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Hotel Newfoundland, St. John's, NF |
Thank you and good morning. I am very pleased to have the opportunity to speak to you this morning on behalf of Newfoundland’s oil and gas industry. Recent figures from Statistics Canada show that the Province of Newfoundland and Labrador is leading the country in job growth. The Conference Board of Canada believes this trend will continue for the next few years. Although the Newfoundland economy is becoming more diversified, one of the main contributors to this growth is oil and gas related activity. Hibernia began this trend by establishing a solid foundation for the East Coast industry. Terra Nova and Sable are adding significant fuel to the economic engine in Newfoundland and, indeed, in Eastern Canada as a whole. Potential new projects like Hebron and Whiterose and the recent return to active exploration throughout Atlantic Canada, offer promise for continued growth well into the foreseeable future. Companies like ExxonMobil, Chevron, Petro-Canada, Norsk Hydro and Shell hold the Eastern Canada region in the same high regard as they do the other significant growth areas around the world, such as West Africa, the Caspian Sea and South America. Being in this select group, however, means we must compete on a global basis now more than ever before. Capital investment funds, people and technology all flow readily across international borders to where business opportunities are most attractive. Peter Drucker, a well-known management consultant and author, made an important observation several years ago when commenting on the globalization trend. In the modern world there are two types of CEOs, Drucker wrote. Those who think globally and those who are unemployed. I think there’s a lesson in that wry observation for us here in Newfoundland. That is, we need to continually demonstrate that we can compete with the very best in the world. For our industry this means two things: The first is to ensure that our existing operations are both safe and profitable, and, second, to have globally significant opportunities to invest in and develop for more of the same. Based on the activities of the global and national players I mentioned earlier, the industry certainly believes that Eastern Canada, and Newfoundland in particular, has this winning combination. Today, I’d like to walk you through the progress that Eastern Canada is making in establishing a safe and profitable foundation for the future, and also highlight for you the opportunities we see for near-term and longer-term growth. I’ll begin with a review of activity in the Jeanne d’Arc Basin. In addition to Hibernia, I’ll provide an update on Terra Nova, Whiterose, and Hebron, as well as an outlook for exploration activity over the next few years. This will be followed by a brief overview of activity in Nova Scotia and a mention of an emerging basin in the Laurentian Channel, just south of the Burin Peninsula. Unfortunately, there are time restrictions. As Mark Twain noted when asked about the proper length of a speech: Few sinners have been saved after the first 20 minutes of a sermon. So I’ll leave discussion of what’s happening on the west coast of Newfoundland, Anticosti, or onshore Nova Scotia for another day. I will say, however, that the industry has been active in these areas for a number of years and that activity will likely continue into the future. Let’s begin, then, with Hibernia. Hibernia is Newfoundland’s only producing oil field. It was the seed that we all planted almost a decade ago. That seed has grown into the high level of activity that the Province of Newfoundland and our industry enjoys today. When we talk, though, about safe and profitable existing operations, Hibernia is it until Terra Nova comes on stream next year. Hibernia closed out 1999 with very strong performance and I’m pleased to report that this is continuing into 2000. In November and December, Hibernia set record production rates averaging just over 150 thousand barrels a day. In fact, Hibernia actually produced at rates well in excess of 150 thousand barrels a day for short periods, of course always with the permission of the Canada-Newfoundland Offshore Petroleum Board. From September to December, Hibernia completed minor modifications to the platform and conducted production tests that will enable us to eventually produce at rates up to 180 thousand barrels a day. This increase in production is an important development at Hibernia because it sends a very positive signal to the global investment community about success. Success not just at Hibernia, but in the region as a whole. Just as the Syncrude development in Alberta’s oil sands became recognized throughout our industry as it expanded from about 100 thousand barrels a day to over 200 thousand barrels a day, Hibernia’s ability to expand beyond its original design capacity will help to attract further attention and investment to Newfoundland. When the industry looks to improve profitability, an increase to production is one of the most effective levers available to us. Cost reduction and efficient operations are also essential, but they do not have nearly the same impact as a significant increase to production. Our industry measures success in other ways as well. As I alluded to earlier, a key success factor in the oil industry has always been safety. While our industry, and Hibernia in particular, has a very good safety record, we’re always trying to improve. I’m happy to say that in 1999, Hibernia was successful in reducing lost time incidents to one half the level of the previous year. Our philosophy is that safety performance can always be improved, and at Hibernia everyone has embraced this mindset. In fact, I’m very proud to say that the offshore organization has gone more than 160+ days without a lost time accident. Our ultimate goal, of course, is zero accidents and incidents. Hibernia’s safety improvements and new record production levels are a clear demonstration of the commitment and hard work of the entire organization. They are also a clear indication that the skill and competence of Newfoundland’s offshore workforce is growing rapidly. It is this people resource that is the true strength of the Province and it is this that will drive the success of Newfoundland’s offshore oil and gas industry well into the future. Another significant milestone for Hibernia in 2000 will be the commencement of production from the Avalon reservoir. It’s located about 13-hundred metres above the Hibernia reservoir, where all production has come from to this point. Our work on the Avalon sand this year will allow us to gather critical information to determine how to further develop this technically more complex reservoir. Let’s turn now to the growth side of being a globally competitive oil and gas industry. The line up in Newfoundland is certainly impressive. Topping the list is Terra Nova, currently attracting significant investment dollars. Also up there are both Hebron and Whiterose. In addition to these major projects, the Jeanne D’Arc basin has thirteen other discoveries, some of which may have potential for future development through tie-in to a larger discovery. Finally, new exploration both in the Jeanne D’Arc basin and in new frontier basins holds promise for major new discoveries and future development. Let’s begin our discussion of Newfoundland’s growth opportunities with Terra Nova. Terra Nova is the second largest field yet discovered in the Jeanne d’Arc Basin. The project is currently under construction for startup in March 2001. Terra Nova will use a Floating Production Storage and Offload system, or FPSO, to develop the field. Unlike Hibernia, which physically rests on the ocean floor and is designed to withstand the impact of sea ice and icebergs, the FPSO is a ship-shaped, self-propelled vessel that is designed to be quickly and safely disconnected if a large iceberg or heavy sea ice approaches. In an emergency it can be disconnected in as little as 15 minutes. The FPSO is being built in Korea and should arrive in Newfoundland in a few months. Two of the four Topsides processing modules are being built right here in Newfoundland at Bull Arm where there are now more than 760 trades’ people working on the project. The workforce at Bull Arm should grow to one thousand during hook-up. Last year, Terra Nova completed five glory holes and installed four subsea templates. Incidentally, Newdock is building three additional templates here in St. John’s. One has already been completed. Well construction is also under way at Terra Nova. The upper sections have been completed in each of the first six wells. The offshore rig, Glomar Grand Banks, has reached total depth on one of these wells and is more than half way to total depth on a second. It will be soon be replaced by the semi-submersible rig, Henry Goodridge, which is now undergoing a refit in Marystown. These first six wells required to begin production are expected to be completed this Fall at which time we’ll start drilling additional production and injection wells. Looking beyond the growth offered by Terra Nova, two other discoveries made in the 1980’s, Whiterose and Hebron, are believed to have the most potential for commercial production. Appraisal activity on these fields recommenced in late 1998 and continues today. Husky is the operator of the Whiterose field. They have announced that appraisal drilling in 1999 yielded positive results, identifying two hydrocarbon fields. South Whiterose contains mostly oil, with recoverable reserves estimated at 250 million barrels. Husky is now developing a reservoir model, and has contracted out a Development Concept Study to evaluate production methods and facilities. A development decision is expected later this year. If all goes well, Husky could be producing its first oil from South Whiterose by the end of 2003. North Whiterose is predominantly a gas field and has potential natural gas reserves estimated at 2 trillion cubic feet. Husky plans to drill up four additional wells to further appraise Whiterose and evaluate their exploration acreage in the basin. The semi submersible drill rig Sedco 714 has been contracted and is expected to begin drilling by April of this year. The other potential development is at Hebron, which is operated by Chevron. Two appraisal wells were drilled at Hebron last year and while the results were encouraging, additional testing is required. A third appraisal well is scheduled to be drilled early this year using the Glomar Grand Banks. With the results of this new well, Chevron and its partners, ExxonMobil, Petro-Canada and Norsk-Hydro, expect to be able to determine the economic feasibility of development at Hebron by the end of the year. Beyond development and appraisal of discoveries made in the 70’s and 80’s, the past few years has seen a return to exploration activity offshore Newfoundland. This slide shows the work program commitment made by successful bidders in Grand Banks land sales since 1997. These five-year work commitments include spending on seismic as well as drilling new exploratory wells. This activity is the feedstock for future major developments and is essential to a long-term offshore industry. Up until 1998, most of the offshore activity and interest was restricted to the Jeanne d’Arc Basin. In the 1998 land sale, and again past year, blocks of land in the Flemish Pass received the greatest interest from the industry and attracted the highest work program bids. Bids in 1999 totaled more than $192 million, with virtually all of this for the three parcels in the Flemish Pass. This is an important development in Newfoundland’s offshore industry, as it opens up a relatively new basin with greater potential for new discoveries. I say relatively new, because the Flemish Pass has seen activity before. The first well was drilled in the basin in 1979 and two others followed in the mid-1980s. These wells did not make a discovery, but they did confirm the presence of an active hydrocarbon system. This early drilling, combined with the results of recent seismic data, leads us to believe there is good potential for large fields in the Flemish Pass. I should point out, however, that the Flemish Pass is a deepwater play that presents both challenges and opportunities that are not present in the Jeanne d’Arc Basin. The waters in the Flemish Pass are approximately 1,000 metres deep, compared to 70 to 80 metres of water in the Jeanne d’Arc Basin. Of course, there are other oil and gas theaters around the world, which operate in deeper waters, and we will look to benefit from their experience as we move forward in the Flemish Pass. I should also point out that the deep waters in the area eliminate the concern of iceberg scour, enabling subsea completion and flowlines without the need for glory holes or other similar protection. Hibernia, Terra Nova, Hebron, Whiterose and renewed exploration. It’s an impressive lineup and one that I know holds great hope for the future for all Newfoundlanders and Labradorians. For some, that future has already arrived. Direct employment from the oil and gas industry will be close to 3 thousand this year. This does not include the spin-off jobs created by the industry, which could quadruple total employment numbers. By no means does this solve all of the employment needs of the Province, but it does make a very positive contribution. Beyond Newfoundland, activity in Nova Scotia is benefiting Newfoundland based companies. The Sable Offshore Energy Project is Canada’s first offshore natural gas development and contains reserves of approximately 3.5 trillion cubic feet. I’m very proud to say that Sable achieved first gas on December 31, 1999, on time and on budget. The development area is located roughly 200 kilometres off Nova Scotia and consists of three offshore platforms, a pipeline to shore, and a processing plant onshore. The gas natural gas is then transported via pipeline to markets in the Maritimes and New England. Over the coming weeks, production is expected to increase to 400 million cubic feet a day as additional wells are brought on stream. Production will eventually reach about 500 million cubic feet per day once additional wells are completed and lateral pipelines are completed to deliver gas to customers in Halifax and Saint John, New Brunswick. Of course, there is more to the Scotia Shelf than Sable. The Geological Survey of Canada estimates that the area contains potential reserves in excess of 18 trillion cubic feet. To date, 5.8 trillion cubic feet have been discovered. In 1999, the Canada-Nova Scotia Offshore Petroleum Board accepted work commitments totaling $61 million. Since 1997, work commitments have totaled more than $750 million, and total acreage now under license is roughly 5 million hectares. Finally, I’d like to mention an area you may not have heard much about. This area is known as the Laurentian Basin. The Geological Survey of Canada has estimated the recoverable hydrocarbons from this basin at eight to nine trillion cubic feet of gas and 600 to 700 million barrels of oil. It is also attractive because there are no icebergs present, which means there are potentially more cost-effective, less technically challenging development options. This is an area I’m sure you’ll be hearing more. In summary, Hibernia is well on its way to being a success for the industry and a success for the Province of Newfoundland and Labrador. Terra Nova is progressing well and Hebron and Whiterose are under further evaluation and appraisal for development decisions later this year. Add in an active exploration program on the Grand Banks and an active industry in Nova Scotia and you have the ingredients for an outstanding investment climate for the region and a wealth of opportunity for Newfoundland companies to gain experience and compete for work both locally and outside the Province. Indeed, Newfoundland and Eastern Canada both have a very bright future. As a representative of the oil and gas industry, I can tell you that we are all proud to be part of Newfoundland’s success. Thank you for your kind attention and I look forward to working with you as, together, we continue to develop our Province’s oil and gas resources. |
