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PanCanadian's Panuke Tests Confirm Substantial Reserves

PanCanadian's Panuke Tests Confirm Substantial Reserves

The Deep Panuke gas field, offshore Nova Scotia, is confirming beliefs that the Sable Island region may contain the most significant gas finds there in 10 years, with news last week that a second appraisal well by PanCanadian maxed out the testing equipment, with a flow rate at the well averaging more than 50 MMcf/d.

PanCanadian said that the results of the three-day test on its second appraisal well, H-08, which began drilling May 24, encountered net pay of 325 feet. Drilling to date has proven a gas column in the pool of at least 450 feet, and the reservoir currently is estimated at six to eight kilometers in length.

"This second appraisal well indicates the Deep Panuke gas field is the most significant discovery in Atlantic Canada in more than a decade," said Gerald Macey, PanCanadian's executive vice president of exploration. "Deep Panuke is emerging as a world class play, and its proximity to markets and pipelines offers PanCanadian the potential to substantially increase reserves and production."

PanCanadian's H-08 well is about two kilometers southwest of the discovery well, PP-3C, which had a net pay of 225 feet. The first appraisal well, P1-1B, had net pay of 110 feet. In February, Pan Canadian said that each of the first two wells flowed during multi-day tests at more than 50 MMcf/d, again the maximum capacity of the testing equipment.

PanCanadian now is drilling M-79, a third appraisal well there. Once the M-79 results are available (expected in September), PanCanadian will evaluate the reserve size, commercial potential and development options. Production could be on stream by late 2003. Later this year, another exploratory test is also scheduled for a separate structure on the Panuke license.

The Calgary-based company holds a significant lease position offshore Nova Scotia - 15 exploration blocks and two production licenses, covering more than 4 million gross acres. Its average working interest is 55%, and PanCanadian operates 16 of the licenses. It holds 100% interest in the Deep Panuke, which is located about 250 kilometers southeast of Halifax,

The discovery, which was found beneath PanCanadian's depleted Panuke oilfield, is about 25 miles from gas-production facilities of the Sable Offshore Energy Project (SOEP), which are in turn linked to markets in New England, Nova Scotia and New Brunswick by Maritimes & Northeast Pipeline. Deliveries from SOEP and M&NE started last winter. PanCanadian said a fourth well, now under way and scheduled to be finished in September, will enable it to evaluate fully the scale of Deep Panuke's reserves, their commercial potential and development options.

The SOEP, which has three gas fields in production offshore Nova Scotia, already is the fourth largest producing natural gas basin in North America, and Canadian officials hold that the East Coast of Canada may be key to meeting the U.S.'s energy needs (see NGI, May 8). Since SOEP's inception, Nova Scotia has become the base for more than a dozen energy companies and their related projects. PanCanadian's discovery well was one of the first with a major find.

In presentations to financial analysts, PanCanadian president David Tuer has cautioned that the three appraisal wells are essential to "feel the edges" of the discovery. But illustrative examples used by the company toÿ describe the find to the investment community indicate a major development is on the horizon.

The examples sketch a C$645 million (US$445 million) project to tap one trillion cubic feet of reserves at a rate of 400 MMcf/d for 15 years beginning in 2003 years (see NGI, April 3). A flow of that magnitude would nearly double the output that SOEP began exporting to New England through the Maritimes & Northeast Pipeline last winter.

Tuer has also indicated PanCanadian is keeping all its development options open, with separate production and pipeline facilities possible if Deep Panuke turns out to be big enough to justify them. He has estimated that a connection to SOEP-M&NE could be built for about $30 million, but described methods of sending PanCanadian's gas to market as a "strategic issue" that the company is not yet ready to decide or talk about. Although there have been rumors calling for another pipeline that could transport Sable Island region reserves, including the Deep Panuke reserves, they went unconfirmed last week.

Canadian officials have called PanCanadian, with its Deep Panuke field, a "very major player," but it isn't the only one. Imperial Oil, an ExxonMobil subsidiary, Shell Canada, Marathon and Kerr-McGee all have significant land positions offshore Nova Scotia. The Canada/Newfoundland Offshore Petroleum Board first put the total recoverable reserves and discovered resources on the Grand Banks at 1.6 billion bbl of oil and 4 Tcf of natural gas. However, those estimates have been revised upward for several of the fields located on Eastern Canada's Grand Banks.

Even PanCanadian is unsure of the extent of its own find, and hopes to estimate by the end of this year the true size of the gas find in Deep Panuke. In the past, PanCanadian has kept its estimates on the conservative side, but its potential at Deep Panuke is believed to be tremendous.

PanCanadian has underlined the scale of the discovery by describing it as one of the best in its long history as a natural-gas producer. That is saying a lot. Heir to huge land grants given to majority owner Canadian Pacific in the 19th Century for building the country's first transcontinental railway, PanCanadian is already the second-biggest Canadian gas producer after Alberta Energy Co., with output approaching one billion cubic feet per day.

Carolyn Davis, Houston; Gordon Jaremko, Calgary

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