Dozens of wells, billions in spending? Deepwater potential in offshore N.L. hard to predict

Imagine a scenario where as many as 50 exploration and appraisal wells are drilled in Newfoundland and Labrador's offshore over the next dozen or so years.

Spending hits as much as $12 to $14 billion annually as companies flock toso-called frontier and deepwater regions such as the Flemish Pass, the Orphan Basin and off the Labrador coast.

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That would be an unprecedented level of activity and it's areal possibility if conditions are right, according to a best-case scenario outlined in a recent study commissioned by the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).

We're not surprised by the numbers but on the flip side it's always good to hear we may have a very bright future yet.- Bob Cadigan

There's a potential that investment into the offshore could spike in four to five years, and go through the roof by 2024, according to a report bya British firm calledGaffney, Cline and Associates.

Charles Goedhals, the report's principal advisor, also stressed that projections are very difficult duringvolatile times, and there's also a possibility thatindustry growth could tank or even exceed the most optimistic forecasts.

"We think that all things being equal, if the geology works and if the economic conditions improve, then we see that the Newfoundland industry is actually very well placed," Goadhals told reporters following an address to NOIA'sfalls seminar in St. John's Wednesday.

NOIA commissioned the report to help its members better prepare for a potential upswing in activity related to deepwater exploration and production.

There are currently three producing oil fields in the offshore and a fourth, Hebron, is scheduled to begin next year. All are located in the shallow waters of the Jeanne d'Arc Basin.

'Requires a great deal to do right'

The best hopefor significant growth is in deep water regions, where companies such as Statoil have already made significant discoveries, and resourceassessments have found the potential for billions of barrels of oil in prospects with names such as Cape Freels, Baccalieu and Baie Verte.

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The results of the most recent call for bids shows companies are paying attention, with most of the nearly $800 million committed in exploration activity targeted at deepwater prospects.

The answer could be zero. But it could be bigger. It's very difficult to say right now.- CharlesGoedhals

It could radically transform both the industry and the province, but no one is ready to pop the champagne corks and begin cashing the royalty cheques.

Oil continues to labour at under $50 per barrel, and deepwater development in harsh environments such as the Flemish Pass pose significant technical and cost challenges.

"I emphasize that requires a great deal to go right in the oil industry right now," said Goedhals.

"I think over time we will see the conditions we are looking at correct themselves. But there are a lot of imponderables in calculating those numbers."

'It's very difficult to say'

The number of oil producing platforms in the offshore could triple within the next decade, Goedhals said, but that's not set in stone.

"You have to understand this is against a not very encouraging economic background right now and so the answer could be zero. But it could be bigger. It's very difficult to say right now."

Reaction from NOIA was one of cautious optimism.

"With the right conditions,we will see finds, and from those finds we will see development," said NOIA president Bob Cadigan.

"So we're not surprised by the numbers that are put out by Gaffney and Cline. But on the flip side it's always good to hear we may have a very bright future yet."