CALGARY – Nalcor Energy executives will discover Wednesday whether millions of dollars in seismic exploration work and trips to the world’s oil capitals were enough to attract lucrative bids from global oil and gas majors.
For the first time in two years, the Canada-Newfoundland and Labrador Offshore Petroleum Board will announce winning bids for prospective offshore exploration blocks on Wednesday, which independent evaluators believe contain a total of 11.7 billion barrels of oil and 60.2 trillion cubic feet of natural gas.
The last time the C-NLOPB held a bidding round for an offshore exploratory block, in 2016, BP Plc marked its entry into the province’s oil and gas sector with a winning bid of $461 million for a prospect that contained an estimated 25.5 billion barrels of oil and 20.6 trillion cubic feet of gas.
Expectations for Wednesday’s bid are high and should reveal whether or not the provincially owned energy company’s revamped approach to attracting oil and gas bids continues to be a success.
“We have a saying around here, which is ‘Those who use crystal balls end up with broken glass,’” Nalcor executive vice-president, offshore development, Jim Keating said. He declined to provide an estimate of what Wednesday’s bid might fetch in work commitments from oil and gas companies.
“I think we’ve experienced a real good level of interest from oil and gas companies for the last several months and for the better part of a year now since the licence area was announced, so that makes us optimistic,” Keating said.
The province, through its Crown corporation Nalcor and the C-NLOPB, made major changes to its bidding process beginning in 2011. It moved to a scheduled bid process from a system in which any entrant could bid at any time.
Nalcor also began spending significantly more money on 2D and 3D seismic work to better understand the province’s offshore geology and de-risk the exploration blocks for prospective oil companies.
In addition to conducting that exploratory work, the Crown corporation now sends its geoscientists to Calgary, Houston, London, Oslo and other oil centres to present their findings to the world’s largest oil and gas producers. Keating was in Calgary last week promoting his province’s oil and gas prospects.
“Since 2011, we’ve invested just over $100 million. That level of investment has revealed just about $2.5 billion in bidding thus far and there are more bidding rounds to come,” Keating said.
By comparison, in the previous 20 years the province managed to attract an average of just under $100 million per year in bids.
The new approach has helped sustain and even expand the province’s offshore energy sector in recent years even as global oil prices collapsed and the world’s largest oil and gas companies scaled back spending, Newfoundland and Labrador Oil and Gas Industries Association CEO Charlene Johnson said.
“We’ve now seen seven new entrants to our province and that, in effect, doubles the number of operators with acreage in the province, so it’s helped attract foreign direct investment,” she said.
The additional bids are leading to more work in the province’s energy sector, Johnson said, as five companies have submitted drilling programs to the provincial regulator and a sixth program is expected.
There are about 25 to 30 of these licence rounds going on each year all around the world so we need to have that leg up
Charlene Johnson, CEO, Newfoundland and Labrador Oil and Gas Industries Association
Exxon Mobil Corp. is expected to drill on its parcels in the province’s Flemish Pass in summer 2019 and BP has issued requests for drilling proposals in the past two weeks.
“There are about 25 to 30 of these licence rounds going on each year all around the world so we need to have that leg up and jurisdictions need to be competitive,” Johnson said, adding that Nalcor taking on much of the exploratory risk helped provide that leg up.
She also said the federally approved carbon tax plan introduced in St. John’s this week would not unduly hurt the local oil and gas sector.
“I think it strikes a balance,” Johnson said of the carbon tax. She said the tax exempts oil and gas exploratory work, which is important given the province’s attempts to encourage the growth of the industry.
She said the provincial government understands the energy sector still accounts for 24 per cent of Newfoundland and Labrador’s gross domestic product, down from 33 per cent of GDP prior to the oil price crash of 2014.
The National Energy Board forecasts Newfoundland and Labrador oil and gas production will average over 300,000 barrels of oil per day this month. That is a significant increase over the 227,000 bpd oil platforms in the province pumped at the beginning of the year, driven by rising production from ExxonMobil’s Hebron project. Exxon receives global oil prices as it’s not subjected to Canada’s pipeline constraints.
In its fall fiscal update released this week, Newfoundland and Labrador announced its deficit would come in $135.9 million lower than expected at $547 million, partially as a result of higher-than-expected oil prices.
“All in all, we view the update as positive for the province, and note that the prospects for a cheaper-than-expected (Canadian dollar) along with above planned oil prices could provide for stronger royalties relative to budget planning assumptions, which could improve progress on the provincial deficit,” National Bank Financial analyst Catherine Maltais said in a research note.