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Tackling new basins Major players keep hope alive, but investment dealers say floundering Atlantic Canada industry could die without new discoveries, new regulatory policies Gary Park Petroleum News Calgary Correspondent
Two new Atlantic Canada oil and natural gas prospects are coming under the microscope in a region that is lurching from hope to despair.
Petro-Canada and EnCana are discussing a deepwater exploration initiative about 90 miles east of Sable Island offshore Nova Scotia and a partnership of ConocoPhillips Canada, Murphy Oil and BHP Billiton has kicked off a seismic program in the Laurentian sub-basin, straddling the ocean boundary separating Newfoundland and Nova Scotia.
Those operations are taking place against a background of exploration failures and warnings that Nova Scotia’s struggling offshore badly needs a new discovery.
Petro-Canada and EnCana told a Lehman Brothers investment conference in New York earlier in September that they are examining 466 square miles of seismic shot last fall at the Stonehouse site in the Vanquereau sub-basin east of the producing Sable project.
If a decision is made to drill at a cost of about C$100 million per well and significant volumes are found it could improve the economics of EnCana’s stalled Deep Panuke project by spreading the infrastructure costs over a larger gas reservoir.
In mid-August, the Laurentian partnership launched a 3,600 mile, 70-day 2-D seismic program over the 15,500 square mile sub-basin, which the Geological Survey of Canada estimates could hold 700 million barrels of oil and 9 trillion cubic feet of gas.
Depending on results, a 3-D program could be conducted next year to more accurately identify potential drilling targets, followed by a well costing C$50 million to C$100 million in 2007. Boundary disputes hold up exploration Gulf Canada Resources, which has since been taken over by ConocoPhillips, acquired 7 million acres of land holdings in the sub-basin in the 1960s, but exploration plans were tied up in drawn out boundary disputes between Canada and France, which owns the islands of St. Pierre and Miquelon and a separate feud between Newfoundland and Nova Scotia that was settled in 2002.
The terms for exploration programs were settled in June by the Canada-Newfoundland Offshore Petroleum Board, which controls more than 70 percent of the sub-basin.
In the mid-1980s, ConocoPhillips (through Gulf Canada) and Murphy spent about C$23 million studying the Laurentian geology and reinforced their interest in May when they spent C$18 million leasing seven exploration licenses.
Newfoundland Natural Resources Minister Ed Byrne said the oil and gas industry now has certainty that the sub-basin is “open for exploration.”
He also welcomed the decisions by Australia’s BHP Billiton to join the ConocoPhillips and Murphy, given the firm’s experience in deepwater oil and gas projects in Australia and the Gulf of Mexico.
Henry Sykes, president of ConocoPhillips’ Canadian unit, said the addition of BHP Billiton “moves us another step forward in our plans for this high risk frontier basin.”
Kent Lissack, who manages Atlantic negotiations for ConocoPhillips, said the Laurentian, although only about 180 miles from Sable, is a completely different basin from offshore Nova Scotia.
He said ConocoPhillips is eager to test its belief that the area holds commercial quantities of hydrocarbons.
But he cautioned the Laurentian seafloor poses challenges in obtaining good quality seismic data. Offshore assets change hands In another East Coast development, Canadian Superior Energy bought El Paso’s offshore Nova Scotia assets Sept. 15 for an undisclosed price.
The deal opens the way for the Canadian junior to negotiate a new joint venture to pursue its conviction that three blocks 180 miles southeast of Halifax hold significant quantities of gas.
The sale marks the departure of El Paso from Canadian exploration, although the Houston-based company is keeping alive its $2 billion plan for a subsea pipeline from Nova Scotia to Canadian and northeastern U.S. markets.
The Blue Atlantic Pipeline Project, once scheduled for start-up by late 2005, was based on studies by El Paso and Marathon Oil projecting that Nova Scotia’s production, now barely 400 million cubic feet per day, would reach 1.2 billion cubic feet per day by 2005 and 2 bcf per day by 2010.
An El Paso spokesman said the pipeline could be revived if commercial quantities of gas are discovered. “We’ll be watching closely,” he said. Suits filed over Mariner well Unrelentingly upbeat about its chances of a find, Canadian Superior is trying to bounce back from El Paso’s refusal in March to pay half the costs of testing the Mariner I-85 well, which the Calgary-based company was forced to plug and abandon while insisting it had found some evidence of gas.
Class action suits have been filed in the United States against Canadian Superior, but none have been certified. They accuse the company of issuing false and misleading news releases on the Mariner well — allegations Canadian Superior has described as “groundless, frivolous and a misuse of the United States legal system.”
The El Paso assets now under Canadian Superior’s control include three blocks, seismic data, all shared geophysical, geotechnical and environmental data, well data from Mariner I-85 and Marquis L-35/L-35A, related inventory and tax pools.
Mike Coolen, Canadian Superior’s vice president of East Coast operations, said Sept. 15 that the “near term” emphasis will be on drilling near the Mariner I-85 site.
Well site survey work has been completed on two proposed locations and tenders have been invited for a drilling rig, but whether the well can be started this year is not clear.
Coolen said the El Paso transaction allows his company to “expeditiously move forward with further drilling,” but said any announcement about a new partner will take place in “the weeks ahead.” Trend of exploration failures Canadian Superior strategy is bucking the trend of exploration failures and surrendered exploration licenses in a region that took another setback last month when Talisman Energy Chief Executive Officer Jim Buckee said a partnership formed with Imperial Oil has stalled plans for a second well near the deepwater Balvenie B-79 hole that was declared dry a year ago.
He said there will be no more wells until a gas find is made in the area, adding “we can afford to just sit.”
The outlook was further dampened by the Investment Dealers Association of Canada, whose annual report on Atlantic oil and gas developments said help is needed to rescue the Nova Scotia industry.
“The lack of commercially viable discoveries in the past few years, coupled with high costs ranging from C$30 million to C$100 million to drill a well, have prompted some major players to begin shifting more of their exploration activities outside of the Atlantic Canada region,” the study said.
Although Nova Scotia still has 40 active exploration licenses carrying C$1.2 billion in work commitments, the association said governments in the Atlantic region can only reverse the downturn by promoting policies that help increase exploration activity.
Some of the measures should include streamlining regulatory and supervisor programs that add to costs and extend project approval times, it said.
It urged the governments to end the practice of giving preferential treatment to local producers and suppliers of equipment and services and creating “uncompetitive cost structures.”
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