Keeping the faith in Newfoundland

Industry hopes continued bidding for rights offshore points to ‘probable renaissance’; two latest rounds attracted almost C$2B

GARY PARK

For Petroleum News

Canada’s East Coast has been bucking the trends that dominate most other global offshore regions with major players committing almost C$2 billion over the past year to secure drilling rights.

Following a record bidding round of C$1.2 billion a year ago, offshore Newfoundland attracted another C$758 million earlier in November, with BP Canada (backed by Hess Canada and Noble Energy) and Husky Energy demonstrating that hopes for an exploration future remain strong.

Robert Cadigan, president of the Newfoundland Labrador Oil & Gas Industries Association, said the decision of so many companies to retain their Newfoundland holdings against an exodus in many parts of the world indicates “we are probably on the verge of a renaissance in exploration.”

He said that was partly the result of what has been discovered through extensive 2-D seismic programs is three new basins that “we didn’t know existed.”

The results from the latest annual call for bids by the Canada-Newfoundland and Labrador Offshore Petroleum Board fetched C$514 million for six parcels totaling 2.89 million acres in the Eastern Newfoundland region, with BP playing a lead role at 50 percent in four of the six successful bids.

Hess has 25 percent stakes in three parcels and Noble has 25 percent in two parcels and 40 percent in one.

A partnership of Navitas Petroleum at 30 percent and DKL Investments at 70 percent was successful in a bid of C$48 million for 444,700 acres and Nexen Energy landed one parcel covering 373,000 acres for C$40.17 million.

Another C$244 million was bid exclusively by Husky for two parcels in the Jeanne d’Arc region, which embraces Newfoundland’s three producing oil fields (Hibernia, Terra Nova and White Rose) and the Hebron field which is expected to come on stream in 2017.

None of the companies has disclosed their exploration plans, but the CNLOPB will issue exploration licenses valid for nine years in January 2017, although companies are committed to spending their bid amounts in the first six years.

This year was the second under a changed land tenure regime, giving companies more time to evaluate prospects and conduct geoscientific work in preparing their bids.

Last year Norway’s Statoil was involved in six of seven successful bids, acting as operator in five, while ExxonMobil was a partner in five parcels, BP in three and Chevron in one.

Despite moves by major oil companies to jettison major projects, slash capital budgets and scrap ambitious plans in regions such as offshore West Africa, the North Sea and Alberta’s oil sands in an age of austerity, Shell, ExxonMobil, BP and Husky have all indicated they will persevere with plans for exploration activities in offshore Newfoundland and Nova Scotia.

They are attracted by industry and government estimates that Newfoundland holds 12 billion barrels of reserves and Nova Scotia has 8 billion barrels, compared with 4.7 billion in the Gulf of Mexico, 22 billion in the United Kingdom North Sea and 29 billion in the Norwegian North Sea.

Ed Martin, chief executive officer of Nalcor Energy, said the Newfoundland government’s own energy corporation - which has stakes in offshore operations - still has hopes of raising its own net income more than ten-fold to about C$500 million in just a few years.

“And we have only 5 percent of our offshore area under license at this point,” he said.

However, Luke Davis, a London-based analyst at Infield Systems, told the Financial Post earlier this year that one of the obstacles in Canada relates to the requirement for flow testing in new discoveries which pushes the exploration cost of a single well above that in the North Sea.

The test now is whether BP announces the location of its first well in the Scotian Basin off Nova Scotia which is due to start drilling in 2017 and whether Husky makes a final investment decision on a White Rose extension project.