Energy Ink

Time is on the side of Newfoundland’s offshore oil industry

Global energy demand buoys a high cost business on the East Coast

October 01, 2011

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Photograph by Ryan Girard

There’s more than a hint of anxiety when you talk to locals about the state of Newfoundland and Labrador’s offshore oil industry. After all, the history of Canada’s eastern-most province is not exactly littered with a long list of economic success stories. But in the past decade this industry has become one. And it only takes a few statistics to illustrate the economic impact the sector is having on the province. In 2009, oil extraction and support activities accounted for 27.5 per cent of the province’s nominal gross domestic product and 2.4 per cent of provincial employment. In 2010, the industry’s capital expenditures were approximately $1.3 billion.

The numbers are significant for a province with just over 500,000 people and chronically high unemployment rates. The trick now for the province’s policy-makers and those working in the industry is how to keep those figures flowing for decades to come.

It will be a difficult task. Most of the big discoveries in Newfoundland and Labrador were made in the 1970s and ‘80s. Three of the biggest fields – Hibernia, Terra Nova and White Rose – have been pumping out crude oil for years now and production is declining, even with the giant Hebron field set to yield first oil in 2017. New discoveries are needed if the impressive economic numbers cited above are to be repeated in the future. “We need to get more drilling and exploration done,” says Newfoundland and Labrador Natural Resources Minister Shawn Skinner. “If we don’t do that, this will dry up very quickly. The potential loss of revenue is obvious and recognizable.”

The province’s offshore waters still hold the potential for some big finds. But the biggest obstacle to finding new discoveries that will sustain the industry beyond 2020 is the high cost of operating in those waters. Drilling in the North Atlantic is not the same as drilling in southern Alberta or northeastern British Columbia. The conditions are harsh and wells cost hundreds of millions of dollars to complete compared to a few million in the Western Canadian Sedimentary Basin. Few companies have deep enough pockets to undertake drilling risky wildcat wells in these stormy and iceberg-laden seas, especially when there are more attractive offshore areas the industry can invest in – like the Gulf of Mexico and offshore West Africa.

So what will entice more industry players to explore the deeps off of Newfoundland and Labrador? Former premier Danny Williams’ highly publicized battles with Big Oil aside, the jurisdiction is considered a place with few regulatory or political risks. The province actually wants oil and gas activity. That is always attractive.

But rather than instituting extreme policy measures or fiscal incentives, time may prove to be the province’s best ally. Oil isn’t getting any easier to find, nor is demand for it decreasing. Wherever there is a possibility to find large pools of oil and gas, the sector will eventually go there, high costs and harsh operating conditions be damned. Perhaps that reality will ease the anxiety of the industry’s boosters – that and a large dose of patience.

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