Canada, Mexico escaping shadow of the US Gulf

Revived exploration for Eastern Canada

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The Jeanne d'Arc Basin offshore Canada is the location of the Heborn, South Nautilus, Hibernia and White Rose developments.
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Most of the fanfare and activity in North America has and will be, for some time to come, centered on the US Gulf of Mexico. But with Canada and Mexico stepping up major developments like Hibernia, Terra Nova, and Cantarell, producers are watching developments closely. The additional development of pipelines to tap Eastern Canada's gas reserves and the possibility of new leasing offshore Canada's Atlantic and Pacific coasts, adds to the interest in development there. Also, speculation about Pemex's moves toward partnerships with outside producers shows promise as an area of interest in the years to come.

Canada
Canada's main offshore activity lies in two main provinces: Newfoundland and Labrador, featuring the Hibernia and Terra Nova developments, and Nova Scotia, featuring the Sable Energy Project. Canada, like everywhere else in the world, has seen some impact from the downturn, but, according to provincial governments, the response has been moderate.

Brian Tobin, Premier of Newfoundland and Labrador said, "There have been significant challenges in the oil and gas industry and a significant re-drawing of the activity parameters in a variety of players all over the world. All of the commitments to all of the dollars to all of the projects in the Newfoundland and Labrador offshore have been maintained. Every dollar committed has been spent and project forecast for this year is continuing on schedule."

The Hibernia and Terra Nova developments have been chiefly responsible for bringing Newfoundland and Labrador from dead last in economic growth in Canada to first in GDP growth within the last year.

Hibernia
The 3-billion-bbl Hibernia Field is the cornerstone of the Canadian offshore oil and gas industry. The field is the country's largest developed to date. Hibernia is located some 315 km off the Avalon Peninsula of Newfoundland in the Jeanne d'Arc Basin of Canada's Grand Banks.

The field was originally discovered in 1979 by Chevron and was delineated between 1980 and 1984. The field is estimated to hold about 750 million bbl of recoverable oil and one Tcf of gas. Current cumulative production from the field is about 30 million bbl and is expected to increase to about 37-40 million bbl this year.

Average production is about 100,000 b/d and is expected to increase to about 135,000 b/d soon and eventually to a peak of 180,000 b/d. Development wells on the field have broken Canadian records for production, with rates of up to 56,000 b/d of oil each.

The field is producing to a massive gravity-based platform, built to withstand the impact of a six million-ton iceberg. The platform has a storage capacity of up to 1.3 million bbl of oil and a design capacity of up to 150,000 b/d of oil.

Mobil is the operator of Hibernia with 33.125%. The firm's partners include Chevron (26.875%), Petro-Canada (25%), Canada Hibernia (8.5%), and Murphy (6.5%).

Terra Nova
Right behind Hibernia is Canada's second largest oil field - Terra Nova. Terra Nova is estimated to hold about 470 million bbl of recoverable oil reserves. The field is located about 35 km southeast of Hibernia in the Jeanne d'Arc Basin of the Grand Banks.

Terra Nova was discovered by Petro-Canada in 1984. The field is expected to enter production in December of 2000 using an FPSO. The hull for the vessel is under construction at the Daewoo Heavy Industries yard in South Korea. The hull is expected to depart Korea in December and arrive at the Bull Arm facility in Canada in February where two of the topsides for the vessel are under construction. An additional two modules are being fabricated in Scotland. After commissioning, the FPSO will be installed on the field in August of 2000. The FPSO will have a storage capacity of 960,000 bbl and will be designed to produce 125,000 b/d of oil.

The development will include over 20 wells drilled through seven subsea templates located in four glory holes in order to avoid the hazards of iceberg keels. Drilling is expected to begin this month.

Initial production for the field will average 115,000 b/d, and will peak at 125,000 b/d of oil. Reportedly, the project is on schedule and on budget. A group known as the Terra Nova Alliance was formed for the implementation of the project. The Terra Nova Alliance includes: Petro-Canada (29%), Mobil Oil Canada (22%), Husky Oil (17.5%), Norsk Hydro Canada (15%), Murphy Oil (12%), Mosbacher Operating (3.5%), and Chevron Canada Resources (1%).

Hebron-Ben Nevis
In 1998 Petro-Canada, Mobil, Chevron and Norsk Hydro began a major Grand Banks exploration program by conducting an extensive seismic program over a number of prospects and discoveries. The companies drilled a delineation well on the Hebron Field using the Glomar Grand Banks semisubmersible.

The well encountered 86 meters of net oil pay which flow-tested at 3,500 b/d of oil. Encouraged by these results, the group recently spudded another delineation well on the Ben Nevis Field to further evaluate the structural complex, which is estimated to contain about 600 million bbl of recoverable oil. The government is expected to approve development of the field within the next year. The group believes that this field has the potential to exceed Terra Nova and match the potential of Hibernia.

Also, the consortium has drilled the South Nautilus well adjacent to Hibernia and south of the Nautilus discovery. The well penetrated oil-bearing sands, but was not tested. No further details have been released.

White Rose
Husky Oil is currently in the process of a multi-well delineation program to evaluate further the White Rose Field. White Rose is about 65 km east of Hibernia on the eastern edge of the Jeanne d'Arc Basin. The field is estimated to contain about 250 million bbl of recoverable oil, 1.5 Tcf of gas, and 58 million bbl of natural gas liquids.

The company began drilling its first well in April and will drill a second delineation well at a later date. If the results of the wells are positive, the company plans to produce the field via an FPSO with first oil in 2003.

Licensing
The Canada-Newfoundland Offshore Petroleum Board has issued its 1999 call for bids. There are 10 areas on offer covering about 1.3 million hectares. The sale closes on November 17, 1999. This licensing round follows a record round last year where 10 of 13 licenses attracted bids in excess of $175 million.

Currently, less than 5% of Newfoundland and Labrador's total offshore area is under license. The area expects to produce 400,000 b/d of light crude oil by 2004. This will represent a shift from 0% of Canada's light crude production of Canada to over one-third of the total, within a few years. The area has 23 oil and gas discoveries with recoverable reserves of 1.6 billion bbl of oil, 1 Tcf of gas, and 360 million bbl of natural gas liquids.

Nova Scotia
Nova Scotia is Canada's second major offshore play. Offshore activity in the province has been chiefly centered on two major areas: the Sable Offshore Energy Project, and new exploration licenses recently awarded.

According to the government of Nova Scotia, exploration activity and interest are increasing. In 1998, there were nine separate seismic programs underway with 2D coverage of 35,529 km and 2,200 km of 3D. The remainder of this year is predicted to be just as active. The area also holds 33 active exploration licenses, of which 20 were added in the most recent licensing round.

Sable Offshore Energy Project
The Sable Offshore Energy Project is a project to develop six natural gas reservoirs and deliver the gas to supply markets in Canada and the northeastern United States. The six gas fields that comprise the project are: Venture, South Venture, Thebaud, North Triumph, Glenelg, and Alma. The project will produce 500 MMcf/d transported via a pipeline to an onshore gas plant in Nova Scotia.

Currently two rigs, the Rowan Gorilla II and the Santa Fe Galaxy II, are drilling 10 production wells on the Thebaud and Venture fields. Once drilling is completed on these fields, the Galaxy II will move to the North Triumph Field to drill an additional two production wells. Drilling is also underway on Venture Three and the companies are preparing to cement the casing on Thebaud Two.

Construction is about to begin on the pipelines that will deliver the gas to the market. A 1,051-km line will run from Nova Scotia to Massachusetts and a second 60-km lateral line will run to Point Tupper on Cape Breton Island. The pipeline will be able to transport 530,000 MMBtu/d of gas to the market.

In order to benefit the local economy, the government has proposed three plans. The first is a generic royalty regime for future projects; the second is a strict job and benefit package requirement; and the third is a regulatory framework to guide the introduction of natural gas into the Nova Scotia market. Industry had expressed some concern about this new regulation and its future impact on activity in the area. The project is expected to come onstream next year.

Licensing
The Nova Scotia Offshore Petroleum board issued a call for bids in December of last year. Twenty offshore exploration licenses were awarded in May covering an area of about 2.2 million hectares. The area on offer include some of the deepest water ever on offer and also included acreage on the eastern side of the Gulf of St. Lawrence, which has not been explored since 1973.

The licenses were granted on nine-year terms, with the first five years being dedicated to exploration. Winning companies include Canadian 88 Resources, Chevron, Imperial Oil, Marathon, Mobil, Murphy, Norsk Hydro, Pan-Canadian, Richland Minerals, and Shell.

Russell MacLellan, Premier of the Province of Nova Scotia said, "This land sale represents the single largest investment in offshore exploration in the history of the Nova Scotia offshore. Other records smashed include the largest single bid ever at C$93 million. And, we have four new players entering the offshore play."

MacLellan added, "This is the opening of a new frontier, including some of the deepest water yet to be explored off Nova Scotia. And, for the first time since 1973, exploration will take place on the eastern side of the Gulf of St. Lawrence."

Nova Scotia has also recently put out a Call for Nominations which is expected to result in more parcels put out for bids in the future.

Saint Pierre and Miquelon
Another area in Canada gaining interest is in the region of the French Islands of Saint Pierre and Miquelon. The government of France has granted Gulf Canada Resources a license to explore the region that has been under moratorium since the 1960s. Gulf has acquired some seismic over the license and is currently in the process of shooting an additional 4,000 miles of new 2D data. Drilling is expected to begin next year.

With the established strength of the Hibernia development, the addition of Terra Nova and the Sable Offshore Energy Project, and the potential of White Rose, Hebron-Ben Nevis, and the new Nova Scotian licenses could help pull Canada out of the shadow of the US Gulf of Mexico.

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Enron Offshore Services and Technology prepares to load out its first drilling platform from the Cigsa favrication yard in Mexico. The platform was installed on Pemex's Cantarell Field in the Bay of Campeche.
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Mexico's Cantarell
Mexico has concentrated most of its offshore efforts on the massive Cantarell project in the Bay of Campeche, operated by state-owned Pemex. This effort is due largely in part to the restrictions imposed by the Riyadh and Amsterdam agreements which forced Pemex to cut down on exploration and secondary recovery projects as well as production.

Cantarell is the sixth largest oilfield in the world in terms of reserves and ranks as the largest offshore development in the world. The field produces an average of about 1.03 million b/d of oil which accounts for about one-third of Mexico's total output of oil.

The Cantarell complex is made up of four deposits known as Akal, Nohoch, Chac, and Katz. Most of the production comes from Akal. Cantarell features the first floating, storage, offloading (FSO) vessel in the Gulf of Mexico, the Takuntah. The vessel began offloading oil last year. The vessel is the world's second largest operating tanker, with a storage capacity of 2.3 million bbl.

In 1998, Pemex dedicated about 40% of its total investment budget to the project. This included the fabrication and installation of 23 new platforms, bringing the total platform number to 35, drilling over 200 wells, building new pipelines, and the start-up of a nitrogen injection secondary-recovery project. This is expected to expand the production capacity by an additional 50% to a total 1.4 million b/d of oil. The projected startup is by year-end 2000.

The nitrogen facility is 10 times larger than any largest existing plant. Production for the plant will be 1.2 Bcf/d of nitrogen for injection to allow pressure maintenance in the field's reservoir. The facility is expected to double the world's current total output of nitrogen.

Enron Offshore Services and Technology has already loaded out its first drilling platform, including a jacket and deck, for the field. Enron is in a partnership with Cigsa, a Mexico fabricator. Together, the two companies completed the drilling platform, Akal TJ. The wellhead jacket loaded out in February and the deck followed in April. The companies also completed refurbishment of a drilling rig in April and will load out an additional refurbished drilling rig this month. The companies are also providing the turnkey design, fabrication, and transport of four accommodation platforms for the project.

Once this phase of the Cantarell project is completed, Pemex expects that the field could possibly produce as much as 2 million b/d of oil.

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