Prospect untapped due to dispute

Gulf of St. Lawrence poised for drilling boom, governments squabble

Gary Park

Petroleum News Calgary correspondent

Squabbling over offshore boundaries and jurisdiction is leaving a new, potentially lucrative oil and natural gas prospect off Canada’s East Coast languishing on the shelf.

With Hydro-Quebec, North America’s biggest power producer, ready to spend C$330 million over seven years on exploration and several multi-national energy companies said to be knocking on the door, the Gulf of St. Lawrence is poised for a drilling boom.

The prize, according to a recent research report by Jennings Capital, is possibly the “largest undrilled prospect in Eastern Canada, with recoverable resources of up to 2 billion barrels of oil and 5 trillion cubic feet of gas.”

But, at a time when the East Coast is eager for fresh fields to explore, the gulf’s future is bogged down in wrangling involving the Canadian, Quebec and Newfoundland governments.

Exploration plans have been under a moratorium for the last four years while the federal and Quebec governments have grappled with establishing a joint administration to develop and manage the offshore waters, similar to accords in place with Nova Scotia and Newfoundland.

Those negotiations also entail settling a boundary line between Quebec and Newfoundland — an echo of a 38-year feud in the Laurentian Sub-basin between Newfoundland and Nova Scotia that was finally resolved in 2002.

In a bid to avert a similarly protracted dispute, Hydro-Quebec, the Quebec government-owned utility, and Halifax-based junior E&P company Corridor Resources agreed in August to join forces to evaluate the oil and gas potential of the Old Harry and Cape Ray prospects and to enable drilling to start in the Quebec sector of the gulf. Both have insisted they can attract high-level partners, with Hydro-Quebec suggesting one multinational is ready to invest C$1.2 billion.

Hydro-Quebec agreed to make a payment of C$500,000 to Corridor to secure an option to earn a minimum of 18.75 percent working interest in the farm-out lands.

“This partnership is strategic for Hydro-Quebec, given the large estimated potential of the Old Harry and Cape Ray structures,” said Jean Guerin, vice president of oil and gas exploration at the utility.

Corridor has invested several million dollars assembling exploration licenses covering 420,000 acres of the Old Harry prospect that straddles the offshore Quebec-Newfoundland boundary, as well as 250,000 acres surrounding the Magdalen Islands and eight permits covering 408,000 acres on Anticosti Island, where Shell Canada and Calpine relinquished their interests last year after drilling five exploration wells.

Corridor President Norman Miller has told Petroleum News that his company was hoping for a deal to allow exploration in 2004, but those hopes have shrunk.

Underwater boundary issues hold up drilling

Michel Gourdeau, president of Hydro-Quebec’s oil and gas division, expressed confidence that a deal could be struck by early 2004 — a target that is now widely seen as too ambitious given that the federal government wants to involve the Nova Scotia, New Brunswick and Prince Edward Island governments into the underwater boundary talks along with Newfoundland and Quebec.

Quebec has argued that the boundaries separating all five provinces were fixed in a 1964 deal, but Newfoundland said the deal was never ratified by its legislature and is therefore not legally binding.

Darrell Mercer, a spokesman for the Newfoundland government, which is now in the midst of a tight election campaign, said there must be “some kind of process” to resolve the disagreement between Newfoundland and Quebec and “that process doesn’t exist right now.”

A spokesman for the Quebec government flatly rejected any suggestion of a boundary problem.

While the bureaucratic and political wheels grind, Miller is growing frustrated at his inability to make commitments with large energy companies. “How can you sit on a basin like this and leave these impediments in the way and forgo economic development?” he said in a Globe and Mail interview.

Adding weight to the overall need for improved government-industry cooperation to accelerate development of Canada’s petroleum resources, the Canadian Association of Petroleum Producers told federal and provincial energy ministers last month that “public policy decisions will play a critical role if our industry is to sustain the growth recorded in the past decade.”

While acknowledging some progress on trimming taxes and regulatory approvals, it called for: Reasonable and timely access to resources; secure and efficient access to markets; and global competitiveness of the Canadian industry.

“The growing burden of regulatory processes outweighs other advantages of investing in Canada,” the association said, speaking for 140 member companies.

Noting that Newfoundland led all other provinces in economic growth last year and that oil and gas revenues now surpass those for forestry in British Columbia and agriculture in Saskatchewan, the petroleum producers said greater efforts are essential to create jobs, improve productivity, spur investment and ensure the prosperity of Canadians.

Petroleum board seeking friends for Orphan play

The little-known deepwater play could hold billions of barrels that would dwarf the pioneering Hibernia field’s recoverable reserves of 750 million-884 million barrels, said a report by Calgary-based Geophysical Services to the Newfoundland Energy Department.

The study, written by Jerry Smee, of Calgary-based G&G Exploration Consulting, said that despite the preliminary nature of the findings, “the size and ultimate potential of the prospects and leads analyzed is very encouraging.”

He said 15 structures were assessed to put a number on the average estimates of recoverable reserves for the Orphan basin, which is north of the Jeanne d’Arc Basin, which holds the producing Hibernia and Terra Nova fields. Four showed a potential in excess of 1 billion barrels, five were between 500 million and 1 billion barrels and six ranged from 128 million to 470 million barrels.

The data was gathered from seismic lines shot in the deeper, eastern portion of Orphan over three years from 2000. Earlier seismic surveys in the 1970s and 1980s had concentrated on the shallower western side.

No attempt has been made by the consultants to weigh the commercial viability of producing oil from the 39,000 square mile region.

Seven wells were drilled in the basin from 1974 to 1985 without making any oil discoveries, but Smee believes that advances in exploration technologies and geological theories make Orphan an “obvious candidate for reassessment and a renewed exploration effort.”