Oilweek East Coast Supplement November 2014

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Building the ship St. John’s emerging as a global offshore hub

+

Statoil’s discoveries and Argentia’s rebirth

BulliNg AHEAD Hebron gBs a sign of strong Newfoundland offshore industry

focusiNg oN Key issues affectiNg oil & gas activity iN tHe regioN

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tABLE oF ContEntS

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editor’s Note

6

services

BuiLDing tHe sHip St. John’s shapes up as an international offshore hub

11

Flemish pass

potentiaL gaMe cHanger Statoil’s Newfoundland discovery could open a new deepwater frontier

15

on the Cover

BuLLing aHeaD As the Hebron GBS takes shape, work at Newfoundland’s Bull Arm fabrication centre shifts into high gear

18

husky

worKing tHe FieLD Husky sprints ahead on the Atlantic Coast

21

argentia

guarDian oF tHe nortH atLantic Husky’s White Rose Extension Project brings new life to the Port of Argentia

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EdItoR’S notE

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EDITORIAL Editor Dale Lunan | dlunan@junewarren-nickles.com

Paul Stastny

the newfoundland super commute

Contributing Writers Maurice Smith, R.P. Stastny Editorial Assistance Manager Tracey Comeau | tcomeau@junewarren-nickles.com Editorial Assistance Kate Austin, Michael Doyle, Sarah Maludzinski, Sarah Munn

CREATIVE Creative Services Manager

you’d PRoBABLy GEt uSEd to it, commuting to work in Alberta from

Tamara Polloway-Webb | tpwebb@junewarren-nickles.com

Newfoundland, but it’s a long haul. This full day of travel at each end of a stint of oil and gas work became a way of life for many Newfoundlanders after the cod moratorium in the 1990s, which displaced some 50,000 people from their communities.

But Newfoundland now has its own burgeoning oil industry, replacing the fi shery as the island’s crowning source of GDP. To report on it, I trace the same route from Alberta to St. John’s and arrive in darkness, where I quickly fi nd myself utterly lost, driving along a poorly lit maze of streets, searching for my hotel. Warm ocean air billows in through my open windows. Little square houses pass by and the street names seemingly change at random and veer off in unexpected directions—Blackmarsh becomes Hamilton becomes Lemarchand becomes Pleasant becomes John Street….

I give up trying to follow my printed Google map when I see a pedestrian.

“This city was built on a system of old horse-cart lanes,” the man explains about the winding streets.

Turns out that he also knows where my hotel is! He lives near it. Problem is, he can’t explain how to get there. So I hire him as my navigator in exchange for a ride home.

Morning sunshine brings on the mad colours of the St. John’s traditional architecture. The city’s downtown core is full of bustle. Construction noise echoes among the buildings. New towers are going up. Rental space is being renovated. Roadwork is in full swing. Ships in the harbour are loading, unloading. Stuff is getting repaired.

Water Street, where much of the offshore industry has its offices, is full of people. Some are tourists. But toward the street’s eastern end, there are still a couple of vacant spaces, notably a diner that once offered “traditional Newfoundland cuisine.” It’s a fitting reminder that St. John’s isn’t what it used to be.

Over the course of my week here, I hear a lot about the good things the offshore industry is bringing—jobs, new amenities, the promise of good work for young people. I even met a woman who came here from Ontario to work! (Although mainly because she fell for a Newfoundlander.)

And yes, the place is friendly, like you always hear. Head out to Torbay and ask someone for directions to East Coast Trail, and the next thing you know, you’re sitting in their garage having a beer while friends and relatives drop by and introduce themselves.

But like everywhere, with the good comes the bad. On Water Street I bump into a Crown prosecutor who tells me about the rampant OxyContin addiction cases he deals with daily and the growing crime the island didn’t always have. Others tell me about the over-inflated real estate market, the traffic, the dreary suburbs and their big-box power centres, and the standardization of human experience that comes in tow with money.

The super commute is still a reality for many Newfoundlanders, but this too is changing, especially if the new deepwater discoveries pan out and fuel a sustainable expansion of Newfoundland’s offshore industry.

Creative Lead

— pstastny@junewarren-nickles.com

4

east Coast oil & Gas

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SERVICES

oFFSHoRE EnERGy EXECutIVES are

st. John’s shapes up as an international offshore hub

By R.P. Stastny

6

east Coast oil & Gas

a migratory species by virtue of their directly transferable skills. They follow the scent of oil, gas and money to places like the Middle East, Southeast Asia, Brazil and, these days, Newfoundland and Labrador, a current hotspot in an otherwise lacklustre year of international offshore exploration activity.

John O’Connell, director of operations preparation of Seadrill Limited, a world leader in deepwater drilling, is among a growing contingent of managers who now make their home in St. John’s. He recently transferred from the Middle East on a threeyear contract.

“Prior to now, we only had a single rig, which we could support from Houston,” O’Connell says, explaining the reasons for his transfer. “We now have three rigs for three different clients. There is a need to have our own in-country support network. So we’re growing our onshore technical support. More human resources, more fi nancial support—so we’re growing the business here locally.”

At the end of the summer, Seadrill is adding the West Aquarius semisubmersible drill vessel to the West Hercules—currently working for Statoil ASA—for Exxon Mobil Corporation and, next year, will bring in the West Mira (currently under construction by Hyundai Group) for Husky Energy Inc. under a five-year contract.

The benefits of this expansion to the community are visible in the numbers. With day rates for these high-tech drilling behemoths in the half-millionplus-U.S.-dollar range and each vessel employing approximately 170 people, supported by additional onshore staff— all of whom need housing, city amenities and services—Seadrill’s growing presence will be felt here in St. John’s.

And of course Seadrill isn’t alone. All of the big international names are here—Schlumberger Limited, Halliburton, Baker Hughes Incorporated. They all seem to be adding bodies and building out premises.

“Business generally is picking up to the extent that we have construction ongoing at this facility that will

photo: st. JohN’s port authoritY

BUILDING the

SERVICES

bring additional square footage on in two phases,” says Richard Tidswell, Baker Hughes’ district manager, upstream chemicals, East Coast Canada.

“This year we’re breaking ground on a 7,500-square-foot addition to our warehouse capacity. We expect to be completed by the end of October. The next part of the expansion will be the tank farm area.”

In fact, the Donovans Business Park in Mount Pearl—a neighbouring municipality to St. John’s and a bit of a hub for offshore services providers—is “hardly recognizable” from when Tidswell was transferred to Newfoundland in 2002.

At the time, the local offshore industry was just emerging. The Hibernia platform had been in production for a few years and Terra Nova was about to start producing.

The industry has come a long way since then; yet, despite all this activity, St. John’s still has a ways to go before it can stand alongside Houston or Aberdeen, Scotland. Local support for industry is generally good, according to O’Connell, but not complete.

“We need some of the major oilfield support vendors to come in such as National Oilwell Varco for overhauling equipment and others,” he says. “At the moment, we have to send back a lot of equipment to Houston. That makes it a little difficult because there’s a time lag involved and we can’t get the turnaround we would like. As the industry grows, it will drive this buildup of services.”

Brain drain Most companies prefer to hire locally if they can, and about two-thirds of Seadrill’s staff is Canadian. When it looks to fill positions, Seadrill typically advertises nationally and draws from across all of Canada. Part of its recruitment effort targets similar industries— shipping companies, for example—but whenever Seadrill comes across a mil­ itary applicant, it pays close attention.

“We’ve found some excellent people coming out from the Canadian military,” O’Connell says. “They’re very disciplined and very accustomed to working with procedures. They don’t come with any attitude problems that sometimes people

have when they’ve been in the industry for a number of years.”

O’Connell says there’s no advantage in bringing in expatriates for a company like Seadrill. Hiring practices are driven by legislation, and Service Canada is “very clued in to what skills are available in the local market.” If a skill is not available, then Seadrill can look abroad, but the additional costs of flights, accommodation and the incentives needed to bring a worker to Canada have to be carefully weighed.

“It can cost 40 per cent extra for an ex-pat,” O’Connell says. “So for every Canadian that we employ, it makes the cost of running our business that much more competitive.”

When Seadrill does bring foreign employees into Canada, it also puts in a succession plan to move them back out.

Even O’Connell will be replaced by a Canadian eventually.

But for now, some service and supply companies are happy if they can find people—wherever they come from—because the supply of skilled labour is as short here as it is in

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SERVICES

required. Then they leave us for international work,” O’Connell says.

“The reason for that is one, the money— internationally, it’s better. But the biggest reason is the working environment here is probably the harshest in the world.”

Chris Bailey, managing director of Maersk Supply Service, puts Newfoundland’s brain drain this way: “It used to be that Newfoundland’s workers were our greatest export.

Now it’s our offshore engineers.” water street Bailey is another transfer to St. John’s.

As a regional managing director of Maersk, his office is responsible for 10 supply and anchor vessels in Newfoundland. That’s 10 out of a worldwide fleet of 60, so Canada is a significant market for Maersk.

Bailey’s transfer completes a circle, as he’s originally from Newfoundland.

For the last 10 years, he has worked internationally, most recently in Rio de Janeiro on a four-year stint, and, before that, three years in Houston and three years in Denmark. His fi rst exposure to the offshore industry, however, was in Newfoundland, working on the Hibernia project and then for Husky Energy.

“I actually started the Husky office in Newfoundland in my basement in 1997,” Bailey says. “Husky was very opportunistic to become a player here, but they had geoscience teams that really

Water Street is the business hub of St. John’s.

8

E A S T C OA S T O I L & GA S

understood offshore Newfoundland.

Their understanding of White Rose was probably as good, if not better, as anybody in the industry. Their White Rose project initially had seven partners. Most of them didn’t think it was economic, which left Suncor [Energy Inc.]/Petro-Canada and Husky.”

Bailey’s office overlooks Water Street.

It’s where much of St. John’s offshore industry holds office space, whether they’re already part of the fabric of the industry here or trying to make inroads.

AMEC Black & McDonald Limited (ABM), an engineering procurement, construction and maintenance jointventure group, falls into the latter category. ABM is the incumbent on Nova Scotia’s Sable and Deep Panuke projects and now wants to expand into Newfoundland and Labroador. A large office, currently with very few people, is its foot in the door.

“It’s defi nitely tough to break in,” says Craig Ralph, vice-president, business development, at ABM. “The sales cycle is long and you have to have lots of patience…. We only have three or four people here right now, but we have this office because, strategically, we need to be in a position for a win, and we need to show our commitment to this tightly knit community that holds its cards close to the chest. It’s not that you won’t have a shot at the work, it’s that they want to see your commitment to the region.” new is better Looking out through Bailey’s office window, you notice that St. John’s downtown core hasn’t really needed to build upwards. There are only a few tall buildings, but that is gradually changing. There’s a constant rumble and clanging of office tower construction in the background, audible even up on the eighth floor behind a curtain glass wall.

“The economy is much, much better since [1997],” he says. “But the downtown hasn’t really had a lot of construction over the last 20 years. Only in the last couple years has business really started to pick up and new construction projects got underway. It’s a much broader-based oil and gas industry now. There’s the extension fields to existing projects and the Statoil fi nd.

That’s probably a game changer.”

Bailey says his company supports the Hibernia platform and the West

photo: r.p. stastNY

Alberta. Newfoundland and Labrador has a historically weak economy, particularly after the cod moratorium in 1992 saw an exodus of people from the province looking for work.

So training is an important dimension of rebuilding the local workforce. Typically, about 30 per cent of Seadrill’s hires are new to the industry. If there is a role for government here, it might be to encourage the basic labour force to go offshore.

“There’s a lot of hard physical work involved—and risks and dangers—so a lot of the young guys don’t want to do this work,” O’Connell says.

This also applies to those who already have some skills. Seadrill typically collects a stack of applications whenever it advertises available positions, but fi nding quality people is more difficult. If it’s looking for electricians, for example, it often fi nds that many of the top-tier tradespeople are already busy onshore and may not want to work offshore.

As for professionals, the Memorial University of Newfoundland graduates exceptional engineering talent for the industry, according to O’Connell. The Atlantic Petroleum Training College is also an important source of skilled workers. But once a person is in the industry, it can be tricky hanging onto him or her.

“Canadians who get trained here tend to spend some time in Newfoundland and get the experience

SERVICES

it’s A muCH broADerbAseD oil AnD gAs inDustry noW. tHere’s tHe eXtension fielDs to eXisting proJeCts AnD tHe stAtoil finD. tHAt’s probAbly A gAme CHAnger.

PQ

— Chris Bailey, managing director, Maersk Supply Service

Aquarius drilling vessel. Maersk has large anchor handler vessels that support Husky and Suncor in their work.

The company is the predominant supplier of Newfoundland’s offshore projects, and its presence in Newfoundland is growing as it awaits two more vessels in support of Statoil.

On his desk, Bailey has a fi le of quote requests, including from Royal Dutch Shell plc, which is preparing for oil exploration in 2015 off the coast of Nova Scotia, and BP plc needs a quote for supply vessels in support of its second year of seismic work when it returns next year.

What does it take to win these contracts?

“You need to have a very strong safety culture and systems,” Bailey says. “You need experience, and you need the right vessels because we’re operating in the harshest environment in the world. So you need high-end vessels, ice class, severe conditions— basically the best in the industry. And then you need to be cost competitive.”

While there are no step-changes in improvement to the vessels used by the offshore supply industry, there is a gradual evolution. Newer vessels are bigger and more fuel efficient, using diesel-electric engines instead of straight-diesel engines. They have better position-holding capabilities. They have more power for their anchors.

“Incremental improvements over the years,” Bailey says.

Typically, the best of any international service and supply equipment is designated for Newfoundland and Labrador offshore work. The harsh environment requires this. Modern vessels are also a competitive advantage in securing work here because of the intense focus on safety, driving business decisions.

“The average age of our fleet is about five years,” says Seadrill’s O’Connell. “I don’t know what Transocean’s [Seadrill’s main competition] is now, but a couple years ago, it was about 21 years. Our equipment is new, it’s got the latest technology, the highest specifications and the vessels we’re bringing here can handle harsher conditions than Transocean’s because they’re newer. Everything is built bigger and better.”

Seadrill invests heavily in its equipment. Currently it has about 20 vessels under construction. The capital value of that work is about $10 billion.

Enabling Excellence Culture . Leadership . Process Organisational Risk Management Safety Culture Assessment Safety Leadership Programme Behavior Based Safety Programme Safety Culture Development

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Momentum Newfoundland is a beacon of strength in the offshore world right now and appears to be attracting more and more international attention.

“The reason we see [Newfoundland] as quite a strong growth area is that the rig contracts we’re winning are five-year contracts—with the exception of Hercules, which is for 550 days,” O’Connell says. “An oil company won’t take a vessel for five years unless it has a very defi nitive plan for exploration.

In the two places where we have longterm contracts, oil has been discovered and is now into development and production. That’s what we’ll be doing in those five years for Statoil and Husky.”

Bailey sees also sees steady work for Maersk, but adds the degree to which Statoil is successful in the next couple of wells will be critical. “From my experience of Statoil, if they have a fi nd, they will want to bring it to development as soon as possible,” he says.

“That’s one of their stated goals. The real value of an asset is shortening the time from fi nding the oil to producing it. These are billion-dollar construction projects so once you start spending money, the quicker you get production on, the better for the value of your project.”

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FLEMISH PASS

poteNtial game changer statoil’s newfoundland discovery could open a new deepwater frontier

PHOTO: THE TELEGRAM

By R.P. Stastny and Maurice Smith

tHE BAy du noRd oil discovery last year in the Flemish Pass Basin off the continental slope 500 kilometres northeast of St. John’s, N.L., was celebrated as Statoil ASA’s biggest crude oil discovery ever outside of its home territory on the Norwegian continental shelf (NCS). It also ranked among the top discoveries worldwide in 2013 and sparked wider industry interest in Canada’s East Coast offshore industry, particularly its vast, unexplored deepwater oil potential.

At between 300 million and 600 million barrels of recoverable sweet

Seadrill’s West Aquarius played a significant role in Statoil’s recent Flemish Pass crude oil discoveries.

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FLEMISH PASS

statoil caNada’s east coast offsHore assets

ORPHAN BASIN

* * JEANNE D’ARC

FLEMISH PASS

ST. JOHN’S

HIBERNIA

WHITE ROSE TERRA NOVA

* Producing fields Statoil operated Statoil non-operated Exploration licences Proposed well location

light crude, Bay du Nord elevated Newfoundland’s offshore region to among a select group of Statoil’s high-impact areas worldwide. Bay du Nord is considered a commercial play opener and adds to Statoil’s string of successes in the Flemish Pass: Harpoon, drilled in 2013 and still under evaluation, and Mizzen, drilled in 2009 and estimated to hold 100 million to 200 million barrels of recoverable oil. All three discoveries are within 20 kilometres of each other.

12

east Coast oil & Gas

Statoil is the operator of all three, with a 65 per cent interest. Husky Energy Inc. holds 35 per cent.

“This discovery proved that our geological models were correct,” Geir Richardsen, vice-president of exploration for Statoil Canada Ltd., told Oilweek’s sister publication New Technology Magazine in April.

Since then, Statoil has focused on a 1,900-square-kilometre seismic program in the area of the discovery over the summer and is now into an 18-month drilling program to further delineate the discoveries and search for new ones. During this work it is not making any public updates.

“It’s really been a great adventure the last few years, and we hope it continues,” Richardsen said.

DetaiLs Statoil’s deepwater discoveries are in about 1,100 metres of water and reach another 2,000–2,500 metres below the seafloor. By contrast, Hibernia is in 80

metres of water, Terra Nova is in about 100 metres and White Rose, 120 metres.

“Deepwater is right now the leastexplored area globally,” says Richard Wright, manager, exploration, for Nalcor Energy, a Newfoundland and Labrador crown corporation. “A lot of jurisdictions are going through the same thing. You go to the shelf first. It’s easier access, and it’s shallower water. It’s closer to shore typically. Then you move out as you start to establish things.”

Statoil’s Mizzen discovery was completed by the semi-submersible rig Henry Goodrich, while Harpoon and Bay du Nord, which included a sidetrack well that confi rmed the magnitude of discovery, were drilled

by Seadrill Limited’s West Aquarius, a sixth-generation semi-submersible vessel built in 2009 capable of drilling in harsh environments and in waters up to 3,000 metres deep.

The current drilling campaign is being handled by the West Aquarius sister rig, the West Hercules, which

map: statoil CaNada ltd.

legeNd

FLEMISH PASS

will be moved to the region around September after an offshore drilling campaign in the Faroe Islands.

The Bay du Nord and Harpoon wells encountered light sweet crude, 34–36 degress API, versus a heavier 21-degree API gravity crude at Mizzen. The Bay du Nord discovery is described by Statoil as an excellent Jurassic reservoir with high porosity and high permeability.

“The fact that this crude is sweet is one of the biggest positive results from the drilling,” Richardsen noted.

“That makes it a good-value oil, and it is also something which is relatively straightforward to produce. That is significant in itself.”

The Statoil discovery was drilled and completed using a combination of some of the latest drilling and testing technologies to provide real-time information that made for better decision making while drilling. Schlumberger Limited deployed a suite of evaluation technologies that included its Litho Scanner high-definition spectroscopy tool, which was run for the first time for Statoil and used to determine mineralogy and total organic carbon.

“We tried to combine [technologies] in such a way so that operations were effective and didn’t take more time than needed,” Richardsen said. “We got the data we needed as early as possible, we were able to learn more and also learn it quicker, and it was distributed much more effectively to those who make decisions…. That is one of the things that has really advanced in the last 10 years or so, which makes decisions more effective.”

Designated core area As a designated core exploration area, Newfoundland now stands among Statoil’s five other global core areas— the NCS, East Africa, West Africa, Brazil and the Gulf of Mexico—and enjoys prioritization of company resources, including an accelerated drilling program.

Naming Newfoundland as its sixth “obviously means that we believe in the area. What that means in comparison to other areas is difficult to speculate, but we have a strong belief that there are more resources in the area offshore Newfoundland,” Richardsen said.

Statoil plans a minimum of 18 months of continuous drilling of appraisal and segment wells in the Bay du Nord area, in addition to selected high-impact wells in the larger Flemish Pass Basin. The company will drill as many wells as it can during that period. It takes roughly 70–80 days to drill each well. Specific targets will depend on the findings of previous wells as the program progresses.

“Although we plan for a number of targets, the actual drilling schedule will be affected by what happens in the first well, so we can’t be more specific on targets apart from the focus on the main Bay du Nord discovery first,” Richardsen said. “Many questions need to be answered before we take the next step, such as its size in areal extent and variations in the reservoir between areas, which will play into later decisions, so it is important to get to know these things as early as possible. That’s why we are embarking on a more aggressive appraisal of the discovery.”

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FLEMISH PASS

How does Bay du Nord, the world’s largest conventional oil discovery of 2013, compare to existing fields offSHORE Newfoundland?

1.4

800

419

380

223

billion barrels

million barrels

million barrels

million barrels

million barrels

Hibernia

Mizzen & Bay Du NOrD

TERRA NOVA

WHITE ROSE PROJECT

HIBERNIA SOUTHERN EXTENSION

Hibernia, Canada’s largest offshore oilfield, is estimated to contain 1.4 billion barrels of proved-plusprobable reserves.

High estimates of the Mizzen and Bay du Nord discoveries (Harpoon remains under appraisal) amount to 800 million recoverable barrels.

Terra Nova, the second-largest field in production off the east coast, is estimated to contain 419 million barrels.

Offshore production currently stands at about 280,000 barrels of oil per day and is set to increase to about 320,000 barrels per day when Hebron comes on production in 2017, but is expected to go into longterm decline after that.

The White Rose project, operated by Husky Energy Inc., is the province’s most recent offshore development and is estimated to contain 380 million barrels.

Hibernia Southern Extension, coming on stream in 2015, is estimated to contain 223 million barrels of new reserves.

Hebron, with an anticipated start-up in 2017, is estimated to hold 400 million to 700 million barrels of recoverable oil.

2017 2014

280,000

320,000

400–700

million barrels of recoverable oil

barrels per day SOURCE: Statoil Canada LTD.

conditions operating on the NCS. It also expects to apply some of its research and development tailored for such en­ vironments to Newfoundland.

“In many respects, east coast Canada is very similar to the NCS,” Richardsen said. “It’s not identical by any means, but it has some similarities, and these similarities are an advantage for us.”

At the time of the New Technology Magazine interview, Richardsen stressed that Statoil hadn’t made a decision to develop its discoveries, but if it were to move to development, it could take advantage of great synergies with its operations and experience on the NCS. It could use technologies com­ parable to those that it uses in the NCS, where it has about 40 fields developed.

Since the water is too deep for a gravity-based seabed development 14

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like that used by Hibernia, the Flemish Pass discoveries would have to be developed using some form of floating production and storage system.

Like the current projects in the Jeanne d’Arc Basin, Statoil would need to account for icebergs. While this isn’t a threat in the North Sea, Statoil has experience with projects that can disconnect from production lines to avoid icebergs from its ownership position in other offshore Newfoundland projects, including Terra Nova (15 per cent) and Hebron (9.7 per cent). “We understand from those operations how to handle the iceberg situation, and I think it has been several decades now where there has been good experience on how to handle that,” Richardsen said.

As for the logistical challenge of these discoveries—their extreme

distance from land—Statoil has dealt with this in other regions and is confident it can handle that here.

Future Husky, which plans to drill another exploration well in the Flemish Pass this year, has suggested the existing discoveries “could be developed in tandem.”

Richardsen said there are multiple ways in which the discoveries could be developed, but it is too early to speculate on what could be chosen.

“If these [secondary discoveries] are going to be handled as tie-backs or separate, or how they could be integrated with a potential development of Bay du Nord, it is too early to answer. But it is really encouraging that we have three discoveries in that area already.”

on tHE CoVER

The Bull Arm fabrication site, where ExxonMobil is assembling the gravity base structure for its Hebron development.

nALCoR EnERGy’S BuLL ARM PRoPERty,

As the Hebron gbs takes shape, work at newfoundland’s bull Arm fabrication centre shifts into high gear Story and photos by R.P. Stastny

where Exxon Mobil Corporation is building its Hebron gravity base structure (GBS), is a sprawling expanse of forested hills and coves on the edge of the ocean. Paved roads lead to security gates and neatly cleared areas with giant steel buildings, warehouses and storage yards. At one end of the property is the dry dock that, as of July, had its bund wall disassembled, flooding the dock to allow the Hebron GBS to be towed almost three kilometres to a deepwater location where construction will continue toward a completion date of 2017.

“Once at the deepwater location, we will continue to slip form another approximately 100 metres on the central shaft in preparation of the topsides installation,” Andrew Barry, president of ExxonMobil Canada, said at this summer’s Newfoundland & Labrador Oil

& Gas Industries Association (NOIA) conference. “At the deepwater site, the GBS is not going to be rising out of the water like Godzilla as we continue with the slip forming. We will be building another approximately 100 metres but, as we slip form, we will be lowering the base further in the water.”

At the central common area of the Nalcor property (Nalcor has a 4.9 per cent share in the Hebron project, along with Chevron Canada Limited at 26.7 per cent, Suncor Energy Inc. at 22.7 per cent and Statoil Canada Ltd. at 9.7 per cent) is a cluster of three-storey dormitories that wouldn’t look out of place at any Alberta oilsands project. After all, this is a Newfoundland megaproject, and, like many megaprojects, Hebron’s costs have escalated from initial projections.

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on tHE CoVER

In 2011, ExxonMobil announced it expected it would cost $8.3 billion to build Hebron, plus $5.8 billion to operate it until the oil runs out in three decades, for a total of just over $14 billion. In January 2013, the company said capital costs alone (less lifetime operating costs) would be $14 billion. ExxonMobil said this new figure included additional capital costs of tying back a separate pool of oil to the Hebron platform but didn’t provide a breakdown of costs. At this summer’s NOIA conference, Barry declined to comment on any further cost escalation.

Instead, he chose to focus on the positives. The project remains on schedule for a 2017 fi rst oil target, and the work to date has been incident free.

“Let me tell you an outstanding number,” Barry told the audience. “We have had over 18 million work hours completed on the Hebron project without a single lost-time incident. Let me say that again: over 18 million work hours. To put that in perspective, it is like working more than 10,000 years

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east Coast oil & Gas

Topside facilities for the Hebron GBS will be assembled in the modular assembly building at Bull Arm.

without a single injury that caused you a day off work.”

Legacy Nalcor’s Bull Arm property is actually the same site used to build Hibernia in the 1990s and, later, parts of Husky Energy Inc.’s White Rose project in

the early 2000s. To accommodate the Hebron project, the bund wall in the dry dock had to be rebuilt with half a million tonnes of aggregate to recreate the dry dock and allow for the initial construction of the GBS. This summer, construction activity at Hebron ramped up to peak levels.

on tHE CoVER

Some 2,900 workers are currently on site, and those numbers are expected to hold until 2015 as deepwater work on the structure’s ice and storage cell walls continues.

These underwater components are designed to hold approximately 1.2 million barrels of crude oil. The central shaft will reach a total height of about 120 metres.

A lot still has to happen before Hebron becomes Newfoundland’s fourth stand-alone offshore project.

While Bull Arm is the main construction site for Hebron—where project contractors Kiewit-Kvaerner Contractors and WorleyParsons Ltd., along with numerous local subcontractors and suppliers, are building the GBS and living quarters, and where everything will get assembled—components are also being fabricated all across Newfoundland and Labrador.

According to the NOIA’s submission to the Hebron Public Review Commission, a significant part of the Hibernia legacy was the scaling of

We HAve HAD over 18 million Work Hours CompleteD on tHe Hebron proJeCt WitHout A single lost-time inCiDent.

— Andrew Barry, president, ExxonMobil Canada

design of the components and bid packages to match capability and capacity of local contractors. This enabled local companies to gain valuable experience building topside modules and components, which has now been put to good use in the construction of Hebron.

A large share of the activity that was outsourced beyond Newfoundland and Labrador is taking place in South Korea, where Hyundai Heavy Industries Co., Ltd. is building major components for the project. These components will be floated directly to Bull Arm.

Future The Hibernia project, with its $3.7 billion in taxpayer loan guarantees, nonrepayable contributions, interest assistance and ownership interest, was intended to launch an industry in Newfoundland and Labrador rather than simply develop one oilfield on the Grand Banks. It succeeded in that goal as attested by the ensuing Terra Nova, White Rose and Hebron projects.

But all of those fields were discovered decades ago in the same Jeanne d’Arc Basin, 350 kilometres southeast of St. John’s. Newfoundland’s intention has now shifted to that of creating a “sustainable offshore industry.” For that, the province needs to provide a steady stream of ongoing discoveries and convert at least one of those into a producing project every half decade or so, according to Nalcor Energy’s vicepresident of oil and gas, Jim Keating.

Statoil ASA’s Flemish Pass discovery may well be that next project, launching a sustainable Newfoundland offshore industry.

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husky

WORKING The

Husky Energy has leased 20 acres of land at Argentia, on Newfoundland’s Placentia Bay, where it plans to build a graving dock and other facilities to support its White Rose Extension Project.

Aside from its partnership in Statoil

Husky sprints ahead on the Atlantic Coast Story and photos by R.P. Stastny

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East Coast Oil & Gas

ASA’s promising deepwater discovery last summer, Husky Energy Inc. is anything but sitting back at its existing White Rose project, where it has produced 223 million barrels since first oil in 2005. At about two-thirds through its current total reserves estimate, Husky continues to search for new satellite fields and is investing in a concrete platform that will do this more efficiently than hiring drill ships. In fact, the company considers Atlantic Canada a key growth area.

To its core White Rose field, consisting of nine producers, 10 water injectors and three gas injectors, Husky has a current roster of four near-field developments. Production from its North

Amethyst satellite field came on in 2010 through a subsea tie-back. Discovered in 2006, North Amethyst added 70 million barrels of oil reserves.

This year, Husky revisited North Amethyst and drilled the lower level of the pool, the North Amethyst Hibernia, for an additional eight million barrels in reserves.

In the summer, Husky’s South White Rose field saw the installation of gas injection equipment and oil production equipment. South White Rose was actually discovered earlier than North Amethyst, in 2003, but its smaller size pushed it down the list of Husky’s priorities. South White Rose adds 28 million barrels of reserves plus

husky

nine million barrels from an associated area. Production is expected in 2015 through subsea tie-backs.

But the biggest buzz so far has come from Husky’s plans for its West White Rose satellite field. Discovered in 2006 and confirmed with a pilot well pair installation in 2011, work so far has led to the current White Rose Extension Project (WREP), which targets 115 million barrels of oil and is expected to start producing in 2017. Unlike Husky’s other satellite projects, this one will bring on production using a gravity base structure (GBS) rather than a subsea tie-back.

According to the benefits plan Husky filed with the regulator, construction of the GBS will require more than eight million person-hours of employment and more than five million hours of that work will take place in Newfoundland, including detailed design, graving dock construction, concrete platform construction, work on subsea components, marine installation and project management. Once West White Rose is on stream, its operation, including drilling and production-related activities, is expected to generate 18.5 million person-hours of work over the life of the field.

Argentia marks a pretty significant piece of Husky’s investment.

The reusable component of Argentia is also a real legacy piece for the community.

— Colleen McConnell, Husky Energy Inc.

“The big thing about offshore development is the benefits it brings to Newfoundland,” says Paul Barnes, manager, Atlantic Canada for the Canadian Association of Petroleum Producers. “The amount of revenues from the offshore industry is a tremendous benefit to this land.”

The Newfoundland and Labrador offshore industry accounts for a whopping 28 per cent of the province’s gross domestic product.

Argentia once thrived when the United States had a naval presence there. It is hoped Husky’s White Rose work will revive the community’s fortunes.

GBS The WREP will be the third GBS in the Canadian offshore. The other two are Hibernia, which has been producing since 1997, and the $14-billion Hebron project currently in the advanced stages of construction in Bull Arm. Ownership of Husky’s WREP includes a 26.125 per cent stake held by Suncor Energy Inc. and a five per cent line held

by Nalcor Energy, the Newfoundland government’s electric utility and state oil company.

Unlike Hibernia or Hebron, however, Husky’s concrete platform will be about 50 per cent smaller. It won’t have oil storage and processing on board since these functions are already provided by Husky’s main-field floating production, storage and off-loading vessel, the SeaRose, which will receive all well fluids from the WREP via flexible risers and subsea flowlines.

The GBS construction capital cost is estimated at $2.35 billion and the platform’s development drilling between 2017 and 2025 will add another $1.61 billion of spending. Husky’s West White Rose plan includes 26 wells—13 producers and 13 water injectors—but the well count will likely vary over the project life, depending on reservoir geology and performance. In fact, the structure will be designed to accommodate up to 40 wells.

Husky says the higher construction costs of a concrete platform versus

a subsea tie-back are justified by the drilling advantages of a fixed platform versus contracted drilling vessels. The benefits are reduced weather-related downtime, greater capacity for well workovers and interventions, and increased ultimate oil recovery.

“We brought two options through the assessment process,” says Colleen McConnell, a spokeswoman for Husky.

“Our subsea developments are the right ones for the main field and the South White Rose, so we looked at that, but by doing the studies, it became more and more clear that the wellhead platform was the direction we wanted to go because of the size of the resource and the opportunities that it provided.”

Construction Last year, Husky signed an option to lease agreement with Argentia Management Authority Inc. (AMA) for 20 hectares of land at the Argentia port. Husky’s development is expected to include construction of a graving dock for the construction of the GBS, primary and secondary concrete batching plants, offices, a mess hall, a medical clinic, temporary sheds, and laydown and storage areas.

While an established graving dock already exists at Bull Arm, about 70 kilometres north of Argentia, where the Hibernia platform was built in the 1990s, it’s currently being used N ov e m b e r 2 0 1 4 O I LW E E K s u p p l e m e n t

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husky

A Norwegian container ship line makes a weekly stop in Argentia, on Newfoundland’s Placentia Bay.

for the construction of ExxonMobil Corporation’s Hebron GBS. A unique feature of Husky’s plan for Argentia is that this graving dock will have movable gates rather than berms.

The Bull Arm graving dock required re-establishing a berm with about half a million tons of aggregate to enclose the graving dock in which the Hebron concrete base structure was built.

Upon completion of this portion of the build, the berm was dredged out at great expense this summer in order to float the Hebron platform out to a deepwater site for topside construction.

Movable gates at Argentia’s graving 20

East Coast Oil & Gas

dock will allow for more efficient reuse of the facilities in the future.

“Argentia marks a pretty significant piece of Husky’s investment,” McConnell says. “The reusable component of Argentia is also a real legacy piece for the community.” Husky’s lease is for about 20 years.

Once construction of the GBS is complete, the structure will be floated to a deepwater site in Placentia Bay for installation of the topsides. The topsides will consist of drilling facilities, wellheads and support services, such as accommodations for 120–130 persons, utilities and a helicopter deck.

The completed GBS will then be towed to its offshore location and ballasted with water onto the seabed by controlled flooding of cells within the main base caisson. Once on the seabed, solid ballast will be placed in specific caisson cells to provide longterm stability.

“West W hite Rose is in the public rev iew process now,” McConnell says. “There’s a series of reports that will go to the board and governments for decision. We hope to be in a position to make a sanctioned decision towards the end of the year.”

ARGEntIA

GuARdIAn of the

North Atlantic Husky’s White rose extension project brings new life to the port of Argentia Story and photos by R.P. Stastny

HuSky EnERGy InC.’S PLAn to build a concrete platform in Argentia, N.L., is a way to ensure the company fully taps the potential of its White Rose offshore satellite fields, but it’s also an expression of Husky’s commitment to expanding the economic capacity of Newfoundland.

In her response to Husky’s announcement, then Newfoundland and Labrador premier Kathy Dunderdale said the project would create the equivalent of about 12,000 full-time jobs, “vaulting Argentia into the big time as an oil-sector player and industrial port.”

That leap to the big times for the Port of Argentia, however, will take some effort. Situated on the southwestern edge of the Avalon Peninsula, Argentia is a spit of land that juts northward into the ocean from the town of Placentia. It’s often covered

in fog, even during the summer. Its derelict buildings, miles of crumbling aircraft runways and a massive rusting shipwreck at its docks lend the place the air of a ghost town.

The port and the surrounding area were in their prime during the Second World War. This was the site of one of the largest construction projects of its kind, leading to the commissioning of Naval Station Argentia by the U.S. Navy in 1941. By 1943, with the United States fully involved in the war, Argentia saw upwards of 10,000 U.S. personnel passing through on the way to Europe. An adjoining U.S. Army base was established to provide antiaircraft artillery protection for the navy base and naval air station.

After the war, the U.S. personnel population dwindled but then rose

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ARGEntIA

Chris Newhook, general manager of the Argentia Management Authority, is hopeful Husky Energy’s White Rose Extension Project will revitalize the port, on Newfoundland’s Placentia Bay.

again to about 7,000 during the Cold War. By the end of the Korean War in 1953, Argentia had 8,500 personnel posted in the area. In the 1960s, its naval station became a key node in the U.S. Navy’s underwater Sound Surveillance System that tracked submarine movements in the North Atlantic.

By 1971, the U.S. presence dropped to about 1,000. As facilities and structures closed, assets were transferred to the Government of Canada. In 1973, Naval Station Argentia was closed, and by 1975, the entire north side of the base was transferred out of U.S. hands.

In 1994, the entire military site was officially decommissioned and transferred to the Government of Canada.

“The federal government nor the province wanted to maintain the property, so they created this entity, the port authority, which is a federal, provincial and local joint-venture arrangement,” says Chris Newhook, general manager of the Argentia Management Authority Inc. Newhook, who was born and raised in the area and served at the 22

east Coast oil & Gas

local chamber of commerce for a number of years prior to joining the port authority, says that like many small Newfoundland coastal communities, the cod moratorium took its toll on Argentia and Placentia.

The fi sh plant is gone now, leaving just a cold storage facility, which is currently run by A. Harvey & Company Limited. There’s a cement company that runs the cement silo at the port and a Norwegian container ship line makes a weekly stop in the port as well.

In the wider area, about 600 people work in private businesses and various government positions at the hospital, the school and the ferry terminus linked to Nova Scotia. The “super commute” from Newfoundland to Alberta’s oilsands also figures into the local employment picture.

“Our vision for Argentia is to use the deepwater port to help attract economic development,” Newhook says. “A strategic review of our site identified that our assets best suit the development of a heavy industrial seaport. So we were able to make a good

offer to Husky to build their concrete gravity structure at Argentia.”

One unique feature of Husky’s development work involves the disposal of the dredging from the excavation of the graving dock.

“Husky will being transferring about one million cubic metres of material from the graving dock to a pond in another part of the harbour. So this infi ll will give us seven acres of new land and hopefully more property to lease out,” Newhook says.

Another unique feature is Husky’s plan to fit the graving dock with concrete interlocking gates, as opposed to building berms with aggregate, to allow for more cost-efficient reuse of the Argentia dry dock. This bodes well for the community in the near term if other projects are built or modified at Argentia. But the Port of Argentia will also inherit this site at the expiry of Husky’s 20-year lease.

One other feature of Husky’s development is the depth of the proposed Argentia graving dock. “Ours will be deeper than the facilities at Bull Arm,” Newhook says. “Our site will be 18 metres deep, whereas the Bull Arm site is about 15 metres....

“Husky’s rationale for that is to build the entire concrete structure on dry land. By doing that, they won’t need an entire flotilla of barges to build upward in the water, which is very expensive. The extra depth and [the fact] that Husky’s GBS [gravity base structure] is smaller will allow the completed structure to be floated out for topside mating.”

So as earthmoving machines growl in the distance under a blanket of fog at Husky’s site, official sanction of the West White Rose project seems all but a formality. Soon the site will require an army of tradespeople and labourers. Meanwhile, a short distance up the coast, at Long HarbourMount Arlington Heights, Vale, a Brazilian multinational mining and metals corporation, is completing a nickel processing facility. Some of those workers will likely migrate to the Husky project.

Together with the 500 permanent jobs the nickel processing plant will create, a revitalized Argentia port could mean that almost two decades of shrinking population in the area may come to an end.

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