Canada's offshore weathering the storm
The Maritimes’ offshore is still plugging on with developments and withstanding tricky conditions
DESPITE a string of promising discoveries, Canada’s offshore has been a mix of promise and disappointment as major players grapple with falling oil prices.
After making three of the largest finds in recent memory at Bay du Nord, Harpoon and Mizzen in the deep-water Flemish Pass, Norwegian state oil company Statoil is winding down exploration efforts off the coast of Newfoundland and Labrador as it cuts global staff counts and reigns in costs.
Bay du Nord, estimated to contain 300m-0.6bn barrels, was the largest offshore find in the world when it was announced in 2013. Mizzen is estimated at 200m barrels. A third discovery at Harpoon has yet to be delineated. Mizzen is a joint venture with Canada’s Husky Oil, which owns 35%. Statoil is partnered with Chevron and ExxonMobil and BP in the others.
The discoveries raised hopes that Newfoundland’s offshore would see a resurgence after sagging. Oil production fell 20.5% in 2015, to 62.7m barrels from 78.9m in 2014, according to government statistics, and isn’t expected to climb back any time soon.
Yet optimism is high. The Flemish Pass is a new frontier located in ultra-deep waters exceeding 3,000 metres. By contrast, Suncor’s Hibernia platform on the Grand Banks is in 80 metres of water. But the Flemish Pass is a technically challenging and expensive region, on a par with the Gulf of Mexico. The difference is that it lacks infrastructure and needs billions of dollars of new investment to be profitable.
Statoil raised hopes it would move ahead with development in November 2015 after it and partners put up C$0.95bn (now around $0.75bn) in work commitment bids to acquire drilling rights on six adjacent parcels – the biggest land grab in the province’s history. A government resource assessment in 2015 concluded the Flemish Pass parcels could contain 12bn barrels and more than 100 trillion cubic feet of recoverable gas. That makes Statoil’s retreat even more puzzling.
As recently as last October, the company was reassuring the Newfoundland government it intended to proceed despite low oil prices. That changed in November 2015 after it unsuccessfully tried to wring concessions from the government when it implemented a new royalty regime. The government issued a statement saying the talks were at an “impasse”.
That couldn’t have been good news for a province that backs in for 5% of every offshore deal through its Crown-owned Nalcor energy company. Newfoundland depends even more on oil revenue than Alberta and posted a C$1.83bn budget deficit in 2015, a number that is expected to rise to C$2.2bn in the current fiscal year. This has resulted in massive layoffs in its oil sector.
Nonetheless, it’s not all gloom and doom as the province looks to expand existing fields. Husky intends to begin a two-year drilling programme in the White Rose field starting in May. The original field began production in 2005 and is estimated to contain 300m barrels. Satellite fields are thought to contain another 165m barrels. Production is still years away.
Further down the coast, on the Scotian Shelf, Shell Canada (formerly BG) is drilling the first exploration wells in nearly two decades in the Shelbourne Basin, 250km off Halifax.
The first well spudded in October and is expected to be complete later this spring following an incident in March when drilling equipment fell to the seafloor during a storm. Operations resumed in April after Shell secured a new pipe and completed safety assessments – a vital precondition to securing permits. A second exploration well is expected to begin later this year.
The difference between Nova Scotia and Newfoundland is that the former is targeting gas, not oil – and the the outlook for gas prices is worse than for crude. On a dollar-equivalent basis it trades for about $12 a barrel — and it isn’t expected to go up soon. So these could rightly be considered earning wells to hold acreage and meet commitments made by BG before its acquisition by Shell.
It adds up to the highest offshore activity levels in decades, despite a dour outlook for both commodities. In that sense, Canada’s offshore glass could rightly be called half full, but it is draining fast.
This article is part of an in-depth series on offshore production. Next article: Choppier waters in Latin America.