Is there a new oil era?

In the late 1970s to mid-1980s, finding oil off Canada’s east coast had seemed easy. The discovery of the huge Hibernia field spurred a rush of exploration that resulted in uncovering several more commercially viable reservoirs.

But while Hebron, the last of this spate of fields, is slated to begin production in 2017, there has been widespread unease throughout Newfoundland and Labrador about the future of the region’s oil industry. Despite expenditures totalling hundreds of millions of dollars by oil companies in drilling for new sources of oil, no commercially viable field had been found in more than 25 years.

Then, in June, Statoil ASA, Norway’s government-controlled oil and gas company, revealed with typical Norwegian understatement that it had discovered a significant reservoir in the Flemish Pass, a deep-water region east of the four main Grand Banks oilfields. The field, named Mizzen, contains between 100 million and 200 million barrels of oil. Statoil, which took over the drilling rights to Mizzen from Petro-Canada in 2008, owns 65% of the prospective oilfield; Calgary-based Husky Energy Inc. controls 35%.

No timetable for production has been set for Mizzen, and optimism must certainly be tempered by the fact that the field is located 1,100 metres below some of the roughest ocean conditions on the planet. There also is the 500-kilometre helicopter ride east from St. John’s and almost 200 kms from the existing Grand Banks oil-production platforms. However, both Statoil and Husky can draw upon extensive experience within their ranks in dealing with environmental and technical challenges of this nature.

Still, the unknown lag time for beginning engineering work on Mizzen presents difficulties for both the province’s oil industry and government. Reserves in the three producing fields are quickly running low, and even additional production from Hebron will not reverse the sharp downward trend in offshore Newfoundland. The termination of the Hibernia, Terra Nova or White Rose fields would result in significant job losses offshore and an erosion of the engineering expertise that now exists in St. John’s.

As for the provincial government, it is now feeling the effects of reduced oil royalties, brought about by lower than anticipated prices, declining reserves and maintenance shutdowns. With a budget deficit estimated to be $500 million this year, forthcoming provincial budgets are likely to feature program reductions and civil-service cutbacks.

Despite these challenges, the Mizzen discovery has proven that the Newfoundland and Labrador oil industry has a future beyond the known Grand Banks resources. The Statoil discovery is likely to lead to enhanced seismic and conventional drilling work along Canada’s east coast, particularly in the Flemish Pass and nearby basins, thus maintaining the momentum sustained by the industry since the 1990s.

For a province that has gotten used to boasting about its buoyant economy, this is indeed a good omen. IE