A $505-million lifeline that helped keep an offshore oilfield alive is a good deal for the province, the Newfoundland and Labrador government said Thursday, even if it means it would reap just $35 million in royalties over the next decade.
Following Wednesday night's down-to-the-wire announcement that the Terra Nova oilfield would not be abandoned by its owners, Energy Minister Andrew Parsons said the real benefits to the province will come through jobs and taxes. Besides, he said, if the oilfield was shut down, there'd be no royalties at all.
“I think it's a really good move for this province,'' he told reporters Thursday morning. “We've minimized risk, we've protected the future, we've saved jobs.'”
The Terra Nova field sits about 350 kilometres southeast of St. John's and hasn't pumped oil since 2019. About 80 million barrels are still out there, but the field's infrastructure needs extensive retrofitting work to get the last of it.
The work was supposed to begin last spring and keep the field pumping for another decade, but the COVID-19 pandemic hit. By the end of 2020, when the work was supposed to be finished, the field's massive floating production and storage vessel was bobbing in the water near St. John's, dormant and nearly deserted.
Calgary-based Suncor Energy, Terra Nova's minority owner, was expected to make a call on Tuesday about the future of the field, with chief executive officer and president Mark Little having previously said that abandonment was a “real possibility.”
Tuesday came and went without a word, and the company announced Wednesday night that instead of shutting the field down, the field's seven partners would reorganize their shares. Suncor will take on a 48 per cent stake in the project, up from 38 per cent, and Equinor confirmed Thursday it will bow out completely. No other information about the ownership changes has been provided.
Suncor said the newly rearranged partners would provide ``short-term funding'' for the project until the fall, when owners would make another decision about whether to proceed with the life-extension work.
The details still need to be finalized and approved, Suncor said, and the arrangement is contingent on the provincial government making good on its offer of $205 million in cash – which will come from a $320-million fund offered by Ottawa last fall to bolster the sputtering oil sector – and a royalty adjustment valued at about $300 million.
Meanwhile, the province's offer is contingent on the oilfield's partners moving ahead with the life-extension work to keep the field pumping for the next decade, Parsons confirmed Thursday.
If it all pans out, the new royalty deal will pay Newfoundland and Labrador $35 million over the extended 10-year lifespan of the project, the government said.
Premier Andrew Furey defended that amount Thursday, saying that Terra Nova has been “quite lucrative” for the province, royalty-wise, since it first started pumping in 2002.
“It's not uncommon in oil projects towards the end of their life, to have a look at the royalty regime,'' Furey told reporters.
Both Parsons and Furey emphasized that the $205 million in cash is coming from a federal fund specifically aimed at the offshore oil sector. “I can't spend it anywhere else, it has to be spent in oil and gas,'' Furey said.
He noted there was “massive” pressure on the government to buy an equity stake in the project, and said he was proud of Parsons for refusing, and for standing his ground throughout the tough negotiations.
Suncor is also a partner in the stalled West White Rose project, which is aimed at extending the life of the White Rose oilfield, about 50 kilometres east of Terra Nova.
The government gave majority owner Husky Energy, which is now Cenovus Energy, $41.5 million in December, also from the federal funding. When asked if he felt the much larger amount given to the Terra Nova operators would prompt Cenovus to ask for money, Parsons was resolute.
“Absolutely not,'' he said. “I think we've sent the message here that we will take a position, we will be firm, we will be fair. But when we draw the line, the line is there.''
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