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Gas economics sink Nova Scotia plan
Gary Park For Petroleum News
There’s an old Nova Scotia folk song of undetermined origin whose chorus starts out:
Farewell to Nova Scotia, the sea-bound coast,
Let your mountains dark and dreary be.
Maybe it’s a bit soon to associate those lines with the eventual future of an offshore petroleum industry that has always struggled to build on shaky foundations and is now faced with a grim outlook.
The decade-long Sable gas project, which has pumped C$1.3 billion in royalties into the provincial government’s treasury, seems to be in irreversible decline.
ExxonMobil, the lead owner of the C$2 billion project, announced July 8 its Sable partnership is abandoning plans — including seismic testing to explore two previously identified gas fields under the seabed east of Sable Island — to prolong the commercial life of the field based on the fast-changing economics of removing gas from smaller reservoirs in the new age of shale and tight gas development.
The partners are Royal Dutch Shell, Pengrowth Energy Trust and Mosbacher Operating.
Life expectancy unknown ExxonMobil spokesman Merle MacIsaac said a rigorous evaluation was conducted “over a period of time” and the outcome has been accepted.
He would not say whether Sable, whose production volumes have plunged in recent years, will achieve its life expectancy of 25 years.
“The length of the field life depends on a variety of factors,” MacIsaac said.
“The exact number of years will depend on market prices, efficiency gains and advances in technology. It’s not something you can pin down.”
ExxonMobil will now work with the Nova Scotia government to determine whether other companies might be interested in pursuing development of the significant discovery licenses it holds or gaining access to Sable’s offshore pipelines and related infrastructure.
MacIsaac said the Sable decision is not unrelated to word from the Canada-Nova Scotia Offshore Petroleum Board on July 7 that no bids were made for shallow water parcels within the Sable Basin,” although Sable evaluation was concentrated on the SDLs.
Verdict ‘discouraging’ Paul MacEachern, managing director of the Nova Scotia Offshore/Onshore Technologies Association, a trade group for the oil and gas industry, said the Sable verdict was “discouraging” and a “real problem” for the offshore’s future.
He said the association had been informed by ExxonMobil that it would not proceed at a time when gas prices are so low, forcing it to start hunting for a third party to develop the untapped fields.
Nova Scotia Energy Minister Bill Estabrooks while conceding the loss of Sable revenues is a worry for the government, said the current state of the industry is a snapshot in time and the outlook could change within a couple of years.
The question now is whether Encana will meet its early 2011 target to bring on stream its long-delayed Deep Panuke field, which has involved capital spending of C$800 million and is designed to produce 200 million cubic feet per day.
Like Sable, the bulk of Deep Panuke volumes are destined for the United States Northeast.
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