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Newfoundland and Labrador offshore industry ‘in crisis mode’

Noia, CAPP seek federal incentives for offshore amid plummeting oil prices, pandemic

“We are in crisis mode, and we need help yesterday.”

That’s what Newfoundland and Labrador Oil and Gas Industries Association (NOIA) CEO Charlene Johnson said when asked what she’s hearing from the association’s over 500 member companies.

In a survey of NOIA members conducted two weeks ago, Johnson said 40 per cent of respondents said if the pandemic continues for six months, their company will not survive.

“That’s really concerning for us and our board, and it should be concerning for the whole province.”

She said there are roughly 6,000 people directly employed in the offshore industry, and about 21,000 indirectly employed. She said it’s an industry that’s brought in roughly 25 per cent of the province’s GDP, on average, over the last decade.

And it’s suffering.

Shutdowns, delays and layoffs

While production operations continue at Hibernia, drilling has shut down, resulting in layoffs.

A Hibernia Management and Development Company spokesperson said the company is looking to reduce spending as a result of market conditions.

“We are evaluating all appropriate steps to reduce capital and operating expenses in the near term,” the spokesperson said in an email to The Telegram.

Paul Barnes, Atlantic Canada and Arctic director with the Canadian Association of Petroleum Producers (CAPP), said while much of the downturn locally is a result of the COVID-19 response, the worldwide crisis of plummeting oil prices paired with low demand and increasing supply is also having an effect locally.

“We’re concerned over that on how we restart our business after the COVID crisis is over, and what impact the low oil prices and the supply and demand will have on whether there will be any exploration drilling program delays coming from it,” Barnes said.

In the meantime, he said the pandemic has already shut down the West White Rose construction project, delayed the China National Offshore Oil Corporation drilling program in the Flemish Pass, and resulted in layoffs of Hibernia workers when drilling was put on hold.

Barnes said the impact will be felt not just by oil and gas companies, but the local supply and service community, as well as the provincial government because royalty payments to the province will be “severely cut.”

Johnson said Noia’s survey also found 74 per cent of member companies that responded have experienced reduced revenues, and 52 per cent have laid off some or all staff. Johnson said companies reported that they expect to do further layoffs, and are uncertain whether they’ll be able to rehire.

Seeking federal assistance

To help alleviate the crisis, both NOIA and CAPP are seeking federal assistance.

Johnson said NOIA is asking the federal government for incentives for exploration, incentives to get some delayed projects back in operation, and for more competitive regulations that will help attract investment in the province’s offshore for the November bid round.

“There has been $3.9 billion invested over the last four years, and what’s really concerning now is that that may even be in jeopardy. We’re looking at exploration programs that are delaying this year, we’re hearing that some could be cancelled, and that is absolutely not what we want to see,” said Johnson.

“An exploration incentive could help keep that $3.9 billion that’s booked to be done over the next number of years, but also to attract new investment.”

Barnes said CAPP is discussing with the federal and provincial government changes to terms and conditions of some offshore exploration licenses to allow exploration in the future if there are delays, as well as discussing options for additional tax credits to help with recovery once the pandemic ends.

Barnes said there is still activity offshore, such as continued exploration by ExxonMobil, and a seismic program planned for this summer. However, he said concerns about price volatility and storage may impact future exploration, as well as how soon development can be restarted once the COVID-19 crisis ends.

Virtual town hall

Last week, NOIA began a #MyOffshoreMyFuture social media campaign to highlight positive effects of the offshore on the province.

The association is also hosting a virtual town hall on Monday for its members. The town hall will be attended by federal Natural Resources Minister Seamus O’Regan and provincial Natural Resources Minister Siobhan Coady.

“I have to give credit to Minister O’Regan and Minister Coady. They get this. I know he’s working really hard in Ottawa, and he gets how important it is — particularly here in Newfoundland and Labrador,” said Johnson.

“I just don’t know how much that sentiment is shared throughout Ottawa, and that’s why we’re doing this campaign. It’s to help him show the rest of the leaders in Ottawa how important this industry is.”

Source: The Telegram | This text was excerpted from the media outlet cited on April 27, 2020 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.