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Lift for flagging offshore basin EnCana, Shell team up to drill Nova Scotia deepwater prospect Gary Park Petroleum News Calgary correspondent
Shell Canada has injected fresh hope into Nova Scotia’s floundering offshore basin by agreeing to farm-in with EnCana to drill a deepwater prospect.
Without indicating whether there is new information to support the Weymouth well at a cost of about C$80 million, Shell Canada Chief Executive Officer Linda Cook said the results will be “an important indicator of future exploration potential in the deepwater play.”
She also acknowledged that Nova Scotia, which has accumulated a growing pile of dry holes in recent years, “is in need of a commercial discovery to provide it renewed impetus.”
Earlier this year, EnCana said it would drill on the Weymouth license using the Norwegian-owned Eirik Raude rig, the world’s largest semi-submersible, but there is no confirmation which rig will be used or what start date is planned for the EnCana-Shell well.
For Shell Canada it signals a rebound from a setback in May 2002 when it abandoned the C$90-million, Onondaga B-84, a follow up to a 1969 significant discovery license.
That was rated as possibly the most expensive failure in Canadian exploration history when it failed to yield enough gas to justify commercial production.
However, Onondaga was not included on a list of exploration licenses and significant discovery licenses that Shell, ExxonMobil Canada and Imperial Oil put on the street last month to attract possible farm-in partners.
While some viewed the offering as the most damaging sign yet that major players were bailing out of the region, Cook, echoing earlier comments by ExxonMobil, said that opening a dataroom was simply an effort to spread the risk in order to accelerate drilling activity.
“We hope there will be additional discoveries and we look forward to testing them out,” she told the Canadian Offshore Resources Exhibition conference in Halifax in her first public speech since occupying the CEO's office in July. No Nova Scotia discoveries in 17 years Given the anticipated doubling of world demand for natural gas over the next 25 years, she emphasized the importance of success in emerging basins such as Nova Scotia, where Shell Canada holds about 1.24 million acres in licenses, and Canada’s Arctic, where it is one of four owners of anchor fields on the Mackenzie Delta.
But the absence of any Nova Scotia discoveries in 17 years, despite C$592.5 million in work commitments in 1999, has fuelled speculation that the region is in trouble.
Cook said “we continue to view it as a high risk, but possibly high payoff opportunity. We remain cautiously optimistic about the technical potential of the offshore.”
She said the Weymouth well, 150 miles southeast of Halifax and close to Sable Island, will be an “important indicator of future exploration potential” and Shell Canada’s “first, next step” in deciding whether to retain two nearby deepwater licenses.
While there is no need or urgency for Shell Canada to pull out “any time soon,” Cook said “we all need and want a discovery” because of the uncertainty about Nova Scotia’s ultimate deepwater potential.
Otherwise, she said technological advances have opened the door to production in water depths greater than 6,500 feet, but warned that the industry needs government action to shrink a complex, expensive regulatory regime. EnCana still expects to develop Deep Panuke The Weymouth announcement comes less than a month after EnCana Vice President Brian Ferguson told an energy conference in Toronto that the company still expects to develop its Deep Panuke prospect, despite putting the project on hold in February while it reassessed the economics.
With reserves of 935 billion cubic feet and a capital cost of C$1.1 billion, Deep Panuke was viewed as too costly to ship the gas to U.S. Northeast markets through a C$190 million expansion of the Maritimes & Northeast Pipeline from the Sable offshore project.
But Ferguson indicated that with Sable volumes in decline and the Atlantic Canada market opening up, there is now the prospect of reduced transportation costs and better netbacks.
EnCana has promised to deliver an updated report on timing and design for Deep Panuke to the Canada-Nova Scotia Offshore Petroleum Board before Christmas. Interest stirring in Hebron-Ben Nevis Elsewhere on Canada’s East Coast, interest is again stirring in Newfoundland’s Hebron-Ben Nevis project.
Speculation has been building for several weeks that operator ChevronTexaco, which has a 28 percent stake, along with ExxonMobil Canada 37.9 percent, Norsk Hydro Canada Oil & Gas 10.2 percent and Petro-Canada 23.9 percent have reopened discussions with the Newfoundland government to seek more favorable economic terms for the C$3 billion project.
Hebron-Ben Nevis was put on hold in February 2002 when the partners said the costs of developing the 400 million-600 million barrel field made the venture uneconomic, partly because about 75 percent of the reserves are 18 to 21 degrees API, posing a major technical challenge in a harsh operating environment.
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