Newfoundland and Labrador's energy corporation announced its first foray into oil and gas exploration Friday.

Nalcor Energy is investing $20 million to drill for oil near Parsons Pond on Newfoundland's west coast. "This is an exploration play in a frontier basin and there is considerable risk," said Nalcor president Ed Martin on Friday.

"We know there's oil there. We know there's source there. We know from our seismic work that there are formations that should support oil. And the only thing we need now is information down-hole. We need to drill to get that data," he said.

Crude oil was first seen seeping to the surface in the Parsons Pond area 200 years ago, but despite many attempts, a commercially viable deposit has never been found there.

"It's been drilled in the past, but at this point no one has drilled beyond a thousand metres in depth. We believe the key hydrocarbon bearing structures are likely to be two thousand metres or deeper," said Nalcor vice-president Jim Keating.

Nalcor and its private partners will spend $26 million over the next year to plumb those depths.

Even if it doesn't discover a large deposit, the company believes the information gathered by the drilling program could one day lead to a west coast discovery.

Newfoundland and Labrador's government created the Nalcor Energy Corporation in 2007 to manage the province's energy resources.

Nalcor Energy has five principal lines of business: Newfoundland and Labrador Hydro; the Churchill Falls Hydroelectric facility, the Lower Churchill Hydroelectric project, Oil and Gas, and the Bull Arm Fabrication facility.