Resource World Magazine

64 www.resourceworld.com f e b r u a r y / m a r c h 2 0 1 6 L ong regarded as a 'poor sister' in Canada's economic picture, Newfoundland and Labrador is poised to become a major player in the oil and gas industry. Recent finds of oil totaling 1.5 billion barrels in the Flemish Pass region off the province's east coast could be worth US $20 billion or more, with seven of 11 bids on offer for work in that region – a 2.5 million-hectare, horseshoe-shaped area around the Flemish Pass Basin – being snapped up in a recent bid round with extraction likely by 2020. The Flemish Pass area is a deep-water basin in the North Atlantic Ocean about 250 nautical miles east of Newfoundland. Nine companies submitted a total of 13 bids. Most of the licenses are now held by Norway's statoil AsA, [STL-OSE] and minority partner Husky energy [HSE-TSX], while other joint ven- ture partners in the bids included exxonmobil [XOM-NYSE], BG international ltd. [BG-LSE; BRGYY-OTCQX], Bp canada energy Group ulc [BP-NYSE], Nexen energy and chevron corp. [CVX- NYSE]. Statoil, which has large holdings in the Flemish Pass area, is a joint venture partner in six of the seven bids. The importance of the new find is that, until now, virtually all production, about 1.5 billion barrels, has been from the Jeanne d'Arc Basin in the Grand Banks region, and so the Flemish Pass discovery proves there's an active petroleum system outside that, and perhaps in other areas, too. "This really expands our horizons," said Wes Foote, Assistant Deputy Minister of Petroleum Development for the provincial Department of Natural Resources. He said it might help keep Newfoundlanders at home instead of heading to Western Canada for oil patch work as they've traditionally done. But he admitted the depth of the basin – 1,100 metres – will pose some unique challenges not seen before in work in this area. This was the first call for bids for offshore Newfoundland and Labrador under the scheduled land tenure regime. Government officials have said in the past that the new system gives companies more time to evaluate prospects, to do geoscientific work, and to prepare their bids. Foote said government has worked closely with Crown-owned Nalcor Energy to invest in geoscience, starting in 2007, with about $5 million spent onshore and approximately $20 million spent offshore. They contracted with leading geoscience companies and undertook multi-client seismic work, which gave Newfoundland early insight into the data and enabled them to use it to help market the resource. At the same time they changed the land tenure operating system to attract more seismic companies. According to a recent assessment by the French petroleum consultants Beicip Franlab, just these 11 parcels could eventually produce a total of 12 billion barrels of oil and 113 trillion cubic feet of gas. The successful bidder in a licensing round is awarded an exploration license, which gives the operator the sole right to drill for hydrocarbons on those lands for nine years, divided into a six-year Period One and a three-year Period Two. The cri- terion for selecting winning bids is the total amount of money the bidder commits to spend on exploration of the respective par- cel during the first six years. Extraction usually begins 5-7 years from discovery. The Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) operates a scheduled land tenure system, in which lands are introduced annually for exploration in a con- trolled manner, with annual calls for bid licensing rounds. The C-NLOPB was created in 1986 to regulate the oil and gas industry in offshore Newfoundland and Labrador. The board operates at arm's length from government and reports to both the federal and provincial Ministers of Natural Resources, with board decisions referred to government, which can approve or reject them. The C-NLOPB has four regulatory mandates: safety, environmen- tal protection, resource management and industrial benefits. The board regulates exploration licences, significant discovery licences, and production licences covering an area of about two-thirds of the size of the island portion of the province, excluding Labrador. "The successful bids in these frontier areas offshore Canada are in line with Statoil's strategy of deepening our position in prolific basins and securing access at scale," said Tim Dodson, Statoil's Executive Vice-President for Exploration in an announce- ment. "The significant exploration investment (in) offshore Newfoundland will give Statoil an opportunity to further advance our established exploration position in this region through a step- wise approach." In 2013, Statoil called its Bay du Nord prospect in the Flemish Pass a high impact discovery that could hold up to 600 million barrels of recoverable oil. The oil industry is an important part of Newfoundland and Labrador's economy. According to the government, the petroleum industry employed almost 12,000 Newfoundlanders and Labradoreans in 2014, and spent $3.4 billion in the province. In recent years, about one-third of the Newfoundland and Labrador treasury's own-source revenues OIL & G a S Major oil and gas discovery offshore Newfoundland and Labrador by Bruce Lantz

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