Oil giants topple record

Three companies bid $673M to explore Newfoundland deepwater oil basin

Gary Park

Petroleum News Calgary Correspondent

It’s Orphan by name, but it’s no longer alone in the world.

The deepwater Orphan basin, covering more than 41,000 square miles north of Newfoundland’s producing Jeanne d’Arc basin, has attracted unprecedented investment from a partnership of Chevron Canada Resources, Imperial Oil and ExxonMobil.

The trio made winning bids of almost C$673 million to secure eight Orphan parcels covering a combined 5.25 million acres, with three parcels, ranging from 645,000 acres to 675,000 acres each, going for C$106.6 million, C$181.3 million and C$251.6 million.

The bids, announced Dec. 18, represent spending commitments by the successful bidders during the initial five-year period of a nine-year term exploration license.

Chevron has a 50 percent stake in the venture, with the sister companies, Imperial and ExxonMobil, each holding 25 percent.

For the Canada-Newfoundland Offshore Petroleum Board, the bids were the highest since the regulator began holding auctions in 1988, easily eclipsing the previous record of C$192 million in 1999.

For Newfoundland it was a welcome break from years of mostly bleak exploration results.

Energy and Mines Minister Ed Byrne said the “sale dwarfs anything else ... since the bidding process began.”

He said the bidding is a vital first step towards discovering new oil and gas finds in a region which some analysts have been consigning to the scrap heap.

Even so, Orphan poses a risk for the partners, who must deal with storm-tossed waters, icebergs and a search for suitable rigs.

Paul Barnes, Atlantic Canada manager of the Canadian Association of Petroleum Producers, issued a cautionary note to the Globe and Mail saying the advance into Newfoundland’s deeper waters is accompanied by “environmental challenges that increase costs and a heavy regulatory burden that the government is working to address.”

The oil prone basin has water depths of 660 feet to 9,800 feet and seismic surveys indicate the oil deposits could lie another 6,600 feet to 16,400 feet under the ocean floor.

Industry estimates put the cost of drilling a well in water depths of just 330 feet at C$25 million to C$30 million each. Deepwater wells offshore Nova Scotia, where conditions are considered more favorable, have run as high as C$100 million.

But Orphan dangles the possibility of riches far greater than those supporting the producing Hibernia and Terra Nova fields.

One seismic study points to four pools each larger than Hibernia, which has listed recoverable reserves of 884 million barrels, while another 11 deposits appear to be significant.

For now, those dependent on the industry for survival are excited about the prospects.

Lesley Galway, president of the Newfoundland Ocean Industries Association, described the bidding as a “great shot in the arm” for the entire East Coast region.

She said there is optimism that exploration work will start in the first half of the five-year license term.

Risk and cost for Orphan basin

For Chevron it also comes at a time when the company is negotiating with the Newfoundland government in hopes of reviving progress on the C$3.2 billion Hebron-Ben Nevis project in the Jeanne d’Arc Basin.

That venture, with ExxonMobil, Petro-Canada and Norsk Hydro as partners, was shelved in early 2002 after several development options had been studied.

Although estimated to have upwards of 400 million of recoverable oil and once targeted for a 2005 start-up, the Hebron-Ben Nevis reservoir proved more complicated to bring on stream because it is spread over a wide area and 75 percent of its crude is heavy oil which is more difficult to extract in the frigid North Atlantic.

In addition to weighing technological advances, the partnership is reportedly looking for a different royalty regime from the Hibernia, Terra Nova and White Rose projects — all of which could make the field economically viable.

Byrne, part of a newly elected Newfoundland government, has also indicated he is open to streamlining regulatory procedures, which the industry has said delays and discourages investment in the East Coast generally.