Oil sands ambitions and Alberta government budget surpluses are not the only casualties of the drop in energy prices by up to 75 per cent since last summer. Six months after Newfoundland Premier Danny Wells boasted that he launched “a bold new era” by committing his government to buy a 4.9-per-cent share in the Hebron project, oil development is slipping back into its old slow ways out on the Grand Banks offshore of St. John’s.

Officially nothing has changed since Wells made the deal. There have been no retractions of his prediction last August that Newfoundland will net revenues of up to $28 billion on Hebron, using a provincial forecast that called for oil prices to rise at an annual rate of two per cent from a 2008 average of US$87 a barrel. Optimism prevailed when Natural Resources Minister Kathy Dunderdale launched Newfoundland Oil and Gas Week 2009, which ran Feb. 22 to 28. “The province’s oil and gas industry continues to flourish with its three successful producing offshore oil projects and a fourth, Hebron, in progress,” her announcement said.

Unofficially, realists are predicting that progress will slow to a crawl now that oil has dropped into a trading range of US$40-$50 a barrel and shows no signs of doubling back to the 2008 average any time soon. The consensus shows in the latest oil supply forecasts by the National Energy Board. “While there is still active development and exploration on the east coast, our view on timing for major projects has changed,” NEB member Kenneth Bateman disclosed during a pipelines conference held recently in Calgary by the Canadian Institute.

The board’s new outlook anticipates a five-year delay in completion of Hebron, a 150,000-barrel-a-day megaproject. “Where we had previously predicted the Hebron field to come on stream in 2013 and an additional large discovery (not yet made) coming on stream in 2016, these dates have now been pushed forward to 2018 and post-2020 respectively,” Bateman said.

The NEB member drew no quarrels from Hebron’s sponsor consortium of ExxonMobil Corp., Chevron Canada, Petro-Canada and StatOilHydro Canada. The development remains quietly submerged in a stage known as pre-FEED, meaning under preliminary study before beginning expensive front end engineering and design. A Newfoundland project management office is scheduled to open in April.
Wells committed the government to pay $110 million for its minority ownership position plus a corresponding 4.9-per-cent share in costs beginning with design and construction before production starts. Early results of his spending are bound to include an educated, engineering opinion on effects of a government demand for the project to provide the greatest possible job creation.

Wells set his sights on making Hebron build a “gravity-base structure” or GBS an artificial island. The alternative is the cheaper standard offshore production vessel known as an FPSO, short for floating production, storage and offloading. The premier predicted fabricating the island in pieces and towing it out to the Hebron site 350 kilometers east of St. John’s would generate more than four million person-hours of work within Newfoundland. The GBS construction army is forecast to peak at 3,500 workers.

Two of the current Grand Banks oil platforms, Petro-Canada’s Terra Nova and Husky Energy’s White Rose, use FPSOs that were largely built at Asian shipyards and only assembled at Newfoundland’s Bull Arm industrial construction dock. Neither floating production platform project sought government help to proceed.

The first Newfoundland oil platform, Hibernia, used a mammoth GBS because the provincial government insisted on it. Industry is not known for willingly using its own money to cover all costs of big projects that political leaders turn into regional economic development programs. Hibernia was only completed in 1997 after the federal government bought part ownership of the project while also backstopping it with grants and loans. Ottawa continues to hold an eight-per-cent interest in Hibernia.

No target date is set for completing the Hebron design and engineering studies. Their assignments include coming up with a cost estimate. That is liable to serve as the starting point for much more discussion of the project’s economics. Watch for much more talk during the five-year delay foreseen by the NEB about whether Hebron can be improved, at least as a business proposition, by abandoning the GBS idea. It will come as no surprise to Newfoundland residents if the industry partners conclude the Wells version of Hebron is too expensive unless the Hibernia pattern of kicking in more government money is repeated. Then the question will be whether the province will pay up or reach out to Ottawa for help again.

Related Posts

• No Related Posts