Newfoundland and Nova Scotia benefit from oil and natural gas
The Maritime provinces are increasingly a black gold coast
The prime target is a drilling license that Conoco-Phillips risks losing if no work is done by about mid-2010, under leasing rules enforced by the Canada-Newfoundland and Labrador Offshore Petroleum Board. “The licenses have an expiry of 2013, but there are different terms within those licenses that require us to get a well down,” Way says. “If you don’t fulfil the terms of the licenses, then you would have to relinquish the acreage.”
Deepwater exploration is formidably expensive. In the Orphan Basin, costs of a Chevron Canada well called Great Barasway F-66 jumped from an estimated $140 million to more than $200 million in 2006. The drilling took seven months due to bad weather, pack ice and mechanical problems.
Chevron, an East Coast veteran that made the 1979 Hibernia discovery, has delayed another Orphan Basin well that was planned for this year. “Cost estimates for the second well were coming in very high – in fact, higher than for the first well,” says Mark MacLeod, Chevron’s Atlantic Canada manager. The drilling plan is not sunk, however. “We recognize that it’s disappointing in the local community, but it’s important to say that we are very committed to the region.”
Secrecy is standard practice in offshore exploration, where the industry is highly competitive and participants keep all but the most general results to themselves until they nail down drilling rights to good prospects. But Macleod hints that Chevron believes it is onto something. “We’re very interested in the Orphan Basin,” he says.
“We drilled the first deepwater well there in 2007. It was a dry hole, but we gained a lot of very useful information from that well. We are continuing with our technical work to advance our understanding and we have a goal to drill another exploration well in 2010, but we’ve not made a final decision.”
Like ConocoPhillips, Chevron has been searching the world for equipment and personnel capable of working in the new exploration area offshore of Newfoundland. “We’re doing everything we can to line up a rig,” says Macleod. “It would be a deepwater, harsh environment rig. Those are rare, indeed.”
In the meantime, Chevron is conducting Orphan Basin seismic surveys this summer and making plans to expand its hunt into the even more formidable region offshore of Labrador. “We’re in the very early stages of our exploration program there,” Macleod says. Our early focus is to address some of the technical challenges, in particular with obtaining high quality seismic data. It’s another remote, harsh environment area with significant iceberg conditions and that will have a significant impact on the cost.”
On top of technical obstacles, industry faces a political dispute in the ocean between Newfoundland and Nova Scotia. A last vestige of France’s bygone empire – the Gulf of St. Lawrence islands of St. Pierre and Miquelon, population 6,300 – has petitioned the United Nations for expanded sovereignty over part of the Laurentian Sub-basin.
The French made the move just hours before a deadline for appealing defeat of its territorial demand in a 1990s international arbitration case. In Ottawa, federal officials immediately pledged to keep on defending Canadian sovereignty and potential subsea energy wealth.
Way doubts the dispute can stop the ConocoPhillips drilling plan. “There doesn’t appear to be an overlap with the licensing, so we don’t believe we’re going to be directly affected.”
Far to the northeast of the contested waters, Norway’s StatOil Hydro, Husky and Petro-Canada lined up a rig and planned a summer start on drilling a Grand Banks prospect called Mizzen, in deep water of the Flemish Pass area nearly 500 kilometers offshore of St. John’s. The new well follows an apparent success in the remote region by StatOil and Husky last winter. The partners have applied for a significant discovery license entitling them to keep the spot for development.
The well results are secret, with the firms only disclosing that “hydrocarbons were encountered.” Erik Abrahamsen, vice-president in charge of StatoilHydro Canada’s Atlantic coast operations, says it could take two years to ascertain the Mizzen’s true contents. But he adds, “This is a big day for StatoilHydro. For us, it’s a big step forward… in a year or two, we might be in a position to go on with further appraisal drilling to find out more.”
Like Alberta oil sands projects, deepwater production takes time to develop. “If further appraisal drilling proves enough reserves to make this economically viable, then you are looking at 10 years at least – maybe more, 15 years – before you can see any development and production,” Abrahamsen says. But the preparations alone for oil projects on this scale are big enough to give the economy and spirits a lift in Atlantic Canada.
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