BP picks up stake in Bay du Nord off Newfoundland while walking away from oilsands

·4 min read
BP will exit the Alberta oilsands by selling its 50 per cent interest in the Sunrise project to Calgary-based Cenovus. In return, it is picking up Cenovus's stake in Bay du Nord.   (Caroline Spiezio/The Associated Press - image credit)
BP will exit the Alberta oilsands by selling its 50 per cent interest in the Sunrise project to Calgary-based Cenovus. In return, it is picking up Cenovus's stake in Bay du Nord. (Caroline Spiezio/The Associated Press - image credit)
Caroline Spiezio/The Associated Press
Caroline Spiezio/The Associated Press

There's been a notable shakeup in Newfoundland and Labrador's offshore oil industry, with British energy giant BP acquiring Cenovus's 35 per cent stake in the undeveloped Bay du Nord project.

It's part of a bigger transaction that will see BP completely exit the Alberta oilsands by selling its 50 per cent interest in the Sunrise project to Calgary-based Cenovus.

"This is an important step in our plans to create a more focused, resilient and competitive business in Canada," said Starlee Sykes, BP's senior vice president, Gulf of Mexico and Canada.

Sykes said Bay du Nord "will add sizeable acreage and a discovered resource to our existing portfolio offshore Newfoundland and Labrador. Along with BP's active Canadian marketing and trading business, this will position BP Canada for strong future growth."

According to a news release from BP, the deal includes $600 million in cash and a contingent payment of $600 million linked to the price of oil over the next few years.

The transaction is expected to close before the end of this year.

BP opens office in St. John's

BP is the latest international oil company to exit the oilsands, following a similar pattern set by Equinor, the lead owner and operator of Bay du Nord.

BP made its decision "mostly because of political and image concerns around the higher upstream emissions intensity associated with oil sands production," said oil industry analyst Rory Johnston, founder of Commodity Context, a commodity research website.

Like Equinor, BP recently opened an office in St. John's as it shifts its focus to potential growth in Newfoundland and Labrador's offshore oil industry.

WATCH | BP's move into the Bay du Nord project is being seen as a boost to N.L.'s offshore oil industry: 

BP also gave up its significant holdings in Russia after it invaded Ukraine.

"They're very much looking to figure out a way to pivot their production, their future kind of production strategy away from Russia and toward literally anywhere else on the planet," said Johnston.

Equinor
Equinor

The Bay du Nord discoveries, which also includes Mizzen, Harpoon and Baccalieu, were made by Equinor and Husky Energy beginning in 2013. Husky was acquired by Cenovus in a deal that closed 17 months ago.

BP partnered with Equinor in two other Bay du Nord discoveries — Cappahayden and Cambriol East — in 2020, and further exploration is ongoing this year.

BP currently holds an interest in six exploration licenses in the offshore eastern Newfoundland region.

Jim Keating, CEO of Newfoundland and Labrador's government-owned oil company, OilCo, said BP's decision to acquire a significant Bay du Nord stake is an endorsement of the province's offshore.

Keating said companies like BP want production that is low-cost and low-emitting, and in a jurisdiction that is stable and secure.

Bay du Nord is being billed as Canada's lowest emitting oil project.

"You see companies now building more competitive and resilient positions in the their portfolios, and we're benefiting from that," said Keating.

Terry Roberts/CBC
Terry Roberts/CBC

"BP is a world-class player taking a very significant position in that development. It can only be good. It's more wind at the back of that project," he added.

Johnston believes having two offshore specialists like Equinor and BP moving lockstep in the Flemish Pass could kickstart a new phase of deepwater development in the offshore.

"This could be the start of Newfoundland and Labrador's offshore being a core area of focus for BP, much like Equinor," said Johnston.

But while industry boosters were celebrate Monday's announcement, environmental groups like the Sierrra Club were speaking out in anger.

The Sierra Club Canada Foundation issued a reminder that BP was responsible for the Deepwater Horizon disaster in the Gulf of Mexico in 2010.

"This risk cannot be recreated in the North Atlantic, where the conditions are so much more dangerous," said Sierra Club spokesperson and St. Anthony native Gretchen Fitzgerald.

"We know there is no way to clean up a spill in the environment where Bay du Nord would be developed, and weeks would pass before equipment would be available to cap a well."

The Sierra Club is part of a group that launched a legal challenge against the decision to grant environmental approval to Bay du Nord, and Fitzgerald said BP's participation will make the group even more determined to oppose the project.

Production by end-of-decade

After a four-year process, Bay du Nord received federal environmental approval in April.

Equinor has estimated the amount of recoverable oil at more than 500 million barrels, though various reports have suggested that figure could increase to one billion barrels with more drilling planned.

Equinor has stated an investment decision is still two years away, with production of up to 200,000 barrels per day expected by the end of this decade, using a floating production, storage and offloading vessel.

Bay du Nord is located in the Flemish Pass Basin, some 500 kilometres northeast of St. John's, in water depths of some 1,200 metres.

BP is also planning an exploration campaign next year in another frontier area called the Orphan Basin, with a well planned for a prospect called Ephesus.

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