Canada's Atlantic offshore oil and natural gas industry is in crisis, notes Charlene Johnson, CEO of Noia, Newfoundland and Labrador's oil and gas industry association. Low oil prices and pandemic shutdowns have created struggles including delays and cancellations of major projects, lost job opportunities and reduced exploration.
Johnson and Energy Examined host Leighton Klassen discuss the state of the industry, its profound economic importance to the region, and what can be done to ensure offshore oil and gas is a strong part of Canada's economic recovery.
Full transcript of podcast:
Leighton: Hello and welcome to another edition of the Energy Examined podcast, the podcast that discusses the issues facing Canada's oil and natural gas sector with the insiders in the know. I'm Leighton Klassen, and today I'm joined by Charlene Johnson. She is the CEO of Noia, which stands for the Newfoundland and Labrador Oil and Gas Industries Association. In today's podcast, we talk with Charlene about Canada's offshore industry in Newfoundland and Labrador, its current state, its role in our country's recovery from the COVID-19 pandemic, and what it needs from the federal government. Thanks for joining us on Energy Examined.
Charlene: Thank you for having me Leighton.
Leighton: So, for those across Canada who might not be familiar, could you talk a little bit about the Atlantic offshore industry? You know, how important the industry is economically to Newfoundland?
Charlene: Sure, well, I guess it's important to set the stage and put it into perspective that Newfoundland and Labrador's population is just over 500,000 people. And I think that's important for your listeners to keep in mind when I go through these numbers, just to show how important this industry is to our province. On average, over the last 10 years, the industry accounted for about 30 per cent of our provincial GDP. It supports 24,000 direct, indirect, and induced jobs in our province. It accounts for about two billion dollars in labour income just in Newfoundland and Labrador, but an additional one billion dollars in labour income in the rest of Canada. Ontario and Quebec, they're major benefactors with about 5,000 jobs going to Ontario, mainly in manufacturing. Another 1,500 jobs in Alberta, particularly around engineering and design work, and about 1,700 jobs in Nova Scotia and New Brunswick. So, it's of tremendous importance to our province, but not only to our province, our entire country. And as I said, for a province of only 500,000 people, the industry is certainly a significant contributor to Canada. And, you know, I think the federal government understands that. They've certainly seen it with the approximately $20 billion dollars in returns that they've had from the Hibernia project alone. So, you know, it goes without saying that this is a significant contributor to our province and our country.
Leighton: And just to back up a little bit. You are with a group called Noia. Can we talk a little bit about what Noia is?
Charlene: Yes, Noia is an industry association. We've been around since 1977. We have about 500 members now. And truthfully, since COVID, we have lost about 40 members. And there are two membership categories. We have core members and they provide products and services for the offshore -- very diverse businesses from offshore supply vessels and helicopters to health and safety equipment and training to engineering solutions and fabricators. And it also includes companies like law firms. The pillars that guide our work are to inform, engage, and advocate. And we work really closely with other associations in areas like clean technology; export opportunities to places like Guyana, for instance; and of course, we spend a lot of time on advocacy.
Leighton: Now, you mentioned the economic benefits to both the East Coast and to the rest of Canada the offshore industry produces. But given the current COVID-19 pandemic, along with some of the pre-existing challenges facing the offshore oil and gas sector in eastern Canada, how would you describe the current state of the industry?
Charlene: Well, I think it's fair to say that the industry here is in crisis. We've had numerous delays and cancellations. The Bay du Nord project, which is an $11 billion dollar capital expenditure, has been delayed. Drilling has stopped at Hibernia. Of course, when you don't drill -- the purpose of drilling is for future production -- so that has implications for the long-term. Subsea tiebacks have been postponed. The West White Rose Project -- that construction has been put off for a year and that's 2,000 people in rural Newfoundland and Labrador that would be employed right now. We have drilling exploration, drilling campaigns delayed, particularly with CNOOC. The Terra Nova asset life extension is on hold and that was to extend production for 10 years there. Temporary closure of the refinery. So, many ‘death by a thousand cuts’, we say. And through a recent survey that we had last week, of the Noia member companies that responded, we know that 5,000 employees of our members are laid off. But what was more daunting about that survey is that 71 per cent of the member companies that responded expect more layoffs to come. So, companies are closing their offices or leaving our province and the situation really is dire.
Leighton: We're going to get into, you know, the support the industry needs a little bit later. But first, I want to step back a bit and talk a little bit more about the industry and the environmental standards. Now, Canada's known as a global leader in regard to its environmental standards. Can you tell me a little bit about the environmental initiatives that are being led by the offshore industry in Eastern Canada?
Charlene: Sure. Well, we are really advantaged here in that our light sweet crude produced to date is about 30 per cent below the global average for carbon emissions at extraction. In 2017, for instance, our offshore contributed just 0.23 per cent of Canada's carbon emissions. That being said, we do recognize that we live in a climate-conscious world and we support efforts to improve technology and to reduce emissions. We see supply vessels, drilling rigs introducing hybrid engines. Other companies have implemented processes to reduce emissions. And at Noia, we have worked with the environmental association here, NEIA, to conduct studies for electrification offshore, both using hydro from shore and using offshore wind. And those tenders are being awarded this week. So, you know, there's certainly much more work to do. And of course, a great effort will be required from collaboration with many industry associations and governments to lower our carbon footprint. I just don't think we do enough to talk about our efforts here. And we can certainly do a better job in that area.
Leighton: I know we've kind-of touched on this, but what is a potential for Newfoundland to be a global leader in clean innovation?
Charlene: Incredible potential. We've built top skills and expertise in our decades of operating in harsh weather environment and the nature of where we operate has caused us to be innovators and to seek solutions. And these are all transferable skills. So, we're very excited, as I said, to work with other stakeholders on achieving net zero [emissions] by 2050, which the province here has made a commitment to. You know, we can learn plenty from other jurisdictions, but we can also export our ideas, such as we're doing right now with safety and operations in Guyana. So, the potential is significant.
Leighton: Now, the offshore industry is a bit unusual, isn't it, in that unlike onshore oil and gas, which is managed provincially, offshore is co-managed between both the provincial and federal governments. How does that affect things?
Charlene: Yeah, the Atlantic Accord provides that the Newfoundland Labrador offshore resources be treated the same as if they were onshore, though the industry is regulated, as you said, via a joint management principle under the accord. So, things such as regulatory changes tend to be slow with that system. It can be frustrating -- and that's likely an understatement -- when the provincial government is committed to maximizing the development of the resource, but the federal government isn't. So, there isn't always an alignment. And we continue to advocate to work with the province and the federal government so that, you know, those regulations can be more competitive with other jurisdictions.
Leighton: Now speaking of the federal government and kind-of touching on what you said earlier in terms of the industry being in a crisis, right now, the industry is asking help from the federal government and the industry has a lot of support. Over 2,000 letters have been written and 80 prominent business and community leaders participated in a recent press release issued by CAPP, that's the Canadian Association of Petroleum Producers. Can you tell me what the industry is asking for in terms of support from the federal government right now?
Charlene: Yeah. There are essentially two asks from the province, CAPP and Noia. So just for clarification purposes, these asks aren't just from Noia. They're from the province as well as CAPP. And we have all worked very closely together on this. Essentially, the first ask is incentives to support exploration so that basically we can be globally competitive. Secondly, we are asking for incentives for development so that delayed projects get restarted and the thousands of people that I just mentioned can go back to work.
So, with respect to the exploration incentive proposed, we are proposing a multi-well exploration program. And the idea behind this is, of course, the more exploration wells you drill, the higher your chance of success of the discovery. So, with a multi-well exploration program, we're proposing a graduated reimbursement of capital costs anywhere from 30 per cent to 70 per cent. If companies drill five wells, then they will get a higher tax rebate.
For the development incentives, the proposal is, is that companies in the oil and gas industry can avail of the Atlantic Investment Tax Credit that's already in place today and that companies in the oil industry could avail of until 2012. At that time, the price of oil went up and the government no longer allowed oil and gas companies and companies that work in that sector to avail of it. And that would essentially give a 10 to 15 per cent tax rebate on projects that could get back up and running where there was an infrastructure investment.
So those two are the asks. Companies would only qualify after the work is completed. So, it's really a business attraction and retention strategy. You know, the return on investment, the ROI is significant in terms of jobs, but also in terms of taxes to the federal and provincial government. Just in the last month, we saw Norway introducing another $30 billion dollars in tax incentives on top of the already 78 per cent reimbursement for exploration wells because they know that works and they know that capital will flow where it is wanted. In Norway this year, so far, 12 exploration wells have been drilled. Five discoveries already. And they have plans for 18 more exploration wells this year. So that's 30 wells in a pandemic year. Last year, they drilled 57 wells. That's more than the Newfoundland and Labrador offshore has drilled in the last 30 years combined. And we know with the $30 billion dollars in added tax incentives that was just announced a month ago, at least 36 projects have now restarted and thousands of people are back to work.
So, you know, our position is that there's no logical economic reason not to introduce these incentives. If you look at a typical deep water FPSO project, a $300 million dollar tax incentive would return three to three and a half billion dollars in government revenue, 10,000 person years of employment and $14 billion dollars in GDP to Canada. So, if the project doesn't proceed, that's our country's economic loss to another country's economic gain. And we're hearing that drilling rig supply vessels, possibly helicopters, will be heading to Norway because that's where the incentives are. And the trickle-down effect of this aspect of our supply chain leaving is huge because all of these services have subcontractors and further services and health and safety and food and so on, and on and on it goes. So, as I said, there is no logical economic reason not to introduce these incentives. So, that's generally the asks and the benefits of the asks.
Leighton: OK. Now, I mean, we're about four months now into the pandemic in which, you know, the economy has taken this hit. How urgent is this message and why is it critical that the federal government does step up to support the offshore industry in the immediate future?
Charlene: This was urgent three, four months ago. And [federal] Minister [of Natural Resources] O'Regan himself said that on May 14th. Yet we haven't seen action. So, we question how urgent it really is to the federal government. But no doubt, support now is critical. The board members and I, we received many messages from companies and individuals that are suffering. And, you know, families have been hit really hard. In some cases, both people in the family have lost incomes and they're wondering how they'll pay their mortgage. We're hearing from people who lost their jobs. But, you know, as they say in their messages to us, they're the fortunate ones, fortunate in that they now have temporary work, but it's in United States, Trinidad, or some other country.
So, you know, when they're telling us about the lump that comes in their stomach, when they look at their children and have to decide what to do, ultimately they take the job because, as they tell us, they have to pay the bills. But it's so unfortunate that we are losing our best and our brightest and that there is no need for that. According to the province's own estimates, due to the deferred projects that I mentioned earlier in the program, over the next 10 years, the provincial revenue here is expected to decrease by $11 billion dollars. And remember my opening comment we're a population of 500,000 people, so a reduction in provincial revenue of $11 billion dollars, it's, I'm not sure how that's going to be replaced. They also project that there will be 90,000 person years of employment lost. And we know that the impact that this will have on government programs when you lose $11 billion in revenue. We also know the impact it will have on spending in retail and real estate when 90,000 person years of employment are lost. And the government also projects that $59 billion dollars will be lost from the GDP here in Newfoundland and Labrador alone over the next 10 years, even Premier Ball, our premier here said that if the federal government doesn't support oil and gas, and I quote, he said, "the other option would be to put our province back on large equalization transfers."
And we have been contributing to equalization for a number of years. We want to continue to contribute. But if the government does not invest in oil and gas, not only will the pot going into equalization decrease from our province, from Alberta, Saskatchewan, and others, but there will be more drawing on the program. So that's going to have impacts on other provinces that do receive equalization. So, you know, essentially we say to the federal government, it's truly an investment now to the benefit of our province, to the benefit of our suppliers and the people that work in the industry here and to the benefit of the federal government in terms of the returns they will receive or if not an investment now, it will be a cost later when we are on equalization again.
Leighton: Well, now, in regard to some of the letters that you know, that have come from the businesses in support of the industry as part of this initiative, this ask to the federal government. What are some of the things you're hearing from them in terms of what the offshore industry means to the East? I know you talked a lot economically, of course, and jobs, which, of course, is a big part of it. But it's not just about offshore jobs, right?
Charlene: No, I mean, certainly jobs are very important, but it's also about lost opportunity. We have the potential here with our light sweet crude to be global leaders. We have the potential to be self-sufficient as a province. We have the potential to contribute to energy security in this country. You know, we had conducted an economic study by a consultant and he showed that the industry has the potential to bring in over $100 billion dollars in revenue just for Newfoundland and Labrador over the next two decades. That's a game changer for our province. But, you know, it looks like we are being lapped again by other jurisdictions. So, yes, while jobs are important, it's the potential that exists here that is of significant importance. And it would be a shame to miss out on that opportunity.
Leighton: Yeah, and I just want to talk a little bit more about something you've touched on. As I understand it, the exploration of the region suggests there is actually very large reserves of untapped oil and natural gas in the region, which kind-of speaks to that potential that you're speaking of, correct?
Charlene: Yes. So, the oil and gas arm of formally NAL [Energy] Corp. here has done studies in this area and in advance of the land sales, they do a resource assessment. So, a firm out of Paris, France, called Beicip-Franlab has done these resource assessments over the years. And we now know that there are over 50 billion barrels of unrisked oil offshore, and that's in only nine per cent of the offshore that has been explored. So, for the last two decades, we have been operating in one basin, the Jeanne D'Arc Basin.
All the projects that are currently in production here are in the Jeanne D'Arc Basin. But we now know that there are over 20 more basins because of the work that's been done by Oil and Gas Co. with 650 leads and prospects. So, the potential is massive. And as long as we have consumers that demand oil and the products that are derived from it, the oil should come from Canada because the alternative is adding to the already $20 billion dollars in foreign oil that is imported annually.
So, if that's the plan and if that's the choice, that's not visionary and that's not leadership. And it would be a shame if this oil were left in the ground and we didn't pursue the potential that we have here with 50 billion barrels of unrisked oil. The economic study that I referred to a moment ago that showed we have the potential for a $100 billion dollars in revenue just to the Newfoundland Labrador government, that was based on a very conservative estimate of only two billion barrels of new oil coming into production. So that's of the 50 billion in unrisked that we know is out there that has been explored in the nine per cent of our offshore. So, it's a small percentage of a small percentage. And so those numbers are worth only two billion barrels, which will bring us to about 600,000 thousand barrels per day as per the government's Advance 2030 [plan for growth in Newfoundland and Labrador's oil and gas industry]. So, the numbers are massive. The potential is massive. But the opportunity for, you know, realizing that potential is also massive. And we just can't allow that to happen.
Leighton: Canada's Atlantic offshore industry is sometimes compared with Norway's. I wonder if you could comment on that comparison.
Charlene: I think the comparison comes from the nature of our offshore environments. But in many ways, we are far apart, especially in how our national governments treat the industry. In Norway, the resource is developed in the best interests, socio-economically for Norwegian citizens. And at this time, I think it's fair to say we do not see the federal government in Canada sharing that same philosophy. Norway is currently supporting the industry with serious investments, as I outlined earlier. While our government, our federal government, has left our industry to flounder, Norway is using revenue from non-renewable resources to transition to renewables. So, we are very much in the growth phase of the business cycle in Newfoundland and Labrador, so we can do the same. But without revenues from oil, our province will not have the financial resources to do that. So, I guess the real difference I see is that our federal government does not have a long-term vision for where our oil industry fits in globally, whereas Norway does.
Leighton: And which leads me to my next question. I mean, you know, as Canada starts to, you know, think about, and actually begin to restart its economy, which we're starting to do. I mean, this sounds like Newfoundland could play a significant role in meeting global energy demand.
Charlene: Absolutely. We have a tremendous reputation, as you know, around the globe, Canada does. We have a stable governance system. Our health, safety, labour and environmental regulations lead the world. So Canadian oil should be supplying the world. At a minimum, we certainly should be supplying our own Canadian needs. And as I mentioned previously, the light sweet crude that we have off our shore, that is certainly an attractive component when it comes to corporate social responsibility and where customers or where companies are looking to invest in the future. I know a lot of work has gone into research to lowering the carbon footprint, particularly in Alberta. The billions of dollars that is spent there to lower the carbon footprint and put into technology and research. So, you know, absolutely tremendous opportunity to supply the world with, you know, oil from Canada that, as I said, is done in a safe way with very stringent health and safety and environmental regulations.
Leighton: Now, is there anything else? I mean, you know, the press release was issued by your organization, along with CAPP, with the 2,000 letters, the 80 prominent business community leaders who participated in this ask to the federal government, is there anything our listeners and Canadians in general should be doing to help support the offshore industry?
Charlene: You know, I think we have to keep telling our story to policymakers is certainly one facet of the advocacy we need to do, but also to individuals. I know in our province there's tremendous support for the oil and gas sector. I know there is in Western Canada as well, but there isn't a real good understanding of the value of the industry. And we've seen that through the surveys that we've done.
So, I think the more we can do around education about the value of our industry, we need to continue doing that. We've held numerous town halls with our members. We've done press conferences. We've, you know, engaged the public in an 'imagine the potential' campaign. We have another campaign called My Offshore My Future, where many people have told their stories. We've also -- it's not just people that work directly in the oil and gas industry that we hear from in terms of telling the stories. But we also hear from companies, companies or sorry, charities, not for profits.
We even heard from groups called STEM Women where, you know, this industry has helped 6,000 young females become familiar with STEM programs through help from our industry. So, you know, it's very far-reaching the impacts of our industry. We have the largest multiplier of any industry in Canada, even larger than the auto manufacturing industry in Ontario. So, you know, there's not too many people in Newfoundland and Labrador and in Canada that have not been impacted by our sector. So, it's important that we keep telling the story. And I think it's really important that we be proud of our industry, proud of the contribution it makes and proud of how we can -- with our skilled workforce that we have developed here in oil and gas -- proud of how we can help with the transition to a lower carbon economy as well.
Leighton: OK. Well, thank you very much Charlene for being on the show.
Charlene: Thank you for having me.
Leighton: And that was our conversation with Charlene Johnson of NOIA. Stay tuned for our next Energy Examined podcast. And if you like this episode, share it with a friend and make sure you subscribe on whatever podcast network you use. For more stories and interviews on Canada's energy industry, check out our website, context.capp.ca. See you next time.