The discovery and development of oil in offshore Newfoundland has turned Newfoundland and Labrador from a ‘have-not’ into a ‘have’ province. According to a recent study, it’s also transformed NL into a diversified, global player by nurturing entrepreneurial companies that have developed world-class technologies and professional talent.
Energy Examined host Tonya Zelinsky speaks with Mark Shrimpton, an international expert on industrial benefits planning from Stantec who authored the study. They explore how offshore oil is building a long-term and sustainable economy for Newfoundland and Labrador.
Full transcript of podcast:
Podcast with Mark Shrimpton, principal of Socio-Economic Services, Stantec
Tonya: Hello everyone and welcome to the Energy Examined podcast where we discuss some of the biggest issues facing Canada’s oil and natural gas sector with industry insiders in the know. Today we’ve got a special guest. Mark Shrimpton is the principal of socio-economic services at Stantec in St. John’s, Newfoundland. In February, Mark authored a report funded by Petroleum Research Newfoundland and Labrador on the socio-economic impacts of the offshore petroleum industry. Mark, thank you for joining us here today.
Mark: Thank you for the opportunity to talk about something which I’m a little enthusiastic about.
Tonya: You’re enthusiastic, well then this should make for an entertaining podcast today.
Mark: I hope so.
Tonya: Mark, over the past few decades Newfoundland and Labrador has evolved from what some might have called a have-not province to one of the biggest, most important energy-producing provinces in Canada. What role did the offshore oil industry play in that?
Mark: I think it has been crucial and that’s where I think, perhaps, my excitement comes from. I arrived in Newfoundland in the early 1970s, got involved in the oil industry in the 1980s and I’ve got a background in economic development. It has fascinated me, the way in which the oil industry has in some degree, got in under the radar, in terms of its effect on this place. There are some things which people are very much aware of, I mean, you mention transfer payments. We’re now a ‘have’ province. And that’s royalties coming in, and that’s great. That makes us a little more self-reliant. But in other ways I know that this industry is causing real and substantial changes to the provincial economy in a very positive way and that’s pretty exciting.
Tonya: Well it sounds pretty exciting and the report that you did with Petroleum Research Newfoundland and Labrador shared a lot of statistics and information about the benefits that the province is seeing, so according to that study – and please correct me if I’m wrong – industry is responsible for nearly 30 per cent of the province’s GDP and 24,000 jobs between 2010 and 2017. That’s significant. Do you anticipate this trend will continue into the 2020s?
Mark: Yes I do. Contribution to GDP is related to the amount of activity going on and there’s certainly a great deal of interest in continued activity. You know, production, Hebron is now out there. We have four producing fields. We have Equinor in the background being interested, West White Rose and other construction projects underway, so that’s moving forward so we’ll have continued production which is a flow of revenues to government, depending on the oil price, of course, how much those revenues are. But there’s also very great interest, including from some new players, in the potential. So a lot of commitments have been made with respect to exploration. In fact, we have now more exploration commitments – because to get access you say, ‘we will spend this amount of money’ –our total commitments at the moment are greater than the total spending on oil and gas exploration in the past. So it looks good from that point of view. Plus, we’re talking about fields which have a life of 20, 25, 30 years. Hebron has only relatively recently started production and certainly has 25 to 30 years. So into the future I think we can anticipate more exploration, some obviously development construction spending and then production. And from an economic development perspective, construction is jobs from my point of view. Production is careers. Bringing it onto myself, I’ve made a career in working in the oil industry because I’ve been involved in the whole process. It has sustained me through. If you’re working offshore on Hebron or if you’re working onshore on Hebron, there’s 24,000 jobs which have been created there and many of them are careers. And that has substantial effects on the economy and society.
Tonya: It’s interesting that you say that because historically we’ve seen a lot of people migrate from Newfoundland and Labrador to western provinces, more specifically to Alberta and the oil sands. Has there been a migration back to the province as a result of the offshore industry?
Mark: The unequivocal answer is yes, there has been. There are some questions as to numbers. There have also been people who have come into Newfoundland and Labrador because of the oil industry. There have also been people who haven’t had to leave thanks to the oil industry. And it’s interesting to see the ways in which that has worked out, including the rural issue. I’ll get briefly into the anecdotal. I was in a small, remote south coast community. You can only access it by ferry. I’m on a beach, I’m touring a buddy and he says, ‘how long are you here?’ and I said how long, ‘I’m leaving this afternoon,’ and he said, ‘oh, I’m leaving this afternoon too. I’ll see you on the ferry.’ Now I’m as much a victim of stereotypes as anybody else and I say, ‘where are you going?’ suspecting he’s going to come into St. John’s for a medical test or shopping at Costco or whatever. ‘Oh, West Africa. I work on a drill ship.’ Okay, right. Getting paid very well. Top of the line status with Air Canada. Living in a small, remote community. Now, is that typical? No. Is it uncommon? No, it’s not. So yes there are Newfoundlanders and Labradorians who commute to Western Canada as you well know. There’s some who’ve returned from Western Canada. There are people who work all over the world because of the work system. And Newfoundlanders have always had to – Newfoundlanders building high steel in New York, Newfoundlanders going to the Labrador fishery, Newfoundlanders have always had to travel to find work. But thanks to the industry, quite a few of them are now able to work at home.
Tonya: But those essentially would have been skills he picked up working offshore in Newfoundland and Labrador that have now transported him to West Africa. So, I don’t think it’s wrong to say that the industry here has really had a global impact and that being said, there’s been a lot of other businesses and companies that have come out of that. You and I had a chance to talk a few days ago. You were telling me of the significant impact the industry has had on building those service companies. What can you elaborate on that a little bit more?
Mark: Yeah, sure. Let’s take West Africa for a moment. I work for Stantec and we’re up in suburban St. John’s in a relatively new office complex. And across the road from us is TechnipFMC and for this study, one of the things we do is company case studies. We go and talk to companies which have involvement with the oil industry and find out what effect it’s had on them. And, somebody said to me, ‘go and have a look at TechnipFMC as an example and so I said, ’well okay, it’s over there’ so I did and found out that in 2015, half of the work over there was being done on projects in West Africa. That over the three-year study period, 185,000 hours of work was being done in Newfoundland on international projects. Now I think that’s brilliant. I’m putting on my economic development hat again. We need to diversify our economy. Well, first of all there’s this thing called the oil industry, which didn’t exist in any way, shape or form until the 1960s and is now, according to the numbers you cited, substantial. But we’re not going to work on a drill ship in West Africa, the guys and gals at TechnipFMC are working on international projects. So there’s a lot of that going on. And Newfoundlanders and Labradorians and faculties of engineering are producing very good people and this has been a strategy by the way. The federal government and provincial government have supported this through R&D, education and training, and expenditures, as has industry of course. The other thing which is happening, which I find really exciting, is diversification away from the oil industry. I mean, we love our industry dearly and it’s great, but it has also allowed companies and people to develop skills and capabilities which have other application.
Tonya: What do you mean by that?
Mark: Let’s look at a hard core example. There was a flight training school here in the early days. And we have ice bergs and Mobil needed somebody to fly out to look for ice bergs to make sure that they weren’t bearing down on their drill rigs, etcetera, etcetera. So they employed this company and they found a problem. The problem is we have fog. You can fly around all you like but you can’t see ice bergs. So, okay, what are we going to do about this? So that company then looked for some military technology which they put on to the plane which allowed them to look for ice bergs. Now, you’ve got smart people with dollars in their pockets, entrepreneurial, that company is now called PAL Aerospace, and they’re the world’s largest maritime surveillance company. I went out to do my first case study of them and I went out to the general aviation site of St. John’s airport looking for somewhere to park. And there was a reserved parking space for UAE – United Arab Emirates?–It can’t be that, but it was. They had a multimillion dollar contract to equip and support aircraft. Now, UAE does not have a big iceberg problem, but pollution, smugglers, terrorists, etcetera, etcetera, that’s what PAL Aerospace does. Do they continue to work for the oil industry? Yes, and they love it. Is the oil industry its only market? No, in fact, it’s less than 10 per cent of its business with the oil industry. Not because the oil industry has shrunk for it, it’s just they’ve found other opportunities. And there are many other examples of this. Three weeks ago, I went to the university where there’s an organization called C-CORE, Centre for Cold Ocean [Resources] Engineering. And they had an announcement. And it was an announcement that they were getting almost $10 million from the European Space Agency to look at the amount of wood and carbon in tropical rain forests. Now hold on a second, cold oceans research, European Space Agency, tropical – you know? But it does make sense, because what you have is a group of people, who, with a lot of support, develop capabilities which are needed by the oil industry, including satellite-related, you know, you’re not going to limit that. Those people are going to run with the opportunity. And that’s where that opportunity took them. Getting back to PAL Aerospace, in a similar way, they’re working with Airbus in Toulouse, the two of them are doing the work on the next Canadian Forces search and rescue aircraft.
Tonya: This is a huge ripple effect. Innovation is being born out of industry. It is stretching across the world and it’s still being employed here in Newfoundland and Labrador.
Mark: Right here in Newfoundland. And, you know, every time I open my mouth I announce I’m not from here originally. I’ve been here almost 50 years and speech therapy has been recommended, but –
Tonya: You sound fine, for the record.
Mark: Well thank you, my dear. But the fact of the matters is, European Space Agency, Airbus in Toulouse, there are various people in different parts of the world which think that Newfoundland and Labrador is a centre of expertise, a centre of excellence with a respect that TechnipFMC does. That’s where work is being allocated to, which is a rather nice turnaround from the traditional image of a bunch of Newfoundlanders, lovely people, they’re very friendly and the trains probably don’t run on time, if we had trains.
Tonya: That is really interesting there because I think that when you’re looking at offshore Atlantic Canada, there’s a lot of unique conditions that come with that. It’s not the same as the Gulf of Mexico. It’s very similar to, say, the North Sea, but again, here, it’s very deep water, it’s very cold, there’s fog as you pointed out and there are ice bergs. Do you think that’s what helps enhance that innovation here coming out of the industry and the province, because all of these very unique conditions are what we face every day?
Mark: Absolutely. Business thrives on challenges – challenges and money. I mean, let’s not kid ourselves. When one has the Exxon Mobils and the Chevrons and the ConocoPhillipses, etcetera, in the world. So you’ve got money coming in and you’ve got challenges that need to be addressed and many which are particular to this area. And you’ve seen a bunch of people and a number of companies who have run with that opportunity. And yeah, helping the oil industry the world over, but are also creating centres of excellence which have other applications.
Tonya: Speaking of centres of excellence, we touched on this in an earlier conversation, looking at greenhouse gas emissions and obviously climate is a significant issue for the public, for industry, for government, and you had mentioned to me that really a lot of the innovation coming out of this province is addressing those issues of greenhouse gas emissions.
Mark: I’m not sure that – some of the innovation is. Well let’s get back to the issue of greenhouse gases and global warming. I’ve got a 12 year-old stepson in my life and he knows I work for the oil industry. And he gets a bit queasy about that. And so, we have good discussions, and bless him, he’s allowing me to sleep in the house now and, you know, I’m not evil, we’ve got a really good thing going here. Because we recognize that there is for a substantial period of time going to be demand for oil and gas. Nobody argues with that. So the question then becomes, are there better areas to get oil from than others? And the answer is yes because yes, there is CO2 generation from using the stuff, but there is also from extracting it and refining it. And when you look at the numbers, and again, this isn’t one of my areas of expertise but I know various people who have made it quite clear to me that we produce oil at low levels of CO2 in the extraction process and it is also sweet like crude, so the refining process is. So yeah, if we want to address the global warming issue, we need to be taking oil and gas from places like Newfoundland and Labrador. And that’s just on that side of things. I mean, I think the industry is doing some very good things here. For instance, in terms of diversity, I’ve talked to women in the resource development corporation and they say, ‘yeah, real progress, it has been amazing. Do you want your oil to come from somewhere like that or maybe Saudi Arabia where they are getting very broad minded and women are now allowed to drive a car if they have their husband or parents’ permission? Is the environmental record perfect here? No, but it’s pretty remarkable and the standards are high. Is that better than the Nigerian delta? I think decisions need to be made and I am confident that – and I think I’ve persuaded Gabriel, my 12 year-old stepson, that this actually is a good place to be producing oil for which there is demand.
Tonya: So it’s looking at it from the bigger picture, if you will. Now one thing we saw earlier, ,or I should say, in 2018, Newfoundland and Labrador Government issued their advance 2030 report, in which they recognized the long-term potential of the offshore oil industry here in the province and I’m wondering, what do you feel that potential is like and are there any obstacles right now to that sustainability?
Mark: I don’t believe there are. I am optimistic about this industry and where it is going in this place for the reasons we’ve already discussed, including the levels of interest, including by new players, as you know, Equinor, a Norwegian company and their enthusiasm, etcetera, etcetera. So I think it’s very positive from that perspective. I think it’s positive in terms of the sort of spinoffs we’ve talked about – capabilities and their application. And I am a fan of the vision 2030 because it says, ‘listen, we’ve got to increase the speed of approvals of these projects, be more effective,’ which isn’t saying reduce them, make management more effective to achieve these remarkable ends. And put money in the pockets of Newfoundlanders and Labradorians. And put money into government. In the last financial year, a billion dollars of royalties came into the provincial government.
Tonya: From the industry.
Mark: From the industry. Well, you know, that’s healthcare. That’s transportation. That’s schooling. That is every Newfoundlander and Labradorian who’s benefitted from that money coming into the provincial exchequer. The analysis in the report shows that something in the order of 11 per cent of all retail sales have the multiplier effects of the oil industry employing people and spending money. Well, there’s not a business you could talk to in Newfoundland and Labrador and said to them, ‘what is 10 per cent, 11 per cent of your take mean?’ Yes, it’s important. You know, number of houses being built – as we said earlier, the numbers of people who are able to live here. Either they don’t need to go away or new people being attracted. I think in years to come when we look back on it, it’s a very interesting case study of what I like to call sustainable social and economic development. And I think that that is, you know, you raised the question of sustainability. I think it’s bound to be sustainable given the production life of these facilities, the enthusiasm to do more exploration here. And the fact that, using a different definition of sustainability, people are developing skills, companies are developing capabilities that have application elsewhere and are causing yet other things to happen here. I’m going to go back to PAL Aerospace. If the oil industry disappeared tomorrow, and I’m not altogether in favour of this, but just hypothetically speaking, they’d be sorry. They’ve still got, though 90-plus per cent of their business and they would just get on with it. Well, that’s a really good position to be in.
Tonya: So this has helped not only create a future for the oil industry offshore, but just a future for the province.
Mark: Absolutely, Newfoundlanders and Labradorians. I’ve described it as being transformative change. It’s the road which we’ve now travelled down since, well, first exploration was in the 1960s, you know, first production in the 1990s, we’ve travelled a fair way down the road. But there’s a long way to go and hopefully with good management and common sense and a decent oil price, it’ll just continue. You’re going to be down here on a regular basis.
Tonya: I would love that. The more trips I get to make to St. John’s, the better as far as I’m concerned.
Mark: And you will spend lots of money while you’re here, right, so you’re contributing to the economy. Excellent!
Tonya: That’s right. Well, on that note, I just want to thank you for joining me here today Mark. It’s really great to hear what the positive effects are of the offshore oil industry are on a province like Newfoundland and Labrador, and it adds so much colour out here. So I think Atlantic Canada has a pretty bright future and I hope for the best for your stepson that he’s going to be part of that really bright future out here and recognizes it. I just want to thank listeners for checking out another episode of Energy Examined. Please stay tuned and join us next time as we continue to examine energy from an insider’s perspective. Thanks Mark.
Mark: Thank you.