Companies pledge to spend $1.2B on N.L. offshore exploration

Oilcompanies have committed to spend more than $1.2 billion on exploration in a frontier area of the Newfoundland offshore in the coming years.

That's the biggest-ever combined amountto come ina round ofbids for exploration rights in the region.

The high bids come even as oil prices have crateredto near seven-year lows.

There were 11 parcels in total up for grabs, totaling 2.5 million hectares, in a horseshoe-shaped area around the Flemish Pass basin.

Bids were submitted and accepted for seven of them.

According to the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB), ninecompanies participated in the process, and a total of13 bids were submitted.

The Norwegian state-ownedcompany Statoilwhichalready has significant holdings in the Flemish Passareais playing a role in sixof the seven bids.

"The successful bids in these frontier areas offshore Canada are in line with Statoil's strategy of deepening ourposition in prolific basins and securing access at scale," Tim Dodson, Statoil'sexecutive vice-president for exploration, said in a newsrelease.

"The significant exploration investment offshore Newfoundland will provide Statoil an opportunity to further advanceour established exploration position in this region through a step-wise approach."

ExxonMobil is partnering in three of the winning bids.

There are also new players to the region involved in some of the winning bids, includingBG International Limited,BP Canada Energy Group ULC andNexen Energy ULC.

The details of the winning bids are:

• NL15-01-02: Chevron 35%; Statoil 35%; BG International 30% (274,732 hectares) $43,175,000.
• NL15-01-05: Statoil:40%; ExxonMobil 35%; BG International 25% (267,403 hectares) $11,030,633.
• NL15-01-06 Statoil 34%; ExxonMobil 33%; BP Canada Energy Group ULC 33% (262,230 hectares) $225,158,741.
• NL15-01-07: Statoil 34%; ExxonMobil 33%; BP Canada Energy Group ULC 33% (254,321 hectares) $206,258,741.
• NL15-01-08: Statoil 50%; BP Canada Energy Group ULC 50% (268,755 hectares) $35,140,653.
• NL15-01-09: Statoil 100% (139,477 hectares) $423,189,945.
• NL15-01-10: Nexen Energy ULC 100% (163,008 hectares) $261,000,000.

Potential for 12 billion barrels

An assessment released last month found that the 11 parcels in this call for bids had the potential for 12 billion barrels of oil and 113 trillioncubic feet of gas.

• Offshore assessment shows N.L. 'destined to be a global energy giant'

That resource assessment was carried outby a French company,BeicepFranlab, and was based on newgeosciencedata covering the area.

Exploration licences are issued for a nine-year period. That is expected happen in January, subject to ministerial approval.

According to the C-NLOPB, the sole criterion for selecting winning bids is the total amount of money the bidder commits to spend on exploration of the respective parcel during the first six years.

That time frame can be extended, although penalties apply.

New scheduled land tenure regime

This was the first call for bids for offshore Newfoundland and Labrador under the scheduled land tenure regime.

Government officials have said in the past that the new system gives companies more time to evaluate prospects, do geoscientific work, and prepare their bids.

This call for bids consisted of 11 parcels surroundingexisting exploration licences in the Flemish Pass basin.

Those existing licences are mostly held by Statoil, in conjunction withminority partner Husky Energy.

In 2013, Statoil called its Bay du Nord prospectin the Flemish Pass a "high impact discovery" that could hold up to 600 million barrels of recoverable oil.

• Bay du Nord oil well called 'high impact discovery'

A year ago, a trio of major industry players submitted the highest-ever bid for oil exploration rights in the Newfoundland offshore.

• Record bid of $559M for Newfoundland oil exploration rights

ExxonMobil Canada Ltd., Suncor Energy Inc. and ConocoPhillips Canada Resources Corp. offered $559 million for a single 266,139-hectare parcel located southwest of Statoil's exploration licences in the Flemish Pass basin.

That bid, however, came on the heels ofa period of much higher oil prices than today.

Oil key to N.L. economy

Results of the call for bids were keenly awaited by industry players in a province whose economy is dependent onthe big benefits that can come from big oil.

According to the government, the petroleum industry employed close to 12,000 Newfoundlanders and Labradorians at peak last year, and spent$3.4 billion in the province.

In recent years, about onethird of the Newfoundland and Labrador treasury's own-source revenues have come from the offshore.

But the plunge in the price of black gold helped push the province into a billion-dollar-plus pool of red ink this fiscal year.

Attempts to generate interest

The province, through Crown-owned Nalcor Energy, has spent tens of millions of dollarsdoing work aimed at sparking industry interest in the potential of frontier areas off Newfoundland and Labrador.

• Nalcor hopes today's investments could lead to tomorrow's oil discoveries

Between2010 and mid-2015, Nalcor and the provincial government funnelled $43.6 millioninto offshore exploration programs.

Those investmentsincludedextensiveseismic surveys and other data-gathering work.

Nalcor says that spendingleveraged roughly $150 million of investment from the global oil and gas industry, through the end of 2014.