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Trapped in the minor leagues Dusters keep piling up in infant basin, but industry and Nova Scotia government press ahead to slash red tape, attract new investment Gary Park Petroleum News Calgary Correspondent
It’s a story that has echoes of the past for both Alaska and Alberta, where an act of faith and one last well were needed to strike oil and turn bleak prospects into a gusher of riches.
Just like Alaska in the 1960s and Alberta in the 1940s, the pressure to make a turnaround discovery is on Nova Scotia, which now clings to diminishing hopes that it can join the same offshore leagues as the Gulf of Mexico, West Africa and northwest Europe.
In just three years, 14 wells have been abandoned and three have been suspended, racking up a total bill of about C$680 million for wells that have cost from C$60 million to C$110 million.
That’s about half the work commitments that have been pledged over recent years by successful bidders.
While industry and government officials make no effort to hide their disappointment, they steadfastly refuse to buy the arguments that the day of reckoning is at hand, following three unsuccessful exploration wells this year by Marathon, EnCana and Canadian Superior. Marathon plugs and abandons Crimson F-81 Following Marathon’s announcement Aug. 26 that its partnership had plugged and abandoned the deepwater Crimson F-81 well, Nova Scotia Energy Minister Cecil Clarke told Petroleum News that attention is now shifting to other plays in the zone and deciding what can be done to improve those prospects of a commercial find.
“Obviously, the level of success is not what we wanted it to be,” he said.
But the Nova Scotia and Canadian governments and industry leaders are looking for ways to speed up regulatory approvals and other measures to “mitigate” the high costs of drilling and raise the comfort level of operators, including the possible resumption of an incentive tax credit, Clarke said.
“We are not sitting back and waiting for someone else to decide the next play,” he said. “We want to be sharp and on our game.”
Clarke said “no one can take comfort” from Crimson’s failure to unlock commercial quantities of hydrocarbons, but added that Marathon has indicated plans to drill two wells in 2005.
“I’d be upset if Marathon said it was leaving the region, but it’s not,” he said. Exploration licenses surrendered However, others are. In June, 12 exploration licenses were surrendered to regulators, leaving the holders facing penalties of up to 25 percent of a total C$275 million, less qualifying expenses. Another 11 licenses carrying C$55 million in commitments are due to expire Dec. 31.
But perhaps the watershed will be reached over the next two years as Marathon and its partners decide what to do with two licenses, worth a combined C$370 million, easily the highest bids yet made for offshore Nova Scotia prospects.
The Empire and Cortland leases adjoin the Annapolis block where Marathon found gas deposits in 100 feet of rock formations in 2002 with its G-24 well, but decided to move to Crimson in the same block rather than drill a delineation well.
Empire is shared by Marathon 50 percent and two 25 percent partners, Murphy Oil and Norsk Hydro Canada Oil & Gas, while Cortland is held by Marathon at 75 percent and Murphy at 25 percent.
Marathon spokesman Paul Weeditz told Petroleum News that data from the Crimson well will be integrated with the company’s other information to determine the company’s next move.
In 2002, Marathon indicated it had identified 10 prospects/leads on trend with Annapolis over three blocks.
On the larger picture for Nova Scotia, Weeditz said it is too early to “make any sort of rash judgments on what the future might hold for us or our partners.” Odds debated; also regulatory concerns The chances of explorers making a find in the fledgling basin have been repeated endlessly to bolster optimism.
Tim Brownlow, chairman of the Offshore/Onshore Technologies Association of Nova Scotia, said the chances of a discovery off Nova Scotia are close to one in six, compared with the global average of one in 10 for significant finds.
“We’re not dead yet,” he said, noting the region has logged just 130 wells compared with more than 20,000 in the Gulf of Mexico.
But not everyone is on the same page as Brownlow. A FirstEnergy Capital study suggested there is only one chance in 232 of drilling a successful well, although it said that could be reduced by a factor of 10 if seismic and geological data were on the mark.
However, David Chaundy, senior economist with the Atlantic Provinces Economic Council, said the string of dry holes “reinforces” the urgent need for a major discovery to “revive momentum in the offshore and to sustain investment activity.”
Brian Lee Crowley, president of the Atlantic Institute for Market Studies, said there is now a serious concern that companies will be discouraged from entering the region, given the regulatory burden they face.
“In the short term things are not looking very good,” he conceded. Few immediate plans On the immediate horizon, other than Marathon’s decisions on its major exploration licenses, there is little to focus on.
The Annapolis G-24 well and ChevronTexaco’s Newburn H-23 wells, both drilled in 2002, are scheduled to come off tight hole status this summer.
Canadian Superior Energy, after a controversy over its Mariner I-85 well earlier this year, has hired the geophysical survey vessel M/V Anticosti to start wellsite survey work on two new Mariner drilling locations. But, having lost its original Mariner partner El Paso, the Calgary-based junior might need backing to share the costs.
BEPCo, owned by the rich Bass family of Texas, is moving ahead with plans to drill two wells in the 2005-2007 period.
Other than that, member companies of the Canadian Association of Petroleum Producers have started to re-interpret the geological model that has been the basis of recent activity in the offshore.
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