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Newfoundland gets fresh lift White Rose, Terra Nova may expand; optimism for discovery off west coast Gary Park For Petroleum News
Every bit as turbulent as the Atlantic Ocean that pounds its shoreline, Newfoundland finds itself in a rare condition these days as hope builds on a number of fronts — possible expansion of its White Rose and Terra Nova projects, renewed optimism in its unending quest for a commercial discovery off its west coast, the next phase of exploration in the highly prospective Orphan basin and a chance that throughput at its sole refinery could be increased by one-third.
But it’s not all plain sailing, with ConocoPhillips Canada President Kevin Meyers suggesting the province’s new regime that mandates a minimum 10 percent stake in future projects for the government without sharing the exploration costs could cut into drilling plans.
Whatever unfolds, the region represents a small, yet significant element of energy security for the U.S. Northeast, with production capacity at about 400,000 barrels per day.
Topping the list of developments lately has been a three-way deal by Husky Energy, Petro-Canada and StatoilHydro to secure the semisubmersible Henry Goodrich to Newfoundland for 24 to 30 months.
Suited to the harsh operating environment, the rig holds the key to extending the operating lives of the White Rose and Terra Nova fields.
Husky expects to have the Henry Goodrich’s services for 17 months to tie three satellite fields, holding more than 200 million barrels of estimated reserves, into the production stream by late 2009 or early 2010, adding other 12-15 years to the field’s operating life.
Second semisubmersible secured Husky has also secured the Transocean-owned semisubmersible GSF Grand Banks under a three-year contract valued at C$380 million, with the option to add two further one-year terms.
The satellite tiebacks are designed to extend the production platform from the 240-million-barrel South Avalon pool.
Husky, with a 35 percent interest, will also partner with StatoilHydro to use the Henry Goodrich to drill the Mizzen exploration well in the Flemish Pass basin, which the Canada-Newfoundland and Labrador Offshore Petroleum Board estimates holds 1.7 billion barrels equivalent of undiscovered oil and gas.
Norway’s StatoilHydro said its goal is to develop an exploration portfolio on the Grand Banks, using the Flemish Pass as its springboard.
Petro-Canada, a 27.5 percent partner in White Rose and operator of Terra Nova, has scheduled the Henry Goodrich to drill a production and water injection well in Terra Nova by early 2009 to supplement production.
The next big hope for a commercial breakthrough rests with the Chevron Canada-operated Hebron field, which was discovered in 1981 and got shelved in 2002 when the partners deemed it uneconomic. Negotiations were resumed with the Newfoundland government over royalty and fiscal terms. The project was abruptly suspended two years ago in a dispute between the owners and the government and was brought back to life last summer when the government and the consortium signed a memorandum of understanding that included a 4.9 percent equity stake for Newfoundland at a cost of C$110 million.
At the time, Premier Danny Williams pointed to a construction start in 2010 to bring the 400 million-700 million barrel field on stream at 150,000-170,000 bpd, a target date he has since pushed to 2011-12 amid negotiations to reach a formal deal.
Newfoundland Natural Resources Minister Kathy Dunderdale told the provincial legislature March 19 she hopes the legal language will be resolved by June, although there is no hard deadline. The consortium is making no predictions.
Dunderdale said there are no specific hang ups and “no red flags anywhere. … It’s a negotiation, so it’s hard to predict.”
“If there was something to be concerned about, we wouldn’t mind articulating that,” she said.
Second Orphan wildcat? On the exploration side, the greatest anticipation surrounds a decision by the Orphan basin partners — Chevron Canada 50 percent, Royal Dutch Shell 20 percent, ExxonMobil 15 percent and Imperial Oil 15 percent — to drill a second wildcat in a region believed to contain 6 billion to 8 billion barrels.
A spokeswoman for ExxonMobil told Petroleum News the partners have notified contractors they plan to drill the well in 2009 and have allocated funds for “long-lead” materials.
Rig problems delayed last year’s Great Barasway well and, according to industry sources, pushed costs to an estimated $200 million, about $40 million more than originally hoped for.
There have been no reports of an oil discovery, but the well has been evaluated and remains a tight hole for now.
Ocean Ranger’s semisubmersible Eirik Raude, which drilled Great Barasway, has been contracted to drill offshore Ghana and will not be available for the second Orphan well, forcing the partnership to start a global hunt for a rig.
ExxonMobil, as operator of the second well, is not disclosing which of eight exploration licenses will be targeted for the next well.
More than four years ago, the licenses covering 5.3 million acres were acquired for C$673 million.
The one hint of unease among the partners was Royal Dutch Shell’s announcement earlier in March that it is seeking a partner willing to take an unspecified share of its 20 percent stake in the Orphan program.
A company spokesman said “we are simply looking to see if there are parties interested in sharing the costs and risks,” but did not indicate whether Shell will remain a partner in any second well, whether or not it negotiates a farm-out deal.
The 8,205-square-mile exploration lease is in water depths ranging from 5,000 to 10,000 feet.
Then there’s the west For those who revel in big dreams, there’s the seemingly unending hope of unlocking commercial quantities of oil in western Newfoundland.
The latest claim of a breakthrough occurred in late February when Canadian Imperial Venture Corp. and Shoal Point Energy (which CIVC has a deal to take over by May 30) claimed encouraging results from seismic testing on Port au Port Peninsula and immediately started test drilling to probe a depth of more than 13,000 feet at a 45-degree angle.
The companies are claiming a 90 percent chance of up to 20 million barrels of oil only a few miles offshore and expect to issue results sometime in May.
“We’re not making this up,” said CIV Chief Executive Officer Steve Millan. “We’re saying we’re very confident, as confident as you can be in an exploration project.”
The partners are speculating that their find has the potential to deliver 500 million barrels, and, according to Shoal Point President George Langdon, it “could be twice as big.”
But doubt also hangs over the effort, with memories fresh of CIVC’s bankruptcy in 2003 after years of exploration on the peninsula fell short of expectations.
CIVC plans to grant directors, officers and consultants incentive stock options to purchase 11 million common shares at a price of C10 cents per share. Investors are biding their time after giving the shares a boost earlier this year to C11 cents from C6 cents.
Possible refinery work Harvest Energy Trust, owner of the 115,000 bpd Come By Chance refinery, is pondering three options, each costing about C$1 billion, to boost capacity at the plant to 155,000 bpd. A decision is expected later this year.
The trust said it may also retool the refinery to process 30,000 bpd of low-value residual oil into more valuable low-sulfur diesel or gasoline, as well as add new equipment to process heavier crudes.
Harvest reported it achieved average throughput of 98,617 bpd in its first full year of operating the refinery. Most of the crude came from Iraq.
But plans by Newfoundland and Labrador Refining Co. to build a new refinery — North America’s first in a generation — may get stalled by turmoil in the debt market.
The company said it is evaluating financing proposals from several major banks and investment banks for the C $4.6 billion, 300,000 bpd Southern Head project.
However, it conceded that “conditions in debt capital markets remain challenging” and unless there is an early improvement it may “slow the current pace of development.”
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