Vol. 9, No. 28 Week of July 11, 2004
Providing coverage of Alaska and northern Canada's oil and gas industry

Companies walking away from Nova Scotia prospects

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Five operators allow 12 licenses to lapse; 10 more set to expire at yearís end; hopes now hang on Marathon Canada well, Canadian Superior promise

Gary Park

Petroleum News Calgary Correspondent

Itís not yet a full-scale stampede, but the sound of footsteps is building offshore Nova Scotia.

Unable to find buyers or other partners and unwilling to take the gamble themselves, five companies allowed a combined 12 exploration licenses carrying C$280 million in work commitments to expire June 30.

The decision to walk away from the prospects is the biggest setback yet to a basin that has compiled a growing list of drilling failures that have dealt a heavy blow to the optimism of 1999 when permits worth C$592.5 million were issued, spurred by the nearly completed Sable natural gas project.

After five years of evaluating the prospects, the five license-holders apparently decided they would be better paying the Canadian government 25 percent of what they had pledged to spend ó minus any allowable expenses ó rather than drill.

The leases now revert to the government and could be part of any future call for bids by the Canada-Nova Scotia Offshore Petroleum Board, although the regulator is moving cautiously, having dropped plans for a call for bids in June after reviewing industry nominations.

ExxonMobil drops most licenses

Bailing out on June 30 were ExxonMobil, which had five licenses carrying work expenditures of C$122 million; Shell Canada, with three at C$94 million; Kerr-McGee Offshore Canada, two at C$34 million; Imperial Oil Resources, one at C$28.9 million and Richland Minerals, one at C$1.2 million.

Paul McEachern, managing director of the Offshore/Onshore Technologies Association of Nova Scotia, told the Halifax Daily News that the decisions not to drill have more to do with corporate policy than unfavorable geology.

He was confident other companies would be eager to scoop up the surrendered licenses.

McEachern said he is more concerned with the amount of seismic activity and drilling actually taking place than with the number of blocks being leased.

The next test of the industry mood in offshore Nova Scotia comes quickly. Ten more licenses are due to expire Dec. 31 and so far none of the holders has given any hint of drilling.

Three operators have leases expiring at end of year

Of those 10, EnCana has five with C$43.2 million in commitments; Richland Minerals has three at C$5.4 million and Kerr-McGee Offshore, two at C$7.6 million.

Of the batch awarded with a Dec. 31 deadline, only one was drilled ó EnCanaís Margaree F-70 well which is part of its possible gas reservoir for developing the Deep Panuke find.

A nine-day production test last year of the 100 percent-owned Margaree well flowed at 53 million cubic feet per day from a gas-bearing pay zone of 230 feet, but EnCana is still weighing the economics of proceeding with Deep Panuke, having withdrawn its original application.

But not all is lost in the basin. A Marathon Canada-led partnership is currently using the Deepwater Pathfinder semi-submersible to drill the Crimson K-81 exploratory well about 220 miles east of Halifax and is so far at about 11,800 feet on its way to 21,400 feet.

The well is about 5 miles east of Marathonís Annapolis G-24 discovery in 2002 in a parcel the operator hopes might hold 5 to 15 trillion cubic feet.

Undaunted by the refusal of its 50 percent partner El Paso to approve testing of the Mariner I-85 well earlier this year, Calgary-based junior Canadian Superior Energy, buoyed by results from the Mariner well, is still intent on drilling a second exploratory well, aiming for a fall return to the block.

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