Husky Energy (TSX: HSE) and partner Statoil (NYSE: STO) have made some impressive oil discoveries off the coast of Newfoundland in recent years. The pair made three discoveries so far in what’s known as the Flemish Pass that are estimated to hold more than 500 million barrels of oil. Husky Energy expects to start turning these discoveries into production early in the next decade, which will help it more than overcome the declining production from its assets elsewhere in the Atlantic region.
Drilling down into the Flemish Pass
Overall, Husky Energy owns 35% of the Statoil-operated leases in the Flemish Pass off of Newfoundland. The acreage is to the northeast of the Jeanne d’Arc Basin, where producing assets like Terra Nova and White Rose are located. As it stands right now, Husky Energy and Statoil plan to start an 18-month drilling campaign in the third quarter of this year to further explore the Flemish Pass as well as get recent discoveries ready for development.
The most promising of the recent discoveries to date is the Bay du Nord find, which holds an estimated 400 million barrels of oil. Husky Energy and Statoil expect this field to be the first that’s brought into production, with the first oil expected to be delivered sometime in the early part of next decade. However, beyond that, the Mizzen discovery holds an estimated 130 million barrels of oil, while Harpoon is still being delineated. These discoveries, which are spread around the Flemish Pass, suggest that there is a lot more oil still to be discovered in this region.
Near-term growth before the long-term boom
Husky Energy needs these prospects because it actually expects its production in the Atlantic to trail off until 2017 due to natural field decline. This is despite the fact that Husky Energy is investing about $900 million over the next few years on the North Amethyst Hibernia well and the South White Rose extension. These projects are expected to add about 20,000 barrels of oil per day once complete, which isn’t enough to overcome production declines elsewhere.
However, the biggest production boost will come when the $2.8 billion West White Rose extension project in the Jeanne d’Arc Basin, which is partially owned by Suncor Energy (TSX: SU)(NYSE: SU), comes online that year. Husky and Suncor estimate that this project will achieve peak production of 25,000 barrels of oil equivalent per day and eventually recover an additional 115 million barrels of oil.
The Atlantic region is an important growth area for Husky Energy in the years ahead. The company has solid short-term growth coming from the West White Rose extension project with Suncor Energy. However, beyond that, the big oil should start flowing starting next decade as Husky Energy and Statoil begin to turn their Flemish Pass discoveries into developments. It’s an area that could earn Husky Energy investors a lot of money as there appears to be a lot of untapped oil in the Flemish Pass.