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Commodity Pricing

Players hope stimulus could help lure exploration and development back to province

Oil and gas players in Newfoundland and Labrador are pushing the federal government for an incentive programme they hope will salvage exploration and development projects off the Eastern Canadian province, many of which have been cancelled or delayed amid the Covid-19 pandemic.

A proposal recently unveiled by the Newfoundland and Labrador Oil and Gas Industry Association (Noia) includes a multi-well exploration incentive with a graduated reimbursement of capital costs ranging from 30% to 70%.

Noia is also seeking a 15% tax incentive for development projects that would be reduced to 10% as commodity prices strengthen.

“To continue to be globally competitive and attract capital investment, we urgently need a fiscal stimulus from the federal government–not a handout–a stimulus to drive exploration and get development projects moving,” Kvaerner Canada president and country chair Bill Fanning said last week during a virtual “town hall” meeting sponsored by Noia.

Projects on hold

Since the oil price crash in early March, a number of offshore projects have been put on hold. Husky Energy has put its $3.6 billion West White Rose development on hold, while drilling at the ExxonMobil-operated Hibernia field could be halted for up to 18 months.

Equinor has also shelved its Bay du Nord project for the time being.

Last week, it was revealed that the Suncor-operated Terra Nova asset life extension project would also be delayed because of the pandemic.

Noia chief executive Charlene Johnson said the exploration incentive her organisation has proposed could help exploration happen this year.

“That’s an opportunity get exploration done sooner rather than later,” she said.

The development incentive, meanwhile, could help put shorter-term projects, such as West White Rose and Terra Nova back on the table.

Johnson said she had been in discussions with the federal government for the past eight weeks, and noted that Natural Resources Minister Seamus O’Regan–also a Member of Parliament representing Newfoundland and Labrador riding–was interested in the proposal.

“I do believe he is 100% all-in on this,” she said. “I do believe he is determined to deliver.”

O’Regan told the Canadian Broadcasting Corporation last week that incentives would help the nation’s offshore compete with other jurisdictions, such as Norway, that already have such programmes in place.

“Exploration is key,” he said.

During the town hall discussion, former Newfoundland and Labrador Premier Brian Tobin noted that Norway, which put incentives in place in 2005, saw 57 wells drilled in its offshore last year. That is more than the 54 that have been drilled in 30 years off Newfoundland and Labrador.

He added that oil and gas activity in the province got started in the 1980s after the province provided financial incentives to explorers.

“That tells us that oil and gas offshore didn’t get discovered by accident,” he said. “It got discovered by design, and it got discovered because of incentives that really attracted capital.”

November bid round

Since the drop in commodity prices, bid rounds around the world have been delayed or cancelled. One scheduled for this year in Nova Scotia, a neighbouring province of Newfoundland and Labrador, has also been postponed.

However, one scheduled for Newfoundland and Labrador is still expected to go ahead, though activity may be low.

“I think what we can expect is there is some contraction, and definitely you’re going to find explorers will do less and they will focus on the known reserves that they have,” Fanning said. “That really does sort of speak to the urgency of our situation because at some point we’ll have to get somewhat selective about the basins that we plan to explore in.”

Johnson added that companies are already preparing for the bid round.

“Hence the urgency around needing an announcement from the government now,” she said. “Because decisions are being made, investment will go elsewhere, and when it goes elsewhere it’s much harder to get back.”

Source: Upstream | This text was excerpted from the media outlet cited on May 18, 2020 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.