Canada’s easternmost province is set to take a leadership role in the oil and gas sector.
By Bruce Lantz
Recent developments in projects slated for offshore Newfoundland and Labrador will almost certainly elevate that province to world-class standing among major players in the industry. Billions of dollars in contracts and infrastructure development are planned with the West White Rose project restarting, the Bay du Nord project progressing, and the Terra Nova refurbishment and commencement coming. The decision by bp PLC to vacate its interests in the Canadian oil sands and focus on six exploration licences offshore Eastern Newfoundland, adds to the new emphasis. Bp is selling its 50% non-operated interest in the Sunrise oil sands project in an agreement with Cenovus for $600 million in cash, a contingent payment with a maximum aggregate value of $600 million expiring after two years, and Cenovus’s 35% position in Bay du Nord.
“We have a responsibility to the oil and gas industry, to our province and our people to plan for the future,” said Newfoundland and Labrador Premier Andrew Furey in a statement. “As we advance efforts to achieve net zero by 2050 and plan for a transition, we will foster an environment that supports our economy by embracing renewable energy while maximizing our low-carbon oil and gas advantage.”
Canada’s federal government is on board. In late 2020 Ottawa announced $320 million in funding to support direct and indirect employment in the Newfoundland and Labrador oil and gas sector and activities that generate environmental and co-benefits.
“Other parts of the world will continue to produce oil — and our oil and gas is a responsible choice,” said Andrew Parsons, minister of industry, energy and technology, in a statement. “Newfoundland and Labrador recognizes and supports both the significant opportunities renewable energy presents in terms of economic development and environmental progress as well as the important role that oil and gas will continue to play for the foreseeable future.”
The decision to restart the West White Rose project — originally sanctioned in 2017 but which saw construction cease in March 2020 with a project review announced in September — follows the project evaluation which included the impact of a finalized agreement with the provincial government on a competitive royalty framework for the project, providing safeguards for the project’s economics in periods of low commodity prices.
“This project is expected to extend the production life of the White Rose field, securing long-term value for shareholders and the people of Newfoundland and Labrador,” said Shelley Powell, Suncor senior vice-president of exploration and production, and in situ. “The decision to restart the West White Rose project and increase our interest underscores Suncor’s confidence in East Coast Canada’s energy future, the importance of our offshore business within our integrated model and the positive role of Canadian oil and gas from a global energy security and ESG perspective.”
The White Rose joint venture owners are Cenovus Energy Inc. (CVE:NYSE), the operator, and Suncor Energy Inc. (SE:TSX). The West White Rose Project joint venture owners are Cenovus, operator, Suncor, and provincial energy corporation Nalcor Energy. Husky Energy Inc. (HSE:TSX) was involved but they were bought out by Cenovus in 2021 for $3.8B. The province’s royalty share is improved in a higher commodity price environment. In addition, the province will receive a $200 million Royalty Abandonment credit as well as $100 million to establish a Green Transition Fund. Suncor will assume capital commitments on the 12.5% additional interest on a go-forward basis only. No significant capital spend is expected before 2023.
The project is expected to generate almost $20 billion in gross domestic product and more than $7 billion in labour income over the 14-year life of the platform, as it will create about 250 permanent jobs plus 1,500 more direct and indirect jobs, with employment beginning to ramp up immediately and increasing through 2023.
The Bay du Nord project consists of several oil discoveries in the Flemish Pass basin, 500 kilometres northeast of provincial capital St. John’s. Equinor ASA (EQNR:NYSE) made the first discovery in 2013, followed by others in 2015, 2016 and 2020, at depths ranging from 1,170 metres to 650 metres. It passed through the federal government’s environmental assessment process in early April and is expected to play a key role in helping the province meet global demand for lower-carbon oil while assisting the government’s commitment to net zero emissions by 2050. It is expected to boost the provincial economy with significant employment and economic activity.
“Approval of the environmental assessment for Bay du Nord is a significant milestone welcomed by Energy NL members, the energy sector, and our province in general,” said Energy NL chairman James Parmiter in a statement. “Bay du Nord is a generational energy development that will provide significant economic benefits while being the lowest carbon intensity oil project in Canada. We look forward to continued co-operation between all stakeholders as we move toward project sanction.”
Bay du Nord is expected to provide more than $97 billion in GDP across the country, $82 billion in Newfoundland and Labrador, and 13,800 jobs annually — 8,900 in the province. But the benefits spread across Canada, where $31 billion in employment income induced by the project will create $22.6 billion in annual household spending on everything from groceries to vehicles to entertainment. And the federal; government can expect to receive $10.7 billion in tax revenue.
“The next steps for this project are sanctioning by the proponent Equinor, and Energy NL members look to that occurring as soon as possible,” Energy NL CEO Charlene Johnson said in a statement. “Equinor is a global leader in responsible resource development and Energy NL members are greatly anticipating working with them to enhance that reputation through the Bay du Nord project.”
Discovered in 1984 the Terra Nova field was the second to be developed on the Grand Banks offshore Newfoundland, with production beginning in Fall 2002, the first such development in North America to use a Floating, Production, Storage and Offloading (FPSO) vessel. Production was shut down in 2019 by the offshore regulator due to safety concerns for the 1,125 employees. A new agreement in 2021 between majority owner Suncor and its joint venture partners finalized a plan to extend production life by 10 years, with the expectation that it will produce 80 million barrels of oil over the next decade and provide hundreds of jobs. That has been aided by $205 million from a federal oil industry recovery fund and a pledge by the province to forgo up to $300 million in royalties.
Suncor vice-president Josee Tremblay told CBC News the cash and royalty relief was a “key pillar” in efforts to save Terra Nova. “We needed to come to an agreement with all of the owners of the asset, as well as the support from the oil and gas recovery fund.”
“This is a project that was on life support,” Premier Furey told CBC. “We gave them life support to get back out in the field now that the price of oil is gone back up.”