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Newfoundland finds new vigour

The island’s offshore oil industry is rebounding after a sustained lull

Newfoundland and Labrador’s (NL) offshore oil industry is on an up-curve, with production again on the rise, resource potential and investment dollars growing, and new projects in the pipeline. After declining for almost a decade, the industry’s future is looking increasingly bright, but challenges remain.

Resource potential

The NL government released in early October its annual 2019 Oil and Gas Resource Assessment, an independent study of the province’s resource potential performed by consultancy Beicip-Franlab and the province’s crown corporation Nalcor Energy. The assessment focused on new data covering nine parcels on offer in the Carson-Bonnition and Salar Basins for this year’s licensing round, which is scheduled to close on 6 November. The nine parcels added 3bn bl of oil and 5.8tn ft³ of gas to NL’s offshore potential—at a probability of 50pc—bringing their respective totals to 52.2bn bl and 199.6tn ft³.

“The resource potential in our offshore is incredible,” says NL minister of natural resources Siobhan Coady. The province has 910,000km² of sedimentary basin, 50pc larger than the Gulf of Mexico and three-quarters the size of the North Sea, with only 9pc having undergone even as little as 2D seismic to date. Nalcor has already identified over 650 leads and prospects, including two dozen ‘monster-type’ prospects.

Over the past three years, eight new firms have joined the hunt in NL’s offshore waters, joining incumbents Chevron, ExxonMobil, Norway’s Equinor, US independent Murphy Oil and Canada’s Husky and Suncor, and C$4bn ($3bn) in exploration work commitments have been made since 2014—more than doubling the total spend since 1988.

Development plan

In February 2018, the NL government announced Advance 2030, a strategy to nearly triple the province’s offshore crude production to 650,000bl/d over the next twelve years, while drilling over 100 exploration wells, compared to 168 wildcats since the inception of NL’s offshore industry in 1966. The province’s oil production peaked at 368,000bl/d in 2007—from the Hibernia, Terra Nova and White Rose fields—and dropped to a low of 172,000bl/d in 2015, before rebounding to 230,000bl/d last year.

“The resource potential in our offshore is incredible” — Siobhan Coady, NL minister of natural resources

ExxonMobil’s Hebron project is ramping up, after seeing first oil in November 2017, while construction on Husky’s West White Rose project began in mid-2017. Once 20-30 production wells have been drilled, Hebron will produce 150,000bl/d at plateau. First oil from West White Rose is expected in 2022, with plateau production of c.75,000bl/d in 2025.

In July 2018, the NL government and Equinor announced a framework agreement for the Bay du Nord field in the Flemish Pass Bain, potentially the province’s first deep offshore project and the first one outside the Jeanne D’Arc Basin.

Equinor indicated it expects to sanction the C$6.8bn project in 2020—assuming Brent crude prices remain above a break-even cost of US$49/bl and the Canada-Newfoundland Offshore Petroleum Board approves the environmental assessment it filed in June 2018—with first oil in 2025. Expected production capacity of the project, in which operator Equinor holds a 48.5pc stake alongside Husky with 31.5pc and Nalcor’s 10pc, has yet to be announced.

Potential impediments

But the Bay du Nord field, roughly 500km off the province’s coast, is also poised to become the first in the world to fall under the United Nations Convention on the Law of the Sea (UNCLOS)—which Canada signed in 2003—meaning royalty payments will eventually have to be paid to the UN as well. The NL and Canadian governments disagree over whether the provincial or federal regime should ultimately bear those costs.

Over the past year, operators have also reported three significant oil spills in NL’s offshore waters, including the largest in the regions’s history, leading to increased criticism of the industry’s environmental performance. Husky estimates a record 250,000l leaked at the White Rose field when a subsea flow line disconnected in heavy seas last November.

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