07 March 2008

Dunderdale blows smoke on the offshore

The province's energy minister thinks that just one drill rig doing exploration work offshore makes Newfoundland and Labrador "a top destination for international oil and gas exploration investment".

That's not bluster.

That's nonsense.

Plain and simple.


And in the words of the Premier, "[w]e can't allow things that are inaccurate to stand."

The Henry Goodrich will actually be shared among companies doing both exploration and delineation drilling offshore. If this really was a top destination, the companies would each have landed their own rigs and pulled them from other projects to work here.  If this was a top destination, the rig shortage wouldn't prevent companies from investing accordingly.

They haven't sent a bunch of rigs to the local offshore area.

They've sent just one and worked out a time-share on it.

That's because this isn't a "top destination" for international oil and gas exploration or development.  What's worse, energy minister Kathy Dunderdale knows  - or ought to know - that her news release is complete garbage. The only people she is fooling with it are people who know nothing of the oil and gas industry.

Aside from rig activity, another good indicator of being a "top destination" for exploration would be the number of land parcels offered each year by the offshore regulatory board for bids. Land is offered for license based largely on interest expressed by potential bidders.

Last year, there was one.

Just one.

That was on the west coast, adjacent to a series of parcels that are already being explored, mostly from shore.

Four parcels were advertised last year for possible gas exploration offshore Labrador.  That sale actually closes this year in one of the longest offering periods on record.

They may not go, however, unless the provincial government actually finishes its generic gas royalty regime.  It's only been in the works for 10 years, five of them under the current administration.  All that's been released in that time period is a single draft.

The uncertainty in the offshore produced by government policy is having a measurable, negative impact on investment and the rig release is a good sign of it.  If there actually was great interest, Dunderdale and her staff wouldn't have time to issue releases heralding it.  They'd be too busy doing the work involved.  They wouldn't need to write self-congratulatory news releases.  The evidence of the interest would be the huge number of rigs offshore, the large number of foreign accents everywhere on the East Coast and the cash flowing in St. John's more heavily than the affections of the corner boys and girls along George Street.

bidvlicenseThere are other, less colourful indications that the local offshore is not the top destination for exploration.

As the chart at left shows, the past two years have been among the lowest in the history of lands sales in the offshore area. [Data source: CNLOPB]

By contrast, the period after release of the generic oil royalty regime in 1997 were some of the most prolific both in terms of parcels offered and in licenses issued.

Notice that the drop in interest in the offshore coincides with the collapse of the Hebron talks in 2006.

And before anyone points to the record year of sales experienced just after the October 2003 election, recall that those parcels were offered based on the climate established before the new administration's policies took hold.  Since the policies were unfurled, the local offshore hasn't been that attractive.

We can all wish it was otherwise, but the facts speak for themselves.