest in the Labrador basins. “What we are saying today is we used to have to travel to see these company executives and show them what we are talking about. Now we find those companies are coming to see us. That’s an interesting turning point.”

But is this just optimism from a man paid to be a cheerleader for Newfoundland and Labrador’s offshore? Or is deep-water Labrador poised to become a hot new offshore exploration play?

Come January 2018, we’ll know if it’s the former or the latter.

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