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May 2007

Vol. 12, No. 18 Week of May 06, 2007

Nova Scotia makes low-key changes

Revises license regulations to stop companies from sitting ‘indefinitely’ on exploration and development rights; lowers front-end deposits to attract ‘adventurers’

Gary Park

For Petroleum News

They have a lot in common — a struggle to attract new investment at a time when drilling success has been sparse and exploration licenses are being abandoned.

But that’s about where they part company.

In their efforts to revive offshore activity they are taking different routes.

Newfoundland is characterized by the bluster of Premier Danny Williams, who has threatened to impose “use-it-or-lose-it” legislation on holders of exploration permits and significant discovery licenses.

Meanwhile, Nova Scotia has quietly gone about overhauling the terms and conditions of its licenses, ending up with a package of changes that offer incentives while applying pressure to the industry.

Using a carrot-and-stick approach, it has introduced a new licensing system to reverse a succession of dry holes, lapsed licenses and a sharp decline in drilling over recent years.

The changes were announced April 19 by Diana Dalton, chair of the Canada-Nova Scotia Offshore Petroleum Board — a joint agency of the Canadian and Nova Scotia governments that manages the offshore — following a detailed comparison of the province’s regime against those of the British and Norwegian North Seas, Gulf of Mexico, Australia, New Zealand and Greenland.

Basin’s complex geology biggest hurdle

Viewing the basin’s complex geology as its biggest hurdle, the CNSOPB is “creating a world-class digital data management facility, the first of its kind in Canada,” Dalton said.

The internet-based system will provide non-confidential digital well and seismic data when it opens in October and could eventually be linked to other regulatory agencies and government departments across Canada, she said.

That is just one aspect of a strategy to attract “the adventurers, the people who find oil and gas” and that isn’t always the majors such as ExxonMobil and Chevron, Dalton said.

The review of other offshore regimes produced one glaring result — Nova Scotia is “virtually the only jurisdiction in the world where a company can sit on exploration and development rights indefinitely,” she said.

“From this point on … any new exploration license … will contain certain provisions to ensure future significant discovery licenses … will include terms and conditions intended to encourage exploration companies to get on with (development) and discourage land-banking.”

The CNSOPB is now offering new exploration licenses with initial terms of two to three years.

Instead of being based on a percentage of work commitments made in bidding rounds, which can run to millions of dollars, Nova Scotia will require deposits that could see companies “get in and out of the preliminary exploration phase for as little as C$100,000,” Dalton said.

If license holders decide they want to pursue further work, the permit can be extended to a maximum of nine years, as contained in the existing rules.

But if those companies decide not to move forward, others will be allowed to take up the license and the CNSOPB will “be able to hold all of the data for public disclosure.”

Dalton said the objective is to attract “the adventurers, the people who find oil and gas” and not just the majors, such as ExxonMobil and Chevron, who often buy in after discoveries are made.

She told reporters that the regulator wants to encourage companies “who believe in our offshore, who know there is potential there and will come here to work.”

Other changes could include approval of new technology, such as slim-hole drilling, to help reduce costs, while terms and conditions could vary based on water depth, rig availability and the maturity of the basin. In addition the changes will allow a 5 percent allowable expenditure for research and development.

Dalton said allowable expenditures will now be based on actual annual costs as confirmed by a third-party audit.

Agency will take more pro-active role

The CNSOPB is also going to take a more pro-active role by evaluating the data it has on “areas we believe have real potential for oil and gas” and assemble packages for future bidding rounds, rather than relying exclusively on the industry for nominations, she said.

Like Newfoundland, the Northwest Territories and Nunavut, Nova Scotia is troubled by the open-ended nature of its significant discovery licenses, which are awarded on the basis of proof that discoveries can support sustained production.

In the future the new exploration licenses will “encourage exploration companies (holding significant discovery licenses) to get on with (development) and discourage land-banking,” she said.

To that end the CNSOPB is contemplating escalating rentals, the details of which may be announced later this year.

“We are involved in a global industry,” Dalton said. “Others have more experience and we feel as though we’ve been on the sidelines. But this is changing.”

So far, offshore Nova Scotia has logged only about 200 wells (137 of them exploration), compared with 20,000 in the North Sea and 50,000 in the Gulf of Mexico.

Industry spokesman welcomed the prospect of greater flexibility, especially indications from Dalton that the red tape complained about by exploration companies will get some attention, but they cautioned against expecting any quick results.

Nova Scotia Energy Minister Bill Dooks and Barry Cloutier, chairman of the Offshore/Onshore Technologies Association of Nova Scotia, both held out hope that the strongest response is likely to come from smaller companies, enticed by the lower front-end costs.

Whether Newfoundland sees merit in the Nova Scotia approach, or takes a tougher line should be known later this year when it unveils changes to its own offshore regime.






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