June 30, 1998
(Mines and Energy)

The following is being distributed at the request the Canada-Newfoundland Offshore Petroleum Board:

Terra Nova Engineering

The Canada-Newfoundland Offshore Petroleum Board announced today its decision with respect to Condition 1 to the board's approval of the Terra Nova Project.

In Petro-Canada's Terra Nova Development Application which was filed with the board in August 1996, the company undertook to "use their best efforts within the competitive bidding process to cause project management and engineering work for the production platform, associated subsea facilities, mooring systems and production risers for the Development to take place in Newfoundland."

After selection of its alliance contractor, the Grand Banks Alliance, in December 1996, the Terra Nova Alliance (led by Petro-Canada) commenced engineering work on the floating production storage and offloading (FPSO) vessel at the offices of its lead-engineering contractor, Shawmont/Brown & Root, in Leatherhead, England. The alliance also began to establish an integrated management team in St. John's to manage all project activities from design through to first oil in December 2000. Currently, there are approximately 250 engineers and support staff working in Leatherhead and 160 management, engineering and support personnel working on the project in St. John's. The Leatherhead engineering work is approximately 40 per cent complete and is scheduled to be substantially complete by year-end.

Following receipt of the report of the Terra Nova Environmental Assessment Panel in August 1997, the board, in consultation with governments, concluded its review of Petro-Canada's application. This review culminated with the issuance of the board's decision report conditionally approving the project, in January 1998. Condition 1 of that approval requires that "as soon as practicable after Project Sanction, the Proponent relocate engineering and procurement activities for the Project to Newfoundland."

In establishing this condition, the board sought to ensure that Petro-Canada would make every reasonable and feasible effort in the interest of technology transfer to maximize the participation of Canadians, and in particular Newfoundlanders, in this engineering work. The board also sought to improve the access of local suppliers to the project's procurement team.

Following a decision by the project owners in mid-February to sanction the project, Petro-Canada, in response to Condition 1, undertook a detailed assessment of the practicality of relocating its engineering team (or a portion thereof) from Leatherhead to St. John's. Based on the results of this assessment, which was reviewed by the Board, Petro-Canada responded to the Board as follows:

• that the relocation of the Leatherhead engineering team for a relatively short period of time was not feasible considering the additional up-front costs and, more significantly, the risk of major cost increases associated with a delay in completion of the Project,

• that Petro-Canada would increase the number of Canadians working in Leatherhead from 25 to between 40 and 45, giving first consideration to Newfoundland residents and targeting those positions where opportunities exist for long-term technology transfer,

• that the company would transfer responsibility (10-12 people) for the procurement of the bulk materials required for the construction of the FPSO topsides facilities from Leatherhead to St. John's by the end of April 1998, and

• that it would transfer approximately 35-45 engineering personnel, the majority of whom will be Newfoundlanders, from Leatherhead to St. John's commencing in the 4th quarter of 1998 to undertake systems completion (carry-over) engineering and construction support.

At its meeting on June 24, 1998, the board again reviewed Petro-Canada's position and while it was disappointed that moving the engineering work had proved not to be practicable, concluded that completion of engineering by the end of the first quarter of 1999 was critical to maintaining project schedule and budget. The board also concluded that completion of this project on time and within budget would provide substantial long-term benefits to all stakeholders, including the developer and governments. The board also believes that the success of the Terra Nova Project is key to sustaining momentum towards the development of Newfoundland's other offshore resources. Based on these considerations, the Board has informed Petro-Canada today that it has reluctantly accepted the company's response to Condition 1 to the board's approval of the Terra Nova Development and Benefits Plans.

The Board believes it is important that a permanent design engineering capability be established in the province to support offshore projects and is encouraged that companies such as Agra Monenco Atlantic and Halliburton/Brown and Root are expanding their local capabilities in this regard. It also noted that as a result of Hibernia and Terra Nova, world-class capabilities in reservoir, drilling and operations engineering are being established in the province. The board will continue to work with all stakeholders to promote the growth of these offshore engineering capabilities locally.

Contact: (709) 778-1400.

1998 06 30 12:20 p.m.