Newfoundland and Labrador ranks among top regions globally for upstream potential

Over the last two years, the province of Newfoundland and Labrador (NL) has been one of the more dynamic offshore sectors globally. Recently, this was confirmed, when the Fraser Institute, a Canadian think tank, issued its Global Petroleum Survey 2017. It ranks NL as the most attractive Canadian province for oil and gas investment, and also ranks the area fourth, worldwide. This article examines some of the companies, organisations and people which are carefully tending the NL offshore sector.

Fabricators

Representing the specialized capabilities of the local service/supply industry, we profile two fabricators that have played significant roles in recent development projects.

DF Barnes is a leading fabricator for the NL offshore industry. Based in St John’s, DF Barnes first opened its doors in 1932 as a manufacturer of marine engines and steel-hulled vessels. Today, the company provides specialised maintenance, fabrication, and construction services to the energy extraction and maritime sectors throughout Atlantic Canada.

“The bulk of our fabrication has been in subsea structures and containers, plus coatings for them,” said Sean Power, Vice President of Development. “In addition, we have become certified lately, to do repairs on risers; before this, no-one in NL could do it. It’s become a nice piece of business for us.”

He said that DF Barnes also has maintenance and repair crews offshore, fairly regularly. “This is true on all rigs and all four major platforms offshore NL, as well as Nova Scotia, the North Sea, the Gulf of Mexico and West Africa. We’re also in mining and construction, but oil and gas is still 50% of our business. Four years ago, it was 80–20. We’ve diversified, and we continue to do that.”

Fabrication in NL, in general, has slowed down since oil prices plummeted, Mr Power noted. “We’re trying to maintain the business in this slow period. We can correlate the number of rigs to the amount of work. We’re looking forward to the West White Rose project (Husky); we’re also looking forward to exploration picking back up off of NL. A lot of our fabrication will be subsea-oriented. I think we will be able to be very competitive internationally on subsea fabrication, given the harsh environment that we operate in – maybe the harshest.”

Mr Power said his firm believes that US$60 oil is the number, where many offshore projects become economical. “But at the same time, we’ve been in a race to the bottom, in terms of cutting costs. And you get to a point, where you need to maintain some infrastructure for safe, solid operation. So, lowering costs has been our biggest challenge. I look forward to the day, when we don’t have to have a project locally, and we don’t have these peaks and valleys.”

As a full-service fabrication company, servicing the offshore industry, C&W Offshore is 100% NL-owned and operated. According to the firm’s owner and president, Stephen Crane, C&W Offshore is an offshoot of his father’s company, C&W Industrial, which was founded in 1972 and now concentrates on fabrication of aluminium and stainless steel, food processing equipment in Bay Bulls, NL, south of St John’s.

C&W Offshore was incorporated in December 2004, to provide fabrication and associated support services to companies involved in the NL offshore industry. After five months operating in a small rented warehouse, C&W took over an existing fabrication company, whose owner wanted to retire. After five years, a new custom facility was built in Mount Pearl, NL, and the company moved in during April 2010. At this facility, the firm focuses on carbon steel fabrication.

Utilising the large fabrication hall, C&W can fabricate large modules in a controlled environment. For the Hebron project, the company fabricated the West Lifeboat Station, the East Lifeboat Station, and the helideck. “

The Hebron work has been our largest, by far,” Mr Crane said. For materials other than carbon steel, including pipe spools, C&W Industrial in Bay Bulls is used to minimise cross contamination of materials.

Given low oil prices and the completion of Hebron work, C&W Offshore has had to stay busy with fewer employees. “We have 20 employees, but at the height of work, we had close to 100, counting other subcontractors; our direct-hire employees were 40 to 50,” Mr Crane added. “The core business keeping us going is support services for companies doing maintenance programs. We’ve been fortunate in getting some business from existing customers. When things were booming, we did a fair amount of export work – export markets are certainly an option, but I want to get things right here, first.”

Mr Crane expects to get a share of West White Rose project work. “We don’t know exactly what we’ll get out of White Rose yet, but we’ll get busier,” he said. “For our workload on West White Rose, I could easily see us at 30 employees again.”

Other Niche Companies

Periodically, NL officials make us aware of up-and-coming local firms which fill new niches. Here are two such companies.

A five-year-old company, Kraken Robotics started out as a sensor/sonar company, building sophisticated sonar technology, called Synthetic Aperture Sonar (SAS), primarily for military applications, although it held offshore potential. “The neat thing about SAS,” explained Kraken President & CEO Karl Kenny, “is that we take a real sonar length, and by using very sophisticated signal processing, we synthesise the real aperture to make a synthetic aperture, that’s up to 25 times longer than the actual – this enables us to detect small objects on the seabed from a very long range.”

Mr Kenny said that NATO has spent millions of dollars on this technology for underwater mine-hunting. “Brilliant technology, but very expensive military grade,” he added. So, he and his team developed their own system in 2013 and then proved it up with the Canadian and US navies over the next two years. Since then, they have gone on to probably becoming the biggest supplier of commercial, off-the-shelf SAS technology, worldwide.

The Sea Vision system provides highly detailed 3D models of underwater assets. Kraken has now developed SeaVision, a highly accurate 3D laser scanning system which produces very high-resolution scans in full colour. Borrowing techniques from the company’s SAS system, SeaVision’s twin-scanner configuration produces a 1.2 million-point scan in four seconds, either from a stationary position, or in motion. Processing the data enables the creation of a highly detailed 3D model of an underwater asset.

“Basically, our SAS technology provides centimetre accuracy, and now our SeaVision laser technology enables millimetre-level inspections,” said Mr Kenny. “Operators have limited visualisation on existing subsea assets. They were put down decades ago – and in many cases, there are no drawings, no representations. So, this system allows us to cost-effectively create extremely high-resolution, 3D models of subsea assets.”

The company puts these lasers on ROVs or AUVs and then scans subsea assets to create a very high-resolution, 3D model of things like subsea control systems with millimetre-level resolution. The firm recently sealed a deal with General Electric’s Avitas Systems, where they are inputting the data to an artificial intelligence-based predictive analytics model which will tell operators when they are going to run into problems. Kraken is also looking at developing a complete, end-to-end service called Robotics as a Service. 

One of the recent niche operations which has formed to address a specialised need for the offshore industry is St John’s-based The Center for Environmental Genomics Applications (CEGA). “We’re an R&D centre with sophisticated analysis capabilities,” said the firm’s chief scientist, Dr Mehrdad Hajibabaei. “My background is as a geneticist. A few years ago, I was approached by government agencies who lacked biological data for a variety of environmental purposes. We can now gather and supply that data using cutting-edge genetic technologies.”

Dr Hajibabaei explained that DNA is constantly shedding from people, allowing it to be gathered and analysed, using forensic DNA technologies; similarly, DNA from plants and animals can be gathered from soil and water. “We can obtain DNA directly from the environment and gauge the biological health of a particular location. Thus, genetic methodologies have the potential to aid oil companies in satisfying (Canadian) governmental environmental regulations. Wherever a company needs biological data to support environmental stewardship, we can supply that data and help them to remain in compliance with local and federal regulations.”

There is significant support from the Canadian federal government’s Atlantic Canada Opportunities Agency, the Newfoundland and Labrador provincial government, and Petroleum Research Newfoundland, for this kind of program, noted Dr Hajibabaei. “And we are open to further partnerships with industry. One of the points to having a research facility like this is to keep stakeholders involved so that they are informed of new technologies which can aid environmental performance and compliance.” He said that CEGA has a five-year plan which will allow the firm to further demonstrate its value to the offshore oil and gas industry.

An increasingly important player in NL’s offshore industry is the Port of Argentia, 82 miles west/south-west of St John’s. It started out with little saltbox fishing houses, but in 1941, the US. Navy established a forward operating base on the site. That same year, US President Franklin Roosevelt and British Prime Minister Winston Churchill signed their famous Atlantic Charter.

The Port of Argentia is a former American military base and was closed in 1994 and handed the land back to Canada. “In 2001, the government transferred the property to our organisation, to be the stewards of the site, and to use it for economic development purposes,” said the Port’s general manager, Chris Newhook. “The transfer included 3,000 acres of developed tidewater property, 360,000 ft² of commercial building space and over 2,000 ft of commercial docks.

The Port Authority was established in 1995, and is led by a veteran, volunteer board of directors. “We’re very much about being a seaport and growing cargo-handling, but we recognise that we’re close to Hibernia and Hebron, Terra Nova and White Rose and the Flemish Pass,” Mr Newhook said. “Interestingly, the Laurentian basin is actually closer to us than St John’s. We see the Port as being ideally suited for offshore inspection, repair and maintenance activities. Our tenants list is a who’s who of companies, including Husky, Suncor, Cahill Group, DF Barnes and A Harvey, and with their help, we are focused on becoming this province’s premier heavy industry seaport.”

Husky Energy is establishing a large fabrication and logistical facility at the Port for its West White Rose Project. “It’s a multi-billion-dollar project, and we’re very happy to have it on our site,” said Mr Newhook. “Our job now is to showcase Argentia’s capabilities, so we can attract the next big project after this one is completed.”

Exploration Update

This year has been another busy one for seismic activity offshore Newfoundland and Labrador. TGS and Petroleum Geo-Services (“PGS”) announced four 3D projects for 2017, making this past summer the most active year ever for TGS in the province. In support of these projects, PGS operated three 3D vessels and one 2D vessel off the coast, resulting in the most ships that they have ever had in Newfoundland and Labrador waters.

A portion of this season’s activity directly supports Nalcor Energy’s ongoing multi-client seismic programme. The provincial energy company continued its 2D seismic work, in preparation for future licence rounds. As of the 8^th November 2017, this season’s seismic survey investments totalled about 9,100 km² of 3D and 20,000 2D line-kilometres of data.

In addition, Fugro, in partnership with Nalcor, has been acquiring roughly 10,000 km² of multi-beam bathymetry and over 150 seabed cores, also targeting upcoming licence round areas.

“Our role really is early-stage exploration, followed by basin-prospect evaluations,” said Nalcor Exploration Manager Richard Wright. “This process is an integral part of Nalcor’s Exploration Strategy, and the exploration work to date has begun to reveal offshore oil and gas resource potential in our slope and deepwater basins.”

This strategy has paid off well, in two recent independent resource assessments covering less than 5% of the province’s offshore, Paris-based leading geoscience consultancy, Beicep Franlab, has identified a total in-place potential of 37.5 Bbbl of oil and 133.6 Tcf of gas. Numbers like these have attracted seven new E&P companies to Newfoundland and Labrador’s offshore in the last two years.

Since 2011, Nalcor has invested in more than 150,000 line-kilometres of seismic acquisition. Mr Wright said that initial surveys begin with 60-by-60-kilometre grids, and then results dictate whether greater detail is surveyed. “Philosophically, we’re acquiring large-scale grids to begin with, to assist us in evaluating all of our offshore territory and over time, where early evidence of prospectivity is imaged, we’ll begin to infill with more detailed seismic grids.”

Nalcor, in partnership with PGS and TGS, is due to provide the first, fast-track data from the 2017 seismic campaign to the industry this month, and the full data set is slated for release by the end of first-quarter 2018.

Status of Activity

It has been a relatively good year for activity offshore Newfoundland. ExxonMobil’s Hebron field achieved first oil on the 27^th November, ahead of schedule; the Hibernia platform restarted drilling earlier this year; Suncor began a new drilling programme at Terra Nova field in the third quarter; late this year Husky is preparing to ramp up construction and logistical work for its West White Rose field development.

Yet, inevitably, talk turns to “what’s next” for the NL offshore sector. Andrew Bell, chairman of the Newfoundland and Labrador Oil & Gas Industries Association (Noia), says the industry should substantiate the prospectivity identified by Nalcor with more exploration drilling.

“Everything we have off the coast now that is producing was explored many years ago,” noted Bell. “The real opportunity is to start looking at more exploration, get more rigs offshore East Canada and poke more holes.

Paul Barnes, director, Atlantic and Arctic, for the Canadian Association of Petroleum Producers (CAPP), does not believe that operators in the area will opt for a near-term development in the Flemish Pass, so “The focus for the next five years for operators in the area like Statoil is likely to still punch a few exploration holes in that area, and other nearby basins, and see if there’s more discoveries to be had.”

Geoff Cunningham, vice president of Operations for marine stevedoring firm A Harvey and Company, and a former Noia chairman, points out that at least one new operator may launch some fresh exploration drilling. “Nexen is talking about drilling in 2019, and they’re ploughing away with getting permits,” said Cunningham. “Initially, they were hoping to drill in 2018, but they’re probably looking at 2019 now.”

On the development side, existing operators continue to invest in, and further develop, their assets offshore NL, noted Bell. “ExxonMobil has done some work at Hibernia South, and has now done Hebron. Suncor has brought in a new rig and is doing some drilling to prolong their Terra Nova field.” Mr Cunningham noted that “Husky is moving along. They seem to be very bullish, and I think they’re doing as much as they comfortably can handle.”

All three gentlemen agreed that subsea tie-backs, and their use to develop smaller fields near existing platforms, may be an incremental source of activity and new production. Mr Barnes did caution that such work is not imminent.

Environmental assessment controversy.

The NL offshore industry is riled up over the Canadian federal government’s intention to amend the existing environmental assessment process, which could lengthen project approvals.

“It’s disappointing that they’re (federal regime) not spending as much effort on understanding what oil and gas means to an economy, provincially and federally,” Mr Bell observed. “It’s disappointing that they’re taking the position on the environment as one of ‘this is what we’re going to do’ without assessing the fall-out on the other side.”

“Ridiculous” is Mr Cunningham’s description. “Drilling is everything. And you’re asking people to reinvent the wheel and do an environmental assessment yet again, and fork out all kinds of money, so people can intervene, whether they care about the industry or not. We spent a number of years working to reduce red tape, and now we’ve got a federal government which is going backwards. So, it’s really frustrating.” Canada, itself, warned Mr Barnes, risks a lot of investment stalling or going elsewhere, “just because we’re in a period now, where we’re putting in an extraordinary amount of new regulatory frameworks” which have clouded the market.”