BUSINESS

Newfoundland And Labrador To Get New Royalty Regime For Offshore Oil

06/16/2015 07:26 EDT | Updated 06/16/2016 05:59 EDT
ST. JOHN'S, N.L. - Premier Paul Davis made waves Tuesday with talk of a term sheet "in coming weeks" for the next big oil project off Newfoundland and a new royalty regime to speed offshore development.

"'We can't say there will be a term sheet until there is one but we're very confident in the process," Davis said of negotiations with Statoil ASA of Norway to develop its Bay du Nord prospect.

Hopes for the province's economically vital offshore sector are pinned on exploration and oil production in the Flemish Pass.

That's where Statoil announced its Bay du Nord find, the largest global discovery in 2013, in 1,100 metres of water about 500 kilometres east of St. John's. Early estimates suggest it contains up to 600 million barrels of recoverable light crude.

If developed, it would open up a vast new offshore region for the province as production from existing sites wanes.

A spokesman for Statoil was not immediately available to comment.

Davis raised the prospect of a term sheet, the next step in a long development process expected to take at least four more years, as he opened the Newfoundland and Labrador Oil and Gas Industries Association conference.

With a provincial election looming in November, Davis told reporters he won't rush negotiations to score political points. His Progressive Conservative government has trailed the Opposition Liberals in successive polls and has lost seven straight byelections.

"We're simply not going to do a deal or an agreement unless we know that it's the right deal for the province."

Davis said an equity stake is part of those talks as it was for the Hebron project. First oil from Hebron is expected in 2017.

"It's important for us to have as much of a partnership as possible."

Jez Averty, Statoil's senior vice-president of exploration in North America, is expected to update the conference on Wednesday before speaking to reporters.

Company spokesman Knut Rostad outlined in an interview last December the province's potential, describing it as "a core priority" for the company's global exploration. But any development decision for Bay du Nord was still expected to be months or years off with possible production not likely until after 2020.

Davis said Tuesday a new royalty regime is modelled on a more streamlined and agile approach that has succeeded in Norway and other offshore sectors.

"We see the benefits of having a standardized process, a principled policy that will benefit the players. They'll know exactly what to expect when they come to our province."

The oil price plunge since last June has hammered provincial finances, which rely on those earnings for about one-third of revenues. Brent crude was trading at mid-afternoon on Tuesday for about US$64 a barrel, down almost half since this time last year.

The province is forecasting a $1.1 billion deficit this year.

But Davis said the offshore oil industry remains confident and is focused on long term averages.

Bay du Nord would be a major economic lift for the province as output from Hibernia and other sites decline. Earnings would help fund renewable energy sources such as the Muskrat Falls hydroelectric project now under construction in Labrador, Davis said.

"It's going to reduce our greenhouse gas emissions, and we have the potential to contribute to ... emission reductions in other parts (of) Canada and the northeastern United States."

Liberal Opposition Leader Dwight Ball said in the legislature that Davis has "deal fever" and appears to be jumping the gun. Exploration drilling is to continue until well into next year at Bay du Nord, he said.

Follow @suebailey on Twitter.

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