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Newfoundland offshore at risk
Husky suspends one project, is doing sweeping review of role in region; asks Canadian government for help, without it may exit Gary Park for Petroleum News
Give or take a few years, Newfoundland’s oil industry has grown over the last four decades into the backbone of a fragile provincial economy that struggled to stem an outflow of laborers across the rest of Canada, but has become accustomed to jobless rates nudging 20% among younger people.
In the process Newfoundland launched five offshore projects that account for 25% of Canada’s light crude production, or 5% of its total output, with Alberta’s oil sands making up the remaining 95%.
Although the manufacture and assembly of a large chunk of offshore structures has taken place in Asia, the industry has created thousands of jobs and hundreds of small support companies, which have held tight to optimism that exploration and development of offshore basins could extend the sector’s lifespan by at least another 30 years.
Instead, there is now the prospect of not just a drastic slowdown, but the even grimmer belief that the Newfoundland industry could be entering the final phase of its existence that has included the 1982 sinking of the Ocean Ranger drilling rig in the Hibernia play that claimed the lives of 84 crew members and the 2009 ditching of a helicopter ferrying workers to Hibernia, with the loss of 17 of 18 on board.
West White Rose under review Now a shock wave has hit Newfoundland that could match those two tragedies as Calgary-based Hong King-controlled Husky Energy has announced that it is taking a timeout to review the future of its West White Rose project that was targeted to achieve peak capacity of 75,000 barrels per day and reverse a rapid decline to 26,000 bpd in the associated White Rose field as reservoirs empty.
Husky said it provides more than 500 jobs at its operations in Newfoundland and would add 250 if West White Rose was brought on stream.
In addition, construction on West White Rose has generated more than 1,000 unionized jobs to handle a further C$1.1 billion to complete work on the project.
Further expenditures over the life of the field through 2036 are estimated at C$11 billion, while the province was expected to collect C$3 billion in royalties and taxes.
Husky Chief Executive Officer Rob Peabody, whose company operates the existing White Rose project and is a partner in the other operations, said the decision to stall work on West White Rose “leaves us no choice but to undertake a full review of the project and, by extension, our future operations in Atlantic Canada.”
Husky had already delivered strong hints of its waning interest in Newfoundland. Citing persistently low oil prices, falling demand and the impact of COVID-19 it had shelved development plans for the Bay du Nord project and suspended a refit of the Terra Nova project that yielded up to 100,000 bpd in its peak years.
Newfoundland asks for aid Former Newfoundland Premier Dwight Ball delivered a blunt warning that a lineup of hydrocarbon projects in its province could be lost without a financial commitment from the Canadian government.
“Time may not be on our side,” he said, hinting at a possible exodus of the oil and gas industry from the region.
Andrew Parsons, the province’s Industry, Energy and Technology Minister, said that even though his government supports West White Rose it is too strapped for cash to pursue the “significant equity investment” Husky wants.
“We’re not talking about a million-dollar issue, we’re talking about a billion-dollar issue. And for a province of 500,000 people that is extremely significant.”
Parsons said he is now “anxiously waiting” to see whether the Canadian government will come to the negotiating table and what it will bring.
It would not be a first for the federal government which acquired an 8.5% equity stake to rescue the pioneering Hibernia operation.
The federal Natural Resources Minister Seamus O’Regan told Newfoundland that delicate discussions are underway following months of lobbying for federal aid.
“We are at the table right now, hammering out the concrete steps needed to support the offshore industry,” he said. “Our government has worked every day with the province, industry, unions and investors to sustain the competitiveness of the offshore.”
Charlene Johnson, chief executive officer of the Newfoundland and Labrador Oil and Gas Industries Association, said Husky’s announcement “is potentially devastating to our industry.”
She said O’Regan has held out similar hope before without providing any financial help for an industry that is “on the brink” as companies besides Husky curtailing exploration and drilling.
“They’re just words,” Johnson said. “We have yet to see action and we need to see action.”
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