|
Costs, dry holes push Nova Scotia basin to brink Three exploration failures since last summer spread disappointment through industry, government circles; but offshore still in infancy, with only 200 wells drilled Gary Park Petroleum News Calgary Correspondent
It’s a numbers game that keeps pushing Nova Scotia’s hopes of turning its offshore into a significant natural gas-producing basin closer to the brink of a shutdown, despite the beckoning riches of the U.S. Northeast market.
Both the shallow and deepwater prospects are compiling a discouraging record, with 12 of the last 15 wells since 1998 abandoned at a cost of about C$750 million and three in the uncertain category, despite claims of gas strikes.
The latest exploration failure in May ranked as the costliest yet on Canada’s offshore, with estimates ranging from C$100 million to C$120 million for the Weymouth A-45 drilled by EnCana (the 55 percent operator), Shell Canada 30 percent and Norway’s Ocean Rig 15 percent.
Although the partners did not disclose the actual drilling costs beyond EnCana’s price tag of about C$60 million, even at the low end of the cost scale it surpassed the C$90 million Onondaga B-84 well drilled two years ago by 100 percent-owner Shell Canada.
The other setbacks since last summer have included:
• Imperial Oil’s decision to abandon its Balvenie B-79 deepwater well, drilled in partnership with Talisman Energy after reaching a depth of 15,600 feet or a targeted 18,450 feet. It failed to encounter hydrocarbons in commercial quantities.
• Canadian Superior Energy’s abandonment of the Mariner I-85 well. Its partner El Paso refused to spend any more money participating in a well flow to test Canadian Superior’s reports of a significant discovery.
Even the traditional optimists were hard pressed to find much encouragement in the Weymouth well.
Debora Walsh, the East Coast manager for the Canadian Association of Petroleum Producers, told the Globe and Mail that “it’s difficult to put a positive spin on the abandonment of this well.”
“Absolutely,” said Nova Scotia Premier John Hamm when answering his own question: “Am I disappointed?” Fewer than 200 wells drilled But the province’s Energy Minister Cecil Clarke and several analysts kept trying to inject a dose of reality into the assessments.
Clarke said offshore Nova Scotia is in its infancy — an undeniable fact given that fewer than 200 wells have been drilled in the basin and only five in the deepwater, compared with more than 40,000 in the U.S. Gulf of Mexico.
The test now is whether the industry will meet its commitments to drill 16 wells — 11 deepwater, five shallow-water — between now and the end of 2006 when the bulk of C$1.6 billion in work commitments expire.
On top of the dry holes, confidence in the region took a jolt last August when ExxonMobil Canada, Shell Canada and Imperial Oil opened up a data room of exploration acreage parcels containing work commitments of C$277 million and significant discovery licenses to potential farm-in partners. Study thinks resources are there These cumulative developments put a cloud over the most recent study by the Canada-Nova Scotia Offshore Petroleum Board that estimated reserve potential of the deepwater at 15 to 41 trillion cubic feet and of the shallow-water at 18 tcf, based on interpretations of seismic results from about 20,000 square miles.
The study’s authors likened the deepwater to the basins of the Gulf of Mexico, offshore Brazil and West Central Africa.
“We think the resources are there, but it’s theoretical and we won’t know until there are discoveries made through drilling,” said offshore board chief executive officer Jim Dickey.
The study conceded that it is “very important to acknowledge that calculated upside potentials ... also have a downside possibility so any conclusions or expectations drawn from these (estimates) should be cautiously employed.” EnCana, Shell say they’re not quitting Regardless of the Weymouth failure, EnCana and Shell Canada insist they will take time to evaluate the results and have no intention of quitting the basin.
“We know this was an exploration prospect,” said a spokeswoman for Shell Canada. “It has considerable risk because the deepwater is a high-risk, high-reward play.”
The challenges is drilling in 5,200 feet of water to a depth of 21,400 feet were readily apparent when the well took 185 days, 65 days longer than expected, because of tough weather conditions and geological structures.
But EnCana spokesman Alan Boras insisted “we learned a lot” that will help shape the company’s future strategy for the block and the basin.
There isn’t much time to rue the misfortunes or ponder the next move.
Crimson K-81, in 6,200 feet of water and targeting a depth of 20,300 feet, is scheduled for early spudding by partners Marathon Oil 40 percent, EnCana 35 percent and Murphy Oil 25 percent to probe the same exploration license as the Annapolis G-24 wildcat discovery in 2002 that operator Marathon said could be part of a block holding 5 to 15 trillion cubic feet.
Results from Crimson could be crucial for Marathon which has two other exploration licenses in the deepwater — 100 percent of a work commitment of C$177 million and 50 percent of a second license with a work bonus bid of C$194 million, with both expiring by the end of 2006.
The Nova Scotia Department of Energy said last fall it was optimistic that drilling would exceed even the work commitments, predicting nine shallow-water and 18 deep-water wells over the next three years.
If it’s right, the Conference Board of Canada projects that offshore activity could raise Nova Scotia’s Gross Domestic Product by 72 percent through 2020. Deep Panuke development uncertain Hanging in the uncertainty category are two wells drilled in the shallow-water Deep Panuke reservoir, which EnCana originally targeted for production in 2006 at 400 million cubic feet per day before withdrawing the regulatory applications last year to explore a smaller production facility.
Of the two wells, Margaree F-70 (wholly owned by EnCana) flowed at 53 million cubic feet per day from a gas bearing pay zone of 70 meters and MarCoh D-41 (ExxonMobil 51 percent, EnCana 24.5 percent and Shell Canada 24.5 percent) reportedly struck 100 meters of gas-bearing zone, yielding enough information to determine that a flow test was not needed.
EnCana believes Margaree and MarCoh have improved the economic potential of the 935 billion cubic foot Deep Panuke field, but will not indicate whether the project is now commercially viable.
For now, EnCana, while looking for additional reserves, is also exploring “possible” synergies with partners in the producing Sable Offshore Energy Project, with the though of sharing infrastructure to improve the prospects for Deep Panuke. Reserves have been dropped at Sable The first and so far only producing field at Sable is grappling with its own woes, less than four years after coming on stream.
It commenced operations with estimated original sales gas reserves of 3.5 trillion cubic feet — a figure that has since plummeted in stages to 1.38 tcf, reducing the projected economic operating life to 10 years from 25 years.
Alex Dodds, president of ExxonMobil Canada, the operator with a 50.8 percent interest, said earlier this year that to maintain the facility and “make sure it’s utilized for its design life ... we must continue to look for additional gas resources and develop what’s already there.”
The message to Clarke is plain: The Nova Scotia government cannot afford to see exploration wane.
To that end he has tried wooing potential explorers in Alberta and at the recent Offshore Technologies Conference in Houston.
The Canadian government also offered a helping hand in May by suspending duties for five years on foreign-owned offshore rigs, giving up about C$50 million in potential revenues.
In addition, Clarke said governments have pledged to answer industry calls for streamlining regulations and looking at tax changes.
But the clock is running. Harvey Doerr, president of Murphy Oil, said that if the Crimson well fails to deliver it could be the last deepwater well in some time, since there is no sign of any other company willing to step up to the plate.
| 