Globe and Mail mentionEnergy firms re-evaluating East Coast investments
By KEVIN COX
Monday, October 27, 2003 - Page B1
HALIFAX -- Petroleum companies seeking oil and natural gas on Canada's East Co ast are spending hundreds of millions of dollars to learn what fishermen have known for generations -- that nothing worth keeping co mes out of the sea easily.
Executives in several major oil companies have privately begun to re-evaluate their future investment in a region that has been b eset with more than a dozen dry holes and abandoned wells in recent years and hasn't yielded a commercial discovery since 1986.
The disappointing results -- at a cost of between $45-million and $80-million a well -- come as major offshore oil fields have be gun producing off the west coast of Africa, overshadowing Canadian East Coast developments.
At the same time, the two oil production platforms off Newfoundland and Labrador and the Sable offshore natural gas project are p roviding thousands of jobs and injecting more than $1-billion a year into an economically challenged region. But without a major dis covery, these projects could be pumped out over the next 20 years.
Oil exploration companies insist that their bits have barely scratched the surface of the north Atlantic with fewer than 500 hole s being drilled over the past 40 years and some of those wells have shown promising amounts of gas and oil.
With another six exploration wells expected to be drilled off Nova Scotia and three or four to be sunk off Newfoundland and Labra dor over the next year, analysts and government officials acknowledged that a major discovery is critical to the future of the East Coast energy sector.
But the bad news just seems to keep coming after another summer of offshore disappointment.
In September, Imperial Oil Ltd. announced yet another dry hole off Nova Scotia and a month earlier Petro-Canada Inc. said it had drilled a dry hole in the Flemish Pass region off Newfoundland and would not be doing any more work in the area.
Geologists insist that the deep-water basins off the Atlantic coast have all the characteristics of major oil and gas producing r egions -- coarse sediments, a continental slope and salt formations that should provide reservoirs and traps for hydrocarbons. Howev er, all seven deep-water wells that have been drilled off Nova Scotia in recent years have failed to produce a commercial discovery.
Shell Canada Ltd. and ExxonMobil have recently offered to farm out some of their offshore leases but there have bee n few bidders.
The rash of dry holes comes as U.S. buyers are clamouring for Canadian gas, and a growing number of proposals -- including two in the maritime provinces -- are popping up to provide liquefied gas from foreign sources to help fill the gap.
But Greg Noval, president of Canadian Superior Energy Inc., an aggressive Calgary-based exploration company, insists the majors h aven't lost faith in their East Coast vision -- they're just looking for better deals from provincial government regulators.
"Here on the East Coast we've had the whining and crying and complaints of the biggest oil companies in the world . . . it's just posturing," he said in a recent interview.
Canadian Superior is partnering with El Paso Energy Corp. to drill the $45-million Mariner well near the Sable Offshore Energy Pr oject.
Mr. Noval said Shell and ExxonMobil have not offered up any of their core East Coast properties and are holding on to their share holdings in the Sable Offshore Energy Project.
Linda Cook, president of Shell Canada, said that her company isn't abandoning the East Coast. It is planning on drilling a deep-w ater well in partnership with EnCana on the Mariner block later this year.
She noted that the company has 500,000 hectares of exploration licences and is anxious to see further discoveries in the area.
"We have our interest in the Sable Offshore Energy Project and that will be producing for some time so there is no urgency or no need to pull out any time soon. We're hopeful there will be additional discoveries and we look forward to testing at Mariner, 4; Ms. Cook said.
Calgary-based offshore analyst Ian Doig has repeatedly pointed out that the success rate of the East Coast exploration doesn't co mpare with areas such as the deep waters off Nigeria or Angola.
Mr. Doig, who produces the offshore publication Doig's Digest, said the lack of East Coast discoveries has been a major disappoin tment for companies such as Shell. He said petroleum companies are hampered by the lengthy review and approval process for projects on the East Coast.
Mr. Doig noted that Chevron took only 59 months to move an Angola offshore project from discovery to production of 75,000 barrels of light crude oil a day.
"Unfortunately out there [on the East Coast] in 59 months that file would have been lucky to make it from one side of a burea ucrat's desk to the other," Mr. Doig said.
In Newfoundland and Labrador, the Hibernia and Terra Nova projects produced 82 million barrels of oil in the first eight months o f this year -- an increase of 16 million barrels in the same period last year -- and provide more than 1,000 jobs, while 1,200 Newfo undlanders are working on Husky Energy's White Rose development.
Brian Maynard, deputy minister of Newfoundland Mines and Energy, said there is a strong potential of a major discovery in the Fle mish Pass or in the Laurentian Sub-Basin off the south coast of the province. But the last commercial discovery was made nearly 20 y ears ago, when the federal government was paying the lion's share of exploration costs through the petroleum incentives program.
Another discovery is needed soon as Husky Energy's White Rose unit is scheduled to come on stream in 2005.
Mr. Maynard said the federal government should assist exploration efforts as it did with the incentive program. If there is a gap between oil projects, skilled workers and service companies will leave the province to find jobs.
"It would be hard to maintain infrastructure and skilled workers," he said. "The consequences for Newfoundland and La brador and the competitive position of the province would be severe."
EnCana's future plans for the $1.1-billion Deep Panuke project hinge on the results of its Margaree exploration well that was com pleted two months ago. The company won't comment on the results of the exploration effort.
As well, El Paso is waiting for significant gas discoveries to be made before advancing its Blue Atlantic Pipeline proposal to tr ansport natural gas to the northeastern United States. Byron Wright, spokesman for El Paso, said the company is confident that gas w ill be found in time for the pipeline project to start shipping gas by 2008.
"It's fair to say we're more optimistic than many other people in the production industry that there will be more significant discoveries up here," Mr. Wright said in an interview. "It's too early to be too excited or to be too unhappy. There is goi ng to have to be a lot more wells drilled out there before anybody is sure how big this is.