Listen: Atlantic Canada’s offshore oil potential

View Full Transcript

Jeff Mower:

Hello and welcome to the Platts Oil Markets podcast by S&P Global Commodity Insights. Today we will be discussing developments in Canada's offshore oil and gas industry.

I am Jeff Mower, director of Americas oil news, and with me is Ashok Dutta, who covers Canadian oil, gas, and renewables from Calgary. Welcome, Ashok. Newfoundland and Labrador are working to lure investors into their offshore oil and gas sector, citing 124 billion barrels in crude reserves and access to export markets. The four main fields, Hibernia, Hebron, Terra Nova, and White Rose, currently produce a little under 200,000 barrels a day and while several upgrades and extensions are in the works, it's unlikely output will climb much higher without a major new development. Some in the industry say that investment will be needed to boost production down the road as a more gradual approach is being taken on the transition to cleaner fuels, but we have yet to see a resurgence of interest in Canada's deepwater, which is competing with the likes of Guyana and Brazil. Ashok, you just returned from the Annual Energy NL Conference in St. John's. It seems as if the province is hopeful about future production growth but realistic about its expectations. Is that accurate?

Ashok Dutta:

It is accurate, and it does understand that it is seeking investment dollars in a global market, which is far more attractive, so yes. The answer put simply is yes. However, it is being realistic because last bidding season, they hold one every year, they offered 47 blocks, Jeff. It was a bust. They never received even one offer. That really hasn't been the case. The last time they had to pay something like that was in 2015, but even in post-COVID, they did get a few offers so going forward, they would like to take a closer look. While there is cautious optimism out there, they also say that there are a couple of things that they can do to make Canada more competitive. Foremost amongst them is the regulatory regime. The oil minister had an interview with us at S&P, and he said specifically that one of the issues that comes forward is the uncertainty regarding carbon pricing. Although federal legislation has at the end of the day an overriding impact on what Canada's policy would be, the province is trying all that it can and is using every tool in its wheelhouse to make it competitive.

Jeff Mower:

Yeah. What about the carbon pricing? I mean, I understand that the... That's kind one of the selling points of the offshore crude. They say that it's relatively low carbon.

Ashok Dutta:

Correct.

Jeff Mower:

What else is standing in the way? I mean, obviously we're talking about deepwater, we're talking about ultra-deep in some cases, right?

Ashok Dutta:

This is one of the issues that has not been defined very clearly in the Canadian parliament. There is a bill that the federal government wants to introduce on emissions and this is an issue that will be talked about, but the focus is more on the heavy crude in the west rather than the offshore crude. But the provincial government has done everything that it can with this particular development, which is called the Bay du Nord with Equinor, and they have signed the project term sheet. They have even offered to take an equity stake to sweeten the deal and for Equinor and BP, who are the joint venture partners, to take an FID. However, it's still a case of so close, but yet too far. The provincial government thinks it's again that uncertainty about carbon pricing, carbon content, carbon offset, et cetera.

Jeff Mower:

Now, what does Equinor say? I know they pushed that back last year, the Bay du Nord project, and at the time they were citing cost inflation. I would think that other producers would be facing the same thing. What are they saying now? What's Equinor saying now about the Bay du Nord project?

Ashok Dutta:

Last week they said that they keep on tracking, they will not spare any effort to take this to the finishing line. Either way, in the last one year prices have not any chance gone down so the pressure is still on. Jeff, this is a $15 billion project. By all means, if that FID is made after LNG Canada on the West Coast in British Columbia, this would be the single largest investment, $15 billion over a six-year investment period. That's not going to go down that easily, so there are a lot of things that they will be working on. Openly they have come out and said, "Cost was a major stumbling block. Has that changed in the last year? Not really. How do we reach the finishing line? Let's do some additional drilling to see if we can shore up more resources." They have a two well drilling program, which they'll be going through this July, so if they have additional resources they would possibly try and see what the IRR would be for them.

Jeff Mower:

Yeah. I think the... What are the prospects for that Bay du Nord? Something like 200,000 barrels a day.

Ashok Dutta:

Yes.

Jeff Mower:

Looking at a forecast for Atlantic Canada production, I saw S&P Global Analytics is predicting Atlantic Canada output to raise to nearly 400,000 barrels a day by 2034 before gradually sliding off, so it seems to be assuming that project or maybe some others. I know there's a few other sort of extensions in the work, is that correct, or some other drilling programs? Can you go through a couple of those? Maybe ExxonMobil's Persephone. They have a prospect that could open up the window to, what, 4 billion barrels of oil?

Ashok Dutta:

Correct. That is correct. If you're talking in terms of 400,000+, then obviously the biggest part of it is going to come from Bay du Nord. The current production is roughly 200,000 add another 200,000, but ExxonMobil has got... Along with the current petroleum, they have a new block. They have actually started drilling on the 25th of March. Yes, the industry says, "We're very optimistic." That field can itself provide access to 4 billion barrels, but in the offshore bidding round for which bids are due this November, of the 42 parcels nine are estimated to hold 1 billion barrels each so you've got another 9 million barrels. The industry or the provincial government is pretty hopeful that there is oil out there, but then the whole question would be how competitive it would be and why should I as an IOC go and invest. So while Equinor is going to continue drilling, ExxonMobil is going to continue drilling that prospect for new crude.

At the same time, you have some of the legacy fields like Terra Nova, which went offline for four years because of the refurbishment, quite a massive one, of their FPSO. That's back. That's going to be 30,000 at its peak capacity, and the first quarter they reported 10,000. On top of that, you have the White Rose development. White Rose, the legacy field, is being developed through extensions so the West White Rose, that production is coming back with the FPSO this summer, late summer, early third quarter, and then looking further into 2025 to more towards '26 they're going to add another 60,000, so anything between 30 to... 30 plus 60, 90,000 is what we'd be looking at.

Jeff Mower:

That would put output there, what, around 80,000 barrels a day for White Rose?

Ashok Dutta:

Right.

Jeff Mower:

That's Cenovus, is that correct?

Ashok Dutta:

That is Cenovus as the lead operator. Yes, Jeff.

Jeff Mower:

Okay. On the new auction, the auction this year, is the province more optimistic about this year? If so, why? Have companies come forward this year and said, "Hey, we're interested?"

Ashok Dutta:

Traditionally, Newfoundland has been home to, everybody knows it, Exxon, BP, Equinor, and the Canadian companies, Suncor, Cenovus, earlier Husky Oil. Chevron also has a stake, Marathon Oil also has stake, but then these are the big guys. In the 2012, 2013 bidding round, for the first time they got participation from the new players, Qatar Petroleum. They got investment from the Chinese, and that kind of sparked a fresh interest. There are new players who are coming in, these people are coming in to invest, they're not here to just open a satellite office, so that expectation has kind of gone down. Now, will we see that in the upcoming bidding round this November? The provincial government is cautiously optimistic. I wouldn't be surprised if the interest is pretty low level.

Jeff Mower:

Mm-hmm. It would be interesting to see. A lot of that crude goes to either... I was looking it up on Commodities at Sea the other day, and the Atlantic crude tends to go to US Atlantic Coast refineries and also Northwest Europe, so it's been competing with those North Sea grades over there. Prices lately for something like Hibernia, it's been kind of flatlining around... Well, not flatlining, but it hasn't been changing much. It's around 50 cents below Dated Brent, but yeah. I mean, it's a very popular crude again on the Atlantic Coast here, especially the lighter stuff I think.

Ashok Dutta:

Yeah. That's right. They have immediate Tidewater access, which Western Canadian crude doesn't.

Jeff Mower:

Mm-hmm. Mm-hmm. Before we continue, I'd like to tell you, our listeners, about the upcoming 40th Annual APPEC Conference by S&P Global Commodity Insights. The conference will take place in Singapore from September 9th to September 12th, 2024. Building on the success of previous years, APPEC 2024 promises to deliver another exceptional experience filled with thought-provoking discussions, expert insights, and unparalleled networking opportunities. Join us as we gather to explore the latest trends, challenges, and innovations shaping the global energy landscape. If you'd like to learn more about APPEC Conference, be sure to check out the link we've included in our show notes. Let's go on to renewables a bit. I know that's something else that came up in the NL conference, Ashok. What was the takeaway from there? I know there's been a bit of development in renewable diesel and I want to say hydrogen.

Ashok Dutta:

Correct. The more tangible one, and I'll explain why I said that, is the green diesel. That was simply converting the existing Come By Chance Refinery and retrofitting it. The guy at the conference said, "It wasn't really much of a job because bulk of what a refinery needs, the reactors, the heaters, the compressors were already there. We just had to retrofit and change it." Understandably, it's not that simple, but what I'm trying to say here is that it was not very capital-intensive and it was done in a... It was turned around in a pretty short time. The end result, 18,000 barrels of green diesel, they have already loaded the first green diesel from that refinery and now they have stabilized the production and now they are taking a look at adding another 12,000. Now, at 18,000 barrels a day it's the largest green diesel refinery in competition with Imperial, which is building a similar facility in Strathcona in Alberta, but then going back to the East Coast they want to add another 12,000, 30,000, and take it to that optimum level. They are in talks with the federal government and then there were nuts and bolts to that procedure.

Moving a little away from that is the rather high desire that I saw. There were more than a thousand delegates at that conference and a bulk of them were talking about harnessing wind energy. Until a few years ago, there was a moratorium on building wind farms in Newfoundland, but that changed since and now they want to harness the wind energy to produce green hydrogen and green ammonia. Three years ago, they issued an expressions of interest in which the provincial government came forward and did two things. Number one, granting of crown lands or leasing of crown lands on a long-term basis, 99 years. The other one is helping with the regulatory process, primarily the environmental assessment and giving them access to federal government funding or support. The expressions of interest that was issued resulted in 11 companies coming up with projects, which are at various stages of implementation. The second EOI was issued last week or they made an announcement of issuing it last week with 12th of July as the submission date. So this summer, they have got things going on as far as hydrogen and ammonia is concerned.

Jeff Mower:

All right. I'll leave it at that. Thanks, Ashok, for joining me and thanks again to our listeners for tuning into this episode of the Platts Oil Markets podcast. This Oil Markets episode was produced by Jennifer Pedrick in Houston.