Global Oil Companies Invest Proving Offshore Newfoundland is a Hot Spot

November 12, 2015, was another historical day for Newfoundland and Labrador as it marked the commitment of oil companies to spend another $1.2 billion on exploration offshore. Regardless of oil price, this most recent round of bids marks the incredible, biggest-ever combined amount of revenue in one round, in the region. Clearly, we are sitting on a gold mine of potential.

In this round of bids, there were 11 parcels of land being sold over a total land area of 2.5 million hectares, in a horseshoe-shaped area around the Flemish Pass basin. The Flemish Pass basin is a hot spot and is showing the signs needed for international oil companies to be bidding high prices at the toughest time in oil history. The Norwegian state-owned company, Statoil — which already has significant holdings in the Flemish Pass, is playing a role in six of the seven bids. 

We can learn so much from the success of the Norwegian oil regime and to have Statoil in our oil plays, allows for the transfer of technology and expertise. It is an opportunity for us to also become a global player and investor as Statoil has become.

“The successful bids in these frontier areas of offshore Canada are in line with Statoil’s strategy of deepening our position in prolific basins and securing access at scale,” Tim Dodson, Statoil’s executive vice-president for exploration, stated in a news release.

Statoil is not only an exploration investor in the region, it is also a critical partner in our long term success. Statoil is a mentor in terms of work benefits, equity shares, royalty structures and global investing. We have a lot to learn from companies like Statoil.

Joining the consortium of successful bidders is long standing participant in Newfoundland’s offshore global oil company, ExxonMobil who is partnering in three of the winning bids.

Nalcor has been working to attract other global players into the game. Three of the new players who are part of the winning bids inlcude: BG International Limited, BP Canada Energy Group ULC and Nexen Energy ULC.

The assessment of the 11 parcels of land showed a potential of 12 billion barrels of oil and 113 trillion cubic feet of gas. The final land sales results were awarded to the successful bidders in the following land parcels and consortium ownership percentages as follows:

NL15-01-02: Chevron 35%; Statoil 35%; BG International 30% (274,732 hectares) $43,175,000.

NL15-01-05: Statoil:40%; ExxonMobil 35%; BG International 25% (267,403 hectares) $11,030,633.

NL15-01-06: Statoil 34%; ExxonMobil 33%; BP Canada Energy Group ULC 33% (262,230 hectares) $225,158,741.

NL15-01-07: Statoil 34%; ExxonMobil 33%; BP Canada Energy Group ULC 33% (254,321 hectares) $206,258,741.

NL15-01-08: Statoil 50%; BP Canada Energy Group ULC 50% (268,755 hectares) $35,140,653.

NL15-01-09: Statoil 100% (139,477 hectares) $423,189,945.

NL15-01-10: Nexen Energy ULC 100% (163,008 hectares) $261,000,000.

The criterion for selecting winning bids is the total amount of money the bidder commits to spend on exploration of the respective parcel during the first six years. That means, over 1.2 billion in exploration expenditures, infiltrating into the overall economy. This will support the provincial economic outlook in favorable ways.

This is incredible news for Newfoundland, as we are on the way to building an industry that rivals that of the North Sea – and then some! The last round of bids before this one, unveiled a record $559 million for a single parcel of land located southwest of Statoil’s exploration licenses – in the Flemish Pass basin.

The cherry on the cake is that these explorations and discoveries are showing extreme promise. Statoil called its Bay du Nord prospect in the Flemish Pass a “high impact discovery” that could hold another 600 million barrels of recoverable oil. It’s these types of milestones and continuous discoveries that lay the foundation for such high land sale bids in the future.

Clearly, the oil and gas industry is a top priority for the province as it will support all other sectors in direct and indirect ways. Last year alone, the petroleum industry employed close to 12,000 Newfoundlanders and Labradoreans and the industry spent $3.4 billion in the province. In recent years, about one third of the Newfoundland and Labrador treasury’s own-source revenues have come from the offshore industry.

Nalcor Energy has invested in a world class, mammoth seismic exploration program that is now paying off. We have very clear indicators that the oil is out there, and that’s what is now attracting new oil companies to the table. A very strategic move – the more bidders you have, the higher your land value will be. As well, the more oil companies we have coming to the table, the more opportunities we have for consortium partnership. Financial risk is mitigated to oil companies coming in to invest here. The more players in the offshore, the faster the resources are explored and discoveries are made. In my estimation, all of this adds up to a great potential for oil success, twice that of the North Sea and the Gulf in the future.

Between 2010 and mid-2015, Nalcor and the provincial government spent $43.6 million into offshore exploration programs for the critical seismic surveys that tell the tale of the potential offshore oil.

Nalcor strategists are clearly aware that the seismic and marketing investments that are being made today will lead to tomorrow’s oil discoveries and a lucrative oil and gas industry in the years to come. Where there is risk, there is reward – Nalcor proves this as their investments continue to pay off. The most recent land sales are a great example of this – over $1.2 billion committed to land sale exploration is a telling result.

As it stands today, regardless of the price of oil, the long term picture for Offshore Newfoundland and Labrador looks incredible. Offshore Newfoundland and Labrador holds a gold mine of potential. Today it is a world class offshore region – tomorrow it will be even better. The new royalty regime is more attractive to new investors and the offshore area is in its infancy. We’ve only just begun!

Those involved in the oil and gas industry are about to embark on one of the greatest industry transformations of all time. We deserve it and it’s my hope and vision that the people of this province are flush with the abundance of oil and gas success. It’s highly probable that we could be one of the richest, per capita, regions in the world. As it happened in Norway and Abu Dhabi, UAE.