News Release – Nalcor Energy releases third quarter financial results

November 19th, 2020

“Despite the challenges of COVID-19, Nalcor has continued to provide essential services without interruption while keeping our employees, contractors and the public safe. Because of the pandemic, construction and commissioning on the Muskrat Falls Project sites was suspended in March. Work resumed in June and on September 22, we achieved a major milestone by generating power for the very first time. The health and safety of our workers and the communities in which we operate remains our first priority. I want to thank all of our employees and contractors for the progress we have been able to achieve in this most challenging environment.” Stan Marshall, President and CEO 

Third Quarter Financial Highlights

· Nalcor recorded a profit for the three months ended September 30, 2020 of $17 million compared to a loss of $13 million for the same period in 2019, an increase of $30 million. The key drivers of the increase include higher oil production and no exploration and evaluation expense in Oil and Gas and the implementation of the 2017 GRA Order in 2019. This increase was partially offset by lower realized oil prices. 

· Nalcor recorded a loss for the nine months ended September 30, 2020 of $120 million compared to a profit of $106 million for the same period in 2019, a decrease of $226 million. The key drivers of the decrease relate to a non-cash impairment of oil and gas assets of $225 million recorded in the first quarter, lower realized oil prices and higher depletion in Oil and Gas, and the expensing of interest and operating costs in LCP Transmission as a result of the Labrador Transmission Assets being substantially complete. This decrease was partially offset by higher production volumes and a reduction in exploration and evaluation expense in Oil and Gas.  

· The non-cash impairment of White Rose and Hibernia South Extension assets in Oil and Gas recorded in the first quarter is a result of the significant decrease in oil prices due to global events that caused increased supply and decreased demand amid the current COVID-19 pandemic. The oil and gas industry as a whole is dealing with a decline in global oil prices and the recognition of an impairment charge is consistent with other industry participants. Oil and Gas assets generate significant cash flows for the Province of Newfoundland and Labrador through oil sales and royalty payments. 

· Capital expenditures for the nine months ended September 30, 2020, were $542 million compared to $949 million in 2019, a decrease of $407 million. The primary driver of the decrease was lower capital incurred in LCP Transmission and Muskrat Falls due to the wind down of construction, in addition to delayed project spending across all lines of business due to the impacts of COVID-19. 

Other Recent Developments

Our first priority is the safety of our people and our communities. Since May, significant emphasis has been placed on returning workers to the Muskrat Falls Project work sites while strictly adhering to public health guidelines. Lost time and a reduced workforce have negatively impacted project costs and schedule.

On September 22, we achieved a major milestone by generating power for the very first time. We expect this first generating unit to be put in commercial operation later this month. The second unit is going through its commissioning process and is expected to deliver power to the grid early in the new year.  

In August, an issue occurred on some fibreglass beams in the valve halls at Muskrat Falls and Soldiers Pond. The source of the problem has been identified and an interim solution is being implemented to allow for the continuation of commissioning of the Labrador-Island Link (LIL) software. The source appears to be that most of the fibreglass beams were not properly cured during manufacturing and will eventually be replaced by GE Grid. GE has continued with software development and is preparing to re-start commissioning on the LIL around the end of this month. Once commissioning of LIL re-starts, Nalcor will utilize LIL at varying levels to bring power from Muskrat Falls to the island.

An update on the Muskrat Falls Project and COVID-19 impacts to cost and schedule was provided in September. While the total COVID-19 cost impacts to the project are roughly $150 million, about half will be covered under the existing capital budget so $75 million in additional capital was required.

As reported on November 15, a contracted worker at the Soldiers Pond work site has been confirmed to be positive for COVID-19. The individual is from outside Canada and had received an essential worker exemption to work at the site. The individual worked for two nights on November 10 and 12 and followed all safety protocols. He was not in close contact with others at the site and has been in self-isolation in St. John’s when not working. The individual did not show any symptoms, but on November 13 was tested following notification that a family member in the worker’s home country had tested positive. Nalcor has worked closely with Public Health officials. Risk to others is considered low and the situation is being closely monitored and all reasonable precautions are being observed.

In July, Hydro announced they were working with the provincial and federal governments to build the province’s first network of fast chargers for electric vehicles (EV). Construction on the charging stations began in late October. This EV network will see 14 fast-charging sites installed from St. John’s to Port-aux-Basques by the end of 2020, with more locations expected in future phases.

Due to the COVID-19 pandemic, Hydro has a compressed capital plan this year giving priority to projects required for the safety and reliability of supply to customers. During the third quarter, Hydro filed its capital budget application for 2021 with the Board of Commissioners for Public Utilities for approval. Review by the regulator and intervenors continue as Hydro awaits a decision on the application.

At the end of October we had a transformer fire in the Churchill Falls electrical yard. As a result of the fire, oil was released from the transformer. Our primary focus is on our environmental response to contain and collect the released oil. This work is ongoing. We have not seen any visible evidence of oil in the Churchill River. The damaged transformer has been removed and relocated. The installation of the replacement transformer is now underway.

In our Oil and Gas division, the combination of disputes between oil producing nations and the COVID-19 pandemic has had a significant impact on demand for fuels and on crude oil prices in 2020.

In March 2020, Husky Energy announced that it would be temporarily suspending major construction activities related to the West White Rose project due to COVID-19. As a result of continuing delays from COVID-19 and market uncertainty, during September Husky Energy announced it would be completing a full review of the scope, schedule and cost of the West White Rose project. In October 2020, Husky Energy announced the construction of the West White Rose platform would continue to be suspended through all of 2021.

In April 2020, the Hibernia Management Development Corporation announced that drilling activities from Hibernia would be temporarily suspended, which is currently anticipated to be for a period of two years.

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Media Contact:

Deanne Fisher

Director, Corporate Affairs and Corporate Planning

t: 709.733.5299 c: 709.697.3418 e: deannefisher@nalcorenergy.com