IN THE NEWS / Reducing Offshore Costs More Important Than Ever
ST. JOHN'S, Nfld. - One of the major players in Newfoundland's offshore oil industry cautioned Wednesday that its expansion in the region will be tightly tied to its ability to reduce operating costs.
That won't be an easy feat in a young industry that has so far yielded only one producing oilfield and another in development.
But if Petro-Canada, one of the lead partners in the Hibernia and Terra Nova projects, can't compete in the international oil market it could face a long dry spell before developing its third field, said Gary Bruce, Petro-Canada's vice-president of offshore development and operations.
"We can't guarantee there will ever be another project on the Grand Banks," said Bruce.
"We believe the odds are good that there will be, but we won't know until after we drill a number of wells."
Even then, it must be determined if the new fields in the region are large enough to stand alone, or if they should be viewed as additional oil for the nearby Terra Nova and Hibernia platforms.
The Calgary-based company is expected to decide by early 2000 which of its remaining fields will be slated for development.
In a climate where oil prices have reached record lows and there's an abundance of supply, operating costs will play a key role in determining when and how future projects proceed, said Bruce. That means Petro-Canada must keep each project's cost-effectiveness in the top 25 per cent of all similar projects worldwide, he added.
The Terra Nova consortium will spend about $2 billion before the first drop of oil is coaxed from beneath the ocean floor by December 2000.
The break-even selling price will be about $10 US a barrel, more than $2 less than Hibernia but still considered comparatively high.
One example of heavy expenditure is the shore base in St. John's harbour.
The pier facility, used by supply and support vessels, is used only by Hibernia, although a similar-sized base for North Sea production would be shared by three or four projects, said Bruce.
Petro-Canada is still evaluating whether to use the base for Terra Nova vessels.
While the company recently announced a planned $300-million cut in capital spending over the next two years, Petro-Canada remains committed to its current exploration and development plans, said Bruce.
Those plans include bringing Terra Nova onstream, as well as at least five dilineation and exploration wells by the end of next year. The first holes will likely be drilled in the Hebron and Whiterose fields.
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