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Newfoundland on a roll Province posts successful offshore bidding round, with C$1.2 billion in work commitments, with Norway’s Statoil in the forefront GARY PARK For Petroleum News
Even in the best of times the Newfoundland government would have been entitled to celebrate.
In this age when oil and natural gas prices are in the doldrums along with exploration, the Canadian province can feel exuberant.
But whether that cheerful mood will be sustained will take up to 9 years to verify.
For now, the best Newfoundland can hope for is that new arrivals and big money will keep its offshore industry moving, fueled partly by a fresh injection of royalty changes.
In the latest auction round for exploration licenses, seven of 11 parcels attracted successful bids covering 6.2 million acres in the highly touted Flemish Pass region, committing those companies to spend a record C$1.2 billion.
The Canada-Newfoundland and Labrador Offshore Petroleum Board said nine companies participated in the process, submitting a combined 13 bids.
Statoil partner in six offers Norway’s Statoil was a partner in six of the seven offers that were accepted by the board in an area where the company is the operator of existing finds.
It made the largest single spending commitment of C$423 million for one parcel covering almost 345,000 acres, while taking 40 percent of a partnership with ExxonMobil at 35 percent and BG International at 25 percent for C$225 million to secure a block of 641,000 acres and a 34 percent stake along with ExxonMobil at 33 percent and BP Canada at 33 percent in a C$206 million bid for parcel of 648,000 acres.
Otherwise its partnerships with the same companies plus Chevron were all under C$50 million.
The only other lone ranger was Nexen, owned by state-owned China National Offshore Oil Corp., which made a C$261 million commitment for almost 403,000 acres.
Tim Dodson, Statoil’s executive vice president for exploration, said “the successful bids in these frontier area offshore Canada are in line with Statoil’s strategy of deepening our position in prolific basins and securing access at scale, while also adding important optionality to our exploration portfolio.
“The significant investment offshore Newfoundland will provide Statoil with an opportunity to further advance our established exploration position in this region through a step-wise approach,” he said.
New geosciences data An assessment released in October, based on new geosciences data, found that the 11 parcels in the call for bids had the potential for 12 billion barrels of oil and 113 trillion cubic feet of gas.
None of the successful bidders disclosed their plans, which are required to cover qualifying work within the next 6 years to gain a 3-year extension, although the timeframe can be extended with the payment of penalties.
In 2013, Statoil rated a find in the Bay du Nord prospect of the Flemish Pass as a “high impact discovery” that could hold up to 600 million barrels.
Last year, a trio of industry majors - ExxonMobil, Suncor Energy and ConocoPhillips Canada - submitted a record bid for a single parcel in offshore Newfoundland, committing C$559 million to explore 657,000 acres.
Working to attract new players Through the government-owned Nalcor Energy, Newfoundland has spent tens of millions of dollars in an effort to attract new players and revive exploration in its waters, boosting work on seismic surveys and other data-gathering operations to C$150 million in the four years to 2015.
A day before the bidding results were released, the government of Premier Paul Davis, which is facing almost-certain defeat in a Nov. 30 provincial election, introduced a new generic royalty regime which Natural Resources Minister Derrick Dalley said will see royalty rates increase only as fields become more profitable
He said it “provides the fiscal certainty that industry has been seeking.” It might also protect the jobs of 12,000 Newfoundlanders who depend on the offshore.
Under the old system, the province negotiated separate regimes on a project-by-project basis, although benefits will still be tied to individual ventures.
The new royalties will be applied to all production licenses, including those based on existing exploration and significant discovery licenses.
However, Dalley has disclosed that talks on terms for development of Statoil’s Bay du Nord play are at an impasse.
He said Statoil is “not prepared to continue discussions on the terms of a deal that we believe to be fair and reasonable. Statoil is looking for a level of benefits that we feel are not in the best interests of the province.”
Davis said during the spring that the two sides were “within days” of signing a deal, but now says he is not willing to press for a settlement during the election campaign.
Earle McCurdy, leader of the opposition New Democratic Party, urged the government to “drive a hard bargain” on behalf of Newfoundlanders.
New royalty system Warren Mabee, a geography professor at Queen’s University in Ontario, said the new royalty system will be welcomed by the industry.
“The royalty system worldwide is becoming more competitive,” he said. “Simplifying the way they do business is clearly what (Newfoundland) is trying to do. This is very transparent and clear.”
Under the new framework, a basic royalty will apply to gross revenue when a project starts production, increasing from 1 percent to 7.5 percent as capital costs are recovered.
Once profits start to roll in a net royalty will be applied to net revenue, ranging from 10 percent to 50 percent.
The highest royalty will be payable by projects that have returned C$3 to producers - after royalties - for every C$1 spent.
Newfoundland is forecast to total 78.3 million barrels in 2015 from its Hibernia, Terra Nova and White Rose fields, down 0.7 percent from 2014. The Hebron Ben Nevis project is scheduled to come on stream in 2017, ramping up to 548,000 barrels per day.
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