Newfoundland to get stake in Hebron project

Newfoundland and Labrador and the Hebron operating partners signed a memorandum of understanding last week to proceed with development of Hebron and associated oil fields on the Grand Banks off Newfoundland.

Aug 28th, 2007

By OGJ editors
HOUSTON, Aug. 28 -- Newfoundland and Labrador and the Hebron operating partners signed a memorandum of understanding last week to proceed with development of Hebron and associated oil fields on the Grand Banks off Newfoundland.

The deal gives the province a 4.9% equity stake in the project for $110 million up front, said Danny Williams, Premier of Newfoundland and Labrador. The deal also includes a provision for the companies to pay more royalties if the price of oil rises and provides downside protection in the form of lower royalties if oil prices drop below certain levels. Development will involve a gravity base structure to be built at Bull Arm near St. John's.

Chevron Canada Ltd. is project operator with 28% interest. Hebron's development cost was most recently estimated at $5-6 billion plus an equal sum in operating costs over 20-25 years of production. The province would bear 4.9% of the operating cost as well.

Hebron, Ben Nevis, and West Ben Nevis fields are in the Jeanne d'Arc basin in 300 ft of water, 350 km east of St. John's. They could produce as much as 730 million bbl of mostly 18-20° gravity oil. Hebron is the second-largest Grand Banks project in terms of estimated ultimate resource recovery behind the giant Hibernia field.

"Hebron poses a number of challenges due to the high degree of technical complexity associated with recovering heavy oil in a harsh marine environment," Chevron said upon suspension of negotiations with the government 16 months ago (OGJ Online, Apr. 3, 2006).

Chevron said the viscous oil that makes up about three fourths of the reserve can be expected to flow at less than half the rates of the lighter crudes at nearby Hibernia, Terra Nova, and White Rose fields and that Hebron will therefore require more wells, especially water injection wells.

Several months will be needed to reach a definitive agreement. Construction could start as early as 2012, top provincial officials said, but it was uncertain when production might begin.

Project interests beyond Chevron's share and before provincial participation are: ExxonMobil Canada Properties 37.9%, Petro-Canada 23.9%, and Norsk Hydro Canada Oil & Gas Inc. 10.2%.

Mobil discovered Hebron in 1981 and the other fields shortly thereafter.

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