10 years after: Hibernia oilfield has surpassed expectations

Ten years ago this week, oil gushed out of the Hibernia offshore oilfield for the first time, igniting an orange flare and triggering a dramatic economic turnaround for Newfoundland and Labrador.

The province's first and Canada's largest offshore oil project, the $5.8-billion development 315 kilometres southeast of St. John's is now considered the crown jewel of the industry.

But its future did not seem so bright when the first barrels were filled with crude on Nov. 17, 1997.

At the time, the province was still reeling from the effects of the federal moratorium on the cod fishery five years earlier — described as the single largest mass layoff in Canadian history. Newfoundland's unemployment rate was 19 per cent.

There was also concern for the crew of the Hibernia production platform.

The massive gravity-based structure, which sits on the ocean floor near the edge of the Grand Banks, was built to withstand 10-storey swells and direct hits from icebergs in one of the stormiest locations on the planet.

As well, critics loudly carped about the costly project and the support from the federal government, which included $2.6 billion in grants and loan guarantees. Headlines across the country screamed "Hibernia smaller than thought— at least by a third" and "Hibernia must wait."

A barrel of crude— today worth more than $90 US— was then worth $19, and some industry experts fretted over Hibernia's rate of return.

"When Hibernia first started, it was not considered to be a money-winner," said Wade Locke, a Memorial University economics professor who held his own reservations about Hibernia's prospects.

"It surpassed my expectations."

When development of the oilfield was approved in 1986, it was estimated to contain 522 million barrels of recoverable crude. The latest estimate is 1.2 billion barrels.

Its development kick-started Terra Nova and White Rose, the province's two other offshore oil projects currently in operation on the Grand Banks.

"It is the foundation of the Newfoundland oil and gas industry, which is powering the provincial economy," said Paul Sacuta, president of the Hibernia Management and Development Co.

N.L. moving beyond have-not status

Indeed, Hibernia has played a major role in Newfoundland's march to shed its have-not status, which it is poised to do within the next two years— just as the Leduc oil discovery of 1947 did for Alberta.

While Newfoundland's offshore energy sector is much smaller than Alberta's onshore industry, the revenue it generates has fuelled the growing economy on the Avalon Peninsula and, by extension, the province as a whole.

By the end of 2006, Hibernia had poured $1.2 billion into Newfoundland's coffers.

But the project has also generated $8.8 billion for the consortium of oil companies behind it and another $4.8 billion for the federal government, according to provincial figures.

That disparity has fuelled Premier Danny Williams's aggressive pursuit of equity stakes in the offshore sector, particularly the 8.5 per cent share Ottawa holds in Hibernia. But so far, the federal government has rejected his demand.

Earlier this year, Williams announced Newfoundland would seek a 10 per cent ownership stake in all future oil and gas projects after he secured 4.9 per cent of the proposed Hebron development and five per cent of the expanded White Rose project.

Meanwhile, the province continues to enjoy consecutive budget surpluses and related spinoff benefits from the burgeoning industry.

"No question that a lot of the economic growth in sectors outside the oil industry has been driven in large part by a maturing and developing oil and gas business," said Mark King, a spokesman for the St. John's Board of Trade.

"The spinoff activity from hospitality to service-based businesses to others— you can really attribute that in large part to the oil-driven growth that we've enjoyed in recent years especially."

Small towns still hurting

But outside St. John's, there is little evidence of boom times.

While new restaurants, boutique hotels and shops crop up in the capital, the province's outports still bear the signs of a depressed economy.

Young men and women continue to leave small towns in droves,forced out by a lack of steady work.

Two weeks ago, in yet another example of the growing divide between rural and urban Newfoundland, a crab plant in Trouty, on the Bonavista Peninsula, was shut down, putting 200 people out of work.

But if oil prices remain at record highs and other developments such as Hibernia South and Hebron proceed, the riches from the offshore will continue to flow, Locke said.

"[Hibernia] was the dawn of a new era," he said.

"That, in conjunction with the other projects and the future projects, are what's going to make a difference for Newfoundland."