Newfoundland's government is touting a major offshore discovery as the start of a new chapter in the province's oil industry, and a reason for international energy companies to consider investments there.
Statoil ASA of Norway said Thursday its discovery in the Flemish Pass Basin, called Bay du Nord, could hold 300 million to 600 million barrels of light oil. The upper end of that range would be Newfoundland's third-largest discovery. Statoil's partner in the project is Calgary-based Husky Energy Inc.
Bay du Nord represents the partners' third oil discovery in that area. The find is in deeper North Atlantic water and farther off the coast from the Jeanne d'Arc Basin, where the Hibernia, Terra Nova and White Rose fields produce, and the $14-billion Hebron field is under development.
"That's good news for us and it certainly will encourage increased offshore exploratory activity. It's one of the largest offshore oil fields to be discovered off Canada," Tom Marshall, Newfoundland's Natural Resources Minister, said in an interview.
"I think that announcement is going to make other players take a closer look."
Some of those players might come from across the Pacific. During a trip to China this summer, Mr. Marshall and Premier Kathy Dunderdale pitched frontier energy opportunities to state-owned CNOOC Ltd. and Sinopec, which have been major investors in Alberta's oil sands but absent in the Atlantic offshore. He said he also recently urged Royal Dutch Shell PLC consider picking up acreage.
Newfoundland's projects currently pump about 250,000 barrels a day, roughly a tenth of Alberta's total output. Hibernia had the largest initial reserves at more than 1.4 billion, followed by Hebron at more than 700 million.
Bay du Nord is 500 kilometres northeast of St. John's. The other two finds are Harpoon, announced in June, and Mizzen, drilled in 2009. Husky estimates Mizzen to hold 130 million barrels and the partners are still assessing Harpoon. All three, in water depth of just over a kilometre, could be developed together some time after 2020. Statoil has a 65-per-cent stake and Husky the remainder.
The Newfoundland oil business is not without risks. Some previous projects have taken decades to bring into production. The Exxon Mobil Corp.-led Hebron development, sanctioned in January and due to start producing in 2017, was discovered in 1980.
Disputes between major companies and the government were a factor in the delays, though agreements over Hebron led to a new royalty structure and role for the province in future projects.
"We're getting experience in this," Mr. Marshall said. "Not only with Hebron, but since then there are extensions to the White Rose field, a number of extensions and a number of negotiated agreements. I guess, after you're at it for a while, it becomes easier to negotiate."
Other risks are operational. The Flemish Pass and other parts of the region are known for famously harsh operating conditions with rough seas and icebergs. Still, previous projects have withstood that, analysts said, and such water depths are commonplace in the industry.
Potential reserves appear more than adequate for commercial development, and could increase with further drilling, said Michael Dunn, analyst at FirstEnergy Capital Corp. It is too early to gauge an oil price that would be required to break even, he said.
"It sounds to me like Statoil and Husky are reasonably keen to do this, but we'll find out after the initial engineering work happens and the cost estimate arrives," Mr. Dunn said. "But I would notionally think that they would want to get at this."
It is one of the world's top 12 finds over the past three years and the largest Statoil has made outside Norway, said Geir Richardsen, vice-president of the company's Canadian unit. He stressed there was much more exploration to do there.
Husky, the oil producer and refiner controlled by Hong Kong billionaire Li Ka-shing, has made Newfoundland one of its main operating regions. Besides exploration, the company is assessing whether to build a massive wellhead platform for its west White Rose extension. A decision is expected in the coming months.
Asim Ghosh, Husky's chief executive, said development times have shortened materially, partly due to the government's and industry's growing offshore expertise.
"There's a massive service industry that has created the tools, and there's the experience base of the companies with large project management, specifically related to underwater," Mr. Ghosh told The Globe and Mail. "The optionality that people have, the variety of drilling options available – it's chalk and cheese versus what was the case in the early days of these projects."