Sunday, July 21, 2002
Halifax Sunday Herald

Offshore at ‘critical’ stage
Latest round of drilling has industry on edge

By Eva Hoare/ Business Reporter

LAST WEEK’S Atlantic Gas Symposium in Halifax rolled out speaker after speaker who unveiled their companies’ plans for exploration, natural gas pipelines and related business dedicated to Nova Scotia’s offshore.

At the same time the presenters also slid in their concerns that no new gas has been found in the past couple of years, ever so slightly hinting that the recent dry spell could take its toll.

As one speaker put it, without large new gas reservoirs, all the talk is just “fantasy.”

“I think it’s at a very critical, vulnerable, juncture,” Brian Lee Crowley, president of the Atlantic Institute for Market Studies (AIMS), said of the offshore.

In an interview Friday, Mr. Crowley said everyone is eagerly awaiting results of wells now being drilled to learn whether this region’s economy will really take off, or if oil companies’ disappointment at more dry wells will end in a decline.

“People in Nova Scotia have unrealistic expectations about the short term (offshore rewards). We’re saying the real benefits are going to flow over the next few decades.”

So far, EnCana, formerly PanCanadian, has drilled three dry holes offshore; the Musquodoboit, Southampton and Queensland wells. The company is set to drill up to three more starting this December on the Scotian Shelf.

The all-Canadian firm says it is mired in red tape as part of the regulatory process to get its major Deep Panuke discovery up and running.

EnCana’s Brent Austin told the symposium audience that the company’s 2005 target date for gas could be up in the air.

While Mr. Crowley said three dry holes won’t likely spur the industry to leave, it is more costly to drill here. Therefore, it’s understandable that oil and gas giants are nervous, he said.

A number of offshore exploration licences, previously optioned off, are also coming due over the next several months. If companies get skittish and don’t explore, the parcels revert back to the Crown.

“If we get a whole bunch of dry holes, people will give up,” said Mr. Crowley, who cautioned that the game is not over yet.

“I don’t think three dry holes is very much in itself. But you have to put that in the context of this being a very high cost area.”

With the price tag reaching $70 million apiece, Alberta’s far less costly drills may look more attractive, he said.

“It’s a huge amount of money, you’ve got to remember – deepwater exploration. We’re talking $75 million to drill one hole. You can afford fewer failures in a high cost exploration area.”

Tom Miller, with Kerr McGee, which has offshore parcels, echoed those sentiments in his presentation to the symposium.

“Deep water is very expensive business,” said Mr. Miller, stressing that a commercially viable project needs large gas reservoirs with “sustainable flow.”

“You’re talking $700 million just pre-production. We need multiplicity. Two projects doesn’t make an industry,” he warned.

But Mr. Crowley said despite the costs, oil companies remain “deeply optimistic” about potential, and wouldn’t waste time here if they didn’t think large reservoirs will be found aside from Sable and Deep Panuke.

Everyone is awaiting the results of Marathon Oil’s Annapolis drill, and fingers are crossed for El Paso and Canadian Superior’s Marquis Prospect, he said.

“It’s not as if they’ve drilled a whole bunch of holes and found nothing,” said the AIMS president.

Rob Whitwham, who heads Maritimes and Northeast Pipeline’s marketing and business development division, said Thursday that oil and gas companies have done their research.

“They must see something,” Mr. Whitwham said in an interview after his symposium presentation.

The Geological Survey of Canada has estimated at least 18 trillion cubic feet in reserves off our shore, but some estimates place this amount even higher.

Stan Babiuk, whose company El Paso is partnering with Canadian Superior Energy on a drill at the Marquis Prospect, is bullish about what’s out there.

El Paso is also planning a New Jersey-bound pipeline from the offshore, if reservoirs are found.

“(We) believe (there’s) 50 trillion cubic feeet off the Scotian Shelf. We’ve had a chance to look at a bit of data. We believe there’s a lot of gas out there.”

But Mr. Babiuk cautioned symposium-goers that a large gas reservoir must be found to move. “Where are the reservoirs?”

Dave Collyer of Shell, a partner in the Sable project, said Nova Scotia’s offshore deep water plays are “frontier” and may not stack up against other offshore gold mines.

“We see it as a high risk, high revenue play at this point,” Mr. Collyer said.

“If you rank the deep water (plays) off Nova Scotia against other deep water (projects), it falls in about the middle of the pack. It is not a Gulf of Mexico, it’s not a Brazil, it’s not a Nigeria.”

“I do think the next two years are quite important.”

Most industry spokesmen at the conference stressed that only 200 wells have been drilled off Nova Scotia, compared to the thousands in the Gulf.

If there is a commercially viable field out there and most believe there is, Mr. Crowley and a legion of oil and gas representatives say it’s just the beginning.

Up to $50 billion could be spent, according to Nova Scotia Premier John Hamm, quoting a study by the Greater Halifax Partnership.

“They’ve just scratched (the surface),” said Mr. Crowley. “I’m very much of the view (our future lies) not from the gas we’ve already discovered but from the gas yet to be discovered.”

“That’s the big prize.”

But the gas brass might fear something more menacing on the horizon in the form of a parochialism play by New Brunswick, said the AIMS president.

New Brunswick Premier Bernard Lord’s “Canada first” policy being aired before the National Energy Board in Fredericton this week is seen as a serious threat.

“I don’t want to be alarmist about it,” said Mr. Crowley. “(But) it’s making the companies nervous. What New Brunswick is signifying is the political risk to . . . oil and gas (exploration) has just gone up.”

At least one oil and gas executive agrees. Mr. Collyer warned of potential consequences at the symposium.

“The policy New Brunswick has taken does raise the spectre of regulatory delays, higher costs and a higher level of uncertainty with respect to the offshore of Nova Scotia.”