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Analysis: Eastern Canada's heavy Hebron crude production surges as sweeter grades falter

Highlights

Hebron on pace to top all other Eastern Canadian crudes for second straight year

Most heavy Hebron crude taken by US Gulf Coast refiners

Houston — Hebron crude output is on pace to top that of all other Eastern Canadian grades for a second straight year on the back of demand for heavy crude from the US Gulf Coast and as sweeter grades like Hibernia and Terra Nova deal with production issues.

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Output from the Hebron field, which produced first oil in late 2017 in waters off the coast of Newfoundland and Labrador, totaled 26.19 million barrels in the first six months of 2020, according to statistics from the Canada Newfoundland & Labrador Offshore Petroleum Board (CNLOPB). That compares with 22.83 million barrels of Hibernia produced in the first half 2020, 3.66 million barrels of White Rose and just 1,932 barrels of Terra Nova, which Suncor Energy took offline.

Gulf Coast refiners are buying most of the Hebron produced, according US Customs and S&P Global Platts Analytics data. The US imported 16.85 million barrels of Hebron in the first six months of 2020, with almost all of it taken by PADD 3, the data show. That compares with US imports in 2020 of 14.5 million barrels of Hibernia, 705,336 barrels of White Rose and zero imports of Terra Nova.

Hebron is produced in the general area where Hibernia, Terra Nova and White Rose are produced, and has about 20.4 API and 0.79% sulfur, according to a recent assay. Hibernia, by comparison, is around 34.1 API and 0.47% sulfur, while Terra Nova is around 34.2 API and 0.52% sulfur. Hebron is a joint venture between ExxonMobil (35.5%), Chevron (29.6%), Suncor (21%), Equinor (9%) and Nalcor Energy (4.9%).

Outages

An additional factor that has allowed Hebron output to outpace that of its rivals is that competing grades have faced a series of regulatory actions and shut-ins.

Regulators at the CNLOPB ordered Terra Nova to halt production in December, citing a faulty fire prevention pump and other non-compliance issues.

Suncor, the majority owner and operator of Terra Nova, has not definitively said when or if Terra Nova production will resume.

Suncor did not respond to a request for comment July 28, but confirmed in its second-quarter 2020 earnings statement that it had decided to disconnect the Terra Nova floating, production, storage and offloading vessel and dock it in Newfoundland.

"Suncor is currently evaluating alternate options for a return to operations and the Terra Nova Asset Life Extension project," according to the statement.

CNLOPB spokeswoman Lesley Rideout said the Terra Nova FPSO had been brought to Conception Bay and is "no longer under our authorization."

Hibernia production has also taken a hit from several recent shut-ins. The Hibernia Management and Development Co. said production resumed July 22 and began gradually ramping up after it went offline July 19 after what regulators described as excess water discharge.

In 2019, Hibernia production was shut-in following a spill in July of that year, then was shut-in again in August a few days after it resumed production, coming back online in September, according to statements from the joint venture. The Hibernia joint venture is owned by ExxonMobil (33.125%), Chevron (26.875%), Suncor (20%), Canada Hibernia Holding Corp. (8.5%), Murphy Oil (6.5%) and Equinor (5%). Hibernia production began in November 1997.