Fair enough.
At the outset, let's make it clear that the comments were not meant in anyway to question Professor Enachescu's competence as a geoscientist or his knowledge of the oil and gas industry locally or globally.
Rather, the CBC story linked in the original post and the interview [ram file] connected to it seemed to be exceedingly optimistic in dealing with the prospect of exploration returning to Labrador because four parcels offshore Labrador had been offered for bids in the most recent land sale by the offshore regulatory board.
In the interview Professor Enachescu said that we "have to be very cautious" in projecting what will occur offshore Labrador since exploration must come first. That's considerably different than the implication of the comment used by CBC in the online story. Professor Enachescu did not take issue with the quote so let's work on the basis that the comment was accurately quoted.
On the point about exploration and development, Professor Enachescu is absolutely correct: exploration will determine what if any resources are available. That knowledge must come before any development.
In the interview, he also described the potential of the parcels up for bids containing at least as much in the way of natural gas, natural gas liquids and oil as the existing significant discoveries at North Bjarni, Bjarni and Gudrid.
If that turns out to be the case, there would be a total of around eight trillion cubic feet of natural gas in the area.
Put another way, the natural gas available for development in the area would be about double the amount of gas in the Snohvit field currently being developed in the Barents Sea. Ted Howell noted Snohvit as an example of an offshore gas field located well offshore in a harsh environment. Mr. Howell pointed out that a number of factors have changed to attract the first interest in exploring offshore Labrador in two decades.
That is not really the issue, however.
Rather, the point of the two posts on the land parcels was that other factors may well see the four parcels going without bids.
The most significant factor would be the provincial royalty and benefits regime. The gas royalty regime - the one directly relevant to the Labrador parcels - has yet to be revealed. One of the reasons bids will close on those parcels in August 2008 may well be to give time for companies to assess the impact of that regime.
If the regime increases the costs of development beyond the point at which companies are willing to invest, then the parcels will lay fallow. Alternately, if the regime is one thing but the provincial government reserves the right to add costs, then the parcels may sit fallow because the financial environment is too uncertain in comparison to other places. Exploration investment in those cases will go elsewhere.
Companies may still take up the parcels. As noted in the earlier post, they may decide that the potential resources in the parcel would justify the risk and whatever royalty and benefits regime the province imposes. Companies may also decide that no matter what the royalty regime occurs, the long lead times involved - nine years to complete exploration and whatever time after that to develop any significant discovery found - may well give further opportunity to change the provincial royalty regime.
Look ahead to 2020. The existing offshore oil fields will be drawing down. The provincial government will be faxing increased costs owing to the impact of demographics. In the absence of any significant new offshore development, the financial pressures on a provincial government a decade and more hence may well cause that future government to amend whatever royalty regime is announced this year.
Exploration indeed must precede development. But, if we look at the issues potentially affecting private sector interest in the fields, it is much too early to determine whether we will even get to exploration in the first place.
The other possible interest in those fields, as noted in the earlier post, may be from the province's new energy corporation. That's the second possible reason for the long time bids will be open. As we learned last week, the province's new energy corporation will be running by early in the New Year. Exploration costs are well within the financial means of the energy corporation and the long lead time on this bid process would allow the new energy corporation seven months to sort out any interest it has in acquiring exploration rights.
Once again, though, there are simply too many unknowns to project with any accuracy what will happen with those parcels. We may have a better idea the closer we get to August and of course we will know with certainty on August 2.
In any event, and as much as we might wish it were otherwise, it is far too soon to be discussing the return of oil and gas exploration to the Labrador shelf. It is tempting to be optimistic - particularly in the wake of Hebron and Hibernia South - but experience with the local offshore over 25 years ( and including those two spectacular setbacks) should give us all an abundance of prudence and caution when it comes to projecting what will occur.
-srbp-
