Alex Pourbaix, CEO of Cenovus, in Calgary on January 30, 2020. Jeff McIntosh / The Canadian Press
A review of the structure of the Newfoundland and Labrador royalty means that the expansion of the West White Rose oil field will continue, its partners announced on Tuesday, ending two years of uncertainty about the half-finished project on the coast. of the easternmost province of Canada.
Work will begin to intensify this year, and most of the work will resume in 2023. The first new oil is expected to flow in early 2026.
Prime Minister Andrew Furey called the announcement a “big day for Newfoundland and Labrador.”
“When you think about where this industry was and the uncertainty surrounding this particular project just a year ago, we’ve come a long way,” he told reporters in St. Louis. John’s.
The White Rose Offshore Camp is about 350 miles east of Newfoundland. It produces about 26,000 barrels a day, but that number is declining as its oil reserves dwindle. The expansion will add about 75,000 barrels a day to production.
Husky Energy Inc., which owned the lion’s share of the expansion project before Cenovus Energy Inc. acquired the company last year, slowed down in West White Rose in March 2020, when the COVID-19 pandemic obliterated oil demand and prices.
A few months later, in September 2020, Husky asked the federal government to step in and help rescue the $ 2.2 billion drilling expansion. The company then envisioned an agreement similar to the Hibernia offshore platform, in which the federal government acquired an 8.5 percent stake in 1993 after Gulf Canada withdrew from the project.
But what secured the future of West White Rose was a revision of the project’s gift framework, which protects Cenovus ’yields when oil prices are low and sends more cash to provincial coffers when crude flies high.
For Cenovus, the change helped reduce the risk of their investment. For Newfoundland and Labrador, it potentially means aid to the province’s financial difficulties.
“In a high-priced environment, we could have up to 42.5% additional copyright on this project,” Mr. Furey.
“So when we’re all angry that oil companies are making extra money in a high-priced environment, Newfoundlanders and Labradorians will do more, too.”
While the agreement sets a maximum net royalty rate of 30 percent, it also includes activators based on the price of Brent crude, a world oil benchmark.
That’s only an additional 1.25% if Brent is between $ 65 and $ 75 a barrel, but up 12.5% if oil prices exceed $ 90.
According to provincial estimates, revenues remain around $ 2.7 billion over the life of the project. At $ 50 a barrel, that drops to about $ 850 million. But with $ 100 a barrel, revenue is up about $ 2.2 billion. Brent traded at around $ 118 a barrel on Tuesday.
Newfoundland and Labrador will also receive a $ 200 million gift abandonment credit from Cenovus project partners, Suncor Energy Inc. and Nalcor Energy, as well as $ 100 million to establish a Green Transition Fund.
Mr. Furey said the abandonment credit was “a victory for the province,” and said future generations now won’t have to find hundreds of millions of dollars to clean up the asset when it’s over.
But the resumption of West White Rose underscores the struggle between balancing the economy and the environment: how to reduce emissions to avoid the worst effects of climate change, while providing the provinces with much-needed revenue.
Newfoundland and Labrador have their own goal of zero emissions in 2050. But critics say there is no way this can happen, or that Canada can achieve its own climate goals by increasing fossil fuel production. .
Mr. Furey, however, is adamant that the oil in his province may be at the crossroads of the division, because its oil extraction is much less emission-intensive than Alberta’s oil sands and is not landlocked, so that crude oil can be transported directly to the market.
The global energy transition, he said, means “having two thoughts in your head at once.”
“You’re moving from place to place. This won’t happen overnight and we have the product the world needs right now,” he said.
“So from our perspective, this is the project that should be developed.”
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