From tragedy to triumph

StatoilHydro opens door to 2nd Newfoundland basin a month after 17 die in crash

Gary Park

For Petroleum News

What would otherwise have been a cause for celebration was confined to a subdued response, when Newfoundland recorded its first discovery in 20 years while the province is still grieving the loss of 17 people in the crash in March of a helicopter servicing offshore platforms.

For the normally ebullient Premier Danny Williams word of StatoilHydro Canada’s find in the lightly explored Flemish Pass basin was “good news. … It means there is more oil out there, which we’ve always felt.”

He said that striking pay dirt had to be weighed against the helicopter tragedy, which showed the high cost of chasing oil and natural gas riches in such an unforgiving environment.

Those dangers were accentuated by the fact that StatoilHydro spent three months drilling, testing and logging the well through the toughest conditions in the North Atlantic to avoid losing its license.

“All operators would like to drill during the summer time,” said Erik Abrahamsen, vice president of StatoilHydro’s Canadian East Coast operations. “But the license was about to expire and that drove us into the winter.”

Even StatoilHydro delayed its planned announcement of the results until the initial shock of the helicopter crash had passed.

But there is little doubting the potential importance of the discovery.

“It’s a big day for us,” said Abrahamsen. “This is actually our first purely operated well. It’s a great achievement.”

Commercial production?

However, reaching that milestone could be 10 to 15 years away.

Abrahamsen said it will take many months to evaluate results from the Mizzen O-16 well, drilled in 3,600 feet of water, then apply for a Significant Discovery License and finally drill further exploration or appraisal wells.

He doubts the follow-up wells could occur within two years, partly because of rig availability and scheduling.

Abrahamsen hopes the Canada-Newfoundland and Labrador Offshore Petroleum Board will decide later this year on the application for an SDL, which grants indefinite tenure to the leaseholder based on evidence that the discovery is capable of supporting commercial production.

Originally the sole licensee on Exploration License 1049, StatoilHydro — which has been active in the region for a decade — farmed out 35 percent of its interest to Husky Energy to share the cost of the well. It has no current plans to increase the farm-out strategy.

The O-16 well was drilled alongside EL 1112, which records show is also owned 65 percent by StatoilHydro and 35 percent by Husky.

Newfoundland Natural Resources Minister Cathy Dunderdale said in a statement she was optimistic the breakthrough in the Flemish Pass, where only six previous wells were drilled from 1979 to 2003 in an area the offshore board estimates contains about 1.7 billion barrels of undiscovered hydrocarbon resources, will “lead to increased exploration and interest in the deeper waters of our offshore.

“We look forward to working with the company and to their commitment to the pursuit of the next big discovery,” she said.

Dunderdale also said the Henry Goodrich rig, which drilled the Mizzen well, is expected to remain in the Newfoundland offshore for about 30 months.

Bob Cadigan, president and chief executive officer of the Newfoundland and Labrador Oil and Gas Industries Association, said the Flemish Pass discovery bodes well for that basin as does Newfoundland’s second deepwater prospect in the Orphan Basin, where exploration resumed two years ago.

“It’s frontier work; it’s a new basin and to have a significant discovery this early in the cycle is really positive news,” he said.

Awarding an SDL confidential

But, because the process of awarding an SDL is confidential, it will take time to learn where the zone was, how thick it was and what the flow rates, pressures, porosity and permeability were.

Abrahamsen said evidence of “producible hydrocarbons” gives StatoilHydro the incentive to preserve the “tight hole” designation for two years and “keep our competitive advantage.”

He noted that the other Mizzen well was abandoned by operator Petro-Canada, EnCana and StatoilHydro’s predecessor Norsk Hydro six years ago.

“Our people saw something that Petro-Canada and EnCana didn’t see, so they pulled out after eight years,” he said. “We think we have enough well data to prove our case to get the SDL, which will give us time to study the full potential.”

StatoilHydro — backed by its vast experience offshore Norway — owns interests in several exploration, development and producing licenses offshore Newfoundland, including the producing Hibernia and terra Nova fields and Hebron-Ben Nevis, which is expected to come on-stream about 2015.

Although beyond Canada’s territorial limit of 200 miles, the Mizzen discovery falls within Canada’s jurisdiction because it is under the continental shelf.