BUSINESS

BLACK GOLD ON TAP

THE HIBERNIA OFFSHORE OIL PROJECT STARTS TO PRODUCE BENEFITS FOR NEWFOUNDLAND

JOHN DeMONT September 30 1991
BUSINESS

BLACK GOLD ON TAP

THE HIBERNIA OFFSHORE OIL PROJECT STARTS TO PRODUCE BENEFITS FOR NEWFOUNDLAND

JOHN DeMONT September 30 1991

The circling seagulls and icy, green waters of Great Mosquito Cove, in Bull Arm inlet of Trinity Bay on the east coast of Newfoundland, are postcard perfect. Closer to shore, however, the peaceful image is rudely shattered. Near the water’s edge, huge dredging machines chum up the ocean floor. Nearby, workmen with pneumatic drills and explosives blast through the granite terrain, while bulldozers and backhoes rumble across muddy land that only weeks ago was submerged under 46 feet of water. Last week, 750 people were preparing the isolated location for construction of the 1.2-million-ton concrete-and-steel platform that by 1995 will be transported to form the hub of the deepsea Hibernia oilfield, 190 miles southeast of St.John’s. “This is peanuts,” declared Curtis Beverley, one of the project’s supervisors, while surveying the construction site. “Soon we will be running around the clock.” Indeed, in a year, 3,000 people will be toiling on the project that is irrevocably changing both Bull Arm and the Newfoundland economy.

The dramatic transformation taking place in Bull Arm is a welcome development for most Newfoundlanders. Their province’s outlook changed dramatically on Sept. 14,1990. At that time, Ottawa, Newfoundland and a consortium of oil companies—Mobil Oil Canada Ltd., Petro-Canada, Gulf Canada Resources Ltd. and Chevron Canada Resources Ltd.—signed an agreement to spend $5.2 billion over six years to develop the Hibernia field, which contains an estimated 525 million barrels of recoverable oil, roughly equal to Canada’s total consumption in a single year. One year later, the Hibernia project is beginning to generate jobs and business activity in Newfoundland—even though few people now think that it alone will bring prosperity to the perpetually depressed province. Declared Charles Furey, Newfoundland’s minister of development: “Hibernia is not going to be the panacea to our economic problems.”

That sober view contrasts sharply with the bold promises made by the former Conservative government of Brian Peckford. Peckford and his ministers waged a bitter fight with Ottawa and the oil companies over the economic benefits of the Hibernia field. And while Clyde Wells’s Liberal government continues to pursue other energy megaprojects, it is also determined to diversify the economy to make it more self-reliant.

Still, Hibernia is clearly providing new strength for Newfoundland, which remains troubled by a devastated fishery and declining federal government transfer payments. In August, the province’s unemployment rate hit 19.2 per cent, nearly double the national average of 10.6 per cent. At the same time, the Conference Board of Canada has predicted that the provincial economy will grow by just 0.2 per cent this year. Still, the province’s outlook would have been worse without the $230 million that has been injected into the economy since the Hibernia deal was signed. Declared Maurice Mandale, chief economist at the Atlantic Provinces Economic Council: “Hibernia is the sole bright light in the Newfoundland economy.”

That sentiment is widely shared among the 750 people employed at the Bull Arm construction site. Security guard Danny Pitcher, 37, spent 11 years working in Fort McMurray, Alta., before he, his wife and two sons returned to their native province in 1987. Unable to find a permanent job, he performed a series of odd jobs until he was hired to work at the Bull Arm site 10 months ago. Says Pitcher: “If this hadn’t come along, we would be back in Alberta by now.”

Under the terms of the Hibernia agreement, Ottawa promised to contribute 25 per cent of the construction costs up to a ceiling of $1.04 billion, as well as to guarantee loans of $ 1.66 billion to the oil companies that will develop the field. Overall, the province estimates that the $5.2 billion construction phase of the Hibernia project will pump $1.6 billion directly into the provincial economy. Newfoundlanders will get almost all of the 3,000 jobs required during the peak three-year construction period and virtually all of the 1,100 jobs during the estimated 18-year production life of the field. Declared Fraser Edison, president of the St. John’s-based Newfoundland Offshore Development Corp. (NODECO), which has a $ 1.2 billion contract to design and build the concrete base for the production platform: “It may not be the savior of Newfoundland, but it is certainly going to help a hell of a lot of us out.”

The province has cherished the dream of offshore riches for decades. A combination of low oil prices and jurisdictional disputes between Ottawa and Newfoundland kept the project on the back burner since the field’s discovery in 1979. But last year’s deal cleared the way for design work to begin and for excavators to start carving an area for the huge construction project out of the wild landscape around Bull Arm.

The Bull Arm site, 100 km west of St.John’s, is now among the largest construction projects in Canada. Ponds have been drained, acres of trees cleared and millions of tons of rock blasted. Concrete-making facilities, steel fabrication shops and a dry dock are now being built. As well, construction is under way on a minitown, complete with a gymnasium, swimming pool and tavern, to accommodate 3,000 workers.

The real work at Bull Arm, however, begins in April, when construction starts on the massive reinforced-concrete base, known as the gravity base structure, that will rest on the ocean floor. The base will consist of over three million cubic feet of concrete and 60,000 tons of reinforced steel. When complete, it will be capable of storing 1.3 million barrels of oil—equal to two weeks of production—and will have the strength to withstand a collision with any of the icebergs commonly found in the North Atlantic, such as the one that in 1912 sunk the Titanic 300 miles south of the Hibernia site.

Adjacent to Great Mosquito Cove, workers will assemble the production and drilling equipment, helicopter deck, accommodations and other facilities that will sit on top of the concrete base. In mid-1995, those parts will be towed offshore and connected to the base. Then, the entire 735-foot-high platform will be towed to the oilfield. When Hibernia production finally begins a year later, tentacle-like flow lines will carry the oil to the huge platform from the 60 to 80 satellite drilling wells on the field.

From there, the crude will be loaded into reinforced tankers. Hibernia officials have so far declined to offer any commitments that the oil will be refined in Canada, and many independent analysts say that a more likely destination is the U.S. eastern seaboard. Ultimately, however, the fate of Hibernia will depend on fluctuations in the price of crude oil, which currently sells for about $21.75 (U.S.) a barrel. Some experts contend that Hibernia oil will cost at least $30 (U.S.) a barrel—making it among the most expensive in the world.

For now, competition is fierce for Hibernia’s dollars. NODECO, the firm with the contract to design and build the concrete base, has already awarded 40 subcontracts, with 200 more to follow. And that does not include hundreds of contracts arising from other parts of the project, such as the $500-million job of building the main components of the upper part of the offshore production platform.

The project is also attracting bids from specialized firms elsewhere in Canada and from around the world. Many of them have found it convenient to form joint ventures with Newfoundland companies to take advantage of the project’s Canadian-content provisions. Already, an estimated 40 partnerships have been forged between local companies eager to absorb advanced foreign technology and firms experienced in offshore oil production in Scandinavia, the United States, Scotland and the Netherlands.

Hibernia contracts provide a chance of survival for many local companies. “Without the work at Bull Arm, we would have a tough time staying afloat,” says Vernon Smith, a partner in Green’s Service Station Ltd., located 10 km north of Bull Arm, which has a contract to string hydroelectric wire at the construction site. Adds Allan Green, president of Sheppard, Hedges, Green Ltd., an engineering firm that is designing the layout for the Bull Arm camp: “Outside of Hibernia, everything else in this province is dead.”

The project has also sparked renewed interest in further exploration off Newfoundland’s shores. Newfoundland Energy Minister Rex Gibbons has said that he expects the Terra Nova field, discovered in 1984, 25 miles southeast of Hibernia, to be in production before the end of the decade. Adds the province’s Furey: “We hope that Hibernia will be the first step in a viable offshore oil industry for the province.”

Some Newfoundlanders, like the 1,800 residents of Arnold’s Cove, five kilometres west of Bull Arm, are already looking beyond the flurry of construction activity at Bull Arm. Developers are planning a 160-lot site in the town to house workers at the nearby project. But the town has also set aside a nine-acre parcel of land for development to encourage businesses to remain in the area after the Hibernia project has been completed. “We need to attract jobs that will still exist after 1995,” says Thomas Osbourne, the town’s mayor. Hibernia’s oil, Osbourne hopes, will prime the pump of economic development for many years to come.