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Nova Scotia woes keep piling up EnCana-Marauder wildcat unsuccessful, sidetrack well under way at Deep Panuke; more exploration licenses abandoned; no wells scheduled for 2006; Marauder shares drop by 50% Gary Park For Petroleum News
Any northeastern United States markets counting on Nova Scotia natural gas as a vital source of support would be well advised to check out other prospects.
A year marked by inactivity ended with the only exploration well turning into a flop and another bunch of exploration permits being abandoned.
What that amounts to over the near term is a brief turnaround in production from the Sable field, with output rising close to capacity of 530 million cubic feet per day, then receding back to current volumes of 400 million cubic feet per day and less.
Those counting heavily on EnCana’s Deep Panuke discovery becoming the basin’s second commercial development were dealt a setback Dec. 28 when the big independent and its partner, Marauder Resources East Coast, reported that Dominion J-14 failed to encounter a gas-bearing reservoir.
It was drilled to 12,100 feet at a cost of C$30 million by the Rowan Gorilla VI rig.
Shares of Marauder, which has no other assets, were immediately slashed by 50 percent. The junior paid 40 percent of the cost to earn a 20 percent stake in the Grand Pre block.
But Marauder Chief Executive Officer Robert Shields did not concede final defeat.
“I am disappointed that the original target didn’t show up, but this isn’t dead yet,” he said, referring to the sidetrack EnCana and Marauder expect to complete by mid-January.
The sidetrack will follow the same vertical hole into the Abenaki reef formation to determine whether gas is located near the Dominion J-14 target.
“It’s a big reservoir (and) it’s very complex,” Shields said, noting that two of the original four wells at Deep Panuke had to be sidetracked and both were successful. EnCana: ‘more work to do’ A spokesman for EnCana said there is “more work to do” before decisions can be made on how the J-14 well will affect the future of Deep Panuke.
When EnCana stalled the regulatory process on Deep Panuke three years ago it estimated reserves at 930 billion cubic feet — not enough in its view to make a C$1.3 billion project economically viable.
It opted to continue exploring for additional reserves, while negotiating more favorable fiscal terms with the Nova Scotia government and determining whether there might be a way to share infrastructure with the Sable field, which had watched its reserve estimates tumble from 3.6 trillion cubic feet to 1.4 tcf.
The last two months have produced a couple of glimmers of good news for Deep Panuke, with Nova Scotia Premier John Hamm reporting progress in the fiscal negotiations and EnCana’s new Chief Executive Officer Randy Eresman telling reporters before the J-14 results that he was “reasonably certain” the field would be developed in the “reasonable future,” without tying that forecast to J-14.
Some analysts, who rate Deep Panuke’s prospects close to 1.5 tcf, suggested J-14 could double those reserves, opening the door to a new producing basin.
“We have been continuously working to try to find a way to make (Deep Panuke) economically viable,” Eresman told the Calgary Herald. “Our chief concern is the downside risk.
“On a high-side case, this is a tremendous asset, but on the downside, it wouldn’t compete for capital. So we are very sensitive about making sure we do the right kind of deal here.”
Eresman reiterated the thoughts of his predecessor Gwyn Morgan who had indicated EnCana might bring Deep Panuke to a certain point, then dilute its role.
“Certainly, we don’t want to be the operator,” because EnCana does not have the internal expertise to take on such a project, Eresman said.
Some assume the obvious buyer would be ExxonMobil, which is operator of the nearby Sable field. Exploration licenses lapse While Deep Panuke remains in doubt, further clouds spread over Nova Scotia when holders of six exploration permits allowed the licenses to lapse Dec. 31, wiping another C$156 million in work commitments off the books.
Since mid-2004 more than 30 permits carrying more than C$500 million in work pledges have been abandoned, taking such key operators as ExxonMobil, Imperial Oil, Shell Canada and Kerr-McGee with them.
In addition, companies have invested in the region of C$1 billion drilling a string of dry holes over the past seven years.
That history is making it difficult for Nova Scotia boosters to make their case that the region is still an immature play and has logged only a fraction of the wells completed in the Gulf of Mexico and other major offshore basins.
But a spokesman for the Canada-Nova Scotia Offshore Petroleum Board told the Financial Post that, although no wells are planned for 2006, Nova Scotia remains a “very frontier area.”
He said the regulator understands there is the potential for 40 tcf, but hitting “the right spot” through exploratory drilling is a complex process.
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