Excitement is returning to offshore oil development in Canada’s East Coast. This after two announcements surrounding projects off the coast of Newfoundland and Labrador.
Suncor Energy has announced that it and the other co-owners of the Terra Nova Floating, Production, Storage and Offloading (FPSO) facility and associated Terra Nova Field have finalized an agreement to move forward with the Asset Life Extension Project.
And separately, there is also a new sense of optimism for the White Rose Project after Suncor Energy announced it would increase its ownership stake if Cenovus decides to move forward with the West White Rose expansion.
“It is a really important announcement for our industry at a time when it’s really needed,” said Charlene Johnson, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).
“I think there’s a real sense of optimism today – both in our industry and in the Terra Nova project and certainly just the future of our industry as a whole,” said Johnston. She notes the Terra Nova FPSO will be back in production for another decade and that the work is going to begin immediately.
Last night, Suncor announced that it, Cenovus Energy and Murphy Oil have agreed to restructure their ownership stakes in the Terra Nova project, allowing it to go ahead, while allowing the other, more reluctant owners to bow out.
Suncor also said it is looking to increase its ownership stake in another offshore project - the White Rose offshore oilfield - to 40 per cent from 27.5 per cent. That deal would dependent on Cenovus, the operator of the project, deciding to move ahead with the expansion of West White Rose. The project has been in doubt since Cenovus’ acquisition of Husky Energy, which was completed in January and construction was put on hold.
Suncor said Cenovus will make the decision whether to restart by mid-2022 and no significant spend is expected before 2023.
Taken together, these announcements are turning attention back to the East Coast offshore industry.
“I think for a long time – over the last 18 months or so, basically since COVID-19 got up and running – there was such a turn back towards core assets,” said Rory Johnston, Managing Director and Market Economist at Price Street Inc. “For a lot of these companies, that means Alberta and the oil sands and really kind of making sure that that was working perfectly through the hardest part of the downturn."
Johnston said while a lot of economics of the offshore assets make sense, the growth appetite just didn’t seem to be there.
“Now that we’re seeing them talking about it and rationalizing some the asset mix of who owns what, I think it’s a good sign that they’re legitimately thinking about the future of those assets again,” he said.
The news is buoying much optimism for thousands who are employed in the offshore oil sector and surrounding industries.
“Obviously people directly employed, but the impact goes much deeper than that when you consider the supply chain and the companies involved in that,” said Johnson. “When you consider the taxes and the royalties to the province and what they can do with that money and just the business community as a whole.”
She said the last 18 months have been incredibly difficult for many families.
"There’s a great buzz around today and a sense of relief,” Johnson said. “I mean people have been in limbo for some time. Either they’ve been laid off or they’re still working and were uncertain of their future.”
“People were holding off on making purchases – whether it was a vehicle or a house or a TV,” said Johnston. “We even heard stories where families had to remove their children from extra-curricular activities because times were tough and they were laid off. That all changed last night.”
The Terra Nova Life extension is expected to add another 10 years to the project and allow the extraction of an additional 70 million barrels.
Production is expected to resume before the end of 2022 and reach a peak of 29 Mbbl/d in 2023.
The $2.2-billion West White Rose Project would allow access to an additional 200 million barrels of crude oil and extend the life of the White Rose field by approximately 14 years.
Cenovus currently owns a 72.5 per cent stake in the White Rose project. Suncor said it will receive a cash payment from Cenovus for increasing its ownership if the West White Rose expansion goes ahead.
In a statement released Wednesday night, the head of Suncor said the company is “confident in East Coast Canada energy future.”
“The decision to move forward with the Terra Nova project is a concrete example of Suncor’s commitment to invest in projects that have strong economic returns and will provide long-term value for investors,” said Mark Little, Suncor president and chief executive officer.
Little also noted the Terra Nova agreement provides certainty for more than 1,000 direct and indirect jobs. It also has the backing of the federal and provincial governments, with the Government of Newfoundland and Labrador kicking in previously disclosed royalty and financial support, including up to $205 million in matching contributions.
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