PanCanadian Find Could Nearly Double Sable Output
The next growth step for Atlantic Canada's fledgling natural-gas
industry has popped up on the horizon, in the form of a discovery
with potential to double offshore production and exports to New
England. Offshore of Nova Scotia, PanCanadian Petroleum Ltd.
expects to know by the end of this year the true size of a gas find
in the Sable Island region that it has christened Deep Panuke.
The first two wells, drilled in 1998 and '99 to a depth of about
11,500 feet to a new geological zone underneath PanCanadian's
Panuke oilfield as it began running dry, yielded spectacular
production tests exceeding 50 MMcf/d each.
President David Tuer cautioned that the extent of the gas
deposit is not yet known, but added that two more wells this year
will let PanCanadian "feel the edges" and put its engineers to work
on development plans. In a briefing book used for an annual
show-and-tell tour of the financial community, PanCanadian keeps
its estimates conservative but also makes it plain that a major
development is on the horizon. An illustrative example of Deep
Panuke's potential describes a C$645-million (US$445-million)
production development to tap 1 Tcf of reserves at a rate of 400
MMcf/d for 15 years starting in the fall of 2003. That flow would
nearly double the output that Sable Offshore Energy Project started
exporting to New England via Maritimes & Northeast Pipeline
this winter. PanCanadian's scenario describes the Panuke project
as attractive at a gas price of US$2.50/Mcf, or a level well within
the expectations of Canadian consensus on the outlook for gas
Tuer said it is hard to imagine anything but a highly favorable
story for Canadian gas for at least the next five years as a result
of strong demand in the United States, the expanding international
pipeline grid and encouraging drilling results from British
Columbia to Nova Scotia.
The PanCanadian president, at a Calgary state-of-the-company
briefing, disclosed that M&NE has made overtures to connect
Deep Panuke. The pipeline is understood to be capable of about
doubling its initial capacity into the 1 Bcf/d range with additions
of compressor power. But Tuer also indicated PanCanadian is keeping
open its options for developing its own delivery scheme. "That is a
strategic issue we're not ready to talk about yet," Tuer said. The
PanCanadian president said "this discovery is potentially the most
significant in the company's history. By the end of the year, we'll
be able to confirm or refute that."
That is the kind of statement that is making believers out of
industry interests such as the M&NE combination of Westcoast
Energy Inc. (37.5%) Duke Energy (37.5%), Mobil Canada-ExxonMobil
(12.5%), and NS Power Holdings Inc. (12.5%). PanCanadian already
jockeys for top spot among Canadian gas producers by volume with BP
Amoco Canada, Alberta Energy Co. and Shell Canada. PanCanadian
expects its production to nudge 1 Bcf/d this year and in 2001 top
that landmark, formerly the undisputed terrain of BP Amoco.
By the yardstick of low costs, PanCanadian claims top spot
because of its stature as a Canadian counterpart to the Burlington
and Union Pacific Resources empires in the United States.
PanCanadian too is the heir to vast grants of land and mineral
rights given to its parent, Canadian Pacific, to build a
transcontinental railway in the 19th Century. In PanCanadian's
case, the original parent has kept an 87% interest and has no
intentions of selling until the stock exchanges get over their
infatuation with the Internet.
PanCanadian reports its finding and developing costs run in a
range of C37-80 cents (US26-55 cents) an Mcf. Deep Panuke will sit
in the middle of the range, at C67 cents (US46 cents) if the
marketable reserves turn out to be in the trillion-cubic-feet range
and lower to the extent that the next wells find a bigger
reservoir. Deep Panuke is only the beginning of PanCanadian's
ambitions for gas offshore of Nova Scotia, where the company has
ownership interests averaging 60% in more than four million acres
(6,250 square miles) after expanding its holdings last year at the
head of several prospect acquisition partnerships.
Gordon Jaremko, Calgary
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