The atmosphere of Energy NL’s annual industry conference and exhibition changed with one email – Wednesday at exactly 12:26 pm – in the middle of a conference that started a day earlier with the theme ‘unparalleled opportunities’.
That kind of sunny optimism turned to gray reality when Norwegian oil giant Equinor issued a statement saying it was delaying the massive Bay du Nord project to three years due to market volatility.
Energy NL president Charlene Johnson said she had a brief warning that the news was coming. Newfoundland and Labrador Premier Andrew Furey said it came as a surprise.
And with that, the viability of a $16 billion project was called into question.
Johnson called it disappointing. Furey stressed that it was not a cancellation.
But Rob Strong – an industry veteran since 1979 – said it’s much more serious than that.
“If there is no Bay du Nord, what is there?” he said.
Bay du Nord would be Canada’s first deep water project and hopes were high that BP would follow suit with a project the company is now exploring off the northeast coast of Newfoundland. Strong said Equinor’s decision does not bode well for BP’s chances.
“I mean, maybe in the future you’ll get a little exploratory drilling. But if Bay du Nord doesn’t get there, assuming they discover something, BP will continue with it? So this is serious business.”
Newfoundland and Labrador opposition leader David Brazil also questioned what a three-year delay means for the industry’s future.
“That’s three years of thousands of lost jobs and billions in economic activity for workers and their families — if the project hasn’t all been shelved,” he said.
Why now?
At first glance, Equinor’s decision seems to come out of nowhere. After all, it was only a day earlier that the county’s secretary of energy, Andrew Parsons, spoke to reporters about the possibility of the county purchasing an equity stake in the project.
The head of Newfoundland and Labrador’s Crown Corporation for Oil favored the project on Tuesday, saying the province was nearing the end of its first season in a three-part series. The first season included the Hebron and Hibernia Project. The second season? Deep water oil projects led by Bay du Nord.
So why did the decision come as an unwelcome guest amid the most optimistic energy conference in years?
Trades NL Director Darin King said this was perhaps the easiest way to cope with a difficult decision.
“We were all aware that Equinor was going through a second decision gate and some important deadlines were approaching,” he said. “I can only assume they felt Energy NL was a good time to do it with all the industry players here in the room for the conference.”
Long before the news broke, Tore Løseth, Equinor’s head of Canadian operations, was booked to speak at the conference on Thursday at 10:50 am.
Johnson said talks are still ongoing.
The news also comes less than two months after Equinor contracted a Canadian company to perform front-end engineering design (FEED) work on the project. Strong said it is likely that the cost estimates are now coming back, reflecting global difficulties in sourcing materials from troubled supply chains.
“I would assume prices are going up quite high,” Strong said. “They’ve defined the project enough to give contractors something to bid on, so I suspect that’s part of the reason. The final cost comes in and they’re like, ‘Can we afford this?’
Negotiation tactics?
The provincial government had worked out a benefits agreement with Equinor, which included discussions about how much of the construction work in Newfoundland and Labrador should be completed.
Strong said the announcement could be a ploy to pressure the government on key issues, such as building key parts of the project in other countries with cheaper labor.
However, Parsons gave no indication that the negotiations had soured. Furey repeated that on Wednesday.
“This has nothing to do with any ongoing discussions we had,” he said. “This is a global market decision for them.”
King agreed it was a question worth asking, though he had some misgivings.
“We spoke regularly with Prime Minister Furey and Minister Parsons and both were generally in favor of making sure this FPSO wasn’t fully developed outside the province. We’re going to do that, but I suspect it has a lot more to do with the economy of the project.”
Newfoundland and Labrador have previously opened the state’s coffers for oil projects, but Strong said it’s not likely to happen again.
“I don’t think it’s acceptable in Ottawa… The rest of Canada doesn’t want the Government of Canada to give this (industry) any more financial support, so I don’t think that’s the solution,” he said. “I don’t think they can sell another investment in the East Coast oil and gas industry if their focus is on other alternative forms.”
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