Evidence of meeting #94 for Natural Resources in the 42nd Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was offshore.
A recording is available from Parliament.
8:45 a.m.
Liberal
The Chair Liberal James Maloney
I call the meeting to order.
Good morning, everybody. Welcome back. Thank you for joining us. This morning we have Mr. Jim Keating from Nalcor Energy, who is from Newfoundland via Texas. I hope I have things correct. Is that right?
8:45 a.m.
Jim Keating Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
That's correct.
8:45 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
That's fine.
8:45 a.m.
Liberal
The Chair Liberal James Maloney
Great.
The process is that our first hour this morning is going to be dedicated solely to you. The way that's going to play out is that you'll have up to 10 minutes to do a presentation and then we will open the table and you will be asked questions by people around this room. My job is to keep track of time and make sure the process is followed as best we can. I understand that you have a recording that you would like to start off with, before you deliver your remarks.
Mr. Keating, thank you for joining us. The floor is yours.
8:45 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
Thank you.
[Video presentation]
May 1st, 2018 / 8:50 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
Thank you for the kind invitation to speak to you this morning from Houston. I'm here as part of a Canadian delegation promoting our offshore. You've pretty much seen a sample of that in that video.
The story I have to tell this morning is going to be one of geoscience and how the acquisition, interpretation, and dissemination of geoscience have really transformed our offshore in just a couple of years.
I have some prepared remarks. I'll go through those and then I'll be open to your questions.
Offshore oil was first produced in Canada—in Canada, of course, it's the “other” oil and gas industry, the offshore—20 years ago. Since then, over $120 billion in value has been created through investments of about $56 billion. From this, Canadians have received over $30 billion in tax and royalties, and many thousands and thousands of high-paying jobs. Those reserves are now more than half depleted, so what's next? Is there more oil to find, and how can we continue to attract exploration investment? How can the national energy data strategy help?
First, let's take a little closer look at those investments. Of the $56 billion in private sector investment, the most important type of expenditure by far is the one that carries the greatest risk. That is the exploration expenditure. Nearly $9 billion has been spent on exploration in our offshore over the last 50 years. These are expenditures that often have only a 15% or 20% chance of success. That's a significant level of risk. It's not often that you want to spend a dollar thinking you have only a 15% chance of getting a return.
Geologic risk, then, is the foundational risk. No other investments will occur unless this risk has been addressed and reduced to an acceptable level. Through the state-led provision of high-quality, timely, and competitive geophysical data, barriers to investment are lowered, timelines to development are accelerated, and safer, environmentally responsible operations can be undertaken.
There are more than 70 countries with some form of offshore oil and gas industry. That's 70. Annually, some 25 to 30 hold licensing rounds or land sales to compete for scarce dollars. Many of them are providing geoscience data and analysis to support those rounds. There is an intense competition for an annual investment pool of some $100 billion of exploration expenditures alone globally. More and more countries compete with Canada for this investment. They have recognized this and have ushered in an era of precompetitive geoscience gathering, processing, and promotion in order to attract investment through the reduction of risk.
For me, an oil industry veteran of some 25 years, it's problematic to consider that with the longest coastline in the world, Canada's offshore industry has hardly attracted any significant investment to date. In the 20 years prior to 2010, of the $100 billion potentially available, we had only attracted $100 million per year on average.
Historically, Canada has been a laggard, primarily because so little was known about our geology. What was know was tightly held by a few pioneering companies. In fact, a new investor considering Canada up to very recently would have only had access to 15- to 20-year-old seismic data captured with inferior technology, in limited areas, and made available only in paper format. Of course, this is a product that is essentially useless today.
Add to that no formal and predictable land tenure system, and Canada lost out on billions and billions of resource revenue and fell some 30 years behind Norway and its trillion-dollar pension fund.
However, since 2011 my company, Nalcor Energy, which is a crown corporation of Newfoundland and Labrador, has initiated a seismic program that today is one of the largest in the world. We have captured in six years as much data in our offshore as was captured in the previous 20. To complement this, in 2013 our regulator with both levels of government adopted a scheduled licensing round system that works hand in hand with this data acquisition to create a predictable process through which the resource potential can be delineated in advance of licensing rounds, allowing companies to prepare internationally competitive bids and through which this country can realize its maximum return for its acreage.
The result has been astounding. We've identified over 650 leads and prospects, including one we call Cape Freels, this being the closest landmark near this huge prospect. This prospect is estimated to hold over 12 billion barrels in place and has been called the most attractive undrilled prospect in the world today.
In these past three years, we have had over $2.6 billion in licence round bids since 2014, which is equal to the total amount of all bids received in the previous 30 years. This has been primarily as a result of our geoscience program.
We have also doubled the number of globally competitive oil and gas companies from just seven to 14 in those three years. This was all made possible by a subnational energy data strategy; what we need now is a national energy data strategy.
Further to the subsurface risks, we have now embarked upon the next phase of risk reduction by looking at the above-ground risks, as you have seen in the video, through data capture, interpretation, and sharing through our system called NESS. NESS provides key information about the province's basins, including weather patterns, historical well data and discoveries, and more, through a web-based interactive map that's freely accessible by everyone. You can check it out on your phones after this meeting. This is delivered at no cost to the user.
What can Canada do in this area of national energy data? I would recommend, and I strongly support, that in the formation of a new Canadian energy information agency, this agency co-operate with the provinces in the creation of a digital data repository based on the best practices seen in leading international jurisdictions.
One such system is the Norwegian Diskos Data Repository. This is a unique system that provides for an online downloadable interface for all sorts of data, and even acts as a functionality for data trading among member oil companies, which now number over 57.
In this system, the general rule is that all companies on the Norwegian continental shelf are required to submit copies of all raw data related to seismic activity and drilling to the Norwegian Petroleum Directorate, the NPD. The companies have to cover the cost of entering the data into Diskos, but this allows them to avoid the expenses of storing and administering the data on their own. All members have access to their own data in Diskos, and the data and licences in which they have an ownership interest. The authorities also encourage different licensees that are drilling in the same geological formations to exchange information they collect from their subsurface activities. This is a win-win for all parties.
The idea behind Diskos is that the oil companies should co-operate on storing and exploring for data and compete in the interpretation of this data. The more raw data that's collected and shared, the greater the possibilities for the bright minds in each company, and indeed for the authorities, in the effective management of their offshore.
The Norwegian authorities' overlying resource strategy lies behind the rules of data confidentiality. To encourage investors to conduct as much activity as possible, the investors gain exclusive rights to the data for certain periods. When the owners have extracted what they believe to be the true potential of the data, others can reuse that same information, reinterpret it, and reuse it to establish new plays.
The reuse strategy has been highly successful and has contributed to several major discoveries in recent years. More importantly, it allows new entrants to be more productive sooner.
In closing, the systematic and scientific approach to evaluating Newfoundland and Labrador's frontier basins identifies and addresses critical knowledge gaps that may exist and highlights key risk areas holding back industry investments. Providing a comprehensive data package to industry allows companies to plan for long-term exploration strategies to access new acreage.
These are early days, and there is much left to do. Nalcor will continue to make these investments and design geoscience programs to address key risks in a basin-by-basin approach. By guiding investments and activities strategically, Nalcor is positioned to make the right investments at the right time to unlock the next areas of offshore Newfoundland and Labrador that contain material prospectivity, ultimately delivering new resources for the benefit of Canadians.
Thank you.
9 a.m.
Liberal
The Chair Liberal James Maloney
Thank you very much, Mr. Keating.
Mr. Whalen, you're going to start us off.
9 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
Thank you, Mr. Chair.
Thanks, Mr. Keating, for joining us today.
In our hearings to date, we've primarily heard about the use and sales of energy and its effects downstream in terms of CO2 reductions. Your organization uses the data on the opposite side of the spectrum to determine how we can extract the energy value of the resources that Canada has. Could you speak to us a little bit more about this notion that people are paying to share their data in Norway, and that they're sharing their data in order to be permitted to participate in the offshore industry there? I think a little more clarity on that would help us understand how Canada might be able to pay for a data exchange system.
Thank you.
9 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
One of the basic principles of geoscience gathering and licensed concession-making that is common in all offshore jurisdictions—and Canada and Norway are no different—is that when a government gives licence and access to its resources, to its land, it gives an exclusive right to explore and develop for resource extraction. What does Canada get back in exchange? Obviously, on the successful discovery, it hopes to get jobs, revenue, taxes, and royalties, but even in the pursuit of those development projects—and there are many wells and many geoscience programs that are unsuccessful—what else can the country get from that concession, that exclusive right?
They can get the underlying geoscience. They can get the stories that are to be told. They get to plan how to open their offshore, how to progress it, and how to manage it. It is important to know that companies understand that globally, and they actively participate by providing that raw data. Our petroleum boards do collect data, but it's antiquated in both the style and frame by which they acquire it and in they way they make it available, to the extent that it's not really used.
In my mind, Norway has a tremendous advantage, in that it's created a business opportunity. It says, “It costs money to acquire and share data, so on a multi-client basis you can share as many companies' data as you can. You can make your own commercial relations with them to acquire that data, but we will provide the platform on which to acquire it.” Why is that? It's because Canada can get that for free, as Norway will, because that is in the terms and conditions for getting the licence. What they do is simply make a portal where, for a fee, they upload their data. It self-pays. They freely to do that, and in return Canada gets great insights into all the offshore area, while individual companies can use this as a platform to look at not only their own data but data of their neighbours and freely exchange, share, and trade data in other areas.
9 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
Thanks, Mr. Keating.
In terms of the rights to get this data, from your perspective, do you believe that it would require any legislative changes or regulatory changes federally or provincially, or is this something the C-NLOPB is already authorized to do, should it put the rules in place for data sharing and confidentiality for a certain period?
9 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
All those rules are in place today. It's just that the opportunity is being missed.
9 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
How does NESS implement that opportunity? Do you see NESS as something that could be expanded to include the Nova Scotia offshore, any future Quebec offshore, and the B.C. offshore?
9 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
Absolutely. Again, it's a simple database. We work with many service providers to populate the database. This is data that's common to all jurisdictions. It is just people in the business understanding the relevance of certain data and making it available in a format that users will appreciate and value.
It is really a platform that you can copy. We make it free for use because we're trying to lower the barriers, and it's a modest cost to maintain. It's a fraction of the cost of the revenue of a barrel for us. When our business is to create the production of more revenue for our province and for our country, it's a small investment that has a tremendous levering effect.
9 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
You mentioned that $9 billion was spent in the Newfoundland offshore just in the exploration phase. Do you have any sense of how much of that was spent for Canadian jobs? Is this mostly foreigners who are coming in to do the drilling, or do Newfoundlanders have these jobs?
9 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
Rules of thumb would say about 30 cents of every exploration dollar is retained in-country, and that goes up to about 50% of every development dollar and as high as 90% of every production dollar. When I say $9 billion, 30% of those dollars are retained in the pockets of Canadians, from folks who work on the supply boats, the helicopters, the drill rigs, stevedores, and so on. It's a tremendous value creator on top of taxes and royalties, of course.
9:05 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
There's a question that I've been asking all the witnesses: how many people in your organization are involved in this data acquisition and exchange? Also, if there were a national system, do you feel that you might lower your head count there, or would you have to increase it to participate? What's your view on that?
9:05 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
It's very modest. We have just 16 people responsible for this exploration strategy. Through just 16 people, we've now levered about a quarter of a billion dollars in partner investments. For us, 16 people is about the right number, because we are kind of sized to our offshore. Of course, if you're expanding offshore, you expand the work scope. Really, the people who and the data management are a small impact compared to the real value that the data itself creates.
9:05 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
In terms of standards for data exchange in your sector, have they been established? We saw the menus that showed up in the little video. Are those menus used in data exchange services around the world, or are they a bit bespoke? Also, do more standards need to be developed for geologic data exchange in the oil and gas extractive sector?
9:05 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
It varies around the world. Every country has some commonalities, but in most cases it's driven around precompetitive data provision. Effectively, precompetitive data provision is a country going forward and saying “here is our data catalogue”, in whatever shape or form it is. If you want to attract investment, this data catalogue has to be readily accessible, be easy to use and search, and be of high quality. If so, I will come and knock on your door, but if that data catalogue is scattered, missing, has gaps, or is antiquated, then I won't knock on your door. I'll knock on the next country's door.
I read about a study some years ago in which the Chevron oil company looked at a global geoscience team. They found that 60% of the geophysicists' time was spent in looking for data and 18% of their time was spent in analyzing and assessing the data. Since that study came out, which was maybe some 15 years ago, most countries have taken notice of it and are asking how they can lower the barrier to get that investment.
Remember, the investments we're looking for are not so much about the dollars. The dollars flow after the people. It's about the geoscience teams in these global oil and gas companies. They're human beings. They want to be able to access vast amounts of geoscience data in a searchable and prioritizing way and in a readily available and easy format that they can download, so that they can say, “Look, boss, I want to put my team on this, because in six months I can deliver a good story to you. I can't do it for country A, B, C, or D because it's going to take too much time and effort.” Once you get that team of 15, 16, 20, or 30 geoscientists, you will get the hundreds of billions of dollars of investments that follow. It's a very simple strategy.
Norway does it expertly. I mentioned the Diskos system. They adopted this system way back in the mid-1990s and they've refined it—ironically, with Canadian tech help—in terms of the database. They now have the gold standard. My sense is that if we were to even look at and model on that system.... I think it's very modest in terms of the people who run it. Maybe some 20 to 30 people run it, and the oil companies largely pay for it. It's a very successful—
9:05 a.m.
Liberal
The Chair Liberal James Maloney
Mr. Keating, I'm going to have to ask you to wrap up very quickly, please.
9:05 a.m.
Executive Vice-President, Corporate Services and Offshore Development, Nalcor Energy
Sure.
9:05 a.m.
Liberal
Nick Whalen Liberal St. John's East, NL
Thanks, Mr. Keating. I agree that better data means better decision-making. That's what we're looking to do. Thank you for your time.