Encana to Delay New Deep Panuke Development; Reassess Local Market

The next natural gas production project offshore of Nova Scotia has been postponed for at least a year, due to uncertainty over reserves and markets that is also likely to delay expansion by Maritimes & Northeast Pipeline (M&NP).

EnCana Corp. asked federal and provincial regulators for a "time-out" adjournment of regulatory proceedings on the C$1.1 billion (US$700 million), 400 MMcf/d Deep Panuke project.

EnCana president Gwyn Morgan said more time is needed to complete exploration drilling programs and market negotiations which are liable to change the project. Drilling is currently under way in new and deeper areas as the Canadian industry steps out from the first development in the region, the Sable Offshore Energy Project. EnCana has also made a first move towards dedicating Deep Panuke production to a domestic market, by entering into a conditional agreement on terms for supplying new outlets on Prince Edward Island.

Changes and possibly delays were anticipated by the National Energy Board in a December decision granting conditional approval for an 80%, C$191 million (US$122 million) capacity expansion by M&NP to carry the Deep Panuke volumes. The ruling included provisions for modifications to reflect new exploration and marketing activity.

EnCana said Deep Panuke, as presently constituted, is not competitive with other immediate opportunities in the international portfolio of interests built up when the company was formed last year by the merger of Alberta Energy Co. and PanCanadian Energy.

Morgan said EnCana also has concerns that the initial offshore development plan, crafted when Deep Panuke was discovered by PanCanadian, needs to be reviewed to take into account changing conditions. The original idea was to earmark the gas for exports to the U.S., with Canadian East Coast markets only buying leftover volumes as and when sales outlets developed. The plan prompted Atlantic Canadian energy consumers and the New Brunswick government to lodge vehement protests, which ended in creation of a special market monitoring and reporting system by the NEB as well as official encouragement for producers and transporters to pay attention to domestic requirements.

EnCana said it hoped to be able to provide the NEB, environmental and provincial authorities with at least an update on the outlook for expanding Nova Scotia gas production and sales by the end of 2003.

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