Brace yourself. This is a true story - it just seems that nothing this stunned could be true. With minimal fanfare, and a short press release, Nalcor announced the purchase of a 67% working interest in the Parson's Pond oil and gas play from Leprechaun Resources Ltd. Leprechaun is a small resource company with it's head office in Calgary, and is controlled by John Maher - a native of Newfoundland. The deal called for a compensation of Leprechaun's equity in the project totalling $559,000.00. The provincial government further committed to reimburse Nalcor a total of $580,000.00 on completion of drilling. Curious that the government would be reimbursing it's own Crown corporation for a cost of business? Perhaps someone in the Crown corp wasn't happy about those funds coming from it's bank - the principle was added to for the purpose of payback.
That was the 7th of August, 2009. Kathy Dunderdale was Minister of Natural Resources. Ross Wiseman was Minister of Business. Charlene Johnson was Minister of the Environment. Our illustrious provincial government agreed to construct a 10.4 km access road to the site - presumably covering the cost. It had four partners in the play: Vulcan Minerals; Deer lake Oil & Gas; Leprechuan Resources Ltd., and Investcan Energy. Investcan Energy is an interesting partner considering they are owned by SCDM Energie,which in turn controlls 18.6% of the massive Bouygues Group - a controlling interest. The Bouygues Group built the James Bay hydro project, and Investcan controlls a great deal of the new natural gas industry in Quebec.
Despite the failure of a previous firm in 2004 to explore the property successfully, Nalcor and partners picked up the torch and on the 16th of February, 2010 the first well was spudded. By the week of the 26th of May, 2010 it had reached final depth of 3160 meters. Nalcor's press release of that week stated in part:
"The extent of flow characteristics and overall volumes of gas in place have yet to be
determined. The well will be suspended to allow for further analysis of the data and to
prepare testing plans. Next steps are the coordination and mobilization of necessary
testing equipment. Testing will be conducted during the summer months and further
information will be released following completion and analysis of the results.
Nalcor’s main operational objective was to gain information from this well which will
allow further insight and assessment of the petroleum potential of this area. “The
information obtained to date has already advanced our understanding of this basin,”
said Keating. “The geological and geophysical prognosis of formation depths and
stratigraphy anticipated from our pre-well analysis proved to be accurate.”
Essentially, Nalcor hit some gas, but a study of the economics of further development was required and a study of the results necessary. Nalcor goes on to state:
"Nalcor Energy – Oil and Gas is now preparing for the drilling of the second well of the
planned three well program. It is anticipated that the drilling of Nalcor et al Finnegan
will commence this summer."
In other words, we aren't waiting to see if this is a good place to drill. No, we are moving onto the next spot and drilling.
In September of 2010 Nalcor spudded it's second well at the site. Funny enough they got the same initial result - some natural gas and no oil to speak of. Their press statement in part stated:
"As with our first well in the area we encountered natural gas during drilling,” said Jim
Keating, Vice President Nalcor Energy Oil and Gas. “The well is currently suspended as
we review the data and determine next steps including a potential test plan.”
Nalcor is also about to commence testing on its first well, Seamus, which has been
suspended after reaching total drilling depth in May 2010. A test rig is on site and
testing will determine the extent of flow characteristics and overall volumes of natural
gas in place.
Nalcor’s main operational objective of this drilling program was to gain information
from this well which will allow further insight and assessment of the petroleum
potential of this area. Nalcor Energy is now preparing to drill the third well of the
planned three well program. It is anticipated that the drilling of Nalcor et al Darcy will
commence early in 2011."
Bottom line - did not take the proper amount of time to assess the first well before starting the second. Also, they were preparing to drill the third well without completing assessment of the second well. Something that doesn't happen when private sector money is deeply involved - as a rule. The result of all this interest purchasing, road building, environmental assessing, and public investment in drilling was a huge bust.
Nalcor's (read the taxpayers) initial share of the costs was $14 million dollars for 3 wells drilled. By the time Nalcor announced a premature end to drilling after the first two wells our responsibility is about $23 million. Almost double the original cost for all three wells. The reason: wells that were supposed to take only 50-55 days to drill instead took 100 days. Translation: it took twice as long as we thought to drill the wells.
A mind blowing loss to the taxpayers of at least $23 million. About three times the cost of moving the air ambulance service from St. Anthony's. About half the cost of the brand new hospital in Lab West - before it doubled to at least $90 million.
The government's response - a late Thursday press release from Nalcor stating an end to operations at Parson's Pond. A late enough release to try and kill the story over the weekend. Not one press release from the government or the Minister of Natural Resources Shawn Skinner. Minister Skinner was interviewed by NTV on Friday. His response: "Well we got unlucky on these two. It may take four, five, six attempts, but we'll get there. We thought it best to stop for now and have a look at things. Look how smart we are at administering your money. Aren't we on top of things. We are on your side." This is my summary of what he said, but you can check it out for yourself on NTV.
Ms Dunderdale, now Premier, then Minister of Natural Resources, had this to say: nothing... In any province in this country, or any state in the world this would be a scandal that would at a minimum bring down a minister. Here we get 'don't worry be happy'. Rural Newfoundland and Labrador continues to suffer from the inflation of the off shore boom, but receives none of the benefit. We lose proper access to health care, services for family and children, and so on. Yet, amongst the still evident wreckage of hurricane Igor we live while our provincial government throws the dice at $23-25 million at a time on wreckless less oil and gas plays. While the fishing industry, and all those families that depend on it, lies in suspended animation awaiting the illusive MOU, our PC government fritters away the bountiful inheritance on stunned resource gambles. Mr. Harper, if you are listening, see this example as a stark warning of the inability of this provincial government to make the right decisions for it's people, and do not grant any financial assistance for the Lower Churchill development. It simply is not fair to the people here.
Here's to the crazy ones, the misfits, the rebels, the troublemakers, the
round pegs in the square holes... the ones who see things differently -- they're
not fond of rules... You can quote them, disagree with them, glorify or vilify
them, but the only thing you can't do is ignore them because they change
things... they push the human race forward, and while some may see them as the
crazy ones, we see genius, because the ones who are crazy enough to think that
they can change the world, are the ones who do.
US computer engineer & industrialist (1955 - 2011)