Cenovus restarting West White Rose oil project Cenovus restarting West White Rose oil project, stalled under COVID-19 pandemic
The concrete gravity structure for the West White Rose extension project is under construction at Argentia in Placentia Bay. (Husky Energy) Cenovus Energy and its partners are moving ahead with the West White Rose oil project, a $3.2-billion expansion of the White Rose oilfield in offshore Newfoundland, and the deal includes changes to how much royalty money the companies will have to pay to the provincial government.
In separate press releases issued Tuesday morning, both Cenovus and Suncor — another partner in the project — said the finalized agreement with the province includes an amended royalty structure that "safeguards to the project's economics in periods of low commodity prices."
Speaking at the Energy N.L. conference Tuesday morning, Premier Andrew Furey said the changes mean the province will get more royalty money when oil prices are high.
Under the new royalty regime, revenue is fixed at one per cent for the first year or until the companies recoup their new capital costs — whichever is longer. Cenovus said the cost to get to first oil could be $2.3 billion — $1.8 billion to complete the full platform, and $500 million for subsea drilling and other work. How long it takes to recoup costs will depend on oil prices when the project starts producing.
The deal has also replaced the 6.5 per cent royalty when Brent crude trades about $50 US per barrel with a sliding scale — 1.25 per cent when it's trading between $65 and $75 US per barrel, 6.5 per cent when it's between $75 and $90 US per barrel, and 12.5 per cent when it's at $90 or more per barrel.
"We were able to place government's priorities to look, you know, to look at the revenue … to the province against our priorities around risk — especially in low-oil-price environments," said Jonathan Brown, Cenovus's East Coast vice-president.
When Cenovus acquired its ownership stake in the project after buying Husky Energy in late 2020, he said, "decommissioning was the base case."
"So we've had to work back from that place, and I think that prospect was extremely real," said Brown.
Furey also said the government expects the project will lead to about 250 permanent platform jobs, and 1,500 other jobs related to employment ramping up at the construction site in Argentia immediately.
The West White Rose project was suspended in March 2020, as the COVID-19 pandemic took hold, sending oil markets plummeting as travel and other economic sectors ground to a halt.
Work on the fixed wellhead platform — which will be tied back to the SeaRose floating production, storage and offloading vessel, known as an FPSO — shut down at sites in Marystown and Placentia leaving hundreds without work.
Both the federal and provincial governments rejected the idea of buying an equity stake in the project.
In December 2020, the Newfoundland and Labrador government gave $41.5 million from the federal Oil and Gas Industry Recovery Fund to Husky Energy to keep 331 jobs at the idled project going in the interim.
But the project still faced an uncertain future until Tuesday's announcement.
"The joint venture owners have worked together to significantly de-risk this project over the past 16 months. As a result, we're confident restarting West White Rose provides superior value for our shareholders compared with the option of abandonment and decommissioning," said the company's president and CEO, Alex Pourbaix, in the statement.
Cenovus said it's now decreasing its working interest in both the White Rose field and the extension — down to 60 per cent in the original field, and 56 per cent in West White Rose.
Suncor said it will increase its stake in the oil field to 40 per cent and in the extension to 38 per cent in the extension in exchange for a $50-million payment from Cenovus,
Newfoundland and Labrador Crown energy corporation Nalcor Energy owns five per cent of the project, having invested $110 million
This is a rendering of the West White Rose extension project. (Husky Energy)
The provincial government gave the project environmental approval in 2013, and the company officially sanctioned it in 2017.
At the time, Husky said the expansion project would result in between $3 billion and $4 billion in economic benefits for the province in the form of royalties, taxes and equity payments.
The expansion is a massive concrete gravity structure that will rise to a height of 145 metres from base to top once complete. Cenovus said it expects first oil from the platform to come in the first half of 2026, with production peaking at around 80,000 barrels a day by the end of 2029.
The project is expected to extend the life of the oil field by 14 years and give Cenovus access to an extra 200 million barrels of oil.
https://www.cbc.ca/news/canada/newfoundland-labrador/cenovus-west-white-rose-restart-1.6471846