Cenovus restarting West White Rose oil project, stalled under COVID-19 pandemic

Cenovus Energy and its partners aremoving ahead with the West White Rose oil project, a $3.2-billion expansion of the White Rose oilfield in offshore Newfoundland, and the deal includes changes to how much royalty money the companies will have topay to the provincial government.

In separate press releases issued Tuesday morning, both Cenovus and Suncor another partner in the project said the finalized agreement with the province includes an amended royalty structure that "safeguards to the project's economics in periods of low commodity prices."

Speaking at the Energy N.L. conference Tuesday morning, Premier Andrew Furey said the changes mean the province will get more royalty money when oil prices are high.

Under the new royalty regime, revenue is fixed at one per cent for the first year or until the companies recoup their new capital costs whichever is longer.Cenovus said the cost to get to first oil could be $2.3 billion $1.8 billion to complete the full platform, and $500 million for subsea drillingand other work. How long it takes to recoup costs will depend on oil prices when the project starts producing.

The deal has also replaced the 6.5 per cent royalty when Brent crudetrades about $50 US per barrel with a sliding scale 1.25 per cent when it's trading between $65 and $75 US per barrel, 6.5 per cent when it's between $75 and $90 US per barrel, and 12.5 per cent when it's at $90 or more per barrel.

"We were able to place government's priorities to look, you know, to look at the revenue to the provinceagainst our priorities around risk especially in low-oil-price environments," said Jonathan Brown, Cenovus's East Coast vice-president.

When Cenovusacquired its ownership stake in the project after buying Husky Energy in late 2020, he said, "decommissioning was the base case."

"So we've had to work back from that place, and I think that prospect was extremely real," said Brown.

Fureyalso said the government expects the project will lead to about 250 permanent platform jobs, and 1,500 otherjobs related toemployment ramping up at the construction site in Argentia immediately.

The West White Rose project was suspended in March 2020, as the COVID-19 pandemic took hold, sending oil markets plummeting as travel and other economic sectors ground to a halt.

Work on the fixed wellhead platform which will be tied back to the SeaRosefloating production, storage and offloading vessel, known as an FPSO shut down at sites in Marystown and Placentialeaving hundreds without work.

Both the federal and provincial governments rejected the idea of buying an equity stake in the project.

In December 2020, the Newfoundland and Labrador government gave $41.5 million from the federal Oil and Gas Industry Recovery Fund to Husky Energy to keep 331 jobs at the idled project going in the interim.

But the project still facedan uncertain future until Tuesday's announcement.

"The joint venture owners have worked together to significantly de-risk this project over the past 16 months. As a result, we're confident restarting West White Rose provides superior value for our shareholders compared with the option of abandonment and decommissioning," said the company's president and CEO, Alex Pourbaix, in the statement.

Cenovus said it's now decreasing its working interest in both the White Rose field and the extension down to 60 per cent in the original field, and 56 per cent in West White Rose.

Suncorsaid it will increase its stake in the oil field to 40 per centand in the extension to38 per cent in the extension in exchange for a $50-million payment from Cenovus,

Newfoundland and Labrador Crown energy corporation NalcorEnergy owns five per cent of the project, having invested $110 million.

The provincial government gave the project environmental approval in 2013, and the company officially sanctioned it in 2017.

At the time, Husky saidthe expansion project would result in between $3 billion and $4 billion in economic benefits for the province in the form of royalties, taxes and equity payments.

The expansion is amassive concrete gravity structure that will rise to a height of 145 metres from base to top once complete. Cenovus said it expects first oil from the platform to come in the first half of 2026, with production peaking at around 80,000 barrels a day by the end of 2029.

The project is expected to extend the life of the oil field by 14 yearsand give Cenovus access to an extra 200 million barrels of oil.

Spinoff money

In Placentia, there's hope the construction work in nearby Argentiawill bring jobs and money into the community.

Mayor Keith Pearson called it "a good day to wake up."

"It's been difficult. We've had some difficult times," he said Tuesday.

Pearson said there are spinoffs to a project of this size, including money coming into local businesses. There's no local-first hiring clause in the project's benefits agreement, but he hasmet with Cenovus to talk about the issue.

"We're looking for our own people of our own local region here to benefit directly," he said.

In a statement, Trades N.L. executive director Darin King, executive director of construction association Trades N.L,said his group hopes the project "will create jobs for thousands of workers and help them to support their families and communities."

"The West White Rose project is critical to the future of our province's buildingtradesand construction industry," says the statement.

Charlene Johnson, CEO of provincial oil industry association Energy N.L.,is also optimistic about economic spinoff.

"In particular for the supply chain and the service companies that Energy N.L. represents, this is coming at a great time for them when we have gone through a rough couple of years," she said.

Fureypromoting N.L. oil

In Tuesday's release, the province said that in addition to changes in the royalty structureit willreceive a $200-million decommissioning credit, and$100 million to set upa green transition fund.

The costs of decommissioning offshore oil projects and how much of it comes from taxpayers aren't made public.

When asked about transitioning away from oil, Fureyrepeated the government's stance that oil in offshore Newfoundland takes less carbon to extract than it does in other parts of the country.

• This is what politicians mean when they talk about 'clean oil' from offshore Newfoundland

"So when companies and individuals are faced with picking petroleum products that are going to be required for the next 20, 30 years I think it's incumbent, it's responsible, it's ethical for us to be picking the lower carbon-emitting products," he said.

References to low-carbon oil refer only to the emissions created during extraction. Aswith all oil, the majority of emissions occur during refiningand combustion.

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