Incentives for drilling unneeded so far, Dunderdale says

Premier Kathy Dunderdale says the Newfoundland and Labrador government has found it unnecessary to sweeten the pot for oil companies to encourage more exploration offshore.

"We’re at a place now where we’re going into deeper water," Dunderdale told reporters earlier this week. "We had a crush with rigs, and so on. We haven’t been at a place yet that we’ve felt we’ve had to incentivize companies to drill."

Drilling is expensive in the Newfoundland offshore — roughly $1 million a day.

Over the past two years, industry officials have highlighted the need for incentives to keep them exploring in the region.

Last summer, the province indicated that a decision on such a plan was imminent. Shawn Skinner, who was natural resources minister until his defeat in the October provincial election, said a decision would be finalized before last fall. But that didn’t happen.

Dunderdale noted that talks are ongoing with the industry.

"We may be getting to a place where we have to have a deeper discussion about that," the premier told reporters.

Dunderdale stressed that the province has had good land sales in the offshore, saying the commitment of companies to explore has been strong.

The premier noted that "there’s as much drilling going on as ever has gone on in this place."

While that statement may be accurate in recent years, it is not when past decades are taken into account.

There were just 23 exploration wells drilled in the Newfoundland offshore between 2000 and 2011 — an average of about two per year.

That’s according to statistics provided by the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB).

Another two to four wells are expected to be spudded in 2012.

By contrast, between 1972 and 1984, during an era of federal incentives for frontier exploration, there were 86 wells drilled.

That’s an average approaching seven per year.

The most recent discovery that led to a producing field was nearly three decades ago, in 1984.

Oil warning

The price of Brent crude is running roughly $20 a barrel below Newfoundland and Labrador government forecasts, leading Dunderdale to warn that this year’s deficit could balloon by hundreds of millions.

The province is heavily dependent on oil revenues — roughly one out of every three dollars flowing into the treasury is courtesy of the non-renewable resource.

'We haven’t been at a place yet that we’ve felt we’ve had to incentivize companies to drill.' —Premier Kathy Dunderdale

The Tory government’s own 2007 energy plan recognized the importance of keeping exploration going.

"Without new exploration, there can be no new developments other than those already discovered," the plan noted.

"The keys to advancing our oil and gas sector are to encourage additional exploration activity and to manage the development of these resources so that investors can earn a fair return while the province maximizes the benefits it receives from these resources."

Recent exploration has met with success. Statoil discovered oil in 2009 while drilling in deep water 500 kilometres east of St. John’s.

Last month, the Norwegian company announced that there are up to 200 million barrels of recoverable oil at its Mizzen prospect in the Flemish Pass.

That announcement marked a significant milestone for the Newfoundland industry. The deep-water Flemish Pass is an as-yet undeveloped area.

All producing fields to date are located in the shallower Jeanne d’Arc Basin.