Husky Energy’s SeaRose FPSO is producing the White Rose field in the Jeanne d’Arc basin in the Grand Banks. Most of the company’s recent activity has centered on adding production at White Rose, where three projects are ongoing. (Image courtesy of Husky Energy)

The story of Newfoundland and Labrador’s offshore oil and gas industry is one of serial projects that have delivered some positive results for the province, but in the main have not offered a road toward sustainable development. Events in the fairly recent past, however, have changed the outlook for the province and paved the road for future projects.

The most significant of recent developments was agreement on the Hebron project in late August 2008. The pathway to approval was long and arduous in part because of modifications regarding royalties that Newfoundland and Labrador Premier Danny Williams insisted had to be included in the contract. In fact, the project was shelved twice because the oil companies and the province could not agree on fiscal terms.

Williams invested enormous time and effort forging an agreement that in the end would change the way the province is involved in offshore operations. The agreement includes a new royalty regime and establishes the province as a partner in the development.

Williams discussed the road to this agreement in a presentation made to the Newfoundland Offshore Industries Association at the annual meeting in St. John’s in June, 2008. “For the first time, the province and industry are going to be full partners in the development of natural resources,” he said. “By June of next year, we’ll be a ‘have’ province.”

Developing Hebron

The shallowwater Hebron field, which lies in the Jeanne d’Arc basin in the Grand Banks 210 miles (340 km) off Newfoundland’s east coast, will be the fourth offshore development for the province, following Hibernia in 1997, Terra Nova in 2002, and White Rose in 2005.

Like the Hibernia field, Hebron is expected to be developed using a gravity-based structure with integrated drilling and production topsides. If construction begins around 2012 as anticipated, first oil is expected sometime between 2016 and 2018. Estimates place Hebron reserves around 581 MMbbl of recoverable oil, and daily production is expected to reach 150,000 bbl.

At US $87 a barrel and allowing 2% for inflation over the 20- to 25-year lifespan of the Hebron project, estimates place Newfoundland and Labrador’s take at roughly $20 billion.

Striving for sustainability
Achieving a sound agreement for Hebron is only one step in the process toward sustainability. That is why Newfoundland and Labrador has invested in an Energy Plan that it hopes will ensure its energy future.

Kathy Dunderdale, Minister of Natural Resources, government of Newfoundland and Labrador, explained the goal of the Energy Plan, which was created by the local government and launched in September 2007. The objectives are clear, she said, “economic self-reliance and environmental sustainability.”

The plan outlines energy resource development, including renewable sources, for the next 30 years and beyond, Dunderdale explained, and it lays the groundwork for greater investment, benefit, and control of the province’s resources.

Another of the plan’s goals is to increase exploration, which the government hopes to encourage in part by establishing a work group made up of the Provincial government and petroleum industry representatives to develop regulatory and fiscal measures that could be implemented to promote targeted exploration activity.

One of the participants in this process will be the recently formed energy corporation, a crown corporation tasked with managing the province’s regulated and non-regulated energy interests. The energy corporation is the Provincial government participant in the offshore developments. The company is also spearheading an effort to expand the amount of seismic data available in the area. According to the Energy Plan, the Provincial government will make an initial investment of $20 million over three years through the energy corporation to purchase existing proprietary seismic data for reevaluation and to conduct new seismic surveys.

In the meantime, there has also been a push to organize the data that is already available. That’s where the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB) comes into the picture.

“At present, CNLOPB maintains cores and a data library,” explained Max Ruelokke, chairman and CEO of the CNLOPB. “We are the one-stop shop for data, but the problem is that the data is in a variety of formats and not as convenient as it could be.”

That situation was the impetus for creating a data management center — one location for all of the digital information currently being maintained, including well log and seismic data. “Landmark has been contracted to deliver this product,” Ruelokke said. The project should be completed by next August.

Ruelokke’s organization is also expediting its internal approval processes in an effort to shorten the time between discovery and production. “Some time ago, the board developed a document that listed what information should be contained in a development plan application. That was an important document because it let people know up front what the board expects to see,” he said. “Today, there is interaction between the board and the operators that did not used to exist.” Operators are in contact with the board as they complete the application and receive guidance regarding what should be included. “They put it together. It’s their plan, but we give them guidance on how to prepare the plan most expeditiously so they can submit it to us faster. In the end, the plan can be approved more quickly as well.”

Everyone agrees that the most important thing for the province now is good exploration results from the companies that currently have exploration licenses and those that win blocks in the two bid rounds that will be held this year.

“We have a sustainable industry going forward for the next 30 years or so with what we have already found, but if we’re going to grow this industry, we have to have new discoveries,” Ruelokke said.

With the improved process for achieving oil production firmly in place, the next step for the province is to work out a plan for gas.

“Personally, I am very excited about gas discoveries in the Laurentian Basin because that would go a long way toward assisting with the economics of development of gas from the Grand Banks (where all of the offshore production is located today),” Ruelokke said.

Numbers published by the CNLOPB indicate the Grand Banks holds 6.6 Tcf of natural gas, a quantity that would seem large enough to commercialize. Reserves numbers, though, can be misleading.

According to Ruud Zoon, former vice president of East Coast Canada operations for Husky Energy, the capital cost of gas development is the biggest hurdle to developing gas from discoveries.

“We’ve looked at monetizing options, and we’ve got a team of people studying all of the options and the feasibility of the options identified,” Zoon said. “We’re looking at pipeline options as well as CNG and LNG, but nobody has really done either offshore.”

Husky may find a way to produce gas economically in the near future, but the produced gas is not likely to be used locally.

“Gas is for export,” Ruelokke explained. “There is no industry activity here that would sustain gas consumption.” There have been a fair number of gas discoveries, however, and there is an estimated 60 Tcf of undiscovered gas in the province. So Newfoundland and Labrador stands to benefit when there is a way to commercialize the resource.

With an eye toward that future, the province already is working toward implementing the natural gas royalty regimes. “We want clarity for operators and a fair share of the revenues for the province,” Minister Dunderdale said.

Regardless of the path future development takes, there is optimism in Newfoundland and Labrador that sustainability is achievable and that the Energy Plan is providing a way forward.

Premier Williams summed this up nicely: “Our future prosperity lies with energy.”

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