Amid hype over Bay du Nord, N.L. forecasts declining oil production and royalties
Mining industry soars, powered by strong prices for iron, nickel and copper
A day after politicians and industry celebrated federal environmental approval for the Bay du Nord offshore oil megaproject, the Newfoundland and Labrador government said Thursday it is preparing to deal with a sharp decline this year in oil production and royalties.
But, in details revealed in Thursday's budget, another natural resource is making that challenge much more bearable.
Volatility in the oil sector is being partially offset by big gains and unprecedented momentum in the mining sector, as well as increased corporate, personal and retail sales tax revenue.
The new budget revealed that oil production in Newfoundland and Labrador's offshore is projected to plunge this year by 12 million barrels, to just over 82 million.
The decline is being blamed on lower production, primarily at the Hibernia field, and on planned maintenance shutdowns in others.
As result, offshore royalties are expected to contribute $866 million to government revenues in 2022-23, down sharply from the $1.13 billion it injected into the treasury during the past fiscal year.
Unearthing more mining taxes
Despite this decline, overall government revenues are expected to surpass $9 billion, up more than $500 million from last year, with officials crediting increased mining taxes and other factors.
The value of mineral shipments from the province topped $6 billion in 2021, up 35 per cent over the previous year, driven by increases in iron ore, nickel and copper being mined in Labrador.
Mining employment also shot up by up nearly 18 per cent, sparked mostly by an ongoing expansion at the Voisey's Bay mine.
Construction is also scheduled to begin this year on the new Valentine's Lake gold mine in central Newfoundland, with full-time employment expected to reach 400 when operations commence.
With commodity prices up, exploration at record levels, and existing operations performing well, Energy Minister Andrew Parsons said the mining industry is on a hot streak.
"We want to increase revenue from mining, which right now is doing well," said Parsons.
Finance minister happy about diversification
Meanwhile, the decline in production means oil and gas will account for about 10 per cent of government revenues, down from 13 per cent last year, and a record 32 per cent a decade ago.
"While [oil revenue] is incredibly important, what we're seeing is a diversification in our economy and a growth in mining," said Finance Minister Siobhan Coady.
The budget is based on Brent crude — the international benchmark by which offshore oil is marketed — averaging $86 US this year, up slightly from last year, and for an average exchange rate of just under 80 Canadian cents to the American dollar.
Despite lower volumes, the value of offshore production rose by 43 per cent to $8.1 billion because of the soaring price of crude, which was trading at roughly $115 US per barrel at the end of March.
According to budget documents, oil and gas contributed $4.3 billion to the province's economy last year, and accounted for 2.4 per cent of total employment.
Terra Nova to return later this year
There are four mature oil fields in the offshore: Hibernia, Hebron, Terra Nova and White Rose.
A fifth producing field is now a strong possibility by the end of this decade, with the Bay du Nord project receiving environmental approval from the federal government on Wednesday.
Production at Hebron in 2021 was just under 51 million barrels, down 2.1 per cent, while Hibernia totalled just over 36 million barrels, a decline of 16 per cent. The decline at Hibernia was attributed to a suspension of drilling in 2020 as a response to the global pandemic.
The White Rose field, home to the SeaRose platform, reported a 21 per cent drop in production, at just over seven million barrels. The Terra Nova platform is undergoing a refit in Spain, and has not produced oil since late 2019.
As of late last year, there were more than 4,100 people working directly in the province's oil industry, according to budget documents.
Officials, meanwhile, are forecasting that production will rise again next year as Hibernia resumes drilling, and the Terra Nova returns to the Grand Banks.
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