Market Focus : Canada Digs Deep to Prop Up Oil Drilling Platform : Hibernia project employs 4,000 in Newfoundland. Some analysts are skeptical the government will recover its investment.

For at least as long as such things have been written down, the people of Newfoundland have earned their livelihood from the turbulent waters of the North Atlantic.

They have drawn fish from the sea and they have processed them in small factories in the coastal villages of their island. They have repaired the boats that carried the fishermen and they have welcomed to their port the ships of others from around the world.

Now, they are looking to the ocean for a new resource--oil.

On a fog-cloaked construction site cut from the wilderness, more than 4,000 workers, mainly Newfoundlanders, are building an offshore drilling platform large enough and strong enough to withstand not only the pounding storms of the North Atlantic, but the occasional iceberg.

When it is finished, in 1997 if the schedule holds, the platform will be towed about 200 miles out to sea to the Hibernia oil field. There it will be installed on the ocean floor and begin pumping. By the turn of the century, the Hibernia field should account for about 12% of Canada’s conventional oil production, according to the consortium building the rig. If the adjacent Terra Nova offshore field comes on line, Newfoundland’s waters could be providing as much as a quarter of the country’s oil output.

The project--projected to cost nearly $11.7 billion to build and operate over 20 years--is as risky and controversial as it is ambitious:

* No one ever has built an offshore platform to withstand ramming by an iceberg. This presented an engineering challenge that was researched at one point by landing a small plane on an iceberg and drilling to test for density.

* There was no facility in Newfoundland that could be adapted for such a construction project, so the consortium cleared 4,000 acres of forest and bogland along a deep-water cove near the town of Come By Chance. Here, it built a factory for building the platform and a town for the workers. The site will be turned over to the province for $1 when the platform is completed, in the hope that the expertise gained in the Hibernia project will lay the groundwork for an offshore industry here.

This project is under way in a Newfoundland sunk in economic despair. The Northern cod that were the mainstay of the fisheries have virtually disappeared, and many other fish stocks are so damaged that fishing quotas have plunged. In July, the official unemployment rate was 21.1%. Mindful of the need for economic diversification, the Canadian government of former Prime Minister Brian Mulroney took the unusual step of propping up the Hibernia project with $1.24 billion in loan guarantees and a direct investment amounting to 8.5% ownership. The new Liberal government of Prime Minister Jean Chretien has stuck by the project.

One of the original partners, Gulf Canada, pulled out in 1992, delaying the completion date by a year. Construction costs also have risen more than $875 million over budget, although the owners say that has been more than offset by reductions in projected operating costs attributed to improved technology.

Despite estimates by the ownership consortium that the project has a break-even point at $13.65 a barrel over the 20-year drilling cycle, some analysts are skeptical it will ever recover its investment. This has led to snide comments about Hibernia being the biggest make-work project in history.

Oil company officials wave aside such complaints and say they wouldn’t be involved in a money loser.

“Oil companies don’t get involved in make-work projects or social development programs. They’re in it to make money,” said Bill Simpkins, the Hibernia project’s manager of government relations and public affairs.

Ownership of Hibernia is divided among Mobil Oil (33.125%), Chevron (26.875%), Petro-Canada (25%) and Murphy Atlantic (6.5%), in addition to the Canadian government.

Rick Bates, a Mobil executive from New Jersey who is general manager of the project, says the engineering on the project is essentially an adaptation of technology developed for 18 similar platforms in the North Sea. The major difference is the reinforcement needed for protection from multimillion-ton icebergs.

The concrete and steel base of the drilling rig, called the gravity-based structure, has been designed with 16 “teeth” intended to ward off icebergs and protect the platform’s inner walls. The steel reinforcement of the concrete, called rebar, will be heavier than in the North Sea platforms.

The structure will be 295 feet tall, with a storage capacity of about 1.3 million barrels of oil. Four columns, housing the drills and other equipment, will run through the platform base and support seven topside modules, derricks, lifeboat stations, a helipad and a boom to burn off excess gas. The structure will have a living capacity of 280 workers, although the typical population will be about 250 once pumping starts. When completed, attached to the ocean floor and filled with ballast, the entire structure will weigh about 1.2 million tons.

Construction of the structure is under way in a man-made dry-dock here. Once the outer wall of the structure reaches 59 feet in height in October, the dry-dock will be flooded and the partially completed gravity-based structure will be towed to a deep-water site just offshore and held in place with huge mooring chains. There construction will be completed. Work on the topside structures is under way here and in South Korea and Italy.

If all goes as scheduled, the completed rig should be ready to be floated to the drilling site in June, 1997. Because of the weather in the North Atlantic, there is only a two-month window for the tow-out. If the window is missed, oil production will be delayed a year.

The thousands of workers building the Hibernia project will, of course, lose their jobs when it is complete. The theory behind the partial government funding of the project is that it will provide the infrastructure for future development of offshore oil or another industry.

“Hibernia is really the ground-breaker,” said Ken Hull, president of the Hibernia Management and Development Co., the firm formed by the consortium to run the project.

Hull notes estimates of more than 600 million barrels of extractable oil in the Hibernia field, and there may be more nearby.

While Hibernia may be an engineering marvel and at least a short-term job creator, there are considerable doubts around the nation about the wisdom of the government stake in the plan.

Why invest in such a risky, politically driven project when Canada has one of the highest public debts, as a percentage of domestic national product, in the industrial world, many ask.

In August, as if to underline those doubts, the Canadian and Alberta governments sold at a $730-million loss their interest in a heavy oil upgrader project on the Alberta-Saskatchewan border. Although the government is sticking with the Hibernia project, Natural Resources Minister Anne McLellan has said there will be no repeats.

Probably the most vocal Hibernia critic is Ian Doig of Calgary, publisher of an oil and gas newsletter called Doig’s Digest.

Doig argues that government involvement in the project--to ensure that the bulk of the work is done in Newfoundland--has artificially driven up costs.

Paul Ziff, president of the Ziff Energy Group, a Calgary consulting firm, said Canada has experienced both success and failure with government-assisted energy projects, but he notes the inherent unpredictability of the Hibernia project.

“Whenever you have a new technology, you get surprises, and they’re not usually pleasant,” Ziff said.

THE BUILDING OF HIBERNIA

In order to tap into the resources of the North Atlantic, workers in Newfoundland are building an offshore oil platform that can take the pounding storms of the North Atlantic, as well as crushing blows from multimillion-ton icebergs. The concrete and steel structure making this possible is called the gravity-based structure, or GBS.

* The Hibernia Oil Project

The GBS is a concrete pedestal that sits on the ocean floor, with 16 “teeth” in its exterior wall to absorb the impacts of icebergs. The following diagrams show some of the steps in putting the Hibernia oil platform over the drill site.

* Topsides Moved Out

Once the “topsides,” or drilling and production facilities, are completed, they are towed out to the GBS.

* Topsides Mated to GBS

The topsides are then attached to the GBS, and the whole structure is moved to the final drilling site.

* At the Drill Site

The oil platform is positioned over the drilling site, and the GBS interior is filled, bringing the GBS base to rest on the ocean floor.

* The Hibernia Drill Site

The Hibernia oil fields are about 200 miles offshore from St. John’s, Newfoundland.

* Oil Production

Oil companies hope to extract more than 600 million barrels from the Hibernia fields.

* Protecting the Oil Platform

There are 16 “teeth” that make up the outer ice wall, which are designed to protect the inner platform from large icebergs.

* Oil Storage

The interior of the GBS can hold up to 1.3 million barrels of crude oil.

* The Hibernia Platform

Topsides facilities: The topsides contain all drilling, crude oil processing service and utility requirements for the platform, as well as housing for 280 people.