Oil companies long suspected that commercial quantities of oil were trapped beneath Newfoundland and Labrador's onshore and offshore areas. Early drilling mostly came up dry, although some small quantities of oil and gas were encountered. Then, in 1979, the Hibernia P-15 well was drilled in the Grand Banks region uncovering a huge field with roughly 600 million barrels of oil, and millions – perhaps billions – more in the surrounding area. A new industry was born. Today, Newfoundland's oil and gas industry has matured from its early days as a strictly unknown frontier into a diversified, Province-wide industry.

Exploration

Since the first offshore well was drilled on the Province's East coast in 1966, 22 significant oil and gas discoveries have been made. Estimated discovered resources in the Grand Banks region alone total 1.6 billion barrels of recoverable oil, 4 trillion cubic feet of natural gas, and almost 240 million barrels of natural gas liquids. It is widely believed, however, that these impressive figures are only a fraction of the region's full potential and that further exploration will likely result in new discoveries in the future.

As far back as the early 1800s the presence of hydrocarbons in Western Newfoundland was well known through numerous surface oil seeps and oily residues. Despite early efforts, drilling failed to uncover a commercial discovery. Recently, new seismic data combined with the application of modern analytical techniques on some older data has helped the industry to refine its search and locate geological structures large enough to host commercial quantities of hydrocarbons. Today, Newfoundland's West coast is one of Canada's hottest oil plays as evidenced by the recently announced and hugely successful onshore land sale. Assuming permits are issued to all of the successful bidders, the total area held for onshore and offshore exploration will total approximately 2.1 million hectares.

Development Work and Related Facilities

Hibernia's construction site at Bull Arm, Trinity Bay is a one-of-a-kind facility built to meet the rigorous demands of the offshore petroleum industry. The $500 million site has the facilities and flexibility to accommodate offshore and heavy industrial projects well into the 21st century. The site contains a permanent camp capable of housing upwards of 3,000 employees, a 40,000 square metre drydock site, warehousing, fabrication facilities, office space, and deepwater operations facilities. In addition, the site is ideally located in a sheltered deepwater cove - closer to Europe than any other part of North America.

Marystown Shipyard Limited (MSL), the Province's main shipbuilding and fabrication facility, is considered to be a major player in the Province's oil and gas industry. More than $120 million in Hibernia contracts have been awarded to the Shipyard accounting for 80-85 percent of its output since 1993. The most recent Hibernia contract involved the construction of two supply vessels valued at an estimated $68.5 million. These state-of-the-art offshore supply vessels are the largest ever built in the Province. The expertise developed on the Hibernia project is expected to be an important asset for the Shipyard and its 400 employees when contracts are awarded for fabrication work on the Terra Nova project.

Production

First oil is expected to flow from the Hibernia oil field late in 1997 marking the beginning of a new era for the Province's oil and gas industry. Roughly 30 percent of the field's two billion barrels of oil are recoverable with today's drilling technology, however, it is expected that more will be tapped as horizontal drilling techniques improve. Moreover, total reserves are probably understated since no delineation drilling has been conducted on the southwest portion of the oil field. Similarly, current production estimates do not consider using the production platform to tie-in and develop satellite fields like Nautilus and Mara. If, with the necessary advances in technology, additional production from these other sources is available, the production life of Hibernia will extend well beyond the current estimate of 19 years.

Development of the Terra Nova oil field is expected to follow close on the heels of the start of Hibernia production. It is expected that floating production technology will be used for Terra Nova and other smaller fields like Whiterose and Hebron. Terra Nova and Hibernia, when in production, will require a full-time workforce of about 1,300.

Secondary Processing and Retailing

North Atlantic Refinery at Come by Chance is strategically located on the main shipping route between Europe and North America. The refinery's docking facilities are capable of handling some of the world's largest tankers with onsite storage for more than seven million barrels of oil. The facility is designed to handle a variety of crude oils and has a production capacity of 105,000 barrels per day.

While the majority of the refinery's production is destined for the United States, the local market also benefits from the refinery's production. The Company's 50 plus independent retail outlets scattered across the Island sell one of the refinery's primary products, automotive gasoline. In addition, the Company is a major supplier of heating and marine fuels on the Island.

The refinery is a major contributor to the local economy and the Province as a whole. Approximately 450 people are employed at the facility on a permanent basis with an additional 150 employed temporarily or on contract. The Company's retail operations combined with regular maintenance and repair work at the refinery also generate significant spinoff activity in the immediate area and across the Province.

Conclusion

The future has never been brighter for the Province's oil and gas industry. Next year the Hibernia taps will be turned on followed shortly thereafter by Terra Nova. With the infrastructure and skills from these projects in place, the development of smaller satellite fields is both possible and likely. Finally, further exploration on the East and West coasts will hopefully unlock the true potential of this exciting and rich area.