POLITICS

A $559M bid to explore Flemish Pass for oil is largest ever off Newfoundland

12/12/2014 02:53 EST | Updated 02/11/2015 05:59 EST
ST. JOHN'S, N.L. - The price of oil may be down, but the regulator for Newfoundland's offshore sector announced Friday it had received its highest bid ever for exploration rights off the island.

ExxonMobil Canada, with Suncor Energy and ConocoPhillips Canada Resources, bid $559 million for a 266,000-hectare parcel in the Flemish Pass.

The region, about 500 kilometres northeast of St. John's, is where Statoil ASA of Norway last year announced the Bay du Nord find. Estimated to contain up to about 600 million barrels of light, sweet crude, it was called the largest discovery around the world in 2013.

"These new opportunities (off) Newfoundland and Labrador will build on our 17 years of success with Hibernia and the ongoing development at Hebron," Margot Bruce-O'Connell of ExxonMobil said in an email.

"We are excited to explore these new areas."

ExxonMobil has a 40 per cent interest in the bid, while Suncor Energy and ConocoPhillips Canada Resources have 30 per cent each.

The land was among six parcels that were up for bidding.

ExxonMobil Canada and Suncor Energy (TSX:SU) also jointly bid $21 million for a 289,000-hectare parcel in the Carson Basin near the Flemish Pass, with much the same geology.

And ExxonMobil Canada bid $16.7 million for a 109,000-hectare parcel in the Jeanne D'Arc region.

The Canada-Newfoundland and Labrador Offshore Petroleum Board said exploration licences will be issued in January pending government approval. No bids were received for the three other parcels.

Robert Cadigan, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association, said the Flemish Pass bid in particular underscores growing global interest in the province's untapped offshore potential.

"That is the largest bid ever received for an offshore parcel in Canada," he said in an interview.

Cadigan said it also reflects the expectation that there would be international competition and new players trying to get into that basin.

The results were some good news in a province that is taking a fiscal beating from the collapse of Brent crude prices. It was trading Friday for about US$62 a barrel, down from US$115 in mid-June.

The most recent provincial budget, based on a projected average oil price of US$105 a barrel, had forecast a $538-million deficit that is now expected to be much higher. Newfoundland and Labrador relies on the offshore sector for about one-third of its revenues.

Cadigan said the exploration bids demonstrate that international oil companies play a long game that's not dependent on price swings.

"Prices in the short term can have an impact on investment, certainly. But the explorers in the offshore tend to have a very long view, and short-term oil prices really aren't going to deter them too much."

Follow @suebailey on Twitter.