Eastern Canada looking for ways to fulfill the promise of its offshore reserves

The Thebaud Platform, located about 6 miles southwest of Sable Island off the southern coast of Nova Scotia, processes natural gas. (Offshore/Onshore Technologies Associaton of Nova Scotia)

Hibernia, Sable Island, White Rose and Terra Nova are among the largest producers of oil and gas in the offshore waters of Canada’s Atlantic Maritime Provinces. These fields are creating significant benefits for the region’s economies. Yet in spite of anticipated large reserves to be found, the ebb and flow of exploration activity, production realities and the cyclical nature of oil companies’ investments raise many concerns about the consistent long-term oil prospects of these offshore waters.

The offshore Deep Panuke field in the Sable Island area 150 miles off the coast of Nova Scotia is one example of start-stop exploration over several years. The area was originally exploited as the Panuke Oil Field in the 1990s but later seismic surveys and other data suggested that “by drilling deeper they might find gas,” said Michael O’Mahoney, policy and communications analyst with Offshore/Onshore Technologies Association of Nova Scotia. “In 1998, the drill rig didn’t have to move an inch, but by plunging deeper, they found the gas fields.”

Water depths in these continental shelf waters are a modest 130 feet or so. But to reach the gas deposits, the wells had to be drilled to a depth of over 11,000 feet. Estimates are the Deep Panuke field could produce 300 million cubic feet of gas daily once in full production.

The Sable Island fields produced significant follow-up interest in exploration activity that led to issuance of a number of exploration licenses to major oil companies in 1999. Follow-up exploration results were generally unsatisfactory and in 2004 the majors allowed many of their licenses to expire.

EnCana Corp. has been the exception and retains a 78 percent interest in the Deep Panuke field. However, initially positive results did not lead to any major strikes by 2003. At that point EnCana decided not to expand its exploration efforts. Subsequently, the company renewed the search in the Deep Panuke gas field. However, in the winter of 2005-2006 the well turned out to be a dry hole.

“These things ebb and flow,” O’Mahoney said. “The Sable Island area was very active five to 10 years ago, but there were a couple of dry holes and it tailed off a bit.”
The present Sable Island fields represent a $2.4 billion investment. The gas produced is transported by underwater gas lines to the mainland, with most being delivered to New England.

The heavy-lift vessel Blue Marlin in January 2007 carries Rowan Gorilla VI out to sea from Halifax, where the rig had undergone repairs. During 2006, the jack-up rig was engaged in drilling wells in Newfoundland’s offshore fields. (Offshore/Onshore Technologies Associaton of Nova Scotia)
EnCana has not given up on the search for new reserves. The company and Nova Scotian regulators are currently in negotiations that could lead to further drilling work.
In what might be a setback for the project or an opportunity for another oil company, the Deep Panuke’s original minor operating partners, Exxon Mobile with 12 percent and Shell with 6 percent, announced in June 2007 their intention to sell their shares.
Looking back, Tom Hickey, former OTANS chairman, noted, “Sable came into being because Shell and Mobile had small pools of gas that were very likely uneconomic on their own. But combining those smaller discoveries meant a viable economic project.”

Newfoundland and Labrador
Newfoundland and Labrador comprise another exploration-production jurisdiction with the primary fields of Hibernia, Terra Nova and White Rose. According to Max Ruelokke, chairman of the Canada-Newfoundland and Labrador Offshore Petroleum Board, the petroleum companies have invested over $21.5 billion in exploration and development and directly employed 2,837 people in 2006.

Hibernia, 195 miles out to sea in about 260 feet of water, is the fifth-largest field discovered in Canada.

The field’s two reservoirs are located at depths of 12,140 feet and 7,875 feet. A prominent feature of the Hibernia field is the Hibernia Platform on top of the gravity-base platform, which began production in November 1997. The platform and base were designed to withstand the impacts of an iceberg weighing up to one million tons.
The Terra Nova field, containing an estimated 440 million barrels of oil, began production in 2002.

The White Rose field, located at a depth of 394 feet, came on stream in November 2005. It could produce up to 250 million barrels of recoverable oil during its estimated production life of 12 to 15 years, according to Husky Energy, the operator, with a 72.5 percent working interest in the field. In late 2006, a sixth production well was completed and the seventh well is expected to be on line later in 2007.

Because of their location, oil recovered from the Newfoundland and Labrador fields is transferred to Floating Production, Storage and Offloading vessels then to shuttle tankers. The fields were the first North American use of FPSO vessels in harsh environments.

Challenges, opportunities and new growth
A major factor affecting the level of drilling activity is the unavailability and expense of drilling equipment suitable for working off the coast of the Canadian Maritimes, especially in the colder months.

“One of the biggest challenges is getting drill rigs here equipped for the harsh winter weather conditions. Only a handful in the world can do it and one of them, the Erik Raude, has been working here but not often,” explained O’Mahoney. Because of the cost of drill-rig and drill-ship construction, combined with drilling demand constantly outstripping equipment availability, that challenge will be ongoing.

Government has taken several steps recently to try to encourage exploration by the oil industry.

In early 2007 the Canada-Nova Scotia Offshore Petroleum Board decided to streamline the regulatory process. “The initiatives are definitely targeted at attracting exploration. It clearly demonstrates the Canada-Nova Scotia Offshore Petroleum Board’s willingness to look at ways to encourage development of our offshore while still maintaining its role as steward of the resource,” said Barry Clouter, chairman of the Offshore/Onshore Technologies Association of Nova Scotia.

Establishment of a new seismic data center at Dartmouth, Nova Scotia, was announced in April 2007. According to an OTANS statement, the mission of the center, scheduled to open in October 2007, is to “digitize Nova Scotia’s geological data and make it available on the Internet. Previously, exploration companies would have to incur the expense of sending a team of individuals to Nova Scotia to look at the data there before they could even consider an Exploration License. Digital formatting enables companies to perform a much better analysis” from their home offices.

In Newfoundland and Labrador, Memorial University of Newfoundland is conducting research that should help the oil industry. The endowment of the university’s Husky Energy Chair in Oil and Gas Research continues to grow through donations from Husky Energy that total $2.5 million since 2003.

Those funds will help “to advance reservoir characterization capability in the region,” said Dr. John C. S. Lau, president of Husky Energy.

The crane vessel Hermod heads out to the Sable Island gas fields in October 2004. The ship was used to install the topside elements of the South Venture production platform. (Offshore/Onshore Technologies Associaton of Nova Scotia)

Under development is a dedicated computer capable of processing seismic data faster than any now available. It will be part of technologies being developed at the university to bring in oil and gas wells using advanced seismic processing algorithms for reservoir characterization, visualization of seismic processes and other related leading-edge technical processes.

Nova Scotia’s regulatory board is adopting licensing policies designed to encourage new entrants. “The regulatory board wants to make it easier for smaller capitalized companies to come in,” O’Mahoney said.

Newfoundland and Labrador are also reviewing their policies to encourage greater participation by smaller oil companies in developing the large areas off their coast.
In February 2006, Hickey suggested that OTANS might consider setting time limits on licenses from companies that were not actively searching for oil and gas in their leased areas.

“Is it fair that a company can hold onto a significant discovery forever, or should we look at a time limit?” he asked. “Currently in eastern Canada, a company can have a Significant Discovery License forever and never do anything with it. OTANS believes holding the Significant Discovery License, virtually indefinitely, is not in anyone’s best interests. If it’s not worthwhile for a company to develop a discovery, then they should either sell it or return it back to the Crown.

By Professional Mariner Staff