COLUMN | Quick Updates, part one: Oh Canada! Dry holes and exploration cancellation; Titanic builder bust; White Rose flowering [Offshore Accounts]

This week we have split our Quick Updates into two bite sized nibbles for your edification – Part Two will appear later in the week.

We have shipyard sorrows and Canadian crises in this first part, then we look at the drip, drip of offshore newbuildings in the second, with a neat Newfoundland newbuilding segue between the two.

After the Astro Offshore and Atlantic Navigation fleet deals, which we covered, and then corrected, last week, we’re seeing more investment flow to the offshore sector, including a massive order for “up to” ten ships at PaxOcean in Singapore, worth over US$400 million.

Oh Canada! Oh, Canada?

From an offshore point of view, the last month has been bad for Canada. The country produces 4.8 million barrels of oil per day, ranking it fourth or fifth in the world, depending on when and how you count.

However, 95 per cent of the country’s production is from onshore fields, with the majority coming from the “tar sands” in the west of the country, the heaviest oil, gloopy bitumen with the highest carbon footprint, which is expensively extracted with either open cast mechanical mining methods or by steam injection recovery.

The country’s offshore oil production of around 200,000 barrels per day is clustered around Newfoundland and Labrador from a handful of floating facilities in the Atlantic Ocean near the famous Grand Banks cod grounds.

It’s a harsh environment, also known as “Iceberg Alley” on account of the frozen, floating hazards which drift down from Greenland and the Arctic, which require the fields to employ anchor handlers capable of lassoing and towing bergs. Canada has strict cabotage requirements, with Canadian crew required and Canadian flag, and the offshore fleet typically has light ice class.

Duopoly no more?

The Canadian offshore vessel market is therefore small and has long been dominated by Maersk Supply Service and local champion Atlantic Towing, part of the local J. D. Irving group.

Recently, Horizon Maritime purchased the DP2, 800-square-metre clear deck, 2014-built UT 717 platform supply vessel (PSV) Island Dragon from Norway’s Island Offshore for a price reputed to be US$25 million. The company then mobilised the ship from Aberdeen to St John’s, Newfoundland, renamed it Horizon Dragon and reflagged it to Canada.

At the end of last year, Atlantic Towing disposed of 2011 built PSV Atlantic Condor to Norwegian finance house Ness, Risan and Partners and Vega Maritime Offshore, renamed the 2011-built UT755 LN design, 3,200DWT vessel Vega Juniz, reflagged it to the Marshall Islands and sent it to Nigeria, an abrupt change of climate, especially since the ship was even built in Canada at Halifax Shipyard.

Canada has literally been a “one in, one out” market for a long time. The 2012-built, DP2 anchor handler Atlantic Kestrel built to the VS 4622 CD design with 230 tonnes bollard pull in Singapore is also rumoured to be for sale from Atlantic’s ten-vessel fleet.

Canada dry

When we last looked at offshore Canada in 2022, there was widespread optimism that despite high operating costs and its remote location, a new deepwater floating production storage and offloading unit (FPSO) would be installed this decade to bring Equinor’s 407-million-barrel Bay du Nord project into production, along with some satellite fields.

Higher oil prices and a run of successful finds by the Norwegian state oil company and its partner BP seemed likely to inaugurate a new development northeast of the existing shallow water production from Hebron and Hibernia fields.

The Bay du Nord project is located in 1,170 metres of water and consists of several oil discoveries in the Flemish Pass basin some 500 kilometres east of St John’s in Newfoundland. The first discovery was made by Equinor in 2013, followed by additional discoveries in 2014, 2016, and 2020.

The later discoveries in neighbouring exploration licence EL1156 are the 340-million-barrel Cambriol discovery and the 385-million-barrel Cappahayden find, which could be tied back to the central FPSO.

The problem seems to be that none of the discoveries is big enough as a standalone development, but adding more satellite fields adds more cost, especially with some very marginal finds, like the 102-million-barrel Mizzen discovery, and the 45-million-barrel Baccalieu find.

That would be viable in the UK North Sea with all the infrastructure around, but not offshore Canada in a new basin.

New FPSO suspended

Unfortunately, in May 2023, Equinor and BP “made the difficult decision to postpone the Bay du Nord development project up to three years,” as they put it, due to higher costs for the project and greater uncertainty on the long-term oil price. Like Rockhopper’s similarly remote and harsh environment discoveries in the Falkland Islands, it looks as if Bay du Nord might be stranded for some time.

At the start of the month, more bad news. Equinor had chartered the Odfjell-managed semi-sub Hercules to drill on the Sitka prospect in the Flemish Pass, after two the previous wells there had failed for technical reasons.

Sadly, the well was dry, with only non-commercial traces of hydrocarbons. The rig has now moved onto a new location near the Cappahayden find to drill its second and final well of this Canadian campaign.

A big discovery would kickstart Bay du Nord, but failure may leave the project in limbo for longer.

Orphaned: ExxonMobil disappointment after BP disappointment

The Equinor dryhole announcement at Sitka was quickly followed by the news that ExxonMobil's Persephone C-54 well was also dry. This was an ultimate frontier play in the Orphan basin, drilled in 3,000 metres water depth, over 500 kilometres north of St John’s by the drillship Stena Drillmax drillship, which is now returning to Guyana, where deepwater oil is plentiful and the sea warmer and calmer.

Persephone caps a run of commercial failures in what is geologically very prospective acreage, stretching as far north as Cairn Energy’s failed drilling campaigns off Greenland in the early 2010s. The majors feel there are large oil and gas resources north of Newfoundland in the Davis Strait and the Labrador Sea, but they have so far failed to make meaningful discoveries in these hostile seas.

This lack of exploration success came on the back of BP’s dry hole in the Ephesus well in block EL 1168 in the Orphan basin last year. This led to BP relinquishing its exploration licence in that block and forfeiting its deposit of CA$125 million (US$92 million) paid to the Canadian government on block EL 1148, which it allowed to lapse without performing any drilling. In the context of BP, losing US$92 million is small change, and it would probably cost less than drilling one well there anyway, given the high costs, long supply lines, and remote location.

Upstream also reported that Israeli independent Navitas Petroleum (the operator of the stranded Falklands oilfields) has also relinquished its exploration licence in the Orphan basin, back to the Canadian government, again without drilling. Navitas also faces potentially losing its CA$12 million (US$9 million) guarantee.

Exploration is risky – both upside and the downside

These dry holes and relinquishments highlight the risky nature of exploration – for every momentously successful wildcat well in a frontier basin, like pre-salt Brazil in the early 2000s, or Guyana and Namibia in the last decade, that opens up billions of barrels of new oil discoveries, there are expensive dry-holes like those off Newfoundland. Other busts include Equinor’s disappointment off Argentina earlier this year, Shell’s attempts to strike pay in Sao-Tome, ENI’s failed drilling campaigns offshore Kenya, and Total’s unsuccessful efforts in deepwater off Lebanon.

It’s all bad news until someone drills in the right place and strikes black gold. Namibia had been trying for thirty years to find commercial resources, with failure after failure. Now, suddenly and unexpectedly, it has five billion barrels of undeveloped deepwater oil reserves for TotalEnergies, Shell, and Galp.

Cenovus’ White Rose development blossoms

The one offshore development that is progressing in Canada also hit a potential problem last week, which everyone is certain is not a problem. This is Cenovus Energy’s refurbishment of the White Rose field FPSO, SeaRose.

White Rose is another shallow water field in 120 metres in the Atlantic approximately 350 kilometres east of Newfoundland. The field has been in production since 2005 and the FPSO is currently undergoing life extension work in the Harland and Wolff shipyard in Northern Ireland, the same yard where the ill-fated Titanic was built. SeaRose previously made a maintenance visit to the same yard in 2012.

This current visit is to ready the FPSO for additional production from the West White Rose field tie-back and around US$90 million of work was performed.

A 210,000-tonne, concrete gravity-based platform will be used for the field’s permanent drilling facilities. This monster 145-metre-high structure is designed to be iceberg-proof, like similar concrete gravity structures in Hebron and Hibernia fields in the same area. It is being poured (set, maybe?) in a graving dock in Argentia, Newfoundland, in line with the province’s strict local content requirements. The 25,000-tonne topsides are being fabricated in the Gulf of Mexico.

Harland and Wolff not blooming

Unfortunately, last week Harland and Wolff has confirmed it is “insolvent” at the group holding company level and will be placed into administration for the second time in five years, as we reported. However, both Cenovus and the yard have assured investors that SeaRose FPSO will sail away at the end of this month and shipyard operations in Belfast will continue.

The shipyard board said there was a "credible pathway" for its four yards around the UK to continue trading when the administrators found owners, although non-essential staff would be made redundant.

This is undoubtedly a blow, but not an unexpected one, after the British government declined to grant the yard £200 million (US$260 million). The 180-tonne bollard pull, Canadian-flagged anchor handler Maersk Cutter will arrive in Belfast (according to AIS) probably as you read this piece, to await the escort of SeaRose back to Newfoundland.

First oil from West White Rose is expected in 2026. The accommodation support vessel for the commissioning of the new facilities will be provided by Floatel International, whilst Allseas will perform the topsides installation next year, as per Cenovus.

Maersk Supply gives DOF a newbuilding for White Rose

The rejuvenation and life extension of the White Rose Field has provided a rare opportunity for Maersk to provide a newbuilding life-of-field support vessel against a long-term charter with Cenovus. This is proof that newbuildings are viable for operators with long-term requirements in specialist markets.

This is an impressive vessel that will be delivered in 2027. By then, Maersk Supply’s US$1.1 billion merger with DOF of Norway will have closed.

To find out more about this vessel, dubbed SeaDragon, you will have to read part two, which will come out later this week.

Background reading

At least the British government has compelled Harland and Wolff to be restructured and placed with receivers to find new owners. We covered Canada’s very expensive and subsidy-dependent shipbuilding industry in January. Like us, you might be surprised to learn that the flagship of the Canadian Coast Guard was commissioned 55 years ago and is still in service!

Oh Canada!

Part Two of this week's Quick Updates series is here.