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Canada’s petroleum compass swings from East Coast to Arctic Industry executives think north offers greatest potential for significant new crude oil and gas discoveries; 78 percent to raise exploration budgets Gary Park PNA Canadian Correspondant
The message from 69 of Canada’s oil and gas brass is decisive: Go North. For the past several years, the same chief executive officers were bursting with optimism about the East Coast offshore, but by a substantial margin they now think the Far North offers the greatest potential for new discoveries of natural gas and crude oil.
In the latest Canadian Oil & Gas Industry Outlook Survey, the CEOs showed a sharp loss of confidence in the East Coast, especially following a string of drilling failures over the last 18 months, including a C$90 million dud by Shell Canada Ltd. in offshore Nova Scotia that rattled boosters of the region.
As one example, only 9 percent now think Atlantic Canada deserves top billing for its gas prospects, compared with 32 percent a year ago. On the oil front, the East Coast saw its support level slump to 30 percent from 52 percent in 2001.
Northern Canada 64 percent favorite In contrast, Northern Canada is rated by 64 percent as the preferred destination for gas exploration dollars and by 36 percent as the leading choice for undiscovered oil reserves.
Of the other basins the CEOs believe have the greatest potential, British Columbia was second in the gas sector at 19 percent, with Alberta at 6 percent and Saskatchewan at 2 percent.
In the oil category, Northern Canada and the East Coast were trailed by Alberta at 20 percent, British Columbia and the United States were at 5 percent each and unspecified others at 4 percent.
Asked whether there were still significant gas reserves to be discovered in Canada, 88 percent said yes, 8 percent were not sure and 4 percent said no.
To the same question on oil prospects, 53 percent responded yes, 36 percent no and 11 were not sure. Gas prices expected to strengthen The CEOs said they expect gas prices to strengthen over the next few years, although oil prices should remain relatively flat.
Those who plan to increase their exploration activities over the next three years tallied 78 percent, with those opting for gas targets climbing to 50 percent from 41 percent in 2001. Just 6 percent said oil would be their primary exploration focus, while 39 percent chose a balanced oil and gas approach.
The survey was conducted for the first time by the accounting firm of Deloitte & Touche LLP, following the collapse of the Canadian arm of Arthur Andersen LLP.
Deloitte partner Blair Kraus said the absence of exploration success on the East Coast has caused more companies to “focus their exploration and development activities in other places.”
Because Northern Canada has been so under explored, it has become more attractive to companies, Kraus said, while noting that the Far North is lacking in infrastructure. East Coast hasn’t changed Brian Prokop, an analyst with Peters & Co. in Calgary, said it isn’t that the East Coast has changed, “it’s people’s perceptions” that have changed.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, agreed the East Coast has plenty of remaining opportunities despite some recent drilling disappointments, dominated by the failure of Shell Canada Ltd.’s C$90 million well in offshore Nova Scotia.
He said Atlantic Canada is a “complicated basin ... when you look at the number of wells drilled, I think we have a long way to go before we understand the basin sufficiently.”
In answer to other questions, the only 17 percent of the CEOs said they expected an increase in mergers, acquisitions and restructuring this year in the wake of two unparalleled years of M&A activity. That was a significant drop from 56 percent in 2001 and 90 percent in 2000, indicating a bottoming out in the M&A cycle.
Asked if their company planned to actively seek buyers for non-core assets in the next year, 37 percent said yes, down from 55 percent in 2001 and 60 percent in 2000.
Close to 90 percent said they have had no problems securing rigs and crews in the last 12 months, compared with 55 percent a year ago, and just 14 percent said they expect difficulties obtaining rigs in the next year.
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