MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY, FEBRUARY 17, 1998 (2)
TOP STORY
Terra Nova To Clear Its Final Hurdle 2/17/98
Chris Flanagan - St Johns Evening Telegram
Newfoundland's second offshore megaproject was to clear its final hurdle today when a consortium of six owners committed to spend $4 billion on development.
Sanction by the Petro-Canada-led consortium was the last in a long line of procedural announcements that had to be cleared before the 400-million barrel Terra Nova oilfield could be considered under way.
"This is the key," Petro-Canada's vice-president of offshore development, Gary Bruce, said in St. John's Monday. "Without this the project would be shut down. We need to get all our partners' approval and that's what we'll get (today)."
The oilfield, located 350 kilometres east-southeast of St. John's, is expected to eventually produce 125,000 barrels of light crude oil a day.
Project sanction was delayed about a week by a minor disagreement between two partners over details of oil transportation.
Already the project has gone through at least a half dozen official ceremonies, including the December 1996 announcement that, unlike Hibernia, Terra Nova would be produced using a ship-shaped, steel-hulled platform built outside Canada.
The more expensive concrete, gravity-based structure used for Hibernia was likely the last platform of its kind, industry insiders say.
Although the $200-million contract for the steel hull was awarded to Daewoo Heavy Industries of South Korea, a good deal of work will still come to Newfoundland and eastern Canada, Bruce said.
"We're just now beginning to ramp up and we'll be awarding and making announcements over the next couple of months," he said. "We will be announcing the awarding of topside work in the very near future and that's going to be of interest to the province."
Also of local interest is a contract to refit the semi-submersible rig Transocean Explorer, owned by Houston based Transocean Offshore Inc. and currently working in the North Sea. It will be put to work drilling as many as 44 holes on the Grand Banks.
The refit, worth between $58 million and $74 million, will go to an East Coast shipyard, Bruce said.
The work will be done in early 1999 and the rig will start drilling that summer for an expected production startup date in 2001.
Work will begin this summer on the excavation of glory holes - huge, 12-metre deep holes in the ocean floor - which will be used to house subsea drilling equipment.
Owners are not concerned about the recent dip in oil prices, Bruce said. "We've gone through this before. Oil prices are quite cyclical."
FOLLOW-UP STORY
$4.5B For Terra Nova Field
Petro-Can Consortium Finally Unveils Plan For Offshore Project
The Financial Post
Petro-Canada and its consortium partners unveiled a $4.5-billion commitment yesterday to develop the giant Terra Nova oilfield, the second major project off Newfoundland.
The field, located 350 kilometres southeast of St. John's, holds about 370 million barrels of recoverable oil and is scheduled to start producing in late 2000. Peak production is expected to hit 115,000 barrels a day, at an average cost per barrel of US$7, plus an additional US$2 for transportation.
The announcement came a week later than scheduled, as the partners worked to resolve a dispute over tanker transportation and storage facilities. A similar dispute among partners in the nearby Hibernia field -- some are also partners in Terra Nova -- resulted in two lawsuits and threatened to delay Terra Nova even longer.
"Today's announcement, even in the face of softening price for product, represents a premium commitment," said Newfoundland Premier Brian Tobin.
"This is a real milestone for us in the offshore development of the Grand Banks," said Norm McIntyre, executive vice-president of Calgary-based Petro-Canada. "We believe that this is going to set the stage for all of the future developments to come offshore Newfoundland."
The current low price of oil -- West Texas intermediate crude was trading just over US$16 yesterday in New York -- won't stand in the way of plans for future Grand Banks developments, which Petro-Canada plans to bring on stream every two years, he said.
"We don't make decisions to go forward on these megabucks projects with long lead times on a week-to-week, month-to-month, or even year-to-year price projections," McIntyre said. "It would take a very sustained downward trend in the oil price on a long-term basis before we would significantly adjust the strategic direction."
Hebron and Whiterose are two other promising fields in the area at early stages of development.
Chevron Canada Resources said yesterday it has bought a 1% interest from Mobil for an undisclosed price as part of a trade of assets deal in which Mobil gets properties in Western Canada.
Tobin said Terra Nova, with fewer reserves than Hibernia, will actually yield higher royalties because they're based on profitability, which is expected to be much higher because Terra Nova has lower front-end capital expenses.
Terra Nova is expected to cost $2 billion by the time it reaches the pre-production stage. Another $600 million will be spent on production and $1.9 billion on operating costs for the 15-year life of the field.
Hibernia's pre-production costs hit $6 billion.
Terra Nova's oil will be produced from a floating vessel, while Hibernia uses a more expensive, fixed production platform that can withstand icebergs. Terra Nova's floating vessel will move out of the way to let icebergs go past.
A transshipment facility being built to hold Hibernia oil will be expanded to store Terra Nova's.
FOLLOW-UP STORY
Terra Nova
The Terra Nova development proponents today announced their decision to proceed with the development of the Terra Nova oil field offshore Newfoundland. The decision to proceed with the development follows last month's Canada-Newfoundland Offshore Petroleum Board approval of the development application, subject to a number of conditions.
''We are pleased that final agreements and approvals are now complete and the development can move forward,'' said Norm McIntyre, executive vice-president, Petro-Canada. He added, ''The economics of Terra Nova are attractive; it is a good investment for the development owners and will generate substantial revenues for Newfoundland and Canada as a whole.''
Construction of glory holes - holes in the sea floor to protect wellheads and subsea templates - will begin this summer to prepare for drilling, which will commence in June, 1999. The contract for the Floating Production Storage and Offloading (FPSO) vessel hull has been awarded to Daewoo Heavy Industries and the contract for the drilling rig to Transocean Inc. Topsides fabrication work will be announced shortly.
The Terra Nova development consists of an FPSO capable of producing 125,000 barrels of oil per day. A total of 24 wells will be drilled, six before start up, to recover an estimated 370 million barrels of oil. Average annual peak production is estimated at 115,000 barrels of oil per day.
In announcing the decision to proceed, the development proponents noted they expect to obtain first oil by year-end 2000 at a cost of just under $2 billion (as spent dollars). Post first oil capital costs are estimated at $600 million for a total capital cost of approximately $2.6 billion. Operating costs are expected to be $1.9 billion over the 15-year life of the field. Total project costs will be $4.5 billion.
While all work will be internationally bid, the Terra Nova proponents are committed to ensuring that Newfoundland will have full and fair opportunity and first consideration in gaining business and employment opportunities. ''The development of Terra Nova will be a major contributor to future offshore oil exploration and development and the establishment of a sustainable oil industry in Newfoundland'' commented Mr. McIntyre. ''We are committed to furthering the industrial capabilities available in Newfoundland to service a growing industry.''
The proponents currently estimate that between 900-1100 persons will be employed in Newfoundland during peak pre-production activity. Employment will occur in the areas of engineering, fabrication, drilling, and project administration. The operations phase will generate in the range of 400 - 450 direct longer-term jobs. Approximately 80 per cent of the estimated total employment activity - 20.9 million person hours - will occur in Newfoundland. Of the anticipated total capital and operating expenditures of $4.5 billion, approximately 60 per cent will be spent in Newfoundland.
The Terra Nova proponents have completed the initial unitization of the field resulting in the following working interests: Petro-Canada, operator, (29%), Mobil Oil Canada Properties (23%), Husky Oil Operations Ltd. (17.5%), Norsk Hydro Canada Oil & Gas (15%), Murphy Oil Company Ltd. (12%) and Mosbacher Operating Ltd. (3.5%). A seventh company, Talisman Energy Inc., holds an interest in an undrilled section of the field - the Far East block. If oil is discovered in this block, Talisman will become a working interest owner at the time of redetermination of interests.
The Terra Nova Alliance, a consortium of companies led by Petro-Canada, will design, construct and install the FPSO, subsea components and pre-production wells necessary for the development of the Terra Nova oil field. The Alliance consists of: Petro-Canada, Shawmont Brown and Root, Halliburton Energy Services, FMC Offshore Canada Ltd., PCL Industrial Constructors Inc., Coflexip Stena Offshore Newfoundland Ltd. and Doris ConPro Offshore Ltd.
The Terra Nova oil field is located on the Grand Banks 350 kilometres east-southeast of St. John's, Newfoundland. Discovered in 1984, Terra Nova is the second largest oil field off Canada's East Coast.
FOLLOW-UP STORY
Terra Nova To Cost Less Than Hibernia
Canadian Press
Newfoundland's Terra Nova oil project will cost about a third less than its offshore big brother Hibernia and break even at $5 less per barrel.
Details of the $4.5-billion project were revealed Tuesday, a day after developers revealed they will proceed with development.
"We are pleased that final agreements and approvals are now complete and the development can move forward," said Norm McIntyre, executive vice-president of Petro-Canada.
"The economics of Terra Nova are attractive; it is a good investment for the development owners and will generate substantial revenues for Newfoundland and Canada as a whole."
The development application was approved last month with conditions by the Canada-Newfoundland Offshore Petroleum Board.
Drilling is to begin in June 1999 and first oil is predicted for December 1999.
A total of 24 wells will be drilled - six before startup - to recover an estimated 370 million barrels of oil. Average annual peak production is estimated at 115,000 barrels of oil a day.
The Terra Nova project should also produce hundreds of jobs early next year, Premier Brian Tobin said at a news conference.
It's estimated the project will employ between 900 and 1,100 people in Newfoundland during peak pre-production activity. The operations phase will generate about 400 to 450 direct, longer-term jobs.
Although the project's $200-million floating production platform will be built in South Korea, Tobin said the province is working to ensure that most of the construction for the topsides of the project, already begun in England, are done in Newfoundland.
He said he expects an announcement within two weeks.
Capital costs are estimated to be at $2.6 billion. Operating costs have risen from $1.8 billion to $1.9 billion, with a break-even price set at $7.50 US per barrel.
Hibernia, credited with paving the way for Terra Nova, breaks even at $12.95 US per barrel.
About 60 per cent of Terra Nova's capital costs will be spent in Newfoundland, said McIntyre.
The Terra Nova oil field is located on the Grand Banks, 350 kilometres east-southeast of St. John's.
Tobin said Mobil Canada and Husky Oil will open offices in St. John's this year.
Exploration will resume in the Laurentian Cannel, an area south of Newfoundland and east of Nova Scotia, where Mobil Oil and Gulf Canada are major land holders.
Useful References
terranovaproject.com
hibernia.ca |
