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Sable Offshore Energy Project in 'Terminal' Decline, Says Researcher

The Sable Offshore Energy Project (SOEP), whose operators in 1998 boasted possible production rates as high as 500 MMcf/d (see NGI, Feb. 16, 1998), is now in "terminal" decline, and the sixth and final field in the project, which was scheduled to ramp up in 2007, may be written off, according to a study by a Dalhousie University engineering professor.

Larry Hughes, a professor with the university's Energy Research Group, has warned of depleting SOEP resources in earlier reports. Last summer, he called on Nova Scotia to revise its energy policy because the province's Department of Energy bases its energy security plan primarily on its offshore gas supplies (see NGI, Aug. 1, 2005). His latest study was published earlier this month.

The SOEP, which is located about 120 miles offshore Nova Scotia, is owned by ExxonMobil Canada Properties Ltd., Shell Canada Ltd., Imperial Oil Resources, Pengrowth Energy Trust and Mosbacher Operating Ltd. Hughes used operations research from the companies as well as production data from the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB) from December 1999 to November 2005.

According to Hughes, total volume estimates of the SOEP's natural gas fields has "undergone considerable revision" by the operators, with numbers ranging from about 3.6 Tcf soon after production began in 1999 to 1.36 Tcf in February 2004. Total production to date has been 965 Bcf or 0.965 Tcf.

Hughes told NGI last week his latest report "will be a bit tricky to write off...as it uses their numbers. This is simply confirming what Shell has been saying all along, that production is falling faster than had been expected." Shell Canada has cut its reserves estimates on SOEP several times; as of February 2004, its SOEP reserves now stand at only 430 Bcf compared with the 1.1 Tcf it originally estimated (see NGI, Feb. 9, 2004).

According to Hughes, monthly production peaked in November 2001 at 18.1 Bcf from the three Tier I fields, Thebaud (December 1999), Venture (February 2000) and North Triumph (February 2000). "Since then, there has been a steady but gradual decline in production; by November 2005, monthly production had fallen by 29.9% from the peak of 12.8 Bcf," Hughes noted.

Divided into two tiers of projects, the SOEP contains a total of six fields. The Tier I fields' output peaked within 36 months of ramp up; Tier II fields "appear to peak in less than 12 months of the start of production." And the Tier II fields, Alma (November 2003) and South Venture (December 2004) "have not been able to increase production to November 2001 levels, despite record high prices for natural gas in the United States." A third Tier II field, Glenelg, is scheduled to ramp up in 2007, but "it is unclear whether the Glenelg project will proceed, as Shell Canada considers it a 'write-off,'" according to Hughes.

"Unless the SOEP consortium has been shutting in some production, it would appear that all Tier I fields have reached their peaks and are now in decline," Hughes noted. "Similarly, the two Tier II fields appear to have peaked, although SOEP may be holding back production in order to sell at a higher price to the U.S. market this winter. Unless the Glenelg field is brought on stream and can approach the outputs of Thebaud and Venture, it seems that the Sable project peaked in November 2001 and is in terminal decline."

Hughes believes the "rapid decline" in SOEP's output "is clearly the cause of the Nova Scotia government's push for Deep Panuke to come onstream, as well as its embracing of the proposed liquefied natural gas (LNG) facilities at Bear Head and Guysboro (see related story). Without the availability of natural gas from LNG, Nova Scotia's 'offshore' natural gas industry will come crashing down, with a billion-dollar pipeline unfilled (much like the Nova Scotia government's promise of natural gas)."

Hughes is referring to the Scotian government pressure on EnCana Corp. to continue to develop its once promising Deep Panuke project offshore, which initially had great promise and then went into limbo. In the only new exploration well drilled offshore Nova Scotia in 2005, EnCana teamed up with Marauder Resources East Coast Inc. in late 2004 (see NGI, Dec. 13, 2004). However, last month, Marauder announced their joint venture Dominion J-14 well "did not encounter natural gas-bearing reservoir." A sidetrack well is expected to be completed this month.

"We still have some work to do, so we remain optimistic," said EnCana spokesman Alan Boras.

According to the CNSOPB, six more exploration licenses offshore Nova Scotia expired at the end of 2005. The companies that owned the licenses had committed C$166 million for exploration, but chose to let their rights expire rather than drill wells. At the end of 2004, 19 licenses with commitments of about C$330 million expired, according to the board. Currently, there are 27 active exploration licenses offshore, with total work commitments of about C$1 billion.

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