Near-record investment expected as ‘bow wave’ of activity heads for Newfoundland offshore

Newfoundland and Labrador’s offshore oil industry is preparing for a serious uptick in exploration activity, with $4 billion in work commitments poised to attract near-record drilling in the next few years as companies search for the next Hibernia-type discovery.

But industry leaders caution that myriad factors will determine whether that target is achievable, or whether it is significantly surpassed.

The hype was noticeable at a conference in St. John’s on Thursday, where the province’s offshore industries association, Noia, hosted a fall seminar.

One of the speakers was Jim Keating, the man in charge of offshore oil development at government-owned Nalcor Energy.

Keating described what’s about to happen as a «bow wave» of investment as eight oil companies, with 10 exploration plans, launch almost concurrent exploration campaigns in frontier areas of the offshore.

«I think we’re going to peak [in drilling activity] pretty soon in the next two or three years,» Keating told a room of oil insiders at the St. John’s Convention Centre, explaining that eight or more exploration wells could be drilled in the near term, and many more in future years.

«We don’t want to be no more a jurisdiction that waits and watches for that single well,» he said, «and have our hopes and fears pinned on that single well in that single prospect.»

«There’s some unique opportunities here amongst the operators,» he added.

More rigs in the offshore

The drilling campaign is part of the province’s land tenure system. Companies acquire parcels by making a commitment to spend a specific amount of money on exploration over a specific amount of time, and the back end of those timelines are approaching for many companies.

Companies can either forfeit their licences and pay millions in penalties, seek an extension that also comes with a hefty payment to the offshore petroleum board, or proceed with their exploration plans.

But there’s no sign of an exodus, and the local industry is preparing for the arrival of more drill rigs and a surge in the amount of supplies and services required to get the work done.

«For our supply companies, that’s great news. It just means great news to come,» said Mark Collett, chair of Noia’s board of directors.

Big money to be spent

The first wave will crest by 2021, with oil giants like ExxonMobil, Chevron, Equinor and CNOOC committed to spending $1.7 billion.

That activity has begun, with ExxonMobil set to start drilling on a prospect identified through Nalcor’s long-running geoscience program.

By 2022, BP Canada, Navitas Petroleum, Nexen Energy and Husky have committed to spending $763 million.

And further out, to 2024, BHP, Equinor and Suncor, plan to invest $1.4 billion in exploration.

There are probably two dozen prospects, Hibernia-size or bigger.— Jim Keating

In the history of Newfoundland’s offshore, Keating said companies have spent $9 billion in exploration, which has translated into $160 billion in value to those who work in the industry, to the province and the oil companies.

So it’s clear that the next few years could be transformational for an industry that already has four producing offshore projects, with Hibernia its largest.

«We see many prospects that have the potential to hold billions of barrels of oil. Hibernia is a gold standard and a driver for the Newfoundland economy for the better part of the last two decades. There are probably two dozen prospects HIbernia-size or bigger,» said Keating.

«Whether they contain oil or gas is yet to be determined. But invariably, statistically, some of them will. It’s just a matter of getting to them and the sooner the better,» he said.

The increased activity follows the release of the latest assessment by Nalcor of the offshore, with the potential now increased to 52 billion barrels of oil, and just under 200 trillion cubic feet of natural gas.

But Keating cautioned against over-excitement, noting that many variables are at play that could slow that exploration investment, or lead to a dramatic increase.

But, he stressed, «Our time is now.»

Keating wants top job

Meanwhile, work on establishing a new standalone government-owned oil and gas company is ongoing, and Keating made it clear Thursday he wants the top job.

The provincial government announced in March 2018 it would split off Nalcor’s oil and gas division, led by Keating, into its own entity.

An interim board of directors is in place, and a new CEO should be named in the coming weeks.

«I hope that would be me,» said Keating.

Keating expects a name for the new company will also be unveiled soon.

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