In the words of one observer: “They’re disappearing faster than free beer at a frat party.”
He was talking about the exodus from offshore Nova Scotia, where international E&P companies are walking away from exploration rights.
Unless there is a dramatic change of fortune in the next two years, those pinning their hopes on a new natural gas-producing basin to fuel the U.S. Northeast will have nothing to do but mop up the leftovers.
For 2004, operators gave up 19 exploration leases, seven of them on Dec. 31, following 2003 when four expired and one was surrendered.
That comes on top of a well-documented failure to make a single commercial discovery in the last five years, attempts by license holders to sell off or attract partners and the closure of Halifax officers by Kerr-McGee, Shell Canada and the Canadian Association of Petroleum Producers.
One of the most telling signs occurred last fall at the Canadian Offshore Resources Conference and Exhibition, normally an annual showcase hosted by the Offshore/Onshore Technologies Association of Nova Scotia.
Just 300 delegates registered for the event, compared with 675 in 2002, while, for the first time, alternative energy proponents were allowed to share the stage with oil and gas speakers, pitching the opportunities for industrial fabrication and energy technology in the wind-power sector.
Only two wells projected this year
Meanwhile, oil and gas hopes for 2005 continue to evaporate, with only two wells on the horizon.
EnCana plans to drill an exploratory well near its Deep Panuke gas find in partnership with Marauder Resources East Coast.
Canadian Superior Energy is still assembling the pieces to drill on its Mariner block this spring.
That’s a far cry from forecasts by the Nova Scotia Energy Department that nine shallow-water and 18 deepwater wells would likely be drilled over the next three years.
Otherwise, it rests with E&P companies to keep the region alive by validating permits that require only a C$250,000 deposit per license to extend the permits by another year, or by drilling to gain another four years.
Otherwise, the clock is running on the largest permits acquired in a frenzy of bidding that followed EnCana’s reported Deep Panuke discovery in 1999.
Still hanging in the balance are seven licenses carrying total work commitments of C$169 million that expire on Dec. 31, 2005, and eight more worth C$512 million that terminate on Dec. 31, 2006.
The major holders over those two periods are Marathon Oil with two blockbuster licenses with work expenditures of C$370.3 million, EnCana with two permits carrying work promises of C$86.4 million and Kerr-McGee with three permits valued at C$61 million.
The cost of not validating the permits is high. Operators are on the hook for 25 percent of their successful bids, less any qualifying expenditures, which is projected at C$40 million for the 12 licenses that lapsed on June 30, 2004.
Wells cost up to C$100 million
The cost of drilling is even greater, with wells carrying budgets of up to C$100 million, although the prospects are still highly rated in a basin where only three of 12 hydrocarbon structures have been drilled, less than 200 wells have been drilled and reserves are projected at 40 trillion cubic feet.
However, officials with the industry, the Canada-Nova Scotia Offshore Petroleum Board and the Nova Scotia government are struggling to put a positive image on the trends.
Paul Barnes, Atlantic Canada manager for the Canadian Association of Petroleum Producers, said the latest indication of companies walking from Nova Scotia is not a good sign.
“These companies committed several years ago to undertake exploration activities and all of a sudden they have decided not to, for whatever reason,” he told the Financial Post.
Michel Samson, energy spokesman for the Nova Scotia Liberal party, told reporters it is getting difficult to “find many silver linings.”
He said the offshore has been reduced to the procuring Sable field, where reserves have been reduced by 60 percent and the challenge is to keep volumes above 400 million cubic feet per day.
The offshore petroleum board mirrored the fading industry interest by canceling two planned calls for bids last year, but will try again this year, setting a March 31 deadline for nominations.
Even if a major find was made, there are growing doubts that the industry would be attracted back to Nova Scotia because of unhappiness over the region’s regulatory environment.
ExxonMobil: Atlantic Canada not competitive
Jim Massey, vice president of ExxonMobil’s Canadian and South American divisions, said both Nova Scotia and Newfoundland need to streamline their systems and bring costs into line with rival offshore basins.
“It’s time to make some changes,” he said. “Atlantic Canada has got to get competitive.”
Nova Scotia Energy Minister Cecil Clarke and federal Energy Minister John Efford concede some steps are needed to appease the industry.
But Clarke argued that the geological complexities and challenges of drilling in the North Atlantic also mean it will take time to develop the hydrocarbon wealth.
He said the expectation of instant profit from oil and gas is too ingrained in the popular culture.
