Wells was discussing recent problems with the Terra Nova field's floating production, storage and offloading (FPSO) vessel that will see production at Terra Nova halted a month in advance of a planned three-month shutdown for a refit and refurbishment of the FPSO. [Left: Terra Nova FPSO. Photo: Petro-Canada]In the interview, Wells maintained among other things:
1. That a "proper debate" never took place on the decision to use an FPSO in preference to a revised gravity-based structure (GBS);
2. That the proponents will not be paying for the shutdown and that instead the people of Newfoundland and Labrador will be paying the cost, i.e. "taking a big hit"; and,
3. That he has no problems with use of an FPSO at White Rose, the field developed after Terra Nova.
Let's deal with these in order.
1. The debate issue. Wells never defines what would constitute a "proper debate". As a result, it is difficult to understand the basis on which he makes this assertion other than that the viewpoint of some individuals that a GBS ought to have been used did not win out.
Some proponents of the GBS-only approach were senior officials of the Peckford administration. Their views appear to be related to maximizing local industrial spinoffs, not necessarily on the safety, effectiveness and efficiency of using an FPSO as the mode of production for an offshore oil field. It would appear that these views are the ones Wells is championing.
There can be no doubt, however, that a debate did take place at the time and that it was quite lively. The Canada-Newfoundland and Labrador Offshore Board (CNLOPB) and the project proponents conducted public meetings and provided considerable opportunity to public input into all aspects of the development proposal before CNLOPB issued a decision. Morning Show host Jeff Gilhooley commented during the interview with Wells on the stories he covered related to the Terra Nova development and issues surrounding use of the FPSO.
It is important to recall that the FPSO was selected over a GBS as the Terra Nova production mode for three reasons, namely "more extreme weather conditions, more numerous icebergs, and deeper water at the Terra Nova location" than at Hibernia.
Developed for use in deep waters, FPSO designs moor the FPSO hull to a submerged riser-buoy that brings together the production pipes from seabed wells.
For most considerations, the FPSO is a ship of a general type and design which has operated on the Grand Banks for decades. Its overall design was certified by the government authorities after thorough review and to date there is no indication of a fundamental problem with the design that would cause it to operate unsafely either for human life or for the environment.
In the event of emergency, the ship can be detached from the buoy and moved off-station as the FPSO was relocated during the 2005 Titan missile scare. Its design as a ship allows the FPSO to ride with the ocean, as does any ship, thereby reducing the cost of developing a GBS that must fight against natural elements.
The most recent problem with the FPSO has been the result of a design decision taken at a time when oil prices were less than one third their current levels. As Petro-Canada spokesperson John Downton noted recently, the development proceeded at a time when oil was at a price per barrel on the order of US$20 or less. As a consequence, the FPSO at Terra Nova carries essential equipment only with only the redundancy in its equipment required for human and environmental safety.
In other words, there is nothing - absolutely nothing - inherent in the FPSO design that makes it inferior to the GBS in any way. There is an issue with the design of this specific FPSO, however that can be dealt with in the course of the planned refit.
2. Who pays? Wells apparently has some difficulty understanding this issue in the same fashion that he misunderstand the production mode issues.
The estimated $100 million revenue loss which Wells mentions is the amount of royalty that the Government of Newfoundland and Labrador will not be receiving in April/May 2005 as a result of this shutdown.
There are three things to note on this point. First, This is not a loss in the sense of income that will never be received. Rather, given that Terra Nova production will resume following the refit, the April/May revenues have merely been deferred. While this may cause some problems in the short-term for a government which has budgeted to spend all revenue received, there really is only a notional loss of revenue for the provincial government in the short-term that will be balanced out in the medium-to long- term.
Second, if Wells' GBS contention had held sway in 1996/997, one of three circumstances would have occurred. Either the high cost of building a GBS would have rendered the project not commercially viable based on projections at the time or, the project would not have achieved pay-out of costs after only three years of production as the FPSO approach has done or, had the GBS been foisted on the companies by government, taxpayers would have born the added costs in the form of royalty concessions. This is exactly what occurred with Hibernia.
This is no small matter. The provincial government revenues today from Terra Nova are higher than at first oil simply because the initial costs of development were kept under tight control. Early pay-off has moved the project into a higher royalty payment to the provincial government.
Had the Terra Nova project not begun in 1996/97, it is likely that White Rose too would have been delayed. As a result we might only today be looking at development prospects for Terra Nova fully 10 years after the project was first advanced.
Proponents for both projects are virtually the same and much of the knowledge gained from Terra Nova was transferred directly to White Rose. It is not small point, either, that Wells ignores White Rose entirely even though Terra Nova and White Rose are intimately connected. This effectively deals with Wells' third contention since, if there was a problem with the Terra Nova FPSO then there should be equal criticism of White Rose's production mode.
To close the matter of costs, however, the proponents are paying the entire costs of the refit and refurbishment as well as suffering a loss of revenue considerably greater than the provincial royalties. This is patently obvious.
On this third financing point, though, had government insisted on a GBS with its added - and essentially unnecessary - costs, there is no question that the proponents would have sought to recover those costs from government directly. This was one lesson from Hibernia.
To put it another way, if Andy Wells had been in a position to force his views on the Terra Nova project proponents, he would likely have reproduced the abysmal government revenue stream from Hibernia rather than the lucrative ones coming from Terra Nova and White Rose. He would have learned nothing at all from the recent past, instead preferring a few years of jobs pouring concrete to the hundreds of millions of dollars in provincial revenues which his new patron Danny Williams can now spend freely. He would have ensured that taxpayers took a big hit in the wallet, the very situation he claims now exists at Terra Nova.
Andy Wells has made a name for himself as an outspoken critic of the offshore oil and gas industry as it has developed in the past 10 years. However, in his most recent comments he demonstrates a fundamental lack of understanding for the issues involved both for the industry and for the province as a whole.
A little information can indeed be a dangerous thing. However, as long as Andy Wells sits in the mayor's chair and not in a position of responsibility related to the offshore oil and gas industry, his general lack of understanding cannot cause the province and its people any significant harm.
That said, if Danny Williams still thinks Andy can offer some worthwhile input at the offshore regulatory board, he need only appoint Wells to the Newfoundland and Labrador position that is open on the board and over which Mr. Williams holds complete authority to make the appointment as he sees fit. That option has been open to him for his term of office; that he has failed to take action on it suggests that Mr. Williams is less enamoured of Andy Wells than it appears.
Wells' own recent comments would suggest the Premier's caution is well founded.
