Local Topsides construction doesn’t make sense, union jobs nothwithstanding

Posted on July 11, 2023 | By Captain Richard Spellacy | 0 Comments


Captain Richard Spellacy

Letter to the Editor:

I have been involved in the Offshore business on a worldwide basis since 1969 when I started in the Bass Strait in Australia. I first arrived in Newfoundland as the master of an offshore supply vessel in 1974. I left at the end of 1975 and returned in early 1979 when, in partnership with Andrew Crosbie, I set up and ran Crosbie Offshore until its demise in 1985 (a series of events that is the subject of another pretty dark story). But to continue, with the exception of a very short period, I have been a resident of Newfoundland ever since and have remained involved with the Offshore industry both on an international basis and locally as well.

One thing that I have learned about the offshore business in St. John’s is that this city is a hotbed for rumors, (just refer back to the Mobil situation in May 1980). When any significant event occurs, the rumor mill cranks up and rumors fly around the city at phenomenal speed. As a case in point, BP has announced that they have plugged and abandoned their well and that announcement has led to self-proclaimed local industry pundits beating their breast and generally bemoaning the event.

I think it would benefit everybody to learn a little more about the industry. Indeed, BP has plugged and abandoned their well but that is what happens during the exploratory phase of this industry and I stress exploratory  phase. It would do everyone a bit of good to review what has happened in the past in these waters. Mobil ran the Sedco J in between here and Nova Scotia and poked holes in numerous areas of the Grand Banks including those waters close to Hibernia for five years in the early seventies and found nothing. Likewise, Amoco ran the Sedco I here for five years in the same period, Shell ran the Sedneth 101 as well as the Sedco H off Nova Scotia and all that activity produced nothing. This is what happens during exploration in frontier areas; if an exploration company manages a success rate of 25%, they are doing extremely well. This is what oil companies do. Before they produce, they run significant exploration campaigns. In frontier areas, these campaigns are generally presaged by government tax concessions coupled with signs of early success in the area (Mobil found gas while drilling on Sable Island in the very early seventies) that make the activity significantly less risky. In other words, oil companies accept the risks involved in frontier areas drilling, usually mitigated somewhat by government partnership. These risks they accept, but what about the other risks? One of the bigger criteria in today’s industrial risk analysis and assessment is the attitude of the governing area regime if and when oil is discovered.

Nothing of any note resulted from these efforts here until Jack Gallagher (Dome Petroleum) managed to get the then-Liberal Government of Canada to enact what was called the “Frontier Allowance” in 1978 which took all the financial risk out of exploration in frontier areas. The focus of this allowance was for work offshore in the High Arctic but it also included work offshore Newfoundland and Labrador and that resulted in a virtual rush of rigs to St. Johns in 1979 but still nothing significant happened. Then, in the late summer of 1979 Chevron, who at that time had one of the best seismic interpretation teams in North America, came to town with the Glomar Atlantic on a farm-in on Mobil Acreage. They only drilled one well, but that well was Hibernia. The rest is history… or is it?

Every time something significant happens in the Offshore industry here, there is a rush of people pushing for industrial benefits and in the case of gravity base structures, these benefits are relatively easy to target. That’s not the case when an FPSO is involved. Gravity-based structures are fixed and integrating modules or other structures into the development is relatively simple as the measurements on the platform and the module to be integrated, in the large part, stay constant. Not so with an FPSO. Once a vessel/hull is launched, it becomes a ship and changes in the relative dimensions of the hull will occur. This does not make a lot of difference if the hull is launched mechanically complete as is the case with most ships or if any further integration to the deck structure takes place at an installation relatively close to the launch site but if the intention is to mount a large complex mechanical installation onto the main deck of the ship with numerous through hull penetrations, then this factor becomes really important as was discovered in the very early FPSOs. Trying to build the full topsides of an FPSO in Newfoundland and the hull of that very large FPSO in Asia and then bring it to Newfoundland around the Cape of Good Hope in the Southern winter and expecting all the holes to match up will not happen. I have been on the bridge of a supertanker going around the Cape and watched the bow flex up and down so I know what I am talking about. The through deck penetration interface between the hull and the topsides on an FPSO will be extraordinarily difficult to manage. I know that two modules  were built here for the White Rose project but trying to integrate two modules into an FPSO and trying to integrate the full topsides is a horse of a very different color.  However, we now have the Bay du Nord project and the pressure is on from the building trades union body, Trades NL, to have the entire topsides built here.

Some five weeks ago, I did an interview with Atlantic Business Magazine wherein I ruminated publicly about the folly of the provincial government trying to extract excessive short term job commitments from the oil companies as part of the project approval process. Not two days after that piece came out, Equinor announced a three-year hold on the Bay du Nord project. If I understand the context of the various press releases correctly, during the negotiations between government and Equinor, the Province, at the behest of Trades NL, had required that the FPSO topsides be built here as part of the process.

Coincidentally, at the same time, I listened to a TV presentation featuring Darin King wherein he patiently explained to the TV audience that unless the FPSO topsides were built here, all that would result from this project would be the creation of about 180 long term/permanent jobs. While this may be true for the building industry trades, the claim somewhat cavalierly sidesteps the creation of around 1,000 or more permanent jobs that the project would create for the Offshore industry (approximately 180 to 200 for the creation of the pipelines as per the broadcast; 200 rotating on a month-on/month-off basis on the pipelay vessels; 250 on the FPSO; 100 for the offshore supply vessels; 250 on the project drilling rig; 40 on subsea inspection companies; about 120 in the mud, cementing and downhole technical services, etc.). These being permanent jobs, they will in turn create spin-off jobs in the economy at a generally accepted rate of three spin-offs to one permanent job.

I have dealt with unions all over the world, from the extremes demanded by the Australian unions to the North Sea, Canada, Nigeria et al, and I was struck by the way Mr. King handled himself. He was very articulate, even toned, with no verbosity, well briefed and overall, very impressive so I thought I would check him out. As the executive director of Trades NL, I expected him to come from a trades background from one of the unions he represents. But that’s not the case. Mr. King comes from a teaching and political background, reaching as high as a senior cabinet post. There isn’t anything wrong with that, but it does tend to put a heavy political spin on everything that the union does.

Mr. King claims that the local unions are capable of producing the topsides for the Bay du Nord FPSO but is that really the case? I would point out that there is a shipyard in Cow Head that is now shut down tight while the topsides for the Cenovus GBS (being constructed in Argentia) are being manufactured in Texas at a yard that is owned by the same company that owns the yard in Cow Head. Why would this be so if the unions here can provide the skilled tradespeople in the numbers required, capable of the productivity claimed by Mr. King et al? This situation is a very clear sign that the productivity and union harmony required by the project is not present under the current industrial climate available in Newfoundland and Labrador. So, who would benefit from the 3,000 or so temporary jobs created if it was possible to get the topsides constructed here? There would be a large influx of people on a temporary basis until the job was complete but then most of them would leave to find work somewhere else. There is no long-term benefit for the province and once again we have the “boom and bust” phenomena with no long term benefit for anybody but Trades NL who would gain 3,000 new members. Whereas if the government had been able to contract for extra royalties or grants in lieu of such an enterprise we would have something permanent that would bring a benefit to everybody in the province, not just Trades NL. Let me be clear: in the last 50 years, the offshore industry has created thousands of well-paying jobs for its residents, not just here but around the world as well as numerous lucrative grants, scholarships and significant royalties.

When Premier Furey addressed the people of this province after he announced the delay of the Bay du Nord project, he stated a number of times that he told Equinor that he works for the province of Newfoundland and Labrador, not for Equinor. It’s a sentiment that I am sure we all appreciated at the time but I am forced to ask, what sector of the population does he most stand for? All of us equally or principally the construction trades association?

By Mr. King’s own estimates, the building trades will get 180 to 200 long-term or permanent jobs from this project, something that they would not normally get from an offshore project. But that’s not enough for them; they want more. Who gave the building trades association the right to block over 1,000 permanent jobs in the Offshore industry just so that they can get a bigger piece of the pie?

I am not a political student but I always understood that democracy was “Government of the people, by the people, for the people”.

Not, “Government of the people, by the Trade Unions, for the Trade Unions”.

In February 2012, when Mr. King was the Minister of Fisheries, he announced that effective immediately he would be freezing funding to the FFAW, stating: “No matter what we do in this province, the FFAW are more concerned with their own self-interest than they are with the interests of the industry.”

I would say that that if one was to substitute Trades NL for the FFAW in that statement, then it aptly describes the current attitude of the building trades association. The Provincial Government should freeze any funding given to that body or its subsidiaries. Further, if Mr. King wishes to be a part of running this province, he should return to the political forum.

—Captain Richard Spellacy

The views expressed in this article are those of the author and not necessarily those of Atlantic Business Magazine.

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