Due east across the Atlantic from the Northern North Sea/West of Shetland is Atlantic Canada, home to a small but important cluster of oilfield developments located off Newfoundland.
Spiritually they are connected and, in supply chain terms, some companies manage both their UK North Sea and Eastern Canadian offshore business out of Aberdeen.
And there’s another connection these days. Gordon McIntosh, one of the best known economic development faces that there ever was in the north-east of Scotland, is today deputy minister for natural resources for the government of Newfoundland & Labrador (N&L).
This piece of Canada is in fact quite a mature oil & gas province, given that there’s been production from the first offshore field since late 1997.
The latest to come onstream is Hebron, almost 20 years after game-changer Hibernia began pumping dollars into provincial coffers.
There are basically four producing fields; the others are Terra Nova and White Rose. Before oil & gas it was a have-not province, the cod fishery having crashed in 1992 and been shut down.
“What we have is a complex system of royalties, taxes and other deductions from oil companies when compared to other places. But against that we have the stability of the country that is Canada,” says McIntosh.
“Generally speaking the fields that are producing now were discovered 25-30 years ago. We’ve had lots of extensions to them and I was involved in the recent negotiations on the planned CAN $2.2billion White Rose extension which was approved earlier this year with operator Husky. It is approaching the same size as the original White Rose development that was brought into production during November 2005.”
There is considerable local content; to whit, a purpose-built graving dock at Argentia, N&L was completed in 2015 to enable construction of the White Rose extension concrete gravity structure.
“The offshore industry is the gift that keeps on giving as far as Newfoundland is concerned,” says McIntosh. “And we’re hoping that Hebron will be a very important contributor too.”
A key attraction for McIntosh was the Crown corporation Nalcor Energy, which was set up in 2007 to foster the energy industry across the province, including holding stakes in offshore fields on behalf of the people.
About four or five years ago, it’s initiated a drive to attract greater interest in its offshore waters by systematically conducting 2D and some 3D seismic surveys linked to oil & gas licensing rounds.
“They had a good sub-surface team in place led by a very forward-thinking geologist called Dr Richard Wright.
“The hugely exciting thing is that there are 20 basins. The scale of the basins here are at least equal to the US Gulf of Mexico and twice the size of the entire North Sea. And only one has been significantly explored.
“Wright began mapping where the seeps were and recording who had done what early exploration. For example, Total had done some exploration of Labrador in the 1980s, though it found gas rather than oil. Today that company’s interest in Newfoundland & Labrador is reviving.
“I met Total in Houston earlier this year and they’re very excited about the study work that’s being conducted.”
As a part of its strategy, Nalcor, in collaboration with the Newfoundland & Labrador Department of Natural Resources engaged Beicip Franlab, a third party consultant, to conduct an independent resource assessment of the West Orphan Basin.
The objective of this project was to conduct a basin analysis, play risk analysis and resource assessment for the Orphan as it would be offered to the marketplace via the planned 2016 N&L offshore licensing round.
Through the integration of satellite slick data, 2D long offset seismic, 3D long offset seismic and seabed coring, a new Lower Tertiary play trend has been identified at West Orphan.
And an in-place resource potential of 25.5billion barrels of oil and 20.6trillion cu.ft of gas has been calculated.
In November 2016 it was revealed that there had been eight successful bidders – three of which were new to N&L, namely Hess Canada Oil & Gas; Noble Energy Canada; and Delek Group.
Of the eight parcels awarded out of 16 offered, four are in West Orphan basin. These went to a group led by BP, Hess and Noble Energy.
Two parcels awarded are in the Flemish Pass basin, where Statoil has enjoyed success, and two are in the Jeanne d’Arc basin.
As a result, the number of seven or eight oil companies working in various partnerships offshore Newfoundland over the past several years has more than doubled.
McIntosh: “The upshot is that Newfoundland & Labrador has a story of great promise to sell around the globe, particularly in Houston and London, as it seeks to attract oil company interest in the rejuvenated prize.
“There’s a lot of prospectivity; but what’s needed are more holes in the seafloor. Meanwhile the seismic continues and PGS has played a major role in that over the past five years.
“At the moment we have a $40million budget per year for acquiring seismic and we’ve been doing that for the last five years. Plus we have budget to go out and sell around the world.”
Unlike the historically hap-hazard UK North Sea, the N&L approach is systematic … calculated to deliver long-term real benefit assuming resources are found and developed.
This year alone there have been four 3D surveys this year and two 2Ds.
However, not everything meets expectation, witness the results of the just completed Jean D’Arc licensing round where just one of the three acreage parcels was bid and that was by BP with Husky.
According to McIntosh there were plans to bid Labrador South last year as well but this was delayed for various practical terms.
The next licensing target for the The Canada – Newfoundland & Labrador Offshore Petroleum Board (C-NLOPB) to offer is likely to be an area south of the Avalon Terrance of Newfoundland.
It is the 2016 round especially that is expected to stoke up medium-term activity in N&L waters, notwithstanding last year’s poor exploration drilling results from two wells drilled by Statoil with Husky in the Flemish Pass sector.
It was there that Statoil made its Bay du Nord discovery of 2013 and which is widely expected to be the next development offshore Newfoundland, despite the failure of the 2017 campaign that had focused on possible satellite field additions.
There remain a number of future potential tiebacks within 30km of Bay du Nord but that requires further exploration and, with oilco appetites blunted by the double failure, it could be several years before further drilling is attempted.
The water depth at Bay du Nord is around 1,100m, reservoir quality is good, so too is the 34Deg API oil that characterises the asset. It should be a relatively straightforward development, notwithstanding the ice challenge which is a characteristic of the four fields developed to date.
So what is the current status of Bay du Nord?
The N&L government is having discussions with Bay du Nord’s partners now to assess its development potential. The reserves estimates in public domain are in the range of 300-600million barrels.
Not only that, the group CEO of Statoil, Eidar Saetre, was in Newfoundland mid-October for discussions; which in itself is fuelling speculation that the Norwegian parastatal might not be all that far off giving Bay du Nord a green light.
Energy understands that the company is at the pre-FEED stage, in other words, starting to head in the direction of front-end engineering and design. The conversation is around a single floating production facility.
Understandably guarded, McIntosh said that his department was in an assessment process with Statoil but that negotiations of terms had not yet started.
It seems inconceivable that Statoil wouldn’t take the project forward; on the other hand, the oil price environment today is very different to when the first Flemish Pass find was made against a backdrop of $100-plus oil versus around $62 for Brent blend today.
However, McIntosh is also keenly aware that N&L has to pitch its demand competitively and that includes striking a deal on local content, which is likely to be a major issue given the high level of protection.
Given too that it could be another three years before full field development crosses all the hurdles and the FID is made, Energy figures that first oil would not be achieved until 2024-25.
It’s a small industry in St John’s. So what are the main challenges to developing it further?
According to McIntosh they are: holes in the floor, competitiveness compared with other energy provinces and harsh environment.
“Firstly, if we are to get a fair share of future field developments we need more discoveries leading to developments,” says McIntosh.
“We appear to have fantastic geological structures, but more holes have to be drilled if the oil & gas is to be found.
“The challenge therefore is to try and provide some sort of drilling incentive to get the companies to drill more. I’ve got a team looking at various models and we’ve had discussions with third parties around what they think are good models.
“Regarding competitiveness, both the political class and the guy in the street need to understand that N&L has to make that grade if it is to attract Big Oil invest- ment.
“Part of my job is to bridge that gap between the oil industry and the people of the province, including the politicians.
“As for the physical challenges, they equate to the North Sea, but with ice and oceanic conditions thrown in for good measure.”
Four developments thus far, but what’s the real relationship between Big Oil and the community?
McIntosh says: “I think the relationship is probably quite good. But they are big fish in a small pond.
“Physically, Newfoundland & Labrador is the size of France but has a population that’s the same size as the north-east of Scotland – 530,000 – with most concentrated in the south around St John’s.
“Every move by the companies and government is scrutinised closely by the populace who are watching like hawks.”
Enlarging on competitiveness, one of the core remits for McIntosh is to review N&L’s competitiveness both within Canada and across the globe.
In terms of production it’s about protecting Newfoundland & Labrador against the worst impacts of a significant downturn whilst also ensuring a fair return when times are good.
“I see that as a base on which to build for the future,” adds McIntosh.
“From a supply chain perspective, the local content piece here, which they call “benefits”, is probably the strongest in the world. This is enforced rigorously by the C-NLOPB and by my department.
“NOIA and the other industry associations represented here are on our shoulders all the time. Every procurement process that goes out and they’re right on it.
“The Atlantic Accord Treaty (signed in 1985) says anything that can be done will be done in Newfoundland. It is both the best system in the world, and the worst because what it has done to a degree is that it has made some businesses too locally dependent. They’ve had a good time but are inward looking.
“When the oil price dropped in 2014, some found that they were in fact uncompetitive and efforts are now being made to get Newfoundland companies to look outwards.”
Following a N&L government decision, an Oil & Gas Council is being established.
“This is about the business development piece, identifying where the gaps are in the supply chain and how best to plug those gaps. This could lead to a number of strategic, reciprocal relationships with foreign companies; JVs of the kind that were set up in the 1990s but which disappeared over time.
“We’re really encouraging that. It worked in the past. It will work again,” adds McIntosh, who has just celebrated one year in his current role, with a further year still to run.
And it’s clear that he’s absolutely relishing it.
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