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Canadian frontier shuffle Chevron realigns Beaufort, Newfoundland partnerships in deals with Statoil, Repsol; Imperial, ExxonMobil, Shell in partial retreat Gary Park For Petroleum News
Chevron Canada is at the center of deals with Norway’s Statoil and Spain’s Repsol that involve a sweeping strategic overhaul of exploration rights in the Beaufort Sea and Newfoundland offshore.
The result is a series of ambitious plans to probe Canada’s most remote, highest cost frontier plays, demonstrating faith in the resource potential of technically challenging regions.
Pending regulatory approval, the three companies will drill a third exploration well in Newfoundland’s Orphan basin this summer, with Chevron as 65 percent operator.
Repsol is farming in to 20 percent and Statoil is targeting 15 percent of positions vacated by Imperial Oil, ExxonMobil Canada and Shell Canada who held stakes in the basin’s first two wildcat wells.
The basin is almost 200 miles from the closest Newfoundland landmark and is estimated to have production capacity of about 8 billion barrels of oil, although the initial wells have yet to ratify that estimate.
The three companies have also expanded their existing partnership in Atlantic Canada, acquiring two exploration parcels in the Flemish Pass basin, 250 miles east of St. John’s, Newfoundland. Statoil will be operator with a 50 percent equity interest. Chevron has 40 percent and Repsol 10 percent.
Statoil farms in to Beaufort In the Beaufort Sea deal, Chevron will remain operator after farming out 40 percent to Statoil, which will pay part of the costs of acquiring seismic data from a 3-D program covering 795 square miles this summer.
The companies did not disclose the value the transactions.
The Orphan basin properties, involving eight parcels covering 5.25 million acres, were acquired in 2003 for work commitments of C$673 million; the trio won the Flemish Pass rights in November for C$348 million; and Chevron committed C$103 million in 2010 for a 508,800-acre Beaufort parcel.
Chevron Canada President Jeff Lehrmann said in a statement the agreements “significantly strengthen our exploration position in Atlantic Canada and in the Beaufort Sea and reaffirm our commitment to achieving long-term growth in Canada.”
Tim Dodson, Statoil Canada’s executive vice president for exploration, said that building on his company’s Flemish Pass position and gaining early entry to the Orphan basin and Beaufort provides “access to large potential resources and increases the optimality of our exploration portfolio.”
Geir Richardson, another Statoil vice president, said his company has “for a long time realized the Arctic holds a significant part of (Canada’s) remaining resources. We saw this is a very good opportunity.”
He said Statoil is ready to work with Canada’s National Energy Board on new Arctic drilling regulations after the federal regulator gave exploration companies a chance to show they could “meet or exceed” the board’s requirement to kill an out-of-control well in the same season that the well was drilled.
Repsol said its objective is to expand its presence in North America, particularly Canada’s East Coast.
Imperial, Shell offer few explanations Imperial and Shell offered few explanations for their pullout from the Orphan basin beyond saying the decisions were consistent with their ongoing review of all assets in the context of corporate operating needs and financial objectives.
The initial Orphan well, Great Barasway F-66, was drilled in 2006 to a total water and subsea depth of 22,100 feet — a record for the Canadian offshore — at an estimated cost of C$140 million. The drilling rig encountered various operational problems and was classified as a dry hole.
The second well, Lona O-55, also encountered drilling difficulties before being completed in August 2010. It remains a tight hole.
Repsol said it was not troubled by the failure so far to report a discovery given that the average success rate for offshore wells is about 20 percent.
“One well is not enough evidence to doubt the play,” said a Repsol spokesman.
Beaufort JV formed in 2010 Chevron’s Beaufort license is adjacent to a joint venture formed in 2010 by Imperial Oil, ExxonMobil and BP to explore two licenses acquired in 2007 and 2008 for combined spending commitments of C$1.8 billion, although the partnership has yet to disclose any drilling plans.
Paul Barnes, Atlantic Canada manager for the Canadian Association of Petroleum Producers, said the asset shuffles are a “positive sign” for the offshore plays.
The fact that companies are investing and scheduling work increases the potential for future discoveries offshore Newfoundland and in the Beaufort, he said, while conceding harsh weather and a lack of infrastructure pose obstacles.
However, Barnes said the companies apparently believe there is oil and natural gas to be found in sufficient quantities to make the investment worthwhile.
“They think the prize at the end of the day will be greater than the cost of undertaking exploration activity,” he said.
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