West White Rose work cancelled for 2021 in early ripple from Cenovus-Husky merger
There are immediate implications for Newfoundland and Labrador from a major shakeup in the Canadian oil sector, with Husky Energy confirming construction on the stalled West White Rose extension project will not resume in 2021.
The decision follows news on Sunday that Husky is being purchased by rival Cenovus Energy in an all-stock, $3.8-billion deal between the two Calgary-based businesses, with the transaction expected to be finalized early next year.
"The 2021 construction season has been cancelled," a Husky official confirmed in a statement to CBC News.
The decision means the future of the troubled extension project for the White Rose oil field in offshore Newfoundland is murkier than ever.
In an additional statement Monday, Husky said once the sale by Cenovus is complete, there will be additional work to review all assets.
"Regarding Husky's Newfoundland and Labrador operations, the WWR [West White Rose] project is key to extending the life of the White Rose field," the statement reads. "As we have said before, all options are on the table and accelerating abandonment remains a possibility."
Cenovus directed media inquiries to its investors call on Sunday.
In a brief statement Monday, the Newfoundland and Labrador Oil and Gas Industries Association said it "remains optimistic about the future of the offshore operations of Husky Energy, including the West White Rose project."
With the global pandemic battering oil markets, Husky announced in April it was halting construction of the fixed wellhead drilling platform for the remainder of 2020.
At the time, the project was nearly 60 per cent complete, with major construction taking place at the Port of Argentia and a fabrication facility in Marystown. Hundreds of workers were laid off.
In early April, with its balance sheet in tatters, Husky announced it was reviewing its entire operations in eastern Canada, and it asked the provincial and federal governments to buy equity stakes in West White Rose in order to save the project.
Both levels of government rejected the company's pitch, though Newfoundland and Labrador, through its energy corporation, Nalcor, already owns a five per cent stake in the project.
As a project partner, Nalcor had paid $110 million as part of its share of costs as of July.
Husky has said it will not add debt to its balance sheet in order to fund the remainder of the project, and now with Cenovus about to enter the picture, it appears the strategy is less certain.
Sources say a range of scenarios could unfold, including a sale of Husky assets in the province, which also includes a 35 per cent equity share in the highly touted Bay du Nord discoveries in the Flemish Pass.
But Husky is hopeful federal aid money for the offshore can be used to "help position the (West White Rose) project for restart when commodity prices recover," according to the Husky statement.
In late September, Natural Resources Minister Seamus O'Regan announced $320 million to support offshore workers and help lower greenhouse gas emissions. The money was in addition to $75 million already announced by Ottawa.
In its statement, Husky said, "We continue to work with the government to discuss how the federal dollars allocated to the offshore can support the long-term success of White Rose and the offshore, including determining whether some scopes of work can proceed."
Meanwhile, big questions are emerging about the future of Husky's operations in offshore Newfoundland.
The SeaRose floating production, storage and offloading vessel, which is the centrepiece of the White Rose oil field, is aging and will soon require a refurbishment, according to insiders. Without the extension project, the lifespan of the field will be shortened, since existing reserves are in decline.
When the West White Rose project was sanctioned three years ago, Husky said it would have a 25-year lifespan, produce more than 180 million barrels of oil, and deliver between $3 billion and $4 billion in economic benefits for the province in the form of royalties, taxes and equity payments.
It would also create 250 permanent platform jobs, and up to 1,500 more direct and indirect jobs.
Devastating news and grave concern
Darin King, executive director for Trades NL, calls the news devastating. He said his organization, which represents 16 building and construction trade unions and about 18,000 workers, was hoping work would ramp up on the project in the late summer with a concrete pour in early 2021.
"Right now we're devastated, [and] obviously very concerned for the members who would have had the opportunity to go to work there," said King.
What's more, there isn't a whole lot on the horizon over the next couple of years that skilled workers can count on for employment opportunity, he said, and the construction industry is holding about an 85 per cent unemployment rate.
Right now, it's still too early to tell what will happen with the project, King said. He hopes the company will still be in talks with the provincial and federal governments and find other ways to finish the project.
"I would hope that they will be taking the opportunity to look at the $320 million oil and gas fund that was announced, and whether there's something they can apply for there," he said.
"I would hope they're looking at their investors to find other creative ways to make the project move forward."
Mary Shortall, president of the Newfoundland and Labrador Federation of Labour, said a merger of large companies like Husky and Cenovus tends to mean "a big fallout" as they find ways to cut costs.
"Obviously that's going to mean layoffs in Alberta as well right across the country, so it's not good news, I guess, although there's still not a lot of details and the people who I've spoken to so far this morning who work in the offshore don't have any information whatsoever," she said.
"I think that the most recent announcement is probably cause for some grave concern."
Shortall said it's essential now for the provincial government to assess the labour market and ensure the workers who will be affected are able to transition their skills to new jobs, adding that the impacts will be felt by more than just those who are directly employed.
"There's thousands of jobs that are impacted. Construction jobs, community jobs, retail jobs — it's massive," she said.
Shortall expects there will be similar moves made by large companies as they feel an "economic crunch" in the wake of the COVID-19 pandemic, "especially in the oil industry."
"I guess our job [is] to move forward and put pressure on government, to sit down and do some work on what the future of the labour market in Newfoundland and Labrador is and what we need to do to transfer the worker skills to those new jobs," she said.
"To create a just transition into a different type of diversification in this province has just become even more critical, I think."
Some positives, according to government
Meanwhile, Premier Andrew Furey said the merger is an opportunity for both the company and the province.
He said Cenovus Energy can utilize the low-carbon oil found in the province's offshore to diversify its portfolio in the "new frontier of oil and gas."
"I'm hopeful that we can use this opportunity to further this project and potentially others," said Furey. "Any time there's a new player coming into the oilfield of Newfoundland and Labrador, I don't see that as bad."
Industry, Energy and Technology Minister Andrew Parsons said another positive is that the company indicated that it's not a cancelled project, rather it's on hold given the turmoil throughout the industry.
"The other positives that they talk about is the fact that it's a good project, with a significant lifespan still ahead of it. There's a lot of resource still left there for Newfoundlanders and Labradorians," Parsons said.
"And we're still working with Husky ... We're still working with them on trying to get the scope of work here in this province for 2021."
But, Tory Leader Ches Crosbie said if he were a worker in Newfoundland and Labrador's offshore oil industry he'd be worried, not knowing what the intermediate term holds in terms of employment.
"My concerns have to do with the employment and reemployment of the workers who have lost their jobs and are wondering if they're ever going to get them back," Crosbie said.
"Nothing the premier has said was aimed at reassuring those folks."
Crosbie said Cenovus Energy's interest in the east coast of Canada also remains in the air.
"In their press release they didn't mention the east coast assets of Husky. They seem to be much more interested in other stuff. They haven't mentioned Newfoundland and Labrador offshore," he said.
