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

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

“This second appraisal well indicates the Deep Panuke gas fieldis the most significant discovery in Atlantic Canada in more than adecade,” said Gerald Macey, PanCanadian’s executive vice presidentof exploration. “Deep Panuke is emerging as a world class play, andits proximity to markets and pipelines offers PanCanadian thepotential to substantially increase reserves and production.”

PanCanadian’s H-08 well is about two kilometers southwest of thediscovery well, PP-3C, which had a net pay of 225 feet. The firstappraisal well, P1-1B, had net pay of 110 feet. In February, PanCanadian said that each of the first two wells flowed duringmulti-day tests at more than 50 MMcf/d, again the maximum capacityof 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 potentialand development options. Production could be on stream by late2003. Later this year, another exploratory test is also scheduledfor a separate structure on the Panuke license.

The Calgary-based company holds a significant lease positionoffshore Nova Scotia – 15 exploration blocks and two productionlicenses, covering more than 4 million gross acres. Its averageworking interest is 55%, and PanCanadian operates 16 of thelicenses. It holds 100% interest in the Deep Panuke, which islocated about 250 kilometers southeast of Halifax,

The discovery, which was found beneath PanCanadian’s depletedPanuke oilfield, is about 25 miles from gas-production facilitiesof the Sable Offshore Energy Project (SOEP), which are in turnlinked to markets in New England, Nova Scotia and New Brunswick byMaritimes & Northeast Pipeline. Deliveries from SOEP andM&NE started last winter. PanCanadian said a fourth well, nowunder way and scheduled to be finished in September, will enable itto evaluate fully the scale of Deep Panuke’s reserves, theircommercial 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 presidentDavid Tuer has cautioned that the three appraisal wells areessential to “feel the edges” of the discovery. But illustrativeexamples used by the company toÿ describe the find to theinvestment community indicate a major development is on thehorizon.

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 itsdevelopment options open, with separate production and pipelinefacilities possible if Deep Panuke turns out to be big enough tojustify them. He has estimated that a connection to SOEP-M&NEcould be built for about $30 million, but described methods ofsending PanCanadian’s gas to market as a “strategic issue” that thecompany is not yet ready to decide or talk about. Although therehave been rumors calling for another pipeline that could transportSable Island region reserves, including the Deep Panuke reserves,they went unconfirmed last week.

Canadian officials have called PanCanadian, with its Deep Panukefield, a “very major player,” but it isn’t the only one. ImperialOil, an ExxonMobil subsidiary, Shell Canada, Marathon andKerr-McGee all have significant land positions offshore NovaScotia. The Canada/Newfoundland Offshore Petroleum Board first putthe total recoverable reserves and discovered resources on theGrand Banks at 1.6 billion bbl of oil and 4 Tcf of natural gas.However, those estimates have been revised upward for several ofthe fields located on Eastern Canada’s Grand Banks.

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

PanCanadian has underlined the scale of the discovery bydescribing it as one of the best in its long history as anatural-gas producer. That is saying a lot. Heir to huge landgrants given to majority owner Canadian Pacific in the 19th Centuryfor building the country’s first transcontinental railway,PanCanadian is already the second-biggest Canadian gas producerafter Alberta Energy Co., with output approaching one billion cubicfeet per day.

Carolyn Davis, Houston; Gordon Jaremko, Calgary

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