Newfoundland’s bet on offshore oil comeback could hinge on ‘close-call investment’

The province’s four producing offshore fields are drying up, but approval of new projects such as Bay du Nord is far from certainYou can save this article by registering for free here. Or sign-in if you have an account.Newfoundland and Labrador is trying for an offshore oil comeback as Cenovus Energy Inc.’s West White Rose expansion gets set to start pumping next year, but some are warning that Canada’s only offshore oil region is headed for a steep decline without approvals for new projects such as the proposed Bay du Nord project.Subscribe now to read the latest news in your city and across Canada.Subscribe now to read the latest news in your city and across Canada.Create an account or sign in to continue with your reading experience.Create an account or sign in to continue with your reading experience.The province’s four producing offshore fields are two-thirds depleted, said Wade Locke, an economist in the province who has followed the industry for decades, so the medium-term outlook is stark. For example, production in Hibernia is expected to fall to about 50,000 barrels a day by 2030 from a peak of roughly 220,000 barrels in the early 2000s.“If you look at the projects we know about today, we’re in the declining phase,” Locke said. “The only one close to being developed in a reasonable time frame is Bay du Nord. The rest are still a long way off.”Get the latest headlines, breaking news and columns.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Top Stories will soon be in your inbox.We encountered an issue signing you up. Please try againInterested in more newsletters? Browse here.Bay du Nord, a multi-billion-dollar deepwater development in the Flemish Basin about 500 kilometres east of St. John’s, is now in its final engineering and costing stage. The project is backed by Norway’s Equinor ASA, with BP PLC as a partner. Equinor has not yet made a final investment decision.Currently operating offshore operations in the Hibernia, Hebron, Terra Nova, and White Rose/North Amethyst are located in the Jeanne d’Arc Basin, roughly 350 kilometres off the coast of Newfoundland. White Rose and Terra Nova have an estimated 10 to 15 years of remaining production, while Hebron is expected to produce into the 2030s.In late November, about a month after being elected, Premier Tony Wakeham vowed to breathe new life into the offshore oil industry and said previous governments had been too hesitant to champion oil and gas. He has met with Prime Minister Mark Carney to push for Bay du Nord to be added to Ottawa’s list of nation-building projects, but no firm commitments have been made by the federal government.Offshore oil has transformed Newfoundland’s economy since production began in 1997. Last year, crude oil exports were valued at roughly $7.5 billion, accounting for more than half the province’s total exports. The boom helped lift gross domestic product (GDP) per capita above the national average in the mid-2000s from about 65 per cent in 1997 — the fastest rise in Canadian history, according to Statistics Canada.Locke said offshore petroleum revenues directly contributed to six of the province’s 10 budget surpluses since joining Confederation. Oil and gas still account for nearly 20 per cent of provincial GDP, exceeding the combined contribution of forestry, fishing, pulp and paper and mining.But its contribution has sharply fallen from its peak. In 2011–12, offshore royalties totalled about $2.8 billion, accounting for roughly 32 per cent of provincial revenues. By 2025–26, they are projected to make up only about 15 per cent of revenues, despite total revenues rising to an estimated $10.7 billion. Newfoundland also carries the highest per capita provincial net debt in Canada.The project isn’t doomed, but it’s a close-call investment with outsized implications for the provinceEquinor is proposing to install a floating production, storage and offloading vessel in the Flemish Pass. The Bay du Nord project would operate for about 30 years and is projected to deliver billions in revenue — about $3.5 billion in direct government earnings and potentially $10 billion to $20 billion including taxes — while adding more than 200,000 barrels a day in production and creating thousands of jobs over its lifetime.West White Rose, a high-cost project once at risk of cancellation during the pandemic, is expected to add roughly 80,000 barrels per day of gross capacity once fully online in the second quarter of 2026. Terra Nova, nearly shut down in 2020, has since undergone a full overhaul of its floating production, storage and offloading (FPSO) vessel, thereby extending its output for several more years.“These projects help keep production relatively flat for the next few years,” Mark Oberstoetter, head of Americas upstream research at Wood Mackenzie Ltd., said. “But come 2033, you really see declines kick in at Hibernia, and Hebron isn’t bringing on as many new wells. Bay du Nord really extends the region’s profile. Without it, you’re facing steep declines.”He said Bay du Nord’s economics remain challenging.“Break-evens are marginal today,” he said. “The fields are big but not huge, operating costs are high and you need an FPSO with iceberg protection and deep wells to avoid ice hazards.”Oberstoetter also said Equinor faces competing capital demands in Norway and Brazil, while BP has already heavily spent on unsuccessful exploration wells in the Orphan Basin, about 400 kilometres northeast of St. John’s.“The project isn’t doomed, but it’s a close-call investment with outsized implications for the province,” he said.Wakeham has pushed for above-water construction work to be done in Newfoundland to help meet labour and industrial-benefit expectations.Locke said companies are not legally required to negotiate benefit agreements with the province, but governments still hold leverage under the Atlantic Accord.“The benefits will be hammered out through negotiation, not obligation,” he said.No new exploration wells are planned this year or next, but Oberstoetter said a single discovery can quickly change the sentiment.“Bay du Nord itself changed how companies viewed the region,” he said. “That’s the nature of exploration — you’re only as good as your last well.”Exxon Mobil Corp., Chevron Corp., Cenovus and BP still hold offshore acreage Exxon Mobil Corp., meaning they retain exploration rights in the region despite the slowdown in drilling.“It’s not zero,” Oberstoetter said. “But excitement has slipped from the 2015–16 years.”Locke framed Bay du Nord as more than a regional project.“It’s in the national interest to have Newfoundland with a strong economy,” he said. “It contributes to GDP just like Ontario or Manitoba. These projects have implications for equalization and Canada’s economic wellbeing.”Locke was also clear about the limits of any offshore revival.“We’ll never compete with Alberta or Saskatchewan; that’s not in the cards,” he said. “But a sustainable offshore future — decades more of production, jobs and royalties — is possible if Bay du Nord goes ahead.”• Email: arankin@postmedia.comPostmedia is committed to maintaining a lively but civil forum for discussion. Please keep comments relevant and respectful. Comments may take up to an hour to appear on the site. You will receive an email if there is a reply to your comment, an update to a thread you follow or if a user you follow comments. Visit our Community Guidelines for more information.