CALGARY, Alberta -- Exxon Mobil Corp. is the lead partner in a consortium planning to develop a $14 billion underwater oil field off Newfoundland on Canada's Atlantic coast.
The investment to capture 700 million barrels of heavy undersea crude at the field about 220 miles southeast of St. John's rivals spending in Alberta's oil sands, where an estimated 170 billion barrels of recoverable reserves attracted $23.2 billion in spending last year. Newfoundland and Labrador oil is priced off the global benchmark, almost twice as high as western Canada's heavy crude, and will help Exxon add to profit growth.
Exxon is the operator of the development, named Hebron, with wns a 36 percent stake, according to the project's website. Other partners include Chevron Corp., Suncor Energy Inc., Statoil ASA and Nalcor Energy Corp. (owned by Newfoundland).
As Exxon and global competitors seek to lock up reserves in increasingly hard-to-reach terrain, offshore Canadian oil in Newfoundland and the Arctic is becoming more attractive.
Exxon, the world's biggest energy company by market value, said it expects to begin production around the end of 2017 at Hebron, designed for daily output of 150,000 barrels. Hebron is the fourth oil project to be developed in the province's offshore industry, which also includes the producing Hibernia, Terra Nova and White Rose fields.
Exxon, Royal Dutch Shell Plc and others looking to maintain reserves are returning to offshore drilling after the 2010 oil spill in the Gulf of Mexico when an explosion killed 11 workers at BP's Macondo well.
While Canada's oil sands in Alberta are among the world's largest reserves, investors may be looking to other opportunities as well to help diversify their risks and assets, said Youssef Zohny, a portfolio manager based in Vancouver, said.
"This may be the beginning of a new story in East Coast exploration and something to watch out for," Zohny, who helps oversee $14.7 billion at Stenner Investment Partners of Richardson GMP.
Newfoundland, which is closer to London than Calgary, already produces about 190,000 barrels a day from offshore fields, comparable to Louisiana's onshore crude output. Production in the province fell 29 percent in the first nine months of 2012.
Previous plans to develop Hebron collapsed in 2006 amid a dispute with provincial officials over ownership stakes. Chevron later ceded control of the project to Exxon.
The estimated cost to build Hebron, nearly triple the original forecast of $5 billion Canadian in 2006, has risen as drilling prices escalate and comes amid global competition for labor and equipment.
Output at Exxon, based in Irving, Texas, has fallen five straight quarters. Chief Executive Rex Tillerson is working to reverse those declines with projects like Hebron, the Kearl oil-sands project as well as exploration efforts in Russia's Arctic.
While the Hebron project will be a small fraction of Exxon's total production, it will be necessary for a company seeking multiple sources of new output to stave off production declines, said Timothy Parker, a portfolio manager at T. Rowe Price International Inc. in Baltimore, who holds Exxon shares.
"It's all about reinvigorating its portfolio even if is comes in 1 to 2 percent increments like this project would be," Parker said in a phone interview.
The technical challenges involved in drawing Hebron's heavy crude from beneath the icy North Atlantic will draw on expertise Exxon honed while drilling in Arctic conditions at Norman Wells in the Northwest Territories since the 1930s and extracting heavy oil in Venezuela during the 1990s.
Exxon's pursuit of offshore Arctic oil stretches to the other side of the globe. In April, the U.S. explorer and Russia's OAO Rosneft agreed to spend $3.2 billion on an exploration portfolio that includes wells in the Kara Sea, which can freeze over for as long as nine months annually.
As climate change increases temperatures across the planet, the Arctic is warming faster than other regions, opening up undersea natural resources for exploitation as the ice melts. Arctic sea ice shrank to its smallest on record last year, according to a Nov. 28 report by the World Meteorological Organization.
Arctic conditions such as those off Newfoundland add an extra layer of difficulty for engineers and geologists accustomed to drilling for crude in ice-free zones such as the U.S. Gulf of Mexico or Africa's Gulf of Guinea. Shell's Arctic drilling effort off the Alaska coast suffered a setback last week when a specially-designed, ice-proof rig ran aground during a violent storm.
Exxon has been studying the size, shapes and movement patterns of icebergs off Canada's northeast coastline since 1981. At the 1.3 billion-barrel Hibernia field, the province's largest single source of crude, the company uses radar and aircraft to detect icebergs that may threaten the 735-foot tall platform and dispatches specialized boats to tow or deflect them, according to the company's website.
-- With assistance from Eric Lam and Katia Dmitrieva in Toronto and Joe Carroll in Chicago.
By JEREMY VAN LOON and REBECCA PENTY