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August 2018

Vol. 23, No.31 Week of August 05, 2018

Newfoundland cuts deal with Equinor, Husky, for Bay du Nord

Gary Park

for Petroleum News

Newfoundland has taken a major step toward a new era of offshore oil development in Atlantic Canada at a time when that region seemed destined to join other frontier plays in a steady slide into oblivion.

The provincial government announced an agreement with Norwegian-based Equinor Canada (formerly Statoil) to proceed with plans to develop the deepest oil site at Bay du Nord where a find of 300 million to 600 million barrels was estimated five years ago.

That discovery was seen as a breakthrough for the greater basin of Flemish Pass, 300 miles east of the Newfoundland capital of St. John’s, where another six fields have been identified.

Bay du Nord, which followed earlier discoveries labeled Mizzen and Harpoon, is now scheduled for sanctioning in 2020, with first oil expected in 2025.

First project negotiated

It is the first project to be negotiated under Newfoundland’s generic oil royalty regulations, which are part of the government’s Advance 2030 - The Way Forward on Oil and Gas, which it hopes will position the province as a globally preferred location for oil and gas development.

Newfoundland Premier Dwight Ball said the commitment and investment of the partnership of Equinor as operator and Husky Energy “highlights the attractiveness of our industry and the potential that exists within this province in our offshore.”

He said the advance of Bay du Nord will allow Newfoundland to “take our first step into the new frontier, we mark a new era of deep-water exploration as well as the opening of a new basin - the Flemish Pass. The future of our offshore begins today.”

Charlene Johnson, Chief Executive Officer of the Newfoundland Offshore Industries Association, predicted that by early 2020 there could be as many as five drilling platforms operating in the region.

“This place is going to be on wheels from 2020 to 2025,” she said. “Let’s hope it’s oil that they find.”

Until now, Newfoundland has relied solely on the Jeanne d’Arc Basin for oil output from the Hibernia, Terra Nova, White Rose and since last year Hebron-Ben Nevis, which is pumping at 150,000 barrels per day.

The prospective benefits listed for Bay du Nord include a capital layout of C$6.8 billion, more than C$14 billion in economic activity (in 2017 dollars), about 11,000 person years of employment for the province alone, C$3.5 billion in government revenues, in-province fabrication of 5,000 metric tons for a floating production storage and offloading, FPSO, unit and a minimum C$75 million in research and development, and education and training expenditures over 10 years to help position Newfoundland as a “deep-water center of excellence.”

Target 650,000 bpd

While the rest of Canada has become bogged down in feuding over oil sands expansion and the challenge of building pipelines to the United States and export terminals in British Columbia, Quebec and New Brunswick, Newfoundland has escaped the spotlight while quietly pushing towards its target of drilling more than 100 new exploration wells and tapping into multiple basins to produce more than 650,000 barrels per day from new and existing projects.

The province’s Oil and Gas Industry Development Council is providing the government with 17 focus areas ranging from short- to long-term.

The council estimates there are more than 37 billion barrels to be drilled off the coast of Newfoundland, of which only 7 percent is covered by licensed drilling operations, and 133 trillion cubic feet of gas potential, which is targeted for commercial production in 2030.

To open up that resource, the province aims to reduce the development time for offshore projects to seven years - a plan Ball has called “ambitious, but achievable.”

Despite the Canadian government’s determination to impose a nation-wide carbon tax and the growing trend towards green energy, Ball said there is no reason to pull back from oil projects at time when there is “still a thirst for oil and gas throughout the world.”

He has committed Newfoundland to laying a foundation for an industry that “will be in full swing within 12 years.”

“We already know there are tremendous reserves (within the province’s territorial waters). If we do not put targets in place and the mechanism to get there ... and challenge people it will never get done,” Ball said.

Asked to reconcile the additional greenhouse gas emissions that will be generated by Bay du Nord and other ventures, he said Newfoundland produces fewer carbon units per barrel of oil than the global average, adding that an informed decision on carbon pricing has yet to be reached in Canada.

“If you’re going to use oil, I can tell you (Newfoundland) is the greenest place to get that oil,” Ball declared.

Natural Resources Minister Siobhan Coady expressed the hope that development of Bay du Nord will attract further investment in other unexplored deep-water basins.

UN agreement

An unresolved question hanging over Bay du Nord is the impact of an agreement signed by Canada in 2003 under the United Nations Convention on the Law of the Sea, requiring countries to make payments to a UN body called the International Seabed Authority for the exploitation of non-living resources (such as oil) on the continental shelf beyond Canada’s 200-mile limit.

To date those payments have never been enforced anywhere in the world, but Ball is adamant that the Canadian government and not his province must shoulder the burden of payments to the UN.

“This is an agreement (the federal government) has entered into and this will be their responsibility,” he told the Canadian Broadcasting Corp. “I would not expect any national government to back out of an agreement it has made to the United Nations.”

Any payments due to the UN will not start until five years after production starts and would progressively ramp up after that, topping out at 7 percent of production value.

The government of Prime Minister Justin Trudeau made no comment on who should make the payments, but notes prepared in 2004 by then federal natural resources minister John Efford pointed to a looming federal-provincial showdown by warning “this issue bears significant impacts” for both levels of government.

Currently, the Canadian government collects offshore oil royalties and transfer 100 percent of those to Newfoundland, while both governments collect tax revenues linked to offshore resource extraction.

Federal briefing notes to 2016 said the minister of reign affairs “is responsible for payments to international organizations,” but added that the “source for payments has not been identified.”

- GARY PARK






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