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Newfoundland’s Nalcor encouraged by oil tests under Labrador Sea

File photo of Ed Martin, president and CEO of Nalcor Energy.

Greg Locke/The Globe and Mail

Newfoundland and Labrador is hoping to shift its offshore exploration activity into a higher gear after its provincial energy company discovered four prospective oil basins in the Labrador Sea.

Nalcor Energy released the encouraging seismic results this week and is promoting them to global oil companies in an effort to bolster exploration activity and generate future new production as older fields begin to play out. It also has satellite imagery that reveals naturally occurring oil slicks in the water, suggesting the presence of crude deposit under the sea bed.

"What we found are some very, very, very attractive basins, which the information is telling us are oil prone, not gas prone," Nalcor chief executive Ed Martin said in a telephone interview from St. John's on Friday.

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"We can clearly say [the structures] are there but you're going to have to put a drill bit in to see whether [oil] is there or not. We have identified significant new prospective basins that are of a size and class that are – and it's an overused term – but they're world class. If you compare these structures to structures around the world, they're on the large size, on the very large size in some cases."

Mr. Martin cautioned that companies will have to drill exploration wells before anyone knows whether there are commercial pools of oil to be tapped under the icy Labrador Sea. Nalcor itself does no deep-water drilling but has assembled the initial scientific information that it will make available to any interested party, and will then invest in a partnership if a project moves toward production.

Some $35-billion (U.S.) was spent globally on deep-water exploration in 2012, but Newfoundland and Labrador accounted for only 1 to 2 per cent of that. The province is trying to attract additional spending by making Nalcor's seismic information broadly available, and by promising regulatory certainty and a competitive royalty system.

Several oil companies have expressed "keen interest" in the Labrador opportunities, Mr. Martin said, though he would not name them. He expects the federal-provincial regulator, the Canada-Newfoundland and Labrador Offshore Petroleum Board, to open the area for leasing in the next couple of years.

"A lot of majors are looking for just this: Where are there fields in the world that are under-developed, they haven't attracted as much interest as they should have? And we're able to present that not only do we have a strong producing basin in the Jeanne d'Arc – [site of Hibernia, Terra Nova and now Hebron] – but now we showing them a large area with double the prospectivity and it's under-developed in the grand scheme of things."

There is currently no drilling occurring in the province's offshore but Chevron Corp. and Statoil ASA both have plans to drill deep-water wells off the island of Newfoundland later this year.

The consortium led by ExxonMobil Corp. formally approved construction of the $14-billion Hebron project earlier this month, but without major new discoveries, the province's oil output could go into precipitous decline by the middle of the next decade.

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As the province seeks to attract more exploration drilling, the federal government is poised to drive up the cost by raising the amount of liability that oil companies face in the event of blowouts or other spills. Companies operating off Canada's East Coast currently face a $30-million limit on their liability for an accident in which negligence was not involved, but Ottawa is expected to raise that into the billions of dollars later this spring.

Critics contend the low cap amounts to a subsidy for the industry and leaves taxpayers' with the financial risk of a major accident. Mr. Martin said the government needs to ensure its system remains competitive with other international jurisdictions.

"We're playing in a global world in this business," he said. "We just have to be competitive, so the key is whatever limits are set here need to be competitive with what happens in similar basins. That's the level playing field, that's all you need."

Despite BP PLC's massive blowout in the Gulf of Mexico in 2009, the U.S. government has not raised its liability limit from $75-million, though there has been considerable pressure to do so. BP quickly waived that limit after the Macondo accident and set up a $20-billion fund to deal with damages.

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About the Author
Global Energy Reporter

Shawn McCarthy is an Ottawa-based, national business correspondent for The Globe and Mail, covering a global energy beat. He writes on various aspects of the international energy industry, from oil and gas production and refining, to the development of new technologies, to the business implications of climate-change regulations. More

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