Atlantic Canada: The slumbering giant

“We had more confidence about the reservoir - what it was and what it wasn’t,” Kopperson says. “We changed the development plan to more closely match the reservoir potential.”

The project went from three platforms to a single platform. “The project has been scaled down pretty substantively,” he says.

EnCana is not planning additional exploration drilling for Deep Panuke. There is, however, drilling associated with the project. There will be one new gas injection well and one of the original discovery wells will have to be re-drilled. Re-entry will be necessary to re-complete the other four producers, Kopperson says.

The company has done preliminary work to secure a rig. The harsh environment is a limiting factor, and the tight rig market further complicates the problem.

Kopperson is optimistic that a rig will be in place when it is needed. “We’ve been out to the market place and have had some responses. We’ve left the drilling window pretty wide, any time after project sanction to early 2010. By leaving a wide window, we’re hoping for better response,” he says.

Other planning and preparations are also moving ahead. “The regulatory process is coming to culmination,” Kopperson says. The final decision report from the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB) was expected at the end of August, and as of mid-August, EnCana had begun receiving bids for all of the major components.

“We’re moving forward with the objective of taking the project plan to the EnCana board of directors in October for project sanction,” Kopperson says.

“We will have the regulatory approval by then. We will know the conditions attached to that approval. We will have assessed any costs associated with those conditions, and we will have firmed up our capital cost estimates because bids for all of the major components will be in our hands. We will be prepared to give a full, accurate picture to our board of what this project looks like and to get their approval to move ahead,” Kopperson says.

EnCana’s current investment estimate for the project is C$700 million ($665 million), with C$125-$150 million ($119-$142.5 million) operating costs per year.

The capital cost excludes the production field center, which will be constructed by either Single Buoy Moorings or MODEC and leased back to EnCana, Kopperson explains. The contract for the production center will be awarded sometime in October.

Deep Panuke is EnCana’s only offshore project and as such, falls outside of the company’s core focus, which is onshore, unconventional gas. Despite that, Kopperson says, Deep Panuke is a priority for EnCana because it represents a substantial amount of gas. “We want to move it forward and get value out of it.”

The way forward

The province is hoping that the momentum created by the Deep Panuke project will carry it into another up cycle.

Paul McEachern, managing director of the Offshore/Onshore Technologies Association of Nova Scotia (OTANS) says success with Deep Panuke will be a catalyst for operators who are on the fence regarding exploration and development offshore Nova Scotia. “Nova Scotia is coming back out of a trough,” McEachern says, “so Deep Panuke is important on a number of levels. It’s important economically. It’s important to us psychologically. And it’s important in terms of investment attraction.”

The province is ready for business, McEachern says, and is now mature in terms of its capabilities and expectations. At the time of the province’s first offshore project, Cohasset-Panuke, which began production in 1992, McEachern says, “We were like a wolf trying to chase the entire herd instead of picking out one sheep. I think we now understand what our capabilities are. We also know that there is a need and an expectation that some of the work will be done outside of Nova Scotia.” For the most part, he says, there is a recognition in the province that it is to everyone’s advantage to attract exploration to the region.

Of course, McEachern says, E&P still faces hurdles. Rig utilization rates are high, and the number of rigs capable of working off Nova Scotia is limited. Furthermore, operators have their pick of projects on a world scale.

“Operators have choices to make, and they are going after their most attractive targets,” McEachern says. “What we have to figure out is how to get an investment package that will put us back in the ballpark to get some of the investment dollars back here once the operators have gone after those prime targets.”

The way forward is being mapped through the efforts of a number of federal and provincial organizations that are pooling their resources for a common goal.

“There is a fair amount of cooperation among the Nova Scotia government, the federal government, and OTANS to do as much as we can to make the province as attractive as possible for investment,” McEachern says. “You have to have a mature government regulatory process, which I think we have now, and you have to have a business community that understands its real capabilities and not to have an exaggerated view of what it can do. You also have to have public support.”

McEachern says Nova Scotians are ready for another offshore development. “The psychology of Deep Panuke is that it is bringing us back into the game,” he says.

“People in Nova Scotia realize the benefits the offshore industry has brought. The success of the oil and gas industry has helped to boost the morale of the city as well as the economics. There is a spring in our step here that you wouldn’t have seen a few years ago.”

McEachern believes the optimism is realistic. “Deep Panuke is a small project on a worldwide scale, but it doesn’t take a huge project to make a significant difference in a place that has only 850,000 people.”

Government initiatives

Sandy MacMullin, director of resource assessment and royalties for the Nova Scotia Department of Energy, says Nova Scotia has a lot to recommend it. The problem is that the right people do not realize how much the region has to offer.

“We are a known hydrocarbon province. We are very handy to the largest market for natural gas in North America. We’ve got first-world stability. We’ve got a well trained and well educated workforce. We have a very capable services and supply sector. And we are well on our way to becoming more efficient from a regulatory perspective,” MacMullin says.

“Our challenges are that recent drilling activity has raised more questions than it has answered. We need to implement new policies to provide incentive for early exploration activities that will help us solve those geological problems.”

To that end, the province has focused its efforts in four key areas:

• New offshore policy initiatives
• Improved regulatory efficiency
• More geoscience work
• Enhanced marketing efforts.

“We’ve got a host of initiatives on the go,” MacMullin says. “We think we’ve defined the problem and are in the process of trying to solve it.”

Diana Dalton, chair of the CNSOPB, says her organization is working toward the same objectives.

“Our primary goal is to create a world class, efficient regulatory system,” Dalton says.

Nova Scotia’s new Evaluation Option License was designed to allow more operators to easily get a foot in the door. The hope is that it will attract smaller companies that might not have the resources to undertake heavy exploration, Dalton says.

The organization also is working to draw investors by making it easier for operators to comply with regulations. “There has been a move from prescriptive regulations to performance based regulations,” Daltons says.

Prescriptive means that the government stipulates requirements that have to be met and evaluates activity based on a checklist approach, Dalton explains. With performance-based regulations, each company establishes its own approach to meeting the basic standards. The government checks only the performance. This approach has cut down the time it takes for operators to meet requirements, which means that projects can begin more expeditiously.

Geology is the third area of focus. “Another thing we’re doing is that we’re going to take areas we believe are prospective, and we’re going to do the appraisals and evaluations. Then, we’re going to give that information out with the call for bids,” Dalton says.

Toward that end, the federal and provincial governments have each contributed C$1 million ($950,000) to help expand the archive of geological data and to fund research.

“We are expanding that and are including a digital data management center. We’re putting all of the data we have into a computer system that will be available online and accessible anywhere in the world. We’ve just been told by Geological Survey Canada that they are going to donate a lot of their information. It is going to become a real center of excellence.

“We’re pooling the data and resources from a number of sources, which will give us a greater ability to do more appraisals and that sort of thing. And we’ve been given access to previously confidential information by a number of companies. All of this increases the value of the data we can offer prospective investors,” Dalton says.

The province awarded Schlumberger the contract to set up the computer center, and work is under way.

Meanwhile, the provincial government, Geological Survey Canada, and universities are looking at myriad issues in the offshore. “A lot of R&D effort is going into identifying hydrocarbon potential that will bring investors,” Dalton says.

“We haven’t even started exploring off Nova Scotia. Exploration offshore this province is in its infancy. The potential in the deeper water is very good, and the geology is looking better all the time,” Dalton says.

MacMullin’s department is part of these cooperative efforts. “One of the things we’re in the process of developing is a geoscience community of interest, targeting the relevant people at the Geological Survey Canada, the CNSOPB, the Nova Scotia DoE, the Petroleum Research Atlantic Canada, and others,” he says.

One initiative is the Offshore Energy Technical Research Association, which was created in March 2006 and funded with C$2.6 million ($2.5 million) in seed money for research in specific areas of geoscience. It is an independent organization that has a Research Advisory Committee that vets all quotes that come in. The committee members include the DoE, the CNSOPB, Petroleum Research Atlantic Canada, Geological Survey Canada, two university researchers, and one company from the private sector.

Kimberly Doane, petroleum geologist and environmental coordinator at the DoE, says the province has a lot to offer. “The CNSOPB assessed the deepwater potential of the province in 2005 at somewhere between 15-40 tcf,” she says, noting that the number is somewhat conservative. With the reserves identified, Doane says the province is moving forward in terms of attracting investment through business, improving training capabilities, and continuing regulatory efficiencies to gear up for the next active cycle.

The final initiative is marketing. Trade shows, conferences, speaking engagements, and presentations are useful vehicles for highlighting the region’s potential. But as McEachern of OTANS says, “A project in the province outdistances them all in terms of significance.”

Training

Bernie MacDonald, director of business and technology for the Nova Scotia DoE, explains how his organization has invested its time in training during the slowdown in activity.

St. Mary’s University and Dalhousie University in Halifax are being called upon for advanced degrees in engineering, finance, and business, MacDonald says. And the Marconi campus of the Nova Scotia Community College has teamed with Cape Breton University to conduct operations training.

Today, MacDonald says, ExxonMobil uses the facilities of the college and university to train students from all over the world. “Students come from as far afield as Europe, West Africa, and Russia,” he says.

The Department of Energy also has been working on building relationships in Latin American countries and expects to advance specific initiatives related to training facilities in Nova Scotia.

“Pemex has evaluated the facilities,” MacDonald says. “We’ve visited Mexico, and Pemex representatives have come here over the past three years.”

Paving the way to sustained development has not been easy, but the people in the many organizations working toward that goal remain optimistic. Doane, for one, can see value in the substantial work that has been done to date. “We’re trying to stage ourselves now in this little bit of a lull so that we’re prepared even better than we were the first time. I think the first time we were caught off guard at how quickly it took hold. This time, we have many more pieces in place for it when the next project does come along,” she says.

The far reaches of Newfoundland

As Nova Scotia enters a period of optimism, Newfoundland and Labrador to the northeast has seen a drop in exploration activity. The good news is that existing projects are going strong and production is up.

The province’s production comes primarily from three fields (Hibernia, Terra Nova, and White Rose) in the Jeanne d’Arc basin off the east coast. They have been producing strongly, but there have been no significant changes in production numbers other than those reported recently by Husky Energy Inc., operator of White Rose.

In late July, Husky’sSeaRose FPSO completed its scheduled maintenance turnaround at the White Rose oil field, which lies 350 km (217 mi) southeast of St. John’s, Newfoundland.

At that time, Husky received approval to increase production to 50 MMbbl of oil per year, with a daily maximum production of 140,000 bbl. White Rose is expected to produce 120,000-125,000 b/d on an annualized average basis, Husky says.

Meanwhile, Husky has submitted an application to tie in production from the South White Rose Extension field. Husky continues to evaluate opportunities to develop newly discovered resources from the West White Rose and North Amethyst fields and is progressing applications with the Canada-Newfoundland and Labrador Offshore Petroleum Board (CNLOPB) to develop these recent discoveries as satellite tiebacks to White Rose, the company says.

The first deepwater drilling in the Orphan basin did not go as planned, primarily because of chronic rig problems. TheEirik Raude semisubmersible left the site a number of times for repairs. Without another rig available in the region to replace the semi, the partners had no choice but to sit and wait. With the weather window rapidly closing, drilling plans soon will have to be shelved until next year.

Although drilling has not been as successful as anticipated, the partners are gathering seismic data over the deepwater basin, which indicates that more drilling could be on the horizon.

Petro-Canada, operator of the Terra Nova field, is carrying out seismic work in conjunction with Norsk Hydro, but has announced no plans to drill.

Premier of Newfoundland and Labrador Danny Williams, who has been wrangling with the federal government to increase the province’s royalties, is optimistic about the province’s offshore potential.

Williams discussed achievements as well as critical issues in his keynote address at the annual Newfoundland Ocean Industries Association’s annual conference in St. John’s on June 19.

Williams pointed to recent industry successes in the province as evidence that the oil and gas industry is alive and well, highlighting Husky’s White Rose Extension as positive news for the region.

Williams also addressed issues surrounding the province’s attempts to increase its share in revenues from hydrocarbon production. “‘I am confident that we’re on the right track,” he said.

Williams reiterated his desire for Newfoundland to have an equity position in future oil and gas developments. “My ultimate goal is for Newfoundland as a province to be debt free,” he said.

The Premier also discussed some of the issues that need to be addressed for the province to be successful in the global market, including the need for a regulatory framework that attracts investors while bringing critical resources to Newfoundland and Labrador.

Williams sees the present lull in activity simply as another dip in an industry that is notoriously cyclical. He remains convinced that the province will prosper. “I am very, very, very optimistic about the future of the province’s oil and gas industry,” he said.

Williams’ optimism was rewarded in late August when the province signed a long-awaited memorandum of understanding with partners in the Hebron-Ben Nevis field, which holds and estimated 700 MMbbl of recoverable oil. Heavy oil and a complex reservoir have been a handicap to getting the project off the ground, but the development is now on its way to reality.

“The road to this day has not been an easy one; however, it has been well worth the wait,” Williams says.