Equinor goes back to the drawing board as Bay du Nord's $16B price tag spikes

The head of Equinor Canada says he still feels the Bay du Nord deepwater oil project can move ahead off the coast of Newfoundland and Labrador — but not at the $16 billion price tag it started out with.

Tore Løseth says Equinor needs to get a new accounting of the total cost and break-even point before it can commit to sanctioning a project that holds the collective hopes of all those who champion the province's offshore oil industry.

"Those numbers, and I hear many numbers out there, are old and not where they are at the moment," he said. "We don't have new numbers."

Equinor announced on Wednesday that the project was on hold for up to three years. The company said it's taking that time to find ways to lower costs and optimize the project.

Løseth told reporters the company is forming a team and looking at every aspect of the project to find ways to lower costs. When asked if he was worried inflation would continue to drive prices even higher, Løseth said the company can "challenge ourselves and find new ways we can make it work and get the costs down."

'Very recent decision,' exec says of timing

The news came just after noon on Wednesday, exactly in the middle of Energy N.L.'s annual conference and exhibition.

Much of the talk on Day 1 focused on the potential deepwater projects have for the province's offshore — with Bay du Nord set to be the first project in Canada to drill in a kilometre of water.

Now it's on hold, and some industry experts question what that means for other projects — such as BP's exploration of a deepwater well in the West Orphan Basin, about 395 kilometres northeast of St. John's, which began early last month.

Løseth said he had no intention of delivering bad news this week.

"I planned on giving a very different speech here at the conference, but it's a very recent decision," he said. "That's why we had to communicate as soon as we had that decision and that happened to come at the same time as this conference. But we felt it was very important to be open and honest of course with all our employees and the stakeholders around us."

Plenty of unanswered questions remain. With climate change intensifying, and countries around the world committing to a clean energy transition, demand for oil is expected to peak in 2030 and then fall.

With only seven years remaining until that anticipated peak, will a three-year delay spell doom for the Bay du Nord project? Løseth says he doesn't think so, but both environmental groups and climate policy experts disagree.

Newfoundland and Labrador has also faced criticism of its commitment to the oil industry at a time when scientists are warning of the irreversible effects of climate change, and urging governments to move away from fossil fuel production.

There's also the issues of royalty structures and benefits agreements. Because the project sits outside Canada's 200-mile limit, Bay du Nord would be the first project in the world to have to pay royalties to the United Nations to be redistributed to developing countries. The matter of who will pay that cost — Equinor, Newfoundland and Labrador, or Ottawa — has been a matter of contention.

Then there's the benefits agreement with the province. Newfoundland and Labrador wants to see the topsides and subsea work done by companies in the province, while the company had signaled a preference to build the entire floating production storage and offloading {FPSO) vessel in Asia. Speaking with reporters on Wednesday, Løseth said that had little to do with the decision.

"On the benefits agreement, what I would like to say is that we've had a constructive and good dialogue with the Government of Newfoundland and Labrador on that," he said. "Independent of that, Equinor and BP made the decision to delay… because of global inflation cost increases."

Løseth said the delay is a "bump in the road to what we still feel will be a successful project."

Premier says project will go ahead, sends message to oil companies

About two hours before Løseth took the stage, Newfoundland and Labrador Premier Andrew Furey addressed the conference and guaranteed the project will still get done.

"Make no mistake — this is valuable now, it will be valuable tomorrow and it will get done," he told the audience.

Furey said the province is used to delays in major projects and is committed to working with Equinor to get the project to production.

In the same speech, however, he said the province will not be strong-armed by any company using market conditions as leverage over the province in royalties or other concessions.

"I work for you [the citizens of the province]," Furey said. "I don't work for any company."

Furey was speaking on the same panel as the vice-president of east coast operations for Suncor, who was giving a brief update on the stalled Terra Nova project.

Furey's government gave Suncor $205 million cash in 2021 when the company threatened to walk away from the Terra Nova FPSO amid a downturn in the oil market. The payment helped send the vessel to Spain for significant repairs. It was due to return to service earlier this year, but remains tied up in Bull Arm to undergo unspecified repairs. It's expected to stay there for the remainder of the year. Suncor, meanwhile, more than doubled its profits in 2022.

The local impacts of the Equinor delay remain to be seen. The company did have agreements in place with some Newfoundland and Labrador companies. Løseth said they have to re-evaluate their next steps and how those deals will be affected.

"We're not moving to the next stage that we were looking for, so that means there will be changes to the project but the details of that we will have to come back to."

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