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Canada's East Coast Gas Industry Growing

Canada's East Coast Gas Industry Growing

The East Coast of Canada, now one of the hot spots for new oil and gas exploration and development in the world, could "definitely" be a part of the solution to New England's energy needs, Premiers John Hamm of Nova Scotia and Brian Tobin of Newfoundland and Labrador told attendees at the Offshore Technology Conference in Houston last week.

The Sable Offshore Energy project (SOE), with three gas fields in production offshore Nova Scotia, now is the fourth largest producing natural gas basin in North America.

Connected to markets through the Maritimes Northeast Pipeline from Nova Scotia to New England, Hamm predicts that by the end of this year, more than 500 MMcf/d will flow - a perfect fit for the Northeast U.S.'s diminishing supplies. What's more, the traditional thinking about Sable Island reserves adding up to 60 Tcf to 80 Tcf of gas is "proving to be too conservative."

"I can see the day when we will truly have coast to coast natural gas production and delivery --- a North American system from Newfoundland and the Arctic to the West Coast and the Gulf of Mexico," Hamm predicts. "A truly integrated North American energy system using the cleanest, most environmentally friendly petroleum product available today, natural gas."

Since SOE's inception, Nova Scotia has become home to more than a dozen "significant" energy companies, among them PanCanadian whose discovery well underneath the Panuke oil field is producing 55 MMcf/d. A second well has tested 52 MMcf/day --- both "very good signs," Hamm says.

In less than two weeks, Hamm revealed that PanCanadian will sink its third well and if those results look good, it could be enough to push for more "serious development. A fourth well is planned for later this year to establish firm reserve projections, and if all goes according to plan, PanCanadian is considering possible production within three years.

What's most exciting about this development is that the discoveries are taking place in what had been considered underrated geological structures. According to the Geological Survey of Canada, only about 1 Tcf of gas was expected to be found on the entire bank. PanCanadian engineers think they may have found 1 Tcf in one field alone.

"Obviously, we are beginning to push the boundaries of conventional wisdom on our potential," says the Nova Scotia head. "The structures off Nova Scotia are similar to those already developed off Africa, Brazil and in the Gulf of Mexico. Once again, PanCanadian is a very major player in this new, very exciting play." But it's not the only player.

Imperial Oil, a subsidiary of Exxon Mobil, has significant blocks there, as does Shell Canada. Both companies acquired additional interests in the land sale in 1999, and now, two other major players have come on to the scene. Marathon has acquired an operating role in one block and is a partner with PanCanadian in another. Also, Kerr-McGee has taken a half interest and become the operator on the Canadian 88 blocks.

In shallower waters, more than 200 unexplored prospects are "sitting on the doorstep of the new infrastructure," says Hamm. "The sweet spot is undoubtedly in the area around Sable Island."

The first phase of Sable development is nearly complete, and still to come is the second phase, which will bring on three more fields to keep up or even increase production levels. "The bottom line...last year, we talked about $780 million worth of exploration commitments. Now, the official number stands at $842 million. We think that number is low when you consider every one of the 43 licenses requires a well to be drilled on that block if the land is to be kept. I can also tell you that industry is keen to add more lands, and we hope to issue a call for bids later this month," Hamm said.

Meanwhile, Tobin encouraged OTC attendees to participate in his provinces' oil and gas industry, which he says holds "global significance" and is setting Canadian records.

Previous estimates by the Canada/Newfoundland Offshore Petroleum Board put the total recoverable reserves and discovered resources on the Grand Banks at 1.6 billion bbl of oil, 4 Tcf of natural gas. But Tobin said that estimates have been revised for several of the fields located on the Grand Banks. Added just last week to the totals are 526 million barrels of additional recoverable oil, over 1 Tcf of natural gas.

"These upward revisions result from extremely positive development drilling results from the Hibernia Field as well as recent delineation drilling on the White Rose and the Hebron/Ben Nevis Complex, and the positive results from the West Bonne Bay discovery well," Tobin says. The discovery well was drilled by Amoco in 1997 and 1998.

"The quality of the Hibernia reservoir has exceeded expectations," Tobin says, which is a "good omen for our first producing oil field."

Within a year, Tobin revealed that Hibernia will be joined with other petroleum development offshore. The Terra Nova field is 22 miles southeast of Hibernia and development drilling is ongoing at the northeast and southwest hole sites, and three wells have been completed to date. Husky Oil plans development of the White Rose Field, which has discovered recoverable resources of 275 million b/o, 2.1 Tcf of gas, and 77 million bbl of natural gas liquids.

"The fact that White Rose contains the single largest discovered gas reserve on the Grand Banks, which is still not fully delineated, gives me great optimism for the future and the possibility of a major gas development in Newfoundland and Labrador," says Tobin. "White Rose, in addition to the other 3 Tcf of discovered gas reserves in the Jeanne d'Arc Basin, augers well for future gas development."

Tobin says that there are "indications" for "significant exploration beyond the Jeanne d'Arc Basin within the next couple of years." As an example, Tobin pointed to a recent land sale where companies bid $134 million (U.S. money) for four parcels in the Flemish Pass Basin, which lies to the east of the Jeanne d'Arc in deeper water.

Carolyn Davis, Houston

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