EnCana reworks Deep Panuke development

Company pulls applications for Canada’s second offshore natural gas project; says smaller project economic

Gary Park

Petroleum News Calgary correspondent

EnCana is going back to the drawing boards with its plans for Canada’s second offshore natural gas project, indicating it is leaning towards a scaled-down Deep Panuke development to reduce projected costs of C$1.1 billion (US$850 million).

Despite success from two summer exploration wells and “numerous” changes, the Canadian independent said Dec. 3 that a 10-month review of the plans has made it “clear that the original development plan is no longer appropriate.”

Chief Operating Officer Randy Eresman said in a statement that the Margaree and MarCoh wells have given EnCana “greater confidence in the economic potential of the Deep Panuke discovery,” which is currently estimated at 935 billion cubic feet.

The wholly owned Margaree well found a gas bearing zone of about 70 meters and flowed at 53,000 mcf per day during a nine-day test, matching those of the initial Deep Panuke well.

The MarCoh well, owned 51 percent by ExxonMobil, and 24.5 percent each by EnCana and Shell Canada, encountered 100 meters of gas bearing reservoir, which EnCana said was sufficient to determine that a flow test was not needed.

Due to report back to regulators Dec. 10, EnCana said the results of its time-out have prompted it to withdraw the original applications with the National Energy Board and the Canada-Nova Scotia Offshore Petroleum Board.

It said the assessment has included the potential of building a smaller production facility than the 400 million cubic feet per day project scheduled to come on stream in 2006.

Eresman said EnCana now believes it might be more appropriate to lower plateau volumes for a longer period of time to reduce the capital costs.

He said preliminary discussions have also taken place with the Sable Offshore Energy Project, Nova Scotia’s only producing gas field, about the possibility of using the Sable infrastructure.

As well, he said a reworked project will have an impact on the size and timing of transportation plans, lending weight to industry speculation that it might join Sable operator ExxonMobil and hook up with the Maritimes & Northeast Pipeline network from Sable that is currently operating at about 80 percent of its capacity of 550 million cubic feet per day.

EnCana also looking for streamlined review process

He said Deep Panuke will proceed if it “can achieve risk adjusted returns that are competitive with other projects in the company’s portfolio of investment opportunities.”

Reaching that stage will “require the constructive contribution of all stakeholders,” Eresman said.

The Canadian, Nova Scotia and Newfoundland governments have already signaled they will look for ways to accommodate EnCana.

They held a Dec. 3 meeting in Halifax to respond to industry criticism of excessive red tape in the East Coast regulatory regime.

Charles Lester, director of energy policy and strategic planning for the Newfoundland government, said there is optimism that energy ministers from the three jurisdictions can complete a final report within eight months.

The objectives are to: Provide clarity, certainty and predictability in the regulatory framework to benefit operators, regulators and the public; speed up the regulatory process to match decision making by competing international jurisdictions; and achieve cost savings, especially for exploratory drilling, while maintaining environmental and safety standards.

If EnCana favors using the M&NP pipelines or proposes other major changes to Deep Panuke, the National Energy Board has said there is no option but to start the regulatory process over again.

To date EnCana has invested C$200 million on the project and obtained federal environmental assessment approval.