'Catastrophic' drop for offshore bids, with 16 parcels garnering zero bids

·3 min read

There were 17 parcels up for grabs for oil companies to bid on for Newfoundland and Labrador's offshore this year, but only one of those received a bid — a "catastrophic" drop of interest, according to the owner of one business that depends on the indusrtry.

"This is catastrophic. We still have some producing fields but if there is no exploration, the future is bleak," said Andrew Bell, owner of K&D Pratt, which provides supplies and logistics for the oil and gas industry.

"[It's] incredibly disappointing. [The province] does a good job of creating seismic here and there is no question that oil prices are part of the problem, but this is a clear message that we are not doing enough to attract oil companies here."

The successful bid totalled $27 million and was made by BP Canada Energy Group, according to the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB).

Parcel 9 covers 264,500 hectares, and subject to regulatory and government approvals, the C-NLOPB will issue a new exploration licence to BP in January 2021.

That left 16 other parcels with no interest and thus, no bids.

Paula Gale/CBC
Paula Gale/CBC

The bid total for 2020 is a staggering drop from previous years. In 2018, five successful bids totalled just shy of $1.4 billion for a total of five parcels. Interest was high, too, in 2015, with successful bids totalling $1.2 billion for seven parcels.

Last year was also substantially lower compared to those booming bid years, totalling $38 million for three parcels, out of a total of 13 available.

Future looks grim for industry: consultant

Rob Strong, a consultant in the oil and gas industry with more than 40 years in the field, echoed Bell's sentiment.

"Any time that we have 17 blocks of acreage, which I think is a record up for bid, and we get one response you have to be disappointed," he told CBC News Thursday.

CBC
CBC

He said it doesn't bode well for the future of the province's oil industry.

"I think it's difficult to attract [oil companies] even with whatever kind of incentives you use, because the price of oil is so low, the cost of producing oil in a hostile environment is so high," Strong said.

"The global average for offshore deep-water development is about $50 a barrel. That's an average. I would suggest that our costs for new developments is well beyond $50 a barrel," he said. "So I'm skeptical as to how much incentivizing one can do to attract new operators with those factors in play."

In a statement from the Newfoundland and Labrador Oil and Gas Industries Association (NOIA), CEO Charlene Johnson said a lack of bids cannot be chalked up solely to COVID-19 and related factors that have hit the global oil industry.

"It is [our] understanding this poor bid round result was due to a combination of scarce capital and other jurisdictions being more competitive with shorter development times, consistent policy and regulations, and financial incentives," she said.

Premier, energy minister try to put positive spin on numbers

At the House of Assembly, the issue kicked off Thursday's question period, with PC Leader Ches Crosbie accusing Premier Andrew Furey of dropping the ball, pointing to the "very disappointing" results.

"Will the premier admit that this is a reflection on his government's failure to attract exploration investment to the offshore?"

Mark Quinn/CBC
Mark Quinn/CBC

Furey responded that while he would have liked to have seen more bids, he insisted this isn't a problem facing only Newfoundland and Labrador.

"But the harsh reality is this is a global economic crisis," he said.

"So instead of focusing on the negatives, let's focus on the positives — like the two robust discoveries by Equinor, the commitment by CNOOC {Petroleum] to drill in 2021, and BP and BHP to drill in 2022."

The C-NLOPB says the 16 parcels that failed to drum up any bids in 2020 may be re-posted in the future.

Read more from CBC Newfoundland and Labrador