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Nova Scotia optimism wanes Licenses up for offers; Imperial adds to abandoned wells Gary Park Petroleum News Calgary Correspondent
Oil and natural gas risk-takers are discovering what seafarers have know for centuries — the storm-tossed waters off Canada’s East Coast don’t easily give up their bounty.
Despite their immense hydrocarbon potential, the waters off Newfoundland and Nova Scotia are becoming littered with high-priced dry holes, deferred plans and the early signs of retreat by license-holders.
Adding to the growing doubts, the lead partners in the Sable Offshore Energy Project — so far Nova Scotia’s only producing gas field — said Sept. 15 they are seeking investors or buyers for a large chunk of their licenses.
That came just two weeks after Imperial Oil buffeted the region’s hopes when it abandoned its first exploratory well in the deepwater.
Up for grabs are seven of 12 exploration licenses and 11 of 21 significant discovery licenses, all within 30 miles of the Sable field.
A spokesman for operator ExxonMobil Canada, which holds 50.8 percent of the Sable project, told reporters in Halifax that “we remain committed to business opportunities” offshore Nova Scotia.
He described farming out licenses as a “normal course of business.” The objective is to determine if anyone is “interested in taking the risk” of funding further exploration, he said. String of disappointing results But the spokesman conceded that a string of disappointing exploration results in the last two years did play a role in the decision.
About C$150 million has been spent exploring the properties to the point where “we understand which ones we intend to work on in the near future.” he said.
The other partners in the sale process are Shell Canada, with a 31.8 percent stake, and Imperial, which is 69.6 percent owned by Texas-based ExxonMobil, with 9 percent.
ExxonMobil Canada said that if it has no takers for the exploration licenses, which expire in 2004, it will pay the penalties and retain the significant discovery licenses. The fines cover 25 percent of the difference between the successful lease bid and the allowable expenses authorized by the Canada-Nova Scotia Offshore Petroleum Board.
For instance, a bid of C$80 million and expenses of C$40 million would mean the operator would face a fine of C$10 million.
The exploration licenses cover a combined 714,000 acres and carry C$277 million in work commitments. Imperial setback Another setback to the official optimism came from Imperial. Using the Norwegian-owned Eirik Raude, the world’s largest semi-submersible rig, and drilling in a water depth of 5,900 feet, it called a halt at 15,600 feet, saying it had failed to discover any hydrocarbons in commercial quantity.
There were no estimates of the well costs, although Imperial had indicated that it planned to spend about C$100 million on exploration when it was awarded two deepwater parcels covering 620,000 acres in 1999.
Talisman Energy had negotiated rights to a 30 percent equity interest in the two licenses, which lie about 180 miles southeast of Halifax and are part of the unproven Scotian Slope where various agencies have estimated the reserve potential from 15 trillion cubic feet to 50 tcf.
The slope is an undersea escarpment which sprawls over 26,000 square miles, with water depths ranging from 800 feet to 10,000 feet, while the shallow-water Scotian Shelf includes the Sable project.
The slope has attracted work commitments of C$1 billion from a powerful line-up of E&P companies, including Marathon Oil, EnCana, Kerr-McGee, Murphy Oil, Norsk Hydro, Petro-Canada, ChevronTexaco, Anadarko and BP.
When Imperial unveiled its intention to drill, Senior Vice President K.C. Williams said the deepwater contained large, high-potential exploration prospects and, despite the final risks, it “is prudent to explore this significant opportunity.”
With leads starting to dwindle on the shelf, industry and government attention have started shifting to the deepwater, which many have said shares geologic parallels with the basins of West Africa, Brazil and the Gulf of Mexico. Clock running on leases But the clock is running on leases, which are due to expire over the next four years, prompting British energy consultant Wood Mackenzie to suggest in an August report that discoveries of at least 1 tcf are urgently needed to “prove the potential of the area and maintain investment.”
Hopes of a breakthrough were raised last year when Marathon, in partnership with EnCana, Norsk and Murphy, reported a find in the Annapolis block. Marathon estimated the reserve potential at 5 tcf to 15 tcf and was supposed to delineate the field this year, but is now planning to spud another exploratory well in 2004.
Murphy, meanwhile, has opted to seek buyers for five of its 12 Nova Scotia exploration licenses and pursue opportunities in the Gulf of Mexico and Malaysia.
The spotlight is now on a joint venture by Canadian Superior Energy and El Paso, which hope to spud a well Nov. 15 on their 102,000-acre Mariner block — a probable C$60 million well targeting a depth of 19,600 feet.
The Canadian Association of Petroleum Producers, while confirming many wells have been postponed, said it is still counting on eight to 10 wells over the next 18 months.
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