IN THE NEWS / Petro-Canada Bites The Bullet
By CHRIS FLANAGAN, The Telegram
Petro-Canada has confirmed it will bite the bullet and pay a $40-million US penalty to cancel its lease on an aging oil rig booked a year and a half ago to drill the Terra Nova oil field.
The tearing up of the Transocean Explorer drill rig contract delivers a $60-million or $70-million blow to the Friede Goldman Shipyard in Marystown, which had been short-listed along with Saint John Shipbuilding in New Brunswick to refit the rig for operations on the Grand Banks.
That refit would have provided about six months of work for several hundred employees at the yard.
But the consortium developing the estimated 400-million-barrel oil field near Hibernia reckons it will still save $30 million to $35 million in total capital costs by ditching the Transocean rig — and reduce risks to the project at the same time.
“We would have probably been looking at substantial cost increases on this project (with the Transocean),” Terra Nova management committee chairman Gary Bruce said at a press conference in St. John's Tuesday. “Essentially (the savings result from) from not having to undertake the extensive refit and also in (using) a much more productive rig, a rig built in late '80s or one that's just coming out of the yard today.”
The more engineers looked at the Transocean refit, the more costs escalated, he said.
Bruce defended the May 1997 decision to go with the 22-year-old Transocean Explorer, saying it was the only rig available at the time.
“When we signed the contract you have to remember drilling rigs were at a premium. In fact we couldn't get a third- or fourth-generation rig, this was about the only opportunity we had,” he said.
But with world oil prices wallowing in the $10-a-barrel range, offshore projects have been cancelled all over the world, freeing up modern rigs.
A new rig now costs what the Transocean would have cost, Bruce said, and will allow Terra Nova operators to drill more efficiently.
Newfoundland's newly appointed Mines and Energy Minister Roger Grimes said government is disappointed Marystown is no longer in the running for the refit contract but did not criticize Petro-Canada's decision.
The change of rigs just months before the summer drilling program was scheduled to begin does not jeopardize the project's overall schedule, Bruce said.
A back-up plan calls for two other rigs currently booked for exploration work on the Grand Banks to be pulled into service as drill rigs for Terra Nova.
“If we cannot get a fourth- or fifth-generation drilling rig in time to begin our summer drilling program this year, we would look at upgrading the (Glomar) Grand Banks or the Shoemaker to do some work at Terra Nova,” Bruce said. “They could allow us to keep on schedule by doing some of the initial work.”
Both rigs would require minor upgrades to do work for Terra Nova, he said, and the Marystown shipyard would be invited to bid on that work.
The big winner in the rig cancellation may be Transocean, which stands to collect $40 million for not delivering its rig, currently at work in the North Sea.
But without the Terra Nova refit, the rig's days of earning money are numbered, Bruce said
“It will probably be stacked … in other words, it will probably be put in the boneyard pretty quick,” he said.
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