In speaking of the past, present and future of the province’s oil and gas industry, longtime politician and former Lt.-Gov. John Crosbie had to talk about Hibernia.
Addressing hundreds of oil industry professionals gathered for the Noia conference in St. John’s Wednesday, he ran through events leading up to the signing of the 1985 Atlantic Accord, but also the beginnings of the Hibernia project — the development about 315 kilometres from St. John’s that heralded the start of the Newfoundland and Labrador offshore oil industry as it is today.
Offshore oil royalties currently flow from multiple offshore developments and amount to about $2.4 billion a year for the province, or 36.5 per cent of all provincial revenues. Yet offshore oil was nothing but a proposal, a single project idea teetering on failure, when the federal government bought into the idea in the 1990s.
The feds provided investment assurances and paid $290 million for an 8.5 per cent ownership stake in the Hibernia project.
“And that has turned out to be a very wise move indeed,” Crosbie said.
In fiscal year 2013 alone, he told the conference gathering, the federal investment generated $492 million in gross oil revenue and — in addition to royalties, net profit interest and federal income tax — about $142 million in dividends for the federal government.
On the often-raised question of that Hibernia stake, he said he does not believe in demanding it be gifted over to the province. “After all, this is a reward for the great risk they took and you’re all here today because of that federal initiative.”
The investment paid off.
“When the great Hibernia discovery was made partway through 1979, when Joe Clark’s administration was in power, the first estimates were that the discovery had 650 million barrels of recoverable oil. To date, as you know, approximately 880 million barrels have been produced and the total remaining potential reserves are estimated to be around 700 million barrels,” he said.
The provincial government has stated original estimates as low as 520 million barrels recoverable.
“All of the investors have made large profits and the people of Newfoundland and Labrador and all of Canada have benefitted greatly from the success of Hibernia and its critical role in jumpstarting the province’s offshore oil and gas industry, in a frontier region with harsh conditions,” Crosbie said.
Reaping local benefits from multiple projects was at the heart of the 1985 Atlantic Accord, he said. The federal-provincial agreement established a framework for the settlement of conflicts over oil developments including Hibernia.
The relevant legislation took about two years to get into place.
The Atlantic Accord set up an offshore development fund of $300 million to help get the entire industry started.
“Without that accord, it is very unlikely that there would have been the incredible progress that’s so clearly evident in the years since the Hibernia discovery,” Crosbie said.
His history was marked by other speakers throughout the day’s conference schedule.
“As we’ve heard this morning from several speakers and the Honourable John Crosbie, this has not been an easy journey and to advance to where we are today,” added Andrew Barry, president of ExxonMobil Canada, taking to the stage in the afternoon.
Despite the past hurdles, he said, the present time is an exciting one for the local industry. That excitement extends from new developments, like the $14-billion Hebron project, but also subsea expansion work on existing developments including Hibernia.
The ExxonMobil-led Hibernia Southern Extension will be the first subsea addition to the Hibernia oil field, including up to six water injection wells with tiebacks to the Hibernia gravity base structure. The project is expected to extend the life of Hibernia by five to 10 years.
Taking on its own risk, the provincial government has taken an equity stake in the expansion project, with a 10 per cent share.
“How well we perform today will determine our global competitiveness,” Barry said.
And so it will also determine the industry’s future.