Minister says Terra Nova cost overruns are disappointing to the province

Mines and Energy Minister Lloyd Matthews says the Terra Nova project cost overruns and production delays announced today by Petro Canada are disappointing and will have a negative impact on all stakeholders including the province.

The minister made the statement following a briefing earlier today with senior officials of Petro Canada, operator of the Terra Nova offshore oil project. The company says pre-production costs are estimated to increase by up to 15 per cent over the current estimate of $2.5 billion Canadian.

First oil is now scheduled for the fourth quarter of 2001.

"While these overruns and delays are disappointing, the Terra Nova project remains an excellent one for the government and the people of Newfoundland and Labrador in terms of the resource revenues that will flow to the province through the royalty regime currently in place," Mr. Matthews said.

The minister said the project delays and overruns will also delay provincial royalties to the province and it will be necessary for the province to adjust its royalty forecasts for this year.

The minister said the overruns and delays are primarily attributable to design engineering and workmanship identified in several key vessel systems after arrival of the Terra Nova Floating Production, Storage and Offloading (FPSO) facility a Bull Arm.

"It is my understanding that the delays and overruns are in no way attributable to labour and/or production at Bull Arm," said Mr. Matthews. "The Bull Arm facility won the right to fabricate 70 per cent of the topside components, including two topside modules, the flare tower, the power generation module and other deck structures."

Mr . Matthews said Petro Canada has identified solutions for these problems and has assured him that the FPSO will not sail to the field until they are satisfied that it meets all safety, regulatory, and operational requirements.

Located 350 kilometers from St. John�s, the Terra Nova Oil Field is the second largest off Canada�s east coast with estimated recoverable reserves of 370 million barrels of oil.

"The Terra Nova oil field remains an attractive project and will be a strong contributor to resource revenues of Newfoundland and Labrador," Mr. Matthews said.

Media contact: Gary Callahan, (709) 729-4890.

2001 02 19                      12:15 p.m.