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Sable gas field hard hit by reserve downgrades Projections wipe 10 years off field life, hope rests in discoveries, Deep Panuke JV Gary Park Petroleum News Calgary Correspondent
Nova Scotia’s lone producing gas field has been rocked by a third downsizing of reserves that has slashed the operating life of the C$3 billion project in half to just 10 years and added to the dismal recent record of Canada’s East Coast.
With estimated sales gas reserves now at 1.35 trillion cubic feet, compared with an original 3.5 tcf, the field could run out of gas about 2014, instead of the hoped-for 2024 when it came on stream four years ago.
James Kinnear, president of Pengrowth Energy Trust, which owns 8.4 percent of Sable, told a conference call Feb. 3 that at current rates of production the Sable reserve life index is 7.2 years, while the “economic” operating life is 10 years.
He was confident that the field could maintain production at about 400 million to 500 million cubic feet per day for the “foreseeable future,” but declined to estimate when output would peak.
Keeping production within that range means the South Venture field — one of Sable’s six fields — must come on-stream as scheduled later this year and additional compression facilities must be introduced in 2006, Kinnear said. New discoveries, JV deal could extend operating life Beyond that, he said the best hope for extending the operating life hinges on new discoveries and possibly reaching a joint venture deal with EnCana, which owns the nearby Deep Panuke field.
Pengrowth’s decision to chop its share of reserves to 126 billion cubic feet from 176 bcf was based on a preliminary analysis by independent appraiser Gilbert Laustsen Jung Associates. It came only four days after Shell Canada, which has a 31.3 percent stake in the consortium, downgraded its reserves by 40 percent to 430 bcf from an original 1.1 tcf.
ExxonMobil Canada, the 50.8 percent operator, said its own analysis of Sable production data confirms the Shell Canada numbers.
In a report to clients Jan. 30, FirstEnergy Capital estimated that Sable comprised 16.1 percent of Pengrowth’s reserves at the end of 2002 and thus the trust would be the “most adversely affect” of the consortium partners.
Pengrowth, one of the largest energy trusts in North America, said the Sable revisions have lowered its overall proved reserves by 9.3 percent or 17.1 million barrels of oil equivalent, but Kinnear said they had already been factored in when the trust paid C$122 million last year for a stake in Sable pipeline and processing facilities, on top of its 8.4 percent working interest in the field.
The trust said Feb. 2 that it expects to maintain its monthly distributions of 21 cents per unit through 2004. Investors spooked But unit holders were temporarily spooked by the reserves cut, sending units on a wild ride Feb. 2, shaving as much as 16.2 percent in early trading before ending the day down 4.6 percent.
Since starting production, Sable has peaked at 550 million cubic feet per day in exports to the U.S. Northeast, with expectations that it would sustain exports of 500 million cubic feet.
But the flow has gone into decline, averaging only 430 million cubic feet per day last year, against a background of mounting analysts’ predictions that Sable was unlikely to meet its forecast 25-year operating life.
The bleak outlook was reinforced by Shell Canada’s announcement that a development well last year showed the Glenelg field — the last field that was targeted for inclusion — was not economically viable as a standalone development. There had been hopes that Glenelg would start pumping sometime between 2004 and 2007.
In addition to removing Glenelg from current development plans, Pengrowth said the Sable consortium has excluded an undrilled fault block at the North Triumph field and experienced poorer-than-anticipated performance from the producing Venture field. Government calls for stepped up drilling Nova Scotia Energy Minister Cecil Clarke said the reserve downgrade and the Glenelg write-off is a “disappointment,” but should also be a “rallying call” for the industry to step up drilling off Nova Scotia.
A Shell Canada spokeswoman told reporters the South Venture field should come on stream later this year to sustain production, while the company is ready to move on its own or with partners to explore both the shallow and deep waters of the region “because we still think it has potential.”
The reserve setback also shifts the spotlight to discussions taking place between the Sable owners and EnCana about the possibility of connecting EnCana’s 930 bcf Deep Panuke field to the Sable infrastructure.
Once targeted for a 2006 start-up and peak output of 400 million cubic feet per day, Deep Panuke was scrapped in its present form two months ago, while EnCana weighs several options including a smaller facility.
Faced with shaky economics for a standalone project, EnCana is now exploring a possible joint effort or cooperation to use Sable’s established infrastructure.
In addition, the MarCoh D-41 well, which was drilled last year in the Deep Panuke reservoir by ExxonMobil, EnCana and Shell Canada and encountered 100 meters of gas bearing reservoir, could be a candidate for tying in.
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