July 2020

World Oil exclusive: Canada’s Noia reacts to latest statement from federal minister on Newfoundland’s offshore

Several times, over a period from mid-April to June 4, Canadian federal officials—principally as voiced by Natural Resources Canada Minister Seamus O’Regan—declared that they recognized that the NL offshore oil and gas industry is important, and that action would happen “soon.”
Kurt Abraham / World Oil

As readers of World Oil’s website will remember, we posted an editorial on July 9, regarding the stand-off between the Canadian federal government and the province of Newfoundland and Labrador (NL) on the subject of meaningful incentives for the offshore oil and gas industry. In that editorial, we pointed out that a coalition of Newfoundland governmental officials, Noia (Newfoundland and Labrador Oil & Gas Industries Association) and other industry leaders had asked for substantial federal incentives out of Ottawa to support both exploration and development offshore.

Several times, over a period from mid-April to June 4, Canadian federal officials—principally as voiced by Natural Resources Canada Minister Seamus O’Regan—declared that they recognized that the NL offshore oil and gas industry is important, and that action would happen “soon.” Yet, for five weeks after O’Regan’s last declarations on June 4, the federal administration went silent. This prompted our July 9 editorial. And, when another week went by without further comments, we, World Oil, enquired directly to O’Regan’s office on July 17, requesting some sort of statement to clarify where the Trudeau administration stands.

The official statement. Earlier this week, we received a statement from Minister O’Regan’s office. What follows is the entire text of this statement, attributed to Press Secretary Ian Cameron:

“The offshore industry is the backbone of in Newfoundland & Labrador's economy. That’s why we continue to engage with industry partners and associations, the government of Newfoundland and Labrador, and labour groups.

Our government has recently announced an extension of the Canada Emergency Wage Subsidy, so that companies in the offshore and other industries can keep workers on the payroll. We’ve also introduced a Ministerial Regulation that ensures faster environmental assessment timelines for offshore exploration drilling, without compromising environmental protection—something businesses and investors have long been asking for.

More broadly, our government announced an agreement with the provinces and territories last week that will see over $19 billion invested in keeping Canadians safe, to ensure that every part of the country can get going with the economic recovery.”

Now, if you read this statement carefully, it doesn’t appear that it breaks any new ground. Yes, -the Trudeau administration did fix the situation with environmental assessment timelines. Yet, that item, along with the Covid-19-oriented measures also mentioned, fall far short of the Norway-style incentives (featuring tax breaks) for exploration and development that the NL folks have been requesting. Just to be sure that we’re interpreting the situation carefully, we consulted Noia CEO Charlene Johnson and got considerable reaction.

Four months of courting federal action. “Well, the conversation (on incentives) started back in the third week of March,” observed Johnson. “The pandemic was upon us and the oil price was down, and we started to see some projects getting delayed.  We watched Norway, and they were talking about bringing in incentives, because companies were cutting back activity approximately 30%. So, ourselves, CAPP and the Government of Newfoundland and Labrador all asked the federal government for two things:  incentives for exploration and incentives for development.”

Johnson said there was considerable discussion with officials in Ottawa about delayed and deferred projects, and how to get them restarted. “There was a lot of back and forth,” she recounted. “They wanted any economic studies that we might have, and then they wanted data on job losses, and gender equality - female participation in the industry. For a period there was  rapid-fire exchanges for additional data. At the same time, we were holding town halls, and we had a press conference with the provincial government and other key stakeholders.”

And then, on May 14 , Minister O’Regan did an interview with CBC (Canadian Broadcasting Corporation), where he seemed to reiterate his concern for the NL offshore industry. “His      exact words were ‘Exploration is key,’” remembered Johnson. And following that, “we had a number of encouraging comments/conversations. We were told ‘he’s determined to get this (incentives) done.’ There was another press conference on June 4, where he said support was coming “very soon.” He’s done a couple of podcasts, saying that the industry is important to the economy- stating ‘that the country is not going to recover until oil and gas recovers.’ So, while we understood that the federal government hasn’t really been all that inclined toward fossil fuels, we were still hopeful.”

But then came a moment of reality and clarity earlier this week. “The minister came out in an interview and said that the E&D incentives being sought will not happen anytime soon,” said Johnson. “Now, the reality is that some companies in NL have laid off employees to the point that they only have core staff left. The minister, in the latest meeting, talked about short-term measures such as regulations and helping the Terra Nova project (a significant rehab of that FPSO). Absolutely, we need those jobs to return, and we’ve been leading the charge stating that, and that development incentives can help do just that.”

Where Noia’s board was really disappointed, continued Johnson, is that there is a lack of vision by federal officials—a lack of support for the long-term vision for NL’s offshore industry. “There was no real discussion about where our offshore oil and gas industry fits into the global picture,” she explained. “We are very appreciative of short-term actions, but these exploration and development (incentive) actions (championed by Noia and NL officials) would really put people back to work.”

As an example, Johnson pointed out that Seadrill’s West Aquarius semisubmersible drilling rig has been sitting idle in port for close to a month. “There’s a high likelihood that if these measures (incentives) were in place like we asked, the rig would be out exploring, putting people back to work,” said Johnson. In another example, she said the entire Bay du Nord project of Equinor in the Flemish Pass to the east of Newfoundland is on hold, including two early tenders for components that were already starting to work. “Four companies, in all, would have people back to work on those components, if these incentives were in place. Development incentives also could help all the potential work on subsea tie-backs that was being done. Those projects and tenders that were being worked on have stopped.” 

Incentives can work. Johnson said the great frustration throughout NL and the industry is that Minister O’Regan’s argument that these incentives Noia, CAPP and provincial officials have been advocating will not work in the short term. “That is not the case—these would work; people would be put back to work.” In another example of work done on potential incentives, the federal government failed to follow through, even though officials in Ottawa agreed with the basic numbers. This concerned giving Equinor and partner Husky Energy up to a $350-million tax break through the development incentive suggested, so that work could get started on Bay du Nord. “This could be a relatively minimal investment on what would be a $10.9-billion project for the province,” lamented the Noia chief.

Noia just did another survey, for the fourth time, of its member companies and how they are faring. “The results showed (of those that responded) we now have at least 5,200 people without work in the province, but more frightening is that 72% of companies see more layoffs to come,” revealed Johnson. “So, we are nowhere near the end of the pain here. The federal government needs to be as committed to developing offshore resources as Norway has been.”

Norway takes the lead. Even pre-pandemic, “Norway’s exploration incentives have been the gold standard,” continued Johnson. “And with the new tax breaks in place, at least 36 projects are going to be at work, thanks to this. The recent tax incentive was $30 billion. In Norway, they formed the incentives around the cost per barrel. We have heard that the West Aquarius drilling rig sitting idle could eventually go to Norway. We’ve heard the same thing for helicopters. Cougar Helicopters has a fleet of 11 helicopters, two of which are for Nova Scotia, so nine of them are here (in St. John’s). Come October, Cougar will be down to four aircraft in Newfoundland and Labrador.  From 751 flying hours a month, they will go down to 170 hours per month in October.”

Carrying the comparison further, Noia’s CEO said that Norway has drilled 12 exploration wells this year, with 18 still planned through the remainder of 2020. Last year, Norway drilled 57 exploration wells last year. “We haven’t drilled that many in total over the last thirty years,” said Johnson. “We have a tremendous opportunity here for energy security, energy supply, and less dependence on foreign oil. So, do we want to turn off the switch on light, sweet crude in favor of foreign oil?”

Widespread effects. The multiplier effect in NL is greater than the effect of the auto manufacturing industry in Ontario, she continued, and if something isn’t done, the results will be difficult. “When rigs, helicopters and vessels leave, a lot of the subcontractors will be without work too. The impacts are going to be catastrophic to our province. The lag effect of having these thousands of people out of good-paying jobs will have a huge effect next year and beyond. We’re a province of 500,0000 people. The provincial government will be down $ 11 billion in revenues over the next 10 years. The GDP of Newfoundland and Labrador will be down $55 billion over the next 10 years, as well. And 90,000 person-hours of employment will be lost, if these projects remain delayed or cancelled.”

Putting an exclamation point on the situation, Johnson said that $3.9 billion have been bid on NL exploration tracts over the last several years. “We’ve very much been in a growth phase. So, we will give kudos to the federal government for minimizing the exploration environmental assessment. Our bidding round in November hopefully will be a good one, but it could be so much more with incentives in place. Prime Minister Trudeau has encouraged Canadian citizens during this pandemic to buy local, and this would seem a perfect opportunity to support local while demonstrating a long-term vision for our industry.” 

About the Authors
Kurt Abraham
World Oil
Kurt Abraham kurt.abraham@worldoil.com
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