Hebron offshore oil project a much needed lift for Newfoundland offshore

ST. JOHN’S, N.L. – Newfoundland and Labrador’s waning offshore oil industry received a much-needed boost Friday as a consortium of partners led by ExxonMobil Canada Properties announced it has approved the Hebron offshore oil project.

The partners will spend $14 billion to develop the oilfield, which is estimated to contain more than 700 million barrels.

ExxonMobil says it expects Hebron to begin producing oil before the end of 2017 and up to 3,500 people will be employed during its construction phase. The offshore platform is being designed to produce 150,000 barrels of oil per day.

The sanction comes as the province’s oil sector — which includes the White Rose, Terra Nova and Hibernia offshore oil sites — battles a decline in production.

Last month, Newfoundland and Labrador’s Finance Department said oil flow was down 28.5 per cent in the first three quarters of last year compared to the same period in 2011 mostly due to maintenance and refits.

The drop has taken a toll on the province’s revenue, with a projected $725.8 million deficit — nearly triple its last forecast — which the government partly attributes to plunging oil production and an average price per barrel that’s less than the US$124 on which its budget last April relied.

“The development of Hebron will result in an increase to offshore production, provincial royalties and provide tremendous opportunity for employment and businesses in the province,” Natural Resources Minister Jerome Kennedy said in a statement.

The province expects to collect about $23 billion in royalties, returns on its investment and corporate income tax, he said.

“We are optimistic that the development of Hebron will lead to further offshore opportunities and additional developments in the future.”

Hebron is in the Jeanne d’Arc Basin, about 350 kilometres southeast of St. John’s, N.L., and 32 kilometres further offshore than the Hibernia oilfield.

Partners led by ExxonMobil Canada include Chevron Canada, Suncor Energy, Statoil Canada and provincial Crown corporation Nalcor Energy. The province acquired a 4.9 per cent equity stake in the venture after a battle over revenue sharing between former premier Danny Williams and ExxonMobil.

The company, one of the world’s largest oil producers and a major player in Canada’s energy industry, said it would use its expertise in Arctic development to handle notoriously hostile conditions in Hebron’s North Atlantic location.

Construction of the gravity-based structure for the offshore platform is under way in Bull Arm, N.L. Fabrication of the topside structure is expected to begin later this year, the company said.

The federal and provincial governments approved the project last May.

The field is the second largest discovery in the province’s offshore, second to Hibernia.

“It’s a very significant project that’s obviously going to generate significant royalties over an extended period,” said Fred Bergman, a senior policy analyst with the Atlantic Provinces Economic Council.

“Like the existing projects, it’s going to help the province fiscally and it’s going to help the province (in the) longer run to reduce its debt.”

Newfoundland and Labrador has a projected net debt of about $8.9 billion, down from a high of almost $12 billion in 2004.

The Canadian Association of Petroleum Producers also welcomed the news.

“With production in decline right now from the three current production facilities, this project is coming at an important time,” spokeswoman Jill Piccott said in an email.

“To ensure that Newfoundland and Labrador continues to see the major benefits from the offshore industry, increasing exploration and developing new projects is key.”