Business leaders in Newfoundland and Labrador are warning a production slowdown at the Hibernia offshore oil field will be strong enough to dent the provincial budget.

One of Hibernia's generators backfired earlier this month, prompting managers of the offshore oil platform to cut production in half while repair work is done.

Production at the Hibernia platform will be cut in half while repairs are done over the next two months.
(CBC)

Production will drop by about 100,000 barrels per day.

"We would hope that government adjusts its spending into 2007's budget, so that it accounts for that," said Ray Dillon, president of the St. John's Board of Trade.

A six-month repair that took the adjacent Terra Nova floating platform out of service last year was enough to turn the Newfoundland and Labrador government's budget projection from surplus to deficit.

Ted Howell, president of the Newfoundland Ocean Industries Association, agreed that any drop in production will mean a hit to the government's finances.

"The impact may not be as severe as with the Terra Nova turnaround, just because of the time frame involved here," said Howell.

"Hopefully these repairs can be effected quickly, and a return to full production can be achieved in a short period of time."

The first of three fields to go into production on the Grand Banks, Hibernia also has the lowest royalty regime.

The Newfoundland and Labrador government has become increasingly reliant on oil revenues. In December, an audit found that the government finished the 2005-2006 fiscal year with a record surplus of $199 million.

Repairs at the Hibernia platform, a gravity-based structure attached to the ocean bottom, are expected to last about eight weeks.

Some non-essential crew members were flown ashore after the incident, although Hibernia communications official Margot Bruce-O'Connell said the platform will return to a full crew while the repairs are underway.

Hibernia is investigating the incident, and will forward its findings to the Canada-Newfoundland and Labrador Offshore Petroleum Board, which regulates the industry.