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Canada’s traditional energy patch has not been spared. Indeed, the oilsands has perhaps been hurt most of all, given the very high cost extracting and refining. But there’s still one devote Canada that is defying the odds, where development continues and wants a brighter future remain high – the East Coast.
Despite the rout in oil prices, Royal Dutch Shell PLC, Exxon Mobil Corp., BP PLC and Husky Energy Inc. are persevering with plans for exploration activities in the Atlantic, and not just in favoured Newfoundland and Labrador but additionally in greenfield offshore Nova Scotia.
The hulking Exxon-Mobil-operated Hebron development goes up 350 kilometres southeast of St. John’s, while Royal Dutch Shell’s drillship is patrolling the Shelburne Basin 250 kilometres south of Halifax. In the Flemish Pass Basin, partners Husky Energy Inc. and Statoil ASA are difficult at the office in the Bay du Nord, hoping to repeat their stunning discoveries in the region during the past few years.
At the height from the oil price downturn last November, companies such as Chevron Corp. and Statoil ASA forked out approximately $1.2 billion in work commitments for seven parcels offered by the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB).
“Newfoundland and Labrador offshore is among the last great undeveloped frontiers left in the world,” said Ed Martin, chief executive of Nalcor Energy, the province’s energy corporation. The spate of renewable and hydrocarbons project would see Nalcor’s net gain grow a lot more than tenfold to as much as $500 million “in a few short years,” based on the company.
We are probably near renaissance in exploration.
The oil majors’ pursuit of New england licences comes in sharp contrast to their hasty retreat in comparable jurisdictions, for example offshore West Africa, the North Sea and Western Canada, where a number of conventional and oilsands projects have been shelved.
The New england has largely ducked the great retreat from offshore activities globally, thanks to expensive long-term contracts sealed throughout the heady days of US$100 oil.
“We are probably near renaissance in exploration,” said Robert Cadigan, president of Newfoundland Labrador Oil & Gas Industries Association.
The big prize for oil companies is the projected 12 billion barrels of crude oil off Newfoundland, as well another eight billion barrels of oil or so off Quebec, based on the provinces’ estimates.
“We only have five per cent of our massive offshore area under licence at this time,” Martin said. “We have a place of deepwater that’s 50-per-cent larger than the Gulf,” which boasts reserves of around 4.7 billion barrels.
Norway-based Statoil would be a partner in five of the seven bids in November as well as clinched a solo bid worth $423 million. Its curiosity is clearly piqued by its trio of mega discoveries within the Bay du Nord, 500 kilometres northeast of St. John’s, in recent years.
Oil companies have experienced an on-again/off-again relationship with the East Coast, but Nalcor embarked on an extensive data-gathering program a few years ago to keep its romance alive with oil majors.
The 2-D seismic data it collected, from a place spanning 110,000 kilometers from the tip of Labrador, bordering Greenland, as a result of the Flemish basin area, certainly yielded early results.
“What’s been discovered through that (program) are three new basins in Labrador that people did not know existed,” Cadigan said.
Despite the keenness, you will find signs the realm of US$40 oil may finally be doing the Atlantic, but it’s not had nearly the outcome it’s had in other areas.
“The dip in activity within the East Coast hasn’t been the same as you see elsewhere in West Africa and also the North Sea,” said Luke Davis, a London-based analyst at Infield Systems, although he adds that exploration activity is another fraction from the more established and busier offshore sites.
One reason for the lag in activity, Davis said, is that the New england is really a high-cost region, and it is susceptible to exactly the same stresses as otherwise.
“There are additional issues with Canada, and one of them relates to the requirements for flow testing on new discoveries which increases the cost of exploration -” he said. “The cost of just one exploration well around the New england could be higher than it would be for the North Sea.”
Freezing temperatures and volatile weather may also keep oil companies at bay, especially since Shell’s retreat in the Alaskan Coast last year shows oil companies have yet to master more inhospitable conditions.
Already, Shell’s $1-billion offshore exploration enter in the Shelburne Basin continues to be put on temporary hold after a device from its drill ship broke because of tornados conditions. An investigation is underway and drilling operations will stay suspended while repairs are performed, said a Shell spokesperson.
The setback is much more fuel for that rising opposition to offshore and inland drilling activities within the Atlantic, and could deter more exploration at any given time when an ecological disaster could spell doom for the entire basin.
BP, that is acquainted with offshore setbacks, could miss its first-quarter deadline to announce the location of their first well in the Scotian Basin, that is expected to commence in 2017. The organization did not respond to request for comment.
Husky has also deferred your final financial commitment on the White Rose Extension Project.
“We are seeing some delays offshore with regards to some of the field work that was contemplated,” said Paul Barnes, Atlantic Canada manager at the Canadian Association of Petroleum Producers. “Our fear is, obviously, in the event that downturn is sustained beyond this year, that would certainly impact offshore exploration activity.”
Nevertheless, existing plans have not been scrapped. Husky drilled two new wells at the South White Rose Extension last year and intends to spend around $500 million this year. And the company is in the midst of an exploration and appraisal program at the Bay du Nord discovery area together with partner Statoil.
Husky also signed a two-year contract last December to secure the harsh-environment Henry Goodrich rig, beginning with the mid-2016 timeframe, for ongoing development drilling at the South White Rose Extension and North Amethyst field.
The most promising development is the Exxon Mobil-operated Hebron project within the Jeanne d’Arc Basin, set to commence operations in 2017. Speculation persists the development might be delayed, but Nalcor, which has a stake in the project, believes Exxon will stick to the deadline.
Our fear is, obviously, if that downturn is sustained beyond this season, that would certainly impact offshore exploration activity.
Hebron is an engineering marvel, rising 165 metres in the sea floor, a shade taller than the TD Waterhouse Tower in downtown Toronto, and comes complete having a “metal hotel” featuring gymnasiums, music rooms and living area for the 220 personnel on board. It will yield 150,000 barrels each day from the field containing 700 million barrels, which will then likely head to continental Europe, which is wanting to reduce its reliance on Russian supplies.
The project should also boost Newfoundland’s annual offshore production, which has steadily declined over the past decade, falling to 62.Six million barrels last year from its peak of 134 million barrels in 2007, according to the offshore regulator C-NLOPB.
Key producing fields for example Hibernia, led by Exxon Mobil, Terra Nova, spearheaded by Suncor Energy Inc., and also the White Rose and North Amethyst oilfields, majority-owned by Husky, all suffered declines.
Nalcor’s Martin believes that the launch of predictable annual licensing programs and seismic data “packaged having a bow” ought to keep production declines under control within the long run.
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Other pieces of the Atlantic’s slow march towards greater fossil fuel development also continues in a mixed pace.
Pierdae Energy Ltd. and Bear Head LNG Ltd. have secured most of the necessary Canadian and U.S. permits to build their LNG projects in Quebec. Spain’s Repsol SA is mulling an export facility to its LNG import facility in Saint John, and India’s Hiranandani Group is planning an export terminal north of Halifax.
Meanwhile, TransCanada Corp.’s $12-billion Energy East pipeline, which is supposed to take Alberta crude oil to exports markets via a $300-million marine terminal in Irving Oil’s Canaport facility in Saint John, remains in the middle of intense public and regulatory scrutiny.
The spate of would-be projects means the high-cost and largely untapped Canadian Atlantic will not be forgotten, even though the region needs oil prices of around US$45-60 per barrel to remain attractive.
“Our oil and gas is on ships and it has access to worldwide markets,” Martin said. “Unfortunately, Alberta at this time is experiencing the pipeline issue, which we have a lot of empathy for.”
But the Atlantic might not be immune if oil prices linger around the US$40-range for the long term.
“Companies will likely cut down exploration, which will be unfortunate because if you are not exploring, you aren’t dealing with the following discovery,” Barnes said. “If this downturn is sustained for any greater length of time, which will see more of an effect within the offshore.”
yhussain@nationalpost.com
@YAD_FPEnergy
