Overhaul of system unveiled for offshore land sales

Ashley Fitzpatrick
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Industry representatives, association, Crown corp. all approve of changes

Individuals familiar with the oil and gas industry in Newfoundland and Labrador are curious to see the ultimate effect of changes to the offshore land sale system.

The offshore oil rig West Aquarious docked in Conception Bay recently. — Photo by Joe Gibbons/The Telegram

The changes were announced Thursday by the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB) and have already been applauded by many, including individuals who spoke with The Telegram, given they provide for scheduled land sales and greater lead time for oil companies to prepare for bidding on exploration licences.

More time offers the companies — including new entrants to the region — a chance to obtain relevant information, like seismic data collected by Nalcor Energy contractors, to decide which licences to bid on.

“We understand, from our contact with seismic contractors and so on that the demand for this data is really high. A lot of companies are interested in looking at the data, purchased the data. And so that really bodes well for the future, considering especially that we’ve had the discoveries by Statoil in the Flemish Pass Basin,” said Noia president Bob Cadigan, describing Newfoundland and Labrador’s offshore as drawing international attention with news from the past year.

“So the buzz we’re hearing is there is significant interest and whether that interest turns to bits in the ground, we’ll see. That’ll become obvious over time,” he said.

He believes scheduled land sales will help.

The existing land sale system had been criticized for not providing enough lead time to allow oil companies to perform due diligence prior to bids being due.


Offshore is divided

The Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB) is responsible for the offshore land sales — essentially an auctioning of exploration licences. They have posted details on the new tenure system on their website.

The new system divides the offshore into high, medium and low-activity areas, placing land sales on four-year, two-year and one-year cycles as required. Length of time will correspond to the activity in an area, since more active areas will have more information readily available.

Areas with a longer lead time for final bids will be frontier areas, such as off of the Labrador coast, where oil companies will need more time to gather and interpret information from multiple sources.

“You need to give that area a lot of warm-up time,” said Jim Keating, vice-president of Nalcor Energy and lead at the Crown corporation’s oil and gas division.

The time is also crucial to allow companies unfamiliar with the region a chance to consider bidding — a process that typically includes ranking local targets against other targets open to the company around the world.

Bids on local licences have a direct connection to the level of activity in the offshore, since they  amount to commitments for work in the licence areas. Companies put down cash with the CNLOPB as part of the process and forfeit that money if they do not live up to their commitments.


Mandatory minimums

In addition to scheduled land sales, the CNLOPB has raised the minimum bid on exploration licences to $10 million — a significant increase over the previous $1 million minimum.

“Most of the offshore licences go for way more than that anyway,” commented Paul Barnes with the Canadian Association of Petroleum Producers (CAPP) in Atlantic Canada, when asked about the figure.

Barnes said the change may end up as an issue for smaller companies, like the companies working off of the province’s west coast, but said it is not a concern for the major players in the offshore.

Meanwhile, CAPP is generally pleased with news of the changes in the land sale system. “There was nothing in there that was really concerning to us. We support the efforts to make the system more predictable,” Barnes said.

The changes in the system, including the new mandatory minimum commitments by the oil companies, are still subject to approval by the provincial and federal ministers of Natural Resources.

That said, the expectation is the ministers will sign off, given public statements already issued.

“The new system will benefit all participants including government, seismic contractors, operators, the regulator and most importantly, the people of Newfoundland and Labrador who reap the dividends of responsible resource development,” stated provincial Minister of Natural Resources Derrick Dalley.

A statement from federal Minister of Natural Resources, Joe Oliver, was similarly glowing.

“These changes will increase competitiveness and further encourage the responsible development of our energy resources, creating jobs and economic growth for the province and the country,” he said.



Organizations: Canada-Newfoundland and Labrador Offshore Petroleum Board, Nalcor Energy, Statoil Canadian Association of Petroleum Producers

Geographic location: Newfoundland and Labrador, Atlantic Canada

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Recent comments

  • Aiden
    December 20, 2013 - 08:09

    This is probably good news for western NL. as it will get rid of junior oil companies like Shoal Point Energy ans Black Spruce Exploration who intended to frack for oil under the seabed of Port au Port Bay and Western Newfoundland. No matter how the oil companies spin it, they're still punching holes through the water table.. Although they line the well-bore with concrete, these liners will eventually fail. We're leaving a ticking time bomb of undrinkable water for our grand-children. In Newfoundland and Labrador the economic benefits from oil always outweigh the environmental burdens.

    • david
      December 20, 2013 - 08:59

      If ignorance is bliss, you're one happy dude.

    • Chantal
      December 20, 2013 - 10:07

      Thoughtful retort, David.

    • david
      December 20, 2013 - 13:20

      With a generous tip.

  • Michael
    December 20, 2013 - 05:20

    This is good news for the offshore. More time will give newer companies a chance to get in on the bids. NL needs more exploration. More exploration will lead to more discoveries and that will hopefully lead to more developments! All we need now is more seismic, and Nalcor is being active there! I do believe in coincidences, but there were a couple of interesting articles in the papers recently that seem to verify that NL's offshore is on the rise. First of all, according to recent reports, Statoil will be focusing on the NL offshore instead of the oil sands in Alberta. I am speculating a little, but pressure in Norway from the church and environmental groups are twisting Statoil's arm(escalating costs and bottlenecks also) to reinvest elsewhere in Canada instead of the oil sands. I guess Statoil and Husky are trying to recruit a rig as we speak for further wells on the Bay du Nord in 2014. Further, Viking Supply Ships is setting up shop in St. John’s. Usually, Stavanger, Norway and Aberdeen, Scotland are their pitch! Hmmm; I wonder why. They were helping out on the Margaree A-49 well in the Orphan Basin and according to the CNLOPB the Margaree A-49 well is under suspension. Coincidence or not? Usually a well will be classed as abandoned, but for some reason the Margaree well is classed as suspended, just like Harpoon o-85 and Bay du Nord C-78Z. Maybe I am reading too much into the recent events! Maybe it is all a coincidence, but whatever it is, I do think the future looks bright for the oil and gas industry in NL.