VZCZCXRO9103
RR RUEHGA RUEHMT RUEHQU RUEHVC
DE RUEHHA #0009/01 0301122
ZNR UUUUU ZZH
R 301122Z JAN 09
FM AMCONSUL HALIFAX
TO RUEHC/SECSTATE WASHDC 1368
RUEHOT/AMEMBASSY OTTAWA 0594
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC
RUEHHA/AMCONSUL HALIFAX 1459

UNCLAS SECTION 01 OF 02 HALIFAX 000009 
 
SIPDIS 
 
DEPTFOR WHA/CAN, EB/ESC/ISC 
USDOE FOR IA (DEUTSCH) 
 
E.O. 12958: N/A 
TAGS: EPET ENRG ECON EFIN PGOV CA
SUBJECT: NEWFOUNDLAND-LABRADOR OIL INDUSTRY:  PRODUCTION MILESTONE 
AND OTHER ENERGY NEWS FROM "THE ROCK" 
 
REF: 08 HALIFAX 0060 (AND PREVIOUS) 
 
HALIFAX 00000009  001.2 OF 002 
 
 
¶1.  SUMMARY:  Newfoundland-Labrador has hit the one billion 
barrel mark in production from its offshore oil fields. The 
province also unveiled the new name of its energy 
corporation--Nalcor--which will oversee management of all the 
province's energy resources. Planned offshore drilling activity 
is, for the most part, going ahead despite economic uncertainty. 
But, the decline in oil prices has the Government of 
Newfoundland-Labrador (GoN-L) worried about the impact on the 
provincial budget. END SUMMARY. 
 
¶2.  N-L OIL PRODUCTION REACHES ONE BILLION BARRELS 
 
NOIA, the Newfoundland & Labrador Oil & Gas Industries 
Association, announced on January 26 that the province's 
offshore oil industry had reached a significant milestone: one 
billion barrels of oil produced.  The oil comes from three 
offshore fields:  Hibernia, which saw first oil in 1997, Terra 
Nova (2002) and White Rose (2005).  The three offshore fields 
produce an average of 343,000 bbl/day, making N-L the supplier 
of almost half of Canada's conventional light crude. That volume 
will be increasing over the coming years when expansions at the 
three fields are completed and when Hebron, the province's 
fourth offshore project, starts production in the 2016-18 
timeframe. 
 
¶3.  NEW N-L ENERGY CORPORATION IN THE SPOTLIGHT 
 
On December 11, the GoN-L announced the new name for its 
provincial energy corporation: Nalcor. Created in May 2007, 
Nalcor (www.nalcor.ca) grew out of the energy plan envisaged by 
Premier Danny Williams back in 2003 when he was fighting his 
first provincial election campaign. The Premier's intent then, 
as now, was to make N-L an internationally competitive player in 
resource industries and he saw the benefit in having one single 
entity focused on that goal.  Accordingly, Nalcor will manage 
the province's interests in existing and future oil and gas 
developments, wind energy possibilities and electricity 
production. Effectively immediately, Nalcor becomes the parent 
company of the provincially owned utility, Newfoundland-Labrador 
Hydro, along with the Churchill Falls (Labrador) Corporation, 
and the Bull Arm fabrication site (a heavy industry construction 
site focused on onshore and offshore oil and gas developments). 
Nalcor will also take the lead in the proposed development of 
the Lower Churchill Hydro Project in Labrador. More immediately, 
Nalcor will manage the hydro-electric assets that the GoN-L 
expropriated (along with other assets) from the U.S. firm 
Abitibi-Bowater via the passage of Bill 75 on December 16, 2008, 
after Abitibi-Bowater announced that it would be closing its 
Grand Falls-Windsor paper mill in March 2009.  Full control of 
Nalcor and its revenue (forecasted to be in the $10-20 billion 
range) will be with its only shareholder: the GoN-L. 
 
¶4. OFFSHORE EXPLORATION CONTINUES WITH ONE POSTPONEMENT 
 
Despite the global economic downturn, exploration work is 
continuing offshore N-L.  StatoilHydro Canada, Petro-Canada and 
Husky Energy are following through on their plans to share the 
drill rig "Henry Goodrich" over the next 24 - 30 months. 
StatoilHydro Canada has been the first of the three to use the 
rig in the Flemish Pass Basin for a short program, expected to 
wrap up in February/March.  The rig then moves to Petro-Canada 
for its project to drill two development wells and one 
exploration well at the Terra Nova oilfield.  Husky Energy is 
the last in line, but will have use of the rig for approximately 
17 months to do further drilling at the White Rose field and one 
of its satellite fields where it will also use Global Santa Fe's 
rig "Grand Banks."  In other drilling news, Chevron Canada and 
ConocoPhillips announced the postponement of their drilling 
plans for the Laurentian Basin, citing costs and a lack of rig 
availability.  However, there is some speculation that the 
company could soon revisit that decision should the rig 
situation improve. 
 
¶5.  GoN-L WORRIED OVER THE IMPACT OF LOW OIL PRICES 
 
With oil revenues now accounting for a third of the province's 
revenue, GoN-L officials are worried over the effect that lower 
world oil prices will have on the fiscal health of the province. 
According to the province's finance minister, Jerome Kennedy, at 
$50 per barrel the province's operating deficit will grow to 
$900 million and even if prices should rise to $60 a barrel 
(which he thought unlikely in the short term) that would still 
mean a $600 million deficit.  Since 1997 (when Hibernia first 
came on stream) to the end of November 2008, total royalties to 
the province have been in excess of $5 billion, pushing N-L to 
where it has become one of Canada's top economic performing 
 
HALIFAX 00000009  002.2 OF 002 
 
 
provinces. 
FOSTER