While free-falling oil prices may stunt growth in some offshore plays worldwide, East Coast Canada, particularly Newfoundland & Labrador (NL), is progressing steadily, seemingly immune from the turmoil. Some of this is no doubt due to the long-term nature of nearly all the province’s projects, while the rest may simply be the local industry’s stubborn determination.
In any case, NL remains vibrant. “The resource potential in our [industry] is incredible,” said Minister of Natural Resources Siobhan Coady, Fig. 1. “We have over 650 leads and prospects identified to date, eight new entrants in the past three years, and $3.9 billion in recent exploration work commitments. In less than 7% of our offshore, we have independently verified a combined resource potential of 49.2 Bbbl of oil and 193.8 Tcf of gas.”
“In recognition of what we are on the cusp of, there is increasing confidence in the [NL] offshore oil and gas industry,” said Charlene Johnson, president of the Newfoundland & Labrador Oil & Gas Industries Association (Noia), Fig. 2. “The recent Call for Bids by the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) was our most successful ever, with a commitment of $1.3B in spending and a new entrant, BHP Group.”
“The good news for the NL offshore is that it is still attracting new investors, current license-holders are continuing to explore, and many producers are investigating ways to prolong their producing field lives,” said Paul Barnes, director for Atlantic Canada and Arctic at the Canadian Association of Petroleum Producers (CAPP). From CAPP’s perspective, however, we still think growth in the NL industry could be even greater, if governments would take necessary steps to improve regulatory and fiscal competitiveness, and address issues causing uncertainty [among global investors]...”
Evidence is mounting that NL is a world-class exploration play. The aforementioned combined resource totals, which Noia’s Johnson calls “amazing potential,” are part of the 2018 Oil and Gas Resource Assessment, commissioned by provincial firm Nalcor Energy–Oil and Gas, Inc., a provincial crown corporation, and released on Sept. 7. That assessment has identified an additional 11.7 Bbbl of oil and 60.2 Tcf of gas potential offshore in last year’s call-for-bids areas.
These numbers dwarf the hydrocarbons already discovered and/or developed. “[NL] has an estimated 4.3 Bbbl of discovered crude oil and 12.6 Tcf of discovered natural gas,” said Minister Coady. “Cumulative oil production from all projects, as of Sept. 30, 2018, was 1.81 Bbbl with an estimated value of $130.9 billion.”
Accordingly, offshore NL now ranks among some of the world’s more prospective oil and gas regions. This, Nalcor Energy explains, results from strategic investments in the acquisition of new geoscience data, its processing and interpretation, and, finally, its active promotion, coupled with a predictable, scheduled, land tenure regime.
Ongoing seismic campaign. For the last eight years, Nalcor has conducted an ambitious multi-client seismic acquisition campaign, through its partners, TGS and PGS, which has shaped the recent resource assessments. By the end of 2018, more than 170,000 line km of new, multi-client 2D and 21,700 km2 of multi-client 3D seismic had been acquired.
With additional biostratigraphy to regional rock physics studies, and satellite seep reconnaissance to seabed coring work, all these efforts are undertaken to address key risks and scientific uncertainties, in an effort to enhance industry investment in the province. Nalcor says that throughout 2019, its focus will remain on collecting seismic data, as well as seabed cores in the areas identified for future licensing rounds.
“We’re seeing the potential for multiple, material-scale opportunities in our offshore,” said Jim Keating, executive vice president, Offshore Development and Corporate Services, Nalcor Energy, Fig. 3. “Our ongoing collection of data is showing significant geological diversity throughout our offshore and attracting new entrants,” Fig. 4. Currently, seven drilling plans have been submitted to the regulator. These exploration programs, coupled with the province’s continued data acquisition, will further build our knowledge of the province’s resources.”
“In October, the Department of Natural Resources launched a Virtual Data room, enabling interested exploration companies to access digital seismic data, digital well data, and all scientific reports that are no longer confidential,” said Minister Coady. “When it comes to potential,” added Johnson, “Noia has launched an awareness campaign called ‘Imagine the Potential,’ that includes an economic impact report prepared by David Campbell of Jupia Consultants. The report can be found at www.imaginethepotential.ca and demonstrates the significant benefits that will accrue to our province and country, even if just a fraction of our offshore resources are developed.”
Latest bidding round. Last April, the C-NLOPB announced the Call for Bids NL18-CFB01. The block definition included 17 parcels of land, nine new parcels being the focus of the 2018 Independent Resource Assessment, which were broken into two separate land areas – 2018 A (Orphan Basin, Eastern Newfoundland) and 2018 B (East Jeanne d’Arc Basin). Results of the bidding round were released on Nov. 7.
The November round brought record bids for exploration licenses offshore NL. BHP picked up Parcels 8 and 12 offshore Eastern Newfoundland for $621.0 million and $201.0 million, respectively. Equinor acquired Parcels 14 and 15 for $32.2 million and $480 million, respectively. And Suncor took Parcel 1, in the Jeanne d’Arc basin, for $52.0 million. Commented Minister Coady, “It was exciting news for [NL] that a record bid was set during the most recent call for bids—a cumulative total of $1.38 billion in bids and a record single bid of $621 million from a new entrant, BHP. Recent bids confirm [NL’s] exploration potential and the global interest of oil and gas E&P companies, as envisioned by the provincial government’s plan for growth, ‘Advance 2030–The Way Forward on Oil and Gas.’”
As for Equinor’s successful bids, “The exploration investments in the recent offshore Newfoundland land sale align well with Equinor’s strategy of developing our position in prolific basins,” said spokesperson Alex Collins. “This acreage is an important opportunity to advance our position in a region, where we have a well-established exploration portfolio, as we continue to evaluate and mature our existing exploration assets in the Flemish Pass basin.”
“The overall results are good in terms of future work commitments, despite only five out of 17 exploration parcels receiving bids,” noted CAPP’s Barnes. “However, we strongly believe that we would see even greater interest and growth, if certain barriers to investment were addressed by the federal and provincial governments to improve competitiveness of the industry. NL is competing globally for exploration investment, and we are seeing much of that capital flow to Latin America, in particular.”
“With 25 or 30 calls for bids occurring globally, we need to remain competitive,” said Noia’s Johnson. “The seismic program in [NL] is one of the largest continuous programs in the international industry.”
BHP’s entry. “We’re very pleased to welcome [BHP] to our province,” said Nalcor’s Keating. “We look forward to discovering what the future holds for them in [NL].” CAPP’s Barnes echoed Keating’s thoughts. “We were certainly pleased to see a new investor in the province,” reflected Barnes. “It’s always good news, when you see a new entrant come to the region, not only for the additional investment that it brings, but also the opportunity for sharing services and future investment. It shows that the province’s basin analysis and marketing efforts are working…”
“This frontier opportunity has large oil resource potential, which we identified through our Global Petroleum Endowment Study in 2016, and is in a low-risk country, with competitive fiscal terms,” said BHP President, Operations Petroleum, Steve Pastor. “This opportunity delivers on our exploration focus in conventional petroleum and will leverage our global deep-water development and operational expertise.”
ExxonMobil’s campaign. Back in September 2016, ExxonMobil released its “Eastern Newfoundland Offshore Exploration Drilling Program, 2018-2030,” to which the firm remains committed. “ExxonMobil Canada is in the planning stages for an exploration program that would involve the drilling of at least one well offshore [NL], starting as early as 2019,” said the company. “ExxonMobil Canada Ltd. has awarded a contract to Seadrill for the West Aquarius [MODU]. Additional wells may be drilled under the agreement…ExxonMobil is a long-term investor in [NL].”
Offshore NL, drilling activity remains solid. “We are almost as busy on drilling as we’ve ever been,” said Geoff Cunningham, V.P. of Operations at A. Harvey & Co., which handles offshore logistics and supply boat servicing at the Port of St. John’s. “At Hibernia, the platform is drilling; you’ve got Husky drilling with the Henry Goodrich [semisubmersible], the Transocean Barents is drilling for Suncor, and the Hebron platform also is drilling. So, we’re probably one rig down from the peak of [all-time] drilling, but that’s it.
“It’s going to get busier in 2019, no question,” added Cunningham. “The Transocean Barents will disappear, but the West Aquarius semisubmersible will reappear [for ExxonMobil]. Nexen is likely to drill in 2020, and there’s still a chance they could begin in 2019. In 2018, we’ve had the busiest month (in August) at our supply base, in our history, when it comes to the number of supply lifts to cargo boats. Over 5,000 lifts of cargo moved out on our ships. If Equinor goes to a development drilling and production mode some day, the drilling part, alone, would add 15% to uplift business through our facilities.”
West White Rose. In regard to NL’s latest mega-project, “West White Rose project construction (Fig. 5) continues to progress on schedule, with first concrete slip poured at the [port of ] Argentia site at the end of November,” said Minister Coady. “It was a busy fourth quarter in Argentia,” noted Husky spokesperson Colleen McConnell. “At peak, there were approximately 2,000 craftspeople on site. The base slab of the CGS (concrete gravity structure) was poured over the summer, followed by two slip forming stages. Slip one took the structure from 1.2 m to 6.25 m high. The second slip, which was completed on Nov. 27, took the structure to 46 m high.”
In total, nearly 25,000 m3 of concrete were poured, and more than 10,600 tonnes of rebar were placed in the graving dock during 2018. The activity focus during the winter months shifts to interior work: additional concreting in the bottom of the CGS and some mechanical outfitting. “The CGS is scheduled to be mechanically complete late in 2020, and towed into the field in 2021,” added McConnell. “The topsides will be transported to White Rose field separately and installed atop the CGS in the field.”
Hebron update. On Nov. 27, 2018, it was exactly one year since first oil was achieved at Hebron field. During that time, ExxonMobil Canada put seven wells online, and 20 MMbbl (approx. 54,800 bpd) of oil were produced. But there are more wells and greater output to come. “Hebron will use a phased approach to reach a peak of 150,000 bpd,” said a company spokesperson. “Our most recent production volume available is October’s 69,355 bopd.”
Hibernia. NL’s first operating field has now produced for 21 years (Fig. 6), and “Hibernia temporarily shut down operations in the fall for planned maintenance (34 days),” said a spokesperson for operator Hibernia Management and Development Company (HMDC). “Routine maintenance is important for the integrity and reliability of equipment, and is standard safety practice. There is also a regulatory requirement for offshore operators to test equipment, and this can only be done when production is shut in.”
Bay du Nord/Flemish Pass. Back in July, Equinor and the NL government signed a framework agreement for a $10.9-billion development with first oil anticipated in mid-2020s, and the province taking a 10% stake. However, Equinor has until 2020 to sanction the project. “Equinor is targeting a FID on the Bay du Nord development project in 2020,” confirmed spokesperson Alex Collins. “We do not anticipate Bay du Nord project sanction to occur prior to 2020,” added Minister Coady. “Equinor and its partners are working diligently on the detailed engineering, environmental and other regulatory requirements to proceed with the project.”
West Aquarius rig goes to Bull Arm. As alluded to earlier, ExxonMobil will utilize Seadrill’s West Aquarius ultra-deepwater semisubmersible (Fig. 6), sometime in 2019. Accordingly, Seadrill awarded a contract to local fabricator DF Barnes for modifications and updating to the rig. In turn, Nalcor Energy-Bull Arm Fabrication signed a short-term agreement with DF Barnes for the Fabrication Yard, which saw work begin on the semi in December, and which will continue into Spring 2019.
The work scope includes warm stacking, thruster change-outs, and hull inspection and cleaning. This work could be expanded, as the rig further prepares for its planned drilling activity. “This speaks to the quality of work and capabilities of NL companies to successfully bid on these contracts,” said Minister Coady.
And at Nalcor, Keating added, “Bull Arm is Atlantic Canada’s largest fabrication yard, with a history of supporting oil and gas opportunities. We’re happy to welcome the West Aquarius back to the province.” Separate from the short-term agreement with DF Barnes, a Request for Proposal process is ongoing, as part of Nalcor’s planning for future use of the site. A decision is pending, as discussions continue with two proponents—DF Barnes and Canadian Supply Base Company, to maximize site utilization into the future.
SEVERE WEATHER OFFSHORE NL
A rare severe storm struck the NL producing area in the Jeanne d’Arc basin on Nov. 15, featuring winds in excess of 100 km/hr (62 mph) and wave heights greater than 15 m (49 ft). “The winds that we had in November and December, I’ve never seen the like of it,” said A. Harvey’s Cunningham. This prompted three operators to shut down NL’s four producing facilities—Hibernia (HMDC, shut in Nov. 16, restarted Nov. 22); Hebron (ExxonMobil Canada, shut in Nov. 15, restarted Nov. 19); Terra Nova FPSO (already shut in by Suncor for maintenance, restarted Dec. 2); and White Rose (Husky, SeaRose FPSO shut in Nov. 15). ExxonMobil said that “weather conditions were well within the design limits of both [its] facilities.”
However, when Husky’s SeaRose attempted to re-start production on Nov. 16, a subsea flowline connector reportedly broke. This resulted in the spilling of 250,000 liters (1,572 bbl) of oil. The FPSO remained shut down while an investigation was conducted by Husky and C-NLOPB. As of early January, no date had been set yet for restart of the SeaRose. The operator said that “operations will remain suspended until a full inspection of all facilities is completed, and Husky has received the support and approval of the C-NLOPB.”
Back in late 2012, the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB) declared BP the successful bidder for deepwater Blocks 5, 6, 7 and 8 in the Call for Bids NS12-1. Subsequently, in early 2013, BP was issued Exploration Licences 2431, 2432, 2433, 2434, approximately 300 km offshore Nova Scotia. In the summer of 2014, as part of its Scotian Basin Exploration Project, BP (50% and operator), along with partner Hess (50%), received authorization from C-NSOPB to conduct a 3D Wide Azimuth seismic survey over the area. BP acquired data over 7,752 km2.
Continuing the project, BP and Hess spudded the Aspy D-11 well in April 2018, 330 km offshore Nova Scotia. Back in April 2017, the CNSOPB had reviewed and approved an application from BP to consolidate ELs 2431, 2432, 2433 and 2434, and the effective date became the spud date. With BP having spudded the Aspy D-11 well in April 2018, consolidated EL 2434R is now in effect, meaning that the interior boundaries of the four ELs are now merged into one. These blocks, combined, are equal in size to 600 U.S. deepwater OCS blocks.
The Aspy D-11 was drilled to a 7,400-m TD. Unfortunately, as of November, the well did not encounter commercial hydrocarbons. “Their one well, Aspy D-11, was a disappointment and followed behind the well drilled by Shell in 2017,” said Ray Ritcey, CEO of The Maritimes Energy Association. “So, our success rate has been disappointing. Meanwhile, we’re also in the process of decommissioning the only two natural gas production facilities offshore all of East Coast Canada, which are Sable and Deep Panuke. As of Dec. 31, 2018, both sites had ceased production completely.”
“Where to, now, for Nova Scotia’s offshore is a good question,” continued Ritcey. “The CNSOPB on Dec. 10 issued Call for Bids NS18-3, Bids must be received by May 8. The parcels are on the Scotian Shelf, within the Sable Sub-basin, where 23 significant discoveries have been made to date. They are in shallow water, with maximum water depths up to 100 m.”
“With respect to the Aspy Well, while based on strong and ever-improving science and data, statistically offshore oil and gas exploration drilling sometimes returns results which are undesired,” observed Noia’s Johnson. “That said, we are confident in the prospectivity of our offshore, and we know successful finds will bring significant value....”
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