OCTOBER 15, 1985 - VOLUME 6 - NUMBER 14
Newfoundland's Oil Economy
by William Steif
ST. JOHNS, Newfoundland-Almost 20 years after Amoco drilled the first oil well in the Grand Banks off this Ohio-sized island, another huge, multinational oil company has committed itself to billions of dollars worth of development in the most promising of the North Atlantic's offshore fields.
The company is Mobil Oil Canada, a subsidiary of the U.S. firm. The field is Hibernia, about 180 miles east of St. John's, a metropolitan area with a population of 155,000. The top of the Hibernia field, which was discovered in 1979 in water 244 feet deep, is 11,389 feet below the ocean floor.
The latest, conservative estimate of Hibernia's established reserves is 648 million barrels of low-sulphur, medium-gravity crude oil. The estimate was made by the Canadian Petroleum Association in August, just after Mobil and the provincial government here had agreed on a $5 billion development schedule that should start producing 150,000 to 200,000 barrels of oil daily by mid-1992.
Brian Peckford, premier of the California-sized Canadian province of Newfoundland and Labrador, is betting on oil development to pull this island, where all but 20,000 of the province's 580,000 people live, toward economic equality with Canada's nine other provinces.
In July, 1985, the province's unemployment rate was 21.3 percent of the 225,000 persons in the labor force, according to Statistics Canada. That rate probably would have been higher if those who had given up looking for jobs had been taken into consideration. In that same month, the jobless rate for all of Canada was 10.4 percent.
An industry group, the Conference Board of Canada, forecast in late summer that the 1985 per capita personal income of Newfoundland would be $10,612 in Canadian dollars, the lowest per capita income of the 10 provinces (the Canadian dollar is worth just under three quarters of the U.S. dollar). The forecast for the highest of the provinces, Ontario, was just under $17,000 (Canadian) while the national per capita income was pegged at $13,755 (Canadian).
Oil has been a boon to Canada's western provinces, where land-based operations translate into much lower recovery costs.
Indeed, more progress in developing Canada's oil resources has been made in the high Arctic than off the coasts of Newfoundland and Labrador. For instance, Panarctic Oils Ltd., of Calgary has drilled 174 wells on Cameron Island northwest of Bathurst Island (and the north magnetic pole) since 1968. Panarctic in late August, 1985, sent its first shipment of crude 100,000 barrels-to Montreal in an ice-breaking tanker that traversed the Northwest Passage.
But the oil companies have held back in the offshore Newfoundland area until now.
In part, this was because Canada's federal government and the provincial government were at loggerheads on how to develop the offshore oil, a problem that was finally solved February 11, 1985, when the two governments signed what is known as the Atlantic Accord. Under it the province becomes the principal beneficiary of the resource, with the right to collect offshore revenues as if the oil were on land, just as in Canada's prairie province of Alberta. The agreement also provides for an Offshore Management Board, with equal representation by federal and provincial governments, and a $300 million development fund with the federal government paying 75 percent of the cost. The Accord permits the province to choose the mode of offshore development, a key demand of Peckford's government.
The fear in Newfoundland had been that oil companies developing fields offshore would opt for semi-submersible rigs, which are mobile, can be towed from site to site and usually are built in places like Houston and Aberdeen, Scotland. Peckford pushed for a fixed concrete platform which would provide Newfoundland with many more construction jobs. His pitch certainly was helped when, in 1982, the semi-submersible Ocean Ranger capsized in "iceberg alley" off Newfoundland during a severe winter storm and 82 workers died. The idea here is that a fixed, gravity-based platform in the Hibernia field will be safer than a mobile rig.
The jobs created during the construction of the platform will offer at least a temporary respite from unemployment for construction workers, but for the province's fishermen, tough times may continue. Fishing is "the most important industry in Newfoundland," says Peter Morris, of the province's development department. There are three types of fishing industry: In-shore, which consists of two to three fisherman going six to 10 miles out in a small boat, for a day's work; Long-lines, in which the boats are somewhat larger, go further offshore and usually stay overnight; and trawlers, big "factory ships" equipped with sonar and enormous nets that are let down off their sterns to catch the sonar-found schools of fish.
This year, the in-shore and long-lines fisheries have suffered from a dearth of cod, the main catch, and many of the fishermen have been forced to seek unemployment insurance. The more sophisticated trawlers have not had so hard a time, since they're able to find and go to where the fish are.
Mining is also vital for the province but virtually all the mining is done in Labrador, site of high-grade iron ore, and doesn't affect the island's residents directly. The same is true of Labrador's big hydropower industry.
That leaves newsprint as Newfoundland's chief alternative industry to fishing. A big Bowater mill in western Newfoundland, at Corner Brook, has recently been taken over by a Canadian manufacturer, Kruger, and may make a comeback because it's being modernized. Abitibi-Price has a smaller pulp mill at Stephenville on the island's west coast and another in central Newfoundland. The only other economic activity-aside from oil-that shows some hope, according to Morris, is a "mini-gold rush" in the hills and valleys of Cinq Cerf, an area near southwestern Port Aux Basques.
Over all, the New found land -Labrador gross domestic product, sum of the value of all goods and services produced, will range between $5.5 billion and $6 billion (Canadian) this }-ear, a figure somewhat skewed by the inclusion of at least $800 million in iron ore and close to $300 million in exported hydro electricity.
Morris says "oil won't be a panacea but it will be a very pleasant addendum to our economy." He hopes that "the oil money sets off an integrated manufacturing system using our traditional resources-fish, mining, forestry." He's looking for "secondary and tertiary manufacturing enterprises" so that Newfoundland can stop shipping most of what it produces in a raw or semi-processed state and pick up the added value of processing.
More than $2 billion has been spent on offshore exploration since 1966, with Mobil alone spending more than $1 billion between 1980 and 1984. So far, about a dozen and a half significant oil and gas discoveries have been made off Newfoundland and Labrador. The Hebron, Ben Nevis, Terra Nova, Beothuk and Whiterose oil fields on the Grand Banks near Hibernia have all produced encouraging results, and BP Canada, Husky-Bow Valley, Petro Canada, Esso Resources and Canterra Energy are each continuing exploration.
But the leap from exploration to development is enormous, and only Mobil-along with its partners in the Hibernia consortium-has made that commitment. Mobil is the Hibernia "operator"-that is, it holds the largest interest, 28.1 percent, in the oil field. Its partners are Gulf Canada and the Canadian government company, Petro Canada, each of which owns 25 percent, Chevron Canada Resources, which owns 16.4 percent, and Columbia Gas Development of Canada, which owns 5.5 percent.
Mobil's updated environmental impact statement says its fixed production platform will consist of 60 to 85 development wells, two loading platforms, two permanent drilling rigs, topside living space, undersea flow lines and will require three 120,000-ton tankers, plus support vessels. Mobil says the Hibernia development will create 14,500 jobs in Canada, 9,500 alone in Newfoundland, that is, at least, until the oil comes on stream in 1992. Mobil estimates Hibernia will increase Canada's gross domestic product nearly $14 billion, of which about $10 billion will accrue to Newfoundland, over the next decade.
Naturally, the provincial government is overjoyed by the prospect.
Development minister Hal Barrett says the provincial government already has chosen Argentia, site of a former U.S. Navy base, as the place where steel fabrication for the Hibernia platform will take place. Another, nearby site on Placentia Bay has been picked for the concrete work, and the town of Corner Brook is looking forward to stepping up cement output at a plant there.
Throughout the depressed towns of the island, a kind of cautious optimism is spreading. Mobil has been running a smart, low-keyed public relations campaign on behalf of the project and went to the extent of opening an "information center" in a vacant store in downtown St. John's. In the center's first two months, nearly 1,000 people visited it and picked up the simply written brochures provided by Mobil.
But there is fear, too, that Hibernia may be a boom-and-bust situation.
New York industrialist John Shaheen built a $200 million oil refinery at the village of Come By Chance on Placentia Bay in the 1970s. The refinery went bankrupt in 1976 because of rising oil prices and cost overruns and owed $600 million when it closed.
Mobil's Hibernia commitment also runs counter to a growing push for "Canadization" of the nation's industry. Canada's "crown corporations"-that is, government-owned and run companies-play a much larger role in the country's economy than do similar companies in the United States. Though Prime Minister Brian Mulroney, a conservative, pays Reagan-like lip service to free enterprise, he is pragmatic enough to acknowledge he'll not remove the crown corporations from the Canadian economy.
Indeed one of the biggest government companies, Petro Canada, has just closed a deal with Chevron Corp.-the old Standard Oil of California-to buy 1,800 Gulf Canada service stations in central and western Canada, with some Canadian Government help. The deal was made possible because of Chevron's takeover of Gulf Oil.
Foreign stockholders, mostly U.S., are majority owners of at least eight of Canada's 20 largest corporations, with such familiar names as General Motors, Exxon, Ford, Shell, Texaco, Sears Roebuck and Safeway. The Gulf purchase "Canadianizes" one of the biggest companies, but Mobil's Hibernia project could add another familiar U.S. name to the list of giants.
That doesn't seem to bother Prime Minister Peckford or his island constituents, at least for the time being. They're intent on job creation, and they don't care if the capital comes form Toronto or Wall Street. Their hope is that if Hibernia pans out, other oil companies will plunge into the offshore game in other Grand Banks fields-and Newfoundlanders won't have to remain so dependent on the idiosyncrasies of codfish.
William Steif is a freelance writer currently based in the Virgin Islands.