Incentive plan for offshore exploration in limbo

There is no word on government plans to entice oil companies to do more exploration in the Newfoundland offshore, months after the province indicated a decision was imminent.

N.L. government expected to roll out initiative last summer aimed at driving new drilling activity

The number of exploration wells drilled in Newfoundland peaked in the 1970s and 1980s. (CBC)

There is no word on provincial government plans to entice oil companies to do more exploration in the Newfoundland offshore.

Last summer, the province indicated that a decision was imminent — before the fall.

But that didn’t happen.

Natural Resources Minister Jerome Kennedy has not been available for an interview on the topic for the past 12 days.

The government’s own 2007 energy plan recognized the importance of the issue.

"Without new exploration, there can be no new developments other than those already discovered," the plan noted.

"The keys to advancing our oil and gas sector are to encourage additional exploration activity and to manage the development of these resources so that investors can earn a fair return while the province maximizes the benefits it receives from these resources."

The Henry Goodrich drill rig has been active in exploring in the Newfoundland offshore. ((CBC))

The government has since invested millions into seismic work that helps companies decide where to target their exploration efforts.

But the province also said it would work with the industry to "develop regulatory and fiscal measures to increase exploration activity." A committee of industry and government officials was set up to discuss the issue.

Fast forward to mid-2011, when then-natural resources minister Shawn Skinner said work on an incentive plan was coming to a head. He said a final decision would likely happen before the fall. Skinner went on to lose his seat in the October provincial election.

There have been just 11 exploration wells drilled in the Newfoundland offshore in the past five years. Another two to four wells are expected to be spudded in 2012.

Drilling is expensive in the region — roughly $1 million a day.

"The more exploration activity that occurs, the greater chance there is [of] finding the next field, and then hopefully beginning to produce it," Paul Barnes of the Canadian Association of Petroleum Producers told CBC News.

Industry officials have highlighted the need for help in the past.

Both Suncor and Husky executives have given talks in the past 18 months highlighting the need for exploration to be made more enticing.

And last month, Statoil Canada offshore upstream vice-president Hege Rogno told CBC News that the Newfoundland area has promise, but mentioned incentives as well.

"I believe you have great producing assets today," Rogno said. "You have Hibernia, Terra Nova, White Rose and Hebron coming. And that in itself shows that this is an area that’s very valid, and has the potential, and has further potential. So keep believing it’s out there, and keep incentivizing the exploration, and I believe it will keep growing."

The most recent discovery that led to a producing field was nearly three decades ago, in 1984.

A federal incentive program of that era, called PIP, led to a boom in frontier drilling.

Newfoundland and Labrador’s provincial treasury is heavily dependent on cash related to the oil industry.

Roughly one-third of the province’s own-source revenues come from offshore royalties.

Newfoundland oil production levels peaked several years ago.