Doubts about Canada’s east coast oil industry may have been put to rest in recent months with announcements of major discoveries after almost three decades of disappointment.

In September, Norway’s Statoil ASA announced it had found one of the largest new reservoirs anywhere in the world over the past three years, after drilling several wells in the Flemish Pass Basin. The Bay du Nord discovery, which is located beneath 1,100 metres of water, has recoverable reserves of 300 million to 600 million barrels, according to Statoil and its minority partner, Husky Energy Inc.

This is Statoil’s third discovery in the Flemish Pass Basin, a deepwater area located 500 kilometres northeast of St. John’s. Of the previous discoveries, the Mizzen discovery is estimated to hold a total of 100 million to 200 million barrels of recoverable oil. Statoil is also evaluating the size of its Harpoon discovery, announced in June.

This is all good news to both business and government in Newfoundland and Labrador, as these discoveries are the first sizable reserves to be found after 30 years of seismic work and exploratory drilling.

The three existing producing fields, all located in the relatively shallow waters of the Grand Banks, Hibernia and Terra Nova, are experiencing steep declines in production as reserves are tapped out. Tie-ins from small reserves are keeping production steady at the White Rose field.

A fourth field, Hebron, is scheduled to go into production in 2017, and holds an estimated 700 million barrels. There are 1,200 people currently working on the project in Newfoundland, which is led by Exxon Mobil Corp., with peak employment levels expected to exceed 3,000 in 2014.

Despite Statoil’s new discoveries, that company has not disclosed a schedule for starting production on any of its fields. This is problematic for the provincial government, as royalty revenue from Hebron will not come close to stemming net declines from the other East Coast oilfields.

The province is heavily dependent on royalty revenue from the offshore, and fluctuations in world oil prices in recent years have resulted in dramatic swings between large surpluses and steep deficits.

Even if production does proceed in the Flemish Pass Basin, a United Nations (UN) agreement to which Canada is a signatory could result in lower than anticipated royalties for the province. Under the terms of the UN Convention on the Law of the Sea, coastal states must “make payments or contributions in kind in respect of the exploitation of the non-living resources of the continental shelf beyond 200 nautical miles.”

Neither Ottawa nor Newfoundland and Labrador seem to know which level of government must pay fees to the UN for any new oil discoveries beyond Canada’s 200-mile exclusive economic zone. This issue could have additional policy ramifications for the province, as it has the option to acquire a 10% equity stake of any new oil project within its jurisdiction.

But the big winners here are likely to be the thousands of workers and the businesses that supply Newfoundland and Labrador’s oil industry. They have a future worth waiting for. IE