Offshore exploration incentives plan back to 'discussions'

Nearly a year after top officials indicated a move was imminent, the Newfoundland and Labrador government is back to the discussion stage on a possible initiative to offer incentives for offshore exploration.

Natural Resources Minister Jerome Kennedy told reporters Wednesday that there are "discussions ongoing" with oil companies on how to best entice them to carry out more drilling in the Newfoundland offshore.

"These companies assume huge risk in exploration and development," Kennedy said.

"They assume huge risk because often times they will drill a well and there’s nothing there. So the incentives are necessary. They’re something that have been done in other provinces. We’re just trying to develop the exact form of incentives that we can work with the companies."

Kennedy acknowledged the political sensitivities of being seen to cut a break to Big Oil.

"Of course, the average person bristles somewhat when you’re offering incentives to multi-billion-dollar companies," Kennedy said.

He said there is no time frame for any such initiatives to be put in place.

'They assume huge risk because often times they will drill a well and there’s nothing there. So the incentives are necessary. They’re something that have been done in other provinces. We’re just trying to develop the exact form of incentives that we can work with the companies.' —Natural Resources Minister Jerome Kennedy

"I’m not saying that there will be a plan because incentives can take various forms," Kennedy told reporters.

"They can be, for example us ... investing in geosciences, providing them with data, it can be in tax incentives. There can be agreements reached in terms of how we are going to share royalties, things like that. So there’s no real plan in place at this point."

Kennedy spoke to reporters after delivering a speech to the offshore industry association NOIA in St. John’s. In that speech, he referenced government investments in geosciences. The province has sunk millions into seismic work that helps companies decide where to target their exploration efforts.

"We understand that the sustainability of the province’s oil and gas sector depends on continued investment in exploration," Kennedy said in his speech to industry officials.

Decision 'before the fall' of 2011

A year ago, Kennedy’s predecessor as natural resources minister indicated that action was imminent to provide further incentives for the industry to explore.

A joint government-industry committee was set up to look at the issue after the province released its energy plan in 2007. In mid-2011, then-minister Shawn Skinner said in media interviews that a decision on additional incentives was expected "before the fall."

He ruled out grants, but said some form of aid would be key to helping the industry remain competitive. Royalties from the offshore account for one of every three dollars that stream into the provincial treasury.

"Those revenues are allowing us to do a whole bunch of good things that we need to be doing, and should be doing, but those revenues are going to be declining if we don't continue to have prospecting happen, and then exploration happen," Skinner told Atlantic Business Magazine last summer.

"The oil companies have lots of opportunities elsewhere in the world, and they will go there unless we have some reason to attract them here."

At the time, Skinner hinted that the provincial plan would see assistance provided to the industry at early stages of the exploration process. There would be a return on the back end for successful projects.

Skinner went on to lose his seat in the October provincial election.

Industry officials have highlighted the need for help in the past.

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

There has been an average of just over two exploration wells drilled annually in recent years in the region.

The most recent discovery that led to a producing field happened in 1984.

The Norwegian company Statoil provided some good news for the industry Wednesday, when it confirmed it has found up to 200 million barrels of recoverable oil at its Mizzen prospect in the Flemish Pass.

Statoil is now assessing the discovery to determine how and when it can be economically developed.

The company is planning to drill two more wells by the end of 2013.