BUSINESS

DRILLING DEEP

AFTER FIVE YEARS OF ACRIMONY, WORK ON THE HIBERNIA OILFIELD IS FINALLY SET TO START

GREG W. TAYLOR September 24 1990
BUSINESS

DRILLING DEEP

AFTER FIVE YEARS OF ACRIMONY, WORK ON THE HIBERNIA OILFIELD IS FINALLY SET TO START

GREG W. TAYLOR September 24 1990

DRILLING DEEP

BUSINESS

AFTER FIVE YEARS OF ACRIMONY, WORK ON THE HIBERNIA OILFIELD IS FINALLY SET TO START

Like many Newfoundlanders, Wade Drover welcomed the development ecstatically. On Friday, a cadre of dark-suited politicians and businessmen converged on the Hotel Newfoundland in St. John’s to officially sign a $5.2-billion agreement to begin construction of a huge oil-production platform for use on the Hibernia oilfield, 190 miles southeast of St. John’s in the North Atlantic. It was a development, they said, that will generate thousands of jobs for Canada’s most economically depressed province. Said Drover, 36, a maintenance worker at the Come-by-Chance oil refinery and the deputy mayor of Sunnyside, 200 km west of St. John’s, where the giant oil-production platform will be built: “Everybody is buzzing and excited.” Added federal Energy Minister Jake Epp at the signing ceremony, after promising $2.7 billion in cash and loan guarantees: “Hibernia will bring jobs and economic diversification to Newfoundland and all of Canada.”

The decision to go ahead with Hibernia followed more than a decade of often acrimonious disputes among Ottawa, Newfoundland and several oil companies after oil was first discovered in 1979. They fought over who would foot the massive bill and how the benefits—including the petroleum royalties, taxes, jobs and other economic spin-offs—would be shared. In the end, Prime Minister Brian Mulroney had to intervene to convince his Quebec caucus, which had been unwilling to help Newfoundland because of its part in causing the failure of the Meech Lake accord, to support Hibernia.

For Ottawa, Hibernia marks the first time that it has backed an energy megaproject since 1988, when it promised $650 million in funding and $1.2 billion in loan guarantees for the OSLO heavy-oil extraction project near Fort McMurray, Alta.

But while Hibernia conjured up visions of jobs for Newfoundlanders, critics emerged swiftly. Environmentalists say that the savage storms that rip through the Hibernia area and the huge icebergs that drift through the region could cause an environmental disaster. Several economists also say that, despite the current Persian Gulf crisis, which has driven oil prices to more than $30 (U.S.) a barrel from $19, prices likely will not stay high enough in the long term to cover the $20-a-barrel cost of extracting Hibernia’s reserves. Said Paul Bugden, executive director of the Economic Council of Newfoundland and Labrador: “The price of oil is the critical factor.”

Still, despite the risks, optimism swept Canada’s poorest province. Indeed, even frail, 88year-old former Newfoundland premier Joey Smallwood, who led the province into Confederation in 1949, made a rare appearance at the signing ceremony.

Construction of the single massive underwater platform and drilling rig will create up to 3,000 jobs and, when it is completed in 1996, it will employ about 1,100 workers, with at least 40 per cent of the jobs to go to Canadians. It will take five years to build the 470,000-ton production platform. The massive structure’s concrete-and-steel base will rest on the ocean floor and will be topped by five modules, including a 30-storey building large enough to accommodate 250 to 300 workers.

The oil companies, Ottawa and Newfoundland first undertook to develop Hibernia in 1985, but they could not agree on who would foot the huge bill and how the benefits would be shared. In addition to battling over dividing the oil revenues, the federal and provincial governments fought over who would get the several hundred jobs needed to build the modules.

The compromise: one of the five modules will be built in Newfoundland, with the remaining four modules to be contracted out to international bidders.

When it begins production, Hibernia is expected to pump about 110,000 barrels of oil a day over an 18-year period, the equivalent of about 12 per cent of Canada’s projected light-oil production in the year 2000.

To make the project viable, Ottawa had to agree to contribute $1 billion in grants and another $1.7 billion in loan guarantees. The four-company Hibernia consortium, led by Calgary-based Mobil Oil Canada Ltd. with a 28.1per-cent share in the venture, will put up the remaining $2.5 billion. Mobil’s partners are Gulf Canada Resources Ltd. with 25 per cent, Petro-Canada with 25 per cent, and Chevron Canada Resources Ltd. with 21.9 per cent. For its part, Newfoundland offered tax concessions during the construction phase of the project.

In recent months, it appeared that Hibernia was doomed. After Premier Clyde Wells had fiercely opposed the Meech Lake constitutional accord in June, some Quebec provincial politicians and Quebec MPs angrily insisted that Ottawa withdraw its support for the project. But they apparently dropped their opposition when it was made clear that Quebec could benefit from Hibernia.

Hibernia is also likely to benefit the entire Canadian oil industry. As a result, the chief executives of all four consortium members joined Trade Minister John Crosbie, Newfoundland’s representative in the federal cabinet, and Wells at the signing ceremony.

Most of the engineering and design work will be done by consortium engineers in Calgary. Indeed, Hans Maceij, spokesman for the Calgary-based Canadian Petroleum Association, said that the Hibernia project will give an “overall boost to the oil industry and to the whole economy.” Added Maceij: “If you consider how long it has been since the discovery was made, it’s nice to see the thing come to fruition. That’s what it’s all about—getting the oil out and into production.”

Although Ottawa has given a massive vote of confidence to Hibernia, Maceij says that he does not expect immediate federal funding for other oil megaprojects, such as OSLO, or more exploration in the Beaufort Sea. Decisions on those ventures are scheduled for 1991 or 1992, Maceij said, and some, such as the Beaufort project, are still dependent on finding larger reserves before production could be profitable. In the meantime, last Friday Newfoundlanders, who were suddenly confronted by good economic news for a change, toasted Hibernia long into the night.

GREG W. TAYLOR with JOHN HOWSE in Calgary, MICHAEL HARRISON in Toronto, GLEN ALLEN in Halifax and RUSSELL WANGERSKY in St. John’s

GREG W. TAYLOR

JOHN HOWSE

MICHAEL HARRISON

GLEN ALLEN

RUSSELL WANGERSKY