Four years ago, NL was engaged in months of handwringing over whether the Government of Canada would permit Equinor’s Bay du Nord offshore oil and gas project to proceed. The tension the issue engendered throughout the province should never have occurred, though there are other reasons that the public should remain vigilant.
As is often the case, NL’s crises have origins in weak political leadership. The issue of approval goes go back to 2015 when Premier Paul Davis facilitated the return to the Government of Canada a key element of the joint management regime won under the 1985 Atlantic Accord. In February 2022, Ron Penney called it the “slippery slope” and wrote a piece entitled THE GUTTING OF THE ATLANTIC ACCORD.
The Davis Government was responsible for an amendment to the Canada-Newfoundland and Labrador Atlantic Accord Implementation Act. The legislation, sought by the Trudeau Government, made the Canada-Newfoundland Offshore Energy Regulator (C-NLOER) the “responsible authority” under the federal Environmental Assessment Act. Effectively, it returned control over NL’s offshore development to the Government of Canada. It was an act of monumental stupidity, exhibiting the risks to the province when inexperienced and naive Party leaders offer pretense in pursuit of the big leagues.
Federal approval of Bay du Nord was held up. Drilling interest in the NL offshore by the large international oil and gas majors quickly and completely evaporated. NL has entered a third year where no exploratory or “wildcat” wells have been drilled. The Call for Bids by the C-NLOER – the opportunity for oil industry players to secure the right to explore specific parcels of acreage, based on a competitive bidding process – has attracted no interest. The NL offshore was the new Federal environmental policy’s first casualty.
In March, 2022, I wrote BAY DU NORD: OUR POLITICIANS GENUFLECT TO CENTRAL CANADA expressing concern that Ottawa had lost its marbles, such was its ignorance over the nature of the Canadian economy and the importance of the oil and gas sector for jobs and economic development. Prime Minister Carney has repeatedly acknowledged as much; his current efforts to facilitate continued development of Alberta’s oil and gas resources is an example of real leadership and a reversal of the Trudeau Government’s madness.
Recognizing the same madness in April 2022, Cabot Martin wrote WAITING, WAITING – for Bay du Nord Sanity to Break Out. The Feds ultimately released the project, but not without the finger wagging Environment Minister, Steven Guilbeault, serving notice that it might be the very last NL offshore oil development.
Bay du Nord has suffered delay for reasons other than those Federally inspired. They include COVID, poorer than anticipated drilling results, and the constant threat of declining world oil prices. Offshore oil projects, like Bay du Nord, are high-risk investments. They require billions of dollars of capital, and need long lead times before the oil starts flowing. For those and other reasons the Norwegian operator chose to delay Bay du Nord, and re-rethink its development strategy in an effort to lower the development cost.
The Norwegians are now ready to greenlight the project again, Premier Wakeham having recently stated: NL is ‘very close’ to a Bay du Nord benefits agreement.
Likely, most people have forgotten how poorly NL fared when Equinor first announced its intention to proceed. Premier Wakeham’s recent utterances raise the question: what has changed?
In 2018, Premier Dwight Ball negotiated a benefits package for NL that effectively turned what might have been a good news story into one of “disappointment and disbelief”. Weak Premiers do tend to get suckered; Paul Davis certainly. Dwight Ball couldn’t resist the allure of a public salivating for the next big thing.
Back in 2018, one professional with a long-standing engagement in offshore oil projects expressed enormous dissatisfaction with Premier Ball’s tepid achievement. Having examined its entrails, the engineer agreed to my request to explain the outcome for Uncle Gnarley readers – provided he was permitted to preserve his anonymity. He was still working in the industry. For that purpose, he chose the moniker “Agent 13”, the name of the CONTROL agent on the TV sitcom, Get Smart. This is where the humour ends, however. His appraisal of Premier Ball’s best efforts were shocking, even alarming.
In advance of Premier Wakeham’s impending announcement, I have provided an excerpt from Agent 13’s 2018 post which was entitled “BAY DU NORD: TURNING GOOD NEWS INTO DISBELIEF”. It is worth reading in its entirety. Apart from the issue of local benefits, he comments on NL’s equity interest in the project and if considering our massive debt, the province is wise to take on more risk. The royalty regime is also raised. Because the Bay du Nord field extends beyond Canada’s 200 mile economic zone, a percentage of the royalties paid by Equinor are due to the International Seabed Authority (ISA), mandated under Article 82 of the United Nations Convention on the Law of the Sea. It remains unclear which authority – NL or Canada – will ultimately pay. Premier Wakeham will have to address this issue, too.
What is certain is that the public will want to compare Wakeham’s local benefits deal with that negotiated by Premier Ball. It is hard to imagine that the result could be worse but we must always separate expectations from reality.
This excerpt from Agent 13’s 2018 post, BAY DU NORD: TURNING GOOD NEWS INTO DISBELIEF may help you assess the outcome of Premier Wakeham’s new negotiations. Presumably he has tapped into the budget of the Major Projects Office, Carney’s fund to diversity the Canadian economy.
Now, over to Agent 13:
“There is also the matter of jobs: the very issue on which every project built in NL hinges.
As the deal is currently structured, and assuming that the project does proceed, the scant opportunities available to tradespeople will consist of the most unsophisticated work on the project.
Since the construction of the Hibernia platform, Governments have negotiated the amount of work that the Owners must commit to the local workforce. The Ball Government’s press release suggests that 5000 tonnes of local fabrication will be performed here. The work seems to be associated with mooring/anchor systems and the construction of subsea systems. There is no mention that any module of the Floating Production System (FPSO) will be built in NL.
In the case of the Terra Nova and White Rose projects, the “topsides” work was huge. In both cases, the bare hulls came to NL for topside outfitting. 60% of the Terra Nova topsides were fabricated in NL; local fabrication on the SeaRose was over 90%. Installation of the topsides, outfitting and commissioning all took place in NL.
The documentation released so far suggests that the Bay du Nord FPSO will arrive complete, likely from Norway.
The Government promises “4 million person hours in pre-development and development phases.” If the number had been converted to person minutes, it could have “appeared” even higher! But PR flourishes aside, the estimate is likely not even close to being correct.
Person years of work on these projects is measured by a formula representing the average per “tonne”. With the complex “topsides” constructed elsewhere, the remaining mix of work simply won’t warrant the same equation. In other words, the person years/hours of work on mooring/anchoring systems is far less per tonne than on topsides infrastructure.
What the Government is saying is likely untrue unless it fully describes the specific work to be performed and the international standard for person hours/days of work associated with each component.
Note that the Government’s press release states that the “fabrication of the hull, turret, flowlines, umbilicals, and other components will be international.” That leaves only the mooring/anchoring and subsea systems. Little wonder person years of work have been converted to “person hours”.
On this account, we have heard no opinion from the Building Trades Council. We have heard nothing from Marystown, the Shipyard Union, Peter Kiewit, Clarenville or the many, many other small yards and contractors from around the Island that, in the past, have benefited from oil-related projects.
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Bay du Nord Framework Agreement (Technical Briefing July 2018 by Department Natural Resources)
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Perhaps they lack a leadership capable of recognizing when they have been left out of a major piece of work. Possibly, they are disabled by international affiliations or local politics and are unable to object when resource development does not reflect our capabilities, employment needs and human resource potential.
Whatever the case, as this deal stands, the higher-skilled work will go elsewhere: out of the province. With little fabrication work for NL, the 10% equity stake makes even less sense.
At minimum, the complete documentation on this deal must be released to the public. Nalcor Oil and Gas should also release a summary of the total equity investment made to date, the anticipated level of investment required prior to Decision Date and, based upon current knowledge, the anticipated rate of return from the investment. “
Stay tuned for Premier Wakeham’s Bay du Nord announcement.
BAY DU NORD: TURNING GOOD NEWS INTO DISBELIEF by “Agent 13”.