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Deep Panuke Start-Up Jinxed Again

November 19, 2012
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Encana Corp.'s long-delayed Deep Panuke natural gas field off the coast of Nova Scotia won't begin producing before next year, company officials have confirmed. The company, which has pushed back the start-up several times, had planned gas production to begin this winter.

Platform operator SBM Offshore blamed "recent tests related to process equipment" for the delay. The platform equipment should be operational before the end of June, according to SBM.

"We encountered some rework during the commissioning stage of this project," said SBM CEO Bruno Chabas during a conference call Thursday. "This rework is on the critical path and is postponing the startup phase of the platform." SBM officials said the process equipment needs to be repaired and retested. SBM would own and operate the platform and lease it to Encana for eight years.

Encana officials last June said the field would begin to ramp up by year's end (see NGI, June 25). The estimated $950 million project, which is 250 kilometers southeast of Halifax, includes four deep sea wells. The field eventually is to produce an estimated 300 MMcf/d. The Deep Panuke project was approved five years ago after federal regulators gave the go-ahead (see NGI, Oct. 29, 2007).

Last year Encana became embroiled in a legal battle with SBM related to cost overruns and delays with the platform, which has been in the works for several years. Chabas told analysts that the delay was "disappointing," but he said the additional work would not have a major impact on the project costs.

The structure was built at the Monaco-based operator's facility in Abu Dhabi and would be transported to eastern Canada.

In July Calgary's Talisman Energy Corp. evacuated more than 100 employees from an offshore platform in the North Sea that SBM had constructed, according to news reports. Asked about whether the issues at the North Sea Yme platform were similar to the Deep Panuke problems, Chabas told analysts that "the nature of the two issues is dissimilar."

The Deep Panuke platform was designed specifically for offshore Nova Scotia, and would be inspected routinely by Encana and monitored by the Canada-Nova Scotia Offshore Petroleum Board.

Three years ago Spain's Repsol YPF SA agreed to buy all of Encana's Deep Panuke production (see NGI, Feb. 23, 2009). The contract is for the life of the field, estimated to be eight to 18 years, which would be transported by the Maritimes & Northeast Pipeline.

In 2008, well ahead of the massive uptick in North American gas supplies, Repsol Energy Canada Ltd. obtained a 25-year license to import liquefied natural gas (LNG) at its Canaport LNG terminal near Saint John, NB, and a separate 25-year license to export regasified LNG to the U.S. Northeast (see NGI, Jan. 21, 2008). However, in July Repsol indicated that it might sell its 75% stake in the Canaport terminal (see NGI, July 30). Irving Oil Ltd. owns 25% in the terminal, which has a maximum sendout capacity of 1.2 Bcf/d.

The Panuke gas, as well as gas output from the nearby Sable Offshore Energy Project (SOEP) might have other options, however. SOEP underwent a maintenance turnaround in September and has not yet returned to full production; more repairs are needed.

In October Pieridea Energy Canada announced it wanted to build a $5 billion LNG export terminal on Canada's Atlantic Coast near Goldboro, NS where MNP obtains supplies from SOEP -- and which is to take Panuke supplies (see NGI, Oct. 29). Goldboro LNG has set a target to land sales contracts in 2013 and obtain regulatory approval in time to begin construction in 2014.

According to Canaccord Genuity's Phil Skolnick, Encana does not have to start paying for the Deep Panuke lease until the platform ramps up. However, if the production continues to be delayed, it could create a funding gap for the company in 2013.

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