Providing coverage of Alaska and northern Canada's oil and gas industry
January 2012

Vol. 17, No. 5 Week of January 29, 2012

Shell bets big on Nova Scotia

Gary Park

For Petroleum News

Shell Canada has put C$970 million on the table in a major reawakening of exploration in offshore Nova Scotia.

That’s what it bid to win the rights to four deepwater parcels in hopes of finding oil in a region the Nova Scotia government estimates holds 8 billion barrels, based on preliminary work that needs more focused seismic work and drilling.

Shell said it views the new prospect as “an important entry into an attractive new, deepwater basin” and expects to start seismic work in 2013, spudding its first well in 2014.

A company spokesman conceded it’s possible oil or natural gas could be discovered, but added Shell hopes for oil.

The blocks sit in water depths ranging from 4,600 feet to 12,100 feet, compared with 8,500 feet in Newfoundland’s Orphan basin, where a Chevron partnership drilled a record well in 2009.

Nova Scotia Premier Darrell Dexter said the expenditure commitment — which is required to be spent within six years of a nine-year exploration license — is “an important milestone in the province’s plan to reinvigorate interest in Nova Scotia’s offshore.

‘What have we missed?’

He said Shell’s bidding will prompt others to ask: “If they have this level of interest in the offshore, what have we missed?”

Shell has long been a leading player in Nova Scotia, spudding about 50 wells between 1969 and 2001, and was a partner in a deepwater well drilled by PanCanadian Energy (now Encana) in 2003.

It also has a 31.3 percent stake in the Sable Offshore Energy Project, majority-owned and operated by ExxonMobil, which has been in decline over recent years, slipping from its peak capacity of 500 million cubic feet per day to about 244 million-285 million cubic feet per day in recent months.

The only other Nova Scotia development under way is Encana’s Deep Panuke gas project, which is expected to produce its first gas this quarter, after a series of delays. Capacity of about 200 million cubic feet per day has all been contracted to Spain’s Repsol, which is building an LNG terminal at Saint John, New Brunswick.

Both Sable and Deep Panuke face sharp declines in output over the latter part of this decade unless the industry can post an exploration breakthrough.

The provincial government has estimated the offshore has a potential 125 trillion cubic feet of recoverable gas.

In addition to the oil and gas prospects, it pins much of its hopes on the limited amount of exploration that has so far taken place, with the well count over 45 years at about 207, compared with more than 15,000 wells in the Gulf of Mexico.

However, the experts say that the operating environment is harsh and the recent history is dominated by dry holes.

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