In 2007, as part of its long-term strategic energy plan, the government of Newfoundland and Labrador created Nalcor Energy, its arms-length crown corporation responsible for leading the development of the province’s energy resources.
Nalcor’s diverse portfolio includes hydroelectric power projects, energy marketing and oil and gas and industrial fabrication.
The crown corporation’s oil and gas division manages the province’s offshore and onshore resources, and is focused on the continued growth and long-term sustainability of the oil and gas sector.
Nalcor also holds and manages the province’s equity “back-in” for offshore commercial energy projects. In the mid-2000s, then-premier Danny Williams negotiated a larger share of the offshore resource pie – he successfully established the historic right for Canada’s former “have not” province to acquire up to a 10 percent equity position in oil and gas projects requiring development plan approvals by the federal and provincial governments.
Under the terms of the equity ownership agreement, Nalcor pays its pro rata share of historical exploration and pre-development costs incurred by the joint-venture parties – on a go-forward basis, the crown corporation contributes its equity share of development and operational costs.
A Statoil in the Making?
“We’re modeling ourselves after Statoil, a state oil company that was carried at the beginning,” said Jim Keating, vice president of Nalcor’s oil and gas division. “We’ve become active participants in shaping the offshore oil and gas industry, and that’s something Newfoundlanders and Labradorians haven’t had an opportunity to do before.”
Statoil began in 1972 as Norway’s arms-length state oil company. Since then, it has evolved from exploring the Norwegian continental shelf (where it still produces two-thirds of its daily production) to a global E&P company that operates in more than 30 countries around the world.
In 2001, Statoil was partially privatized and publicly listed – the Norwegian state, however, still owns a 67 percent interest, which is managed by its Ministry of Petroleum and Energy.
Today, Nalcor produces between 3,000 to 4,000 barrels per day from its 10 percent equity stake in the Hibernia South Extension and its 5 percent equity stake in the White Rose Growth Project, which also includes the North Amethyst field, the West White Rose field and the South White Rose Extension.
The crown corporation has also acquired a 4.9 percent working interest in Hebron. Second in size to the giant Hibernia field, Hebron was discovered in 1980. Operated by ExxonMobil, Hebron contains 400 to 700 million barrels of 18 to 25 degree API oil recoverable.
Keating estimates that Nalcor’s production will skyrocket to between 10,000 and 14,000 barrels per day when the Hibernia South Extension and Hebron field come on stream. Pointing to this measurable and relatively risk-free growth in production, he explained that Nalcor will be cash flow positive by 2016, enabling it to fund current and future oil and gas investments in the province’s onshore and offshore.
In addition to its equity purchases, Nalcor has undertaken an ambitious geological assessment of the province’s offshore hydrocarbon resources, including a regional rock physics study, a seabed core analysis study and the satellite imaging of hydrocarbon seeps emanating from the sea floor.
According to Keating, 85 percent of Newfoundland and Labrador’s historical seismic data base is more than 15 years old; acquired with old technology, he said, this legacy 2-D seismic data makes it challenging to attract new oil and gas investment to the province.
During the past three years, however, Nalcor has proactively invested $15 million for a 20 percent stake in 47,000 kilometers of new 2-D multi-client seismic data acquired in a joint venture between TGS-NOPEC Geophysical Company ASA (TGS) and Petroleum Geo-Services ASA (PGS), two Norwegian seismic companies specializing in imaging frontier regions of the world.
Working collaboratively with TGS/PGS, Nalcor assisted in planning the state-of-the-art 2-D seismic surveys, often locating them over active sea floor petroleum seeps. According to Keating, 75 percent of the new 2-D multi-client seismic data is situated in the province’s new oil and gas frontier – the continental slope and the deep water.
The multi-client seismic surveys are all available, for licensing, by industry.
Nalcor’s investment is reaping rewards: The new 2-D seismic data have revealed the existence of several new deepwater Tertiary-age geological basins offshore Labrador – Chidley, Henley and Holton – and have increased the extent of the Hawke Basin.
Nalcor’s staff is keeping pace with its growing production base. The company’s current staff of 25 oil and gas professionals comprises predominantly individuals who gained their oil and gas experience in the private sector.
Keating described many of Nalcor’s employees as “Newfoundlanders who have come home to ply their trade in an environment that they’re familiar with.”
“Now, for the first time, we’re able to drive exploration activities,” he said, “setting the pace of the province’s offshore oil and gas industry.”