While a very public spat goes on between big oil and the government of Newfoundland and Labrador over the future of the Hebron ben-Nevis and Hibernia South developments, Chevron and ExxonMobil, along with Imperial Oil Ltd. and Shell Canada Ltd., continue to invest in the region.
Last summer, they started drilling a $140-million well - the most expensive in Canadian history - in another offshore region called the Orphan Basin. The well is close to complete and results are as yet unknown. Two more wells are expected to be drilled this year.
The Orphan Basin is located approximately 325 km from Newfoundland landmark and roughly 150 km north of the Hibernia, Terra Nova and White Rose oil fields on the Grand Banks.
This region made big news in late 2003 when it became clear that the major oil companies were very keenly interested in further exploration off Newfoundland's east coast. ExxonMobil, along with its Canadian subsidiary Imperial Oil, and Chevron committed to spending more than $672 million to explore eight parcels of land all located in the Orphan Basin.
The total amount bid was a record for the province's offshore at more than three times the previous high. The companies have to spend the amount of money they've bid on exploration during the first five years of their nine-year leases.
Prior to 2003, the Orphan Basin was subject to minimal exploration activity. Between 1974 and 1985, only seven wells were drilled in the region. That effort resulted in an extremely low well density so the CNLOPB’s Call for Bids provided an excellent opportunity to further evaluate the potential of this area.
The significance of the Orphan Basin is both long-term and short-term.
In the long-term, more exploration represents the potential of more projects in the future in an area which may hold as much oil as the Grand Banks where the other three projects are located. It’s an industry axiom that while exploration does not necessarily yield oil, you will never find new developments unless you invest in exploring for them.
In the years following the initial Hibernia discovery, companies took advantage of federal incentives to explore offshore. From the Hibernia discovery in 1979 to 1991, $2.8 billion was spent in exploration. However, since then only $643 million went into exploration.
Since 1992, a total of only 18 exploration wells have been drilled. That compares to the intense exploration activity of the early 70's: 1972 (11 wells), 1973(17 wells) and 1974 (9 wells).
To carry out the exploration, the consortium has contracted the massive rig Eirik Raude, which was drilling in the Barents Sea. Another drilling rig, the jack-up Rowan Gorilla VI, returned last summer to drill too.
The entire local industry has been anxiously awaiting the results of these test drills because there have been no significant new finds of oil off Newfoundland's coast in 20 years.
So far, Chevron indicates they are very pleased with 3-D seismic programs conducted over the last two summers. Analysis of the two seasons of seismic data will continue into 2006 to identify geological structures that may contain hydrocarbon deposits, and determine possible locations for future exploration wells.
Despite its attractiveness to the world’s largest oil and gas exploration companies, the Orphan Basin does present some unique challenges of which the most significant challenges are logistical. Unlike existing developments in the Jeanne D’arc basin, which are approximately 300 km from shore, the Orphan Basin is 300 – 500 km from shore. Compared to the Grand Banks is a harsher environment. Compared to the Grand Banks where the water depth runs about 80m, at the Orphan Basin the water depth ranges to 2500m and is much colder; about 2-3 degrees above zero at that depth.
Additional challenges include the range of helicopters used to transfer workers to the rig, and the additional time required for supply boats. However, these are all challenges that can be overcome by an increasingly experienced supply and service community well-schooled in the challenges associated with the current projects.
In the short-term, this exploration program represents activity for the local supply and service sector. As the most expensive well ever drilled on the east Coast of Canada, every day of drilling represents an expenditure of a rumoured C$500,000 per day just for the rig. In addition, there are the local expenditures for three supply vessels, helicopters, catering, logging, mud, cement, testing etc.
The Orphan Basin shows how if your territory contains hydrocarbons, oil companies will beat a path to your door. The fact that they have already made considerable regional investments in production-related facilities and their previous experience in harsh environment exploration and production provides the incentive to keep looking for more oil.
"The move is yet another setback for Danny Williams, Premier of Newfoundland and Labrador, who wants to increase provincial revenue from oil development and take equity stakes in projects."