Oil & Gas

steelcutting.JPG (45613 bytes)Hibernia oil production and Terra Nova investment are leading the way in making the oil and gas industry one of the main engines of economic growth. Despite the recent downward trend in oil prices, which has caused earnings to drop and curtailed company plans elsewhere, local production forecasts and investment projects are proceeding on schedule.

Hibernia production and employment are also on target with earlier forecasts. During the first 12 months of operation (November 1997 to October 1998), the field produced 19.4 million barrels of oil of which 18.1 million was produced this calendar year. Targeted production for 1998 remains at 25 million barrels with current daily production in excess of 100,000 barrels. Hibernia accounts for an estimated 4.6% of provincial GDP in 1998, including spinoff impacts.

Hibernia employment at the end of September stood at 920 persons, of which less than 200 were transitional jobs: the remainder were Asteady state@ jobs. Not surprisingly, this employment figure is down from the same time last year when the project was in the final construction stage.

Declining oil prices have negatively impacted industry earnings this year. The price of Brent crude in November was about 40% below the long-term average. Economic upheaval in Asia combined with overproduction from OPEC are the primary reasons for recent oil price trends. The main destination for Hibernia oil is the United States.

page16.jpg (24575 bytes)The first commercial volumes of Hibernia crude were landed at the new transshipment terminal at Whiffen Head in October. The completion of the transshipment terminal provides for a two stage shipping process for Hibernia crude, first, by purpose built shuttle tankers from the platform to Whiffen Head and then by second leg tankers to international markets.

The transshipment terminal will confer a number of benefits. It will provide greater transportation efficiency and marketing flexibility. The terminal currently has storage capacity for 1.5 million barrels of oil, however, it was designed to be a regional storage facility and this capacity can be expanded to accept crude from the Terra Nova oil field and other projects as well. Operations have benefited the local economy providing 47 direct full-time jobs and some part-time employment.

Investment in the provincial oil industry has resulted in the development of infrastructure and technical expertise that have continually reduced the cost of existing projects and made others look increasingly attractive. Terra Nova is a good case in point. Infrastructure such as the fabrication facilities at Bull Arm, the supply base in St. John's, and transshipment terminal at Whiffen Head are examples of facilities initially established in support of Hibernia that are slated to be used in support of Terra Nova and, possibly, other projects as well.

The Terra Nova oil development is on schedule with two years to first oil. Fabrication of the topsides modules for the Floating Production Storage and Offloading (FPSO) vessel began at Bull Arm in September. Two of the four major modules required for the vessel will be fabricated at Bull Arm as well as the flare stack and deck assemblies. Hook up and commissioning of the FPSO and topsides will also take place at Bull Arm.

Recent Terra Nova Highlights

  • contract awarded to Secunda Marine Services Ltd., an East Coast based Canadian company, for supply of two support vessels; 

  • agreement reached between Kongsberg Offshore (KOS) and the St. John's Dockyard Ltd. to establish a subsea fabrication competency at the St. John's Dockyard (see Manufacturing);

  • announcement of intention to establish a well service facility in Mount Pearl by Halliburton Energy Services, one of the Terra Nova Alliance companies;

  • announcement that Terra Nova will share St. John's supply base with Hibernia. Both projects will jointly re-tender base contract when current one expires in 2002; and

  • contract awarded to Cougar Helicopters Inc. for supply of helicopter services for Terra Nova.

Construction employment related to Terra Nova is expected to range between 900 to 1,100 persons in the Province during the summer of 1999, the peak pre-production phase. Fabrication of the topsides modules at Bull Arm is expected to account for between 600 to 700 of these jobs. Terra Nova has already generated significant employment opportunities in the Province, with over 250 people working on the project in September, up from about 90 in January. The operations phase of the project will generate in the range of 400 to 450 direct long-term jobs.

The map indicates petroleum rights and significant discoveries relevant to the Province. The potential of the oil and gas industry is significant in any context.

The 1998 Call for Bids by the Canada-Newfoundland Offshore Petroleum Board resulted in record commitments totalling $175 million on 10 of 13 parcels offered. This is a prime indicator of the petroleum industry's confidence in the Province's resource potential as well as future exploration activity.

Exploration drilling prospects are quite favourable over the near term. The semi-submersible drilling rig Glomar Grand Banks, which was at the Marystown Shipyard in early December, is expected on the Grand Banks before year-end to begin a delineation well at Hebron. This rig may be used to drill up to five of the seven wells possible in the area over the next year or so. The remaining two wells are to be drilled by the semi-submersible drilling unit Bill Shoemaker which is expected on the Grand Banks in mid-1999. In addition, PanCanadian may spud a well early next year at Shoal Point on the west coast. This well will be drilled from onshore to an offshore target.

Seismic exploration in the offshore this year has remained at historically high levels. In total, an estimated 74,000 kilometres of data has been gathered along the east, west and south coasts of the Province.

The South Coast of Newfoundland could be the next exploration frontier with indications that the area may contain large quantities of oil and gas. Gulf Canada Resources recently carried out a seismic program on part of its holdings in the area. Gulf, Mobil Oil Canada and Imperial Oil all hold exploratory permits on the South Coast. Future exploration in this area will be guided by various factors, most importantly, the settlement of jurisdictional issues between Newfoundland and Nova Scotia by an arbitration panel which is expected to be in place in the near future.

The Labrador Shelf contains considerable discovered resources of natural gas which are denoted in the map. Further exploration and development of these resources will be contingent on a host of factors, in particular demand and technological advancements.

The accumulation of activity centred around the exploration, development and production of petroleum resources is having a profound and pervasive impact on the provincial economy. In addition to current benefits, the accumulation of infrastructure, expertise and technology, is expected to enable local contractors and suppliers to increasingly capitalize on opportunities resulting in reduced costs to investors and improving the climate for future development. This will go a long way to ensuring the future growth of the industry and help maintain its role as a prominent feature of the Newfoundland and Labrador economy.

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