Discovery Adds to Deep Panuke Potential

A decision is promised by spring on moving forward with a project to increase natural gas production offshore of Nova Scotia by at least 80%.

At the same time, Canada's fledgling East Coast gas industry is showing signs of adding a dimension - production on land along the year-old Maritimes & Northeast Pipeline's export route to New England. The new offshore development prospect took a stride forward when PanCanadian Petroleum Ltd. announced a fourth straight stellar drilling success into a discovery it calls Deep Panuke. The well, drilled to a depth of 15,105 feet beneath PanCanadian's exhausted Panuke gas-liquids field, flowed 63 MMcf/d in production tests. Three previous wells into the formation yielded flows of 50 MMcf/d in tests limited by capacity of the equipment.

PanCanadian president David Tuer described the latest drilling results as "very promising." The Calgary-based producer said it now has all the information it needs to decide whether the discovery justifies a "stand-alone development." The decision will be made by the end of first quarter 2001, PanCanadian said.

The latest well is about two miles from the mothballed Panuke liquids production platform, in shallow water 150 miles southeast of Halifax. PanCanadian is keeping mum on the plan it is now considering, but has previously divulged ambitious thinking about a gas discovery that it rates as the best in a decade for the region and one of the biggest in its long history as the energy arm of Canadian Pacific railroad, hotel and steamship empire.

In presentations to prospective investors, PanCanadian has outlined possibilities for a 400 MMcf/d production development costing C$645 million (US$445 million). The company has estimated Panuke could be connected to the ExxonMobil-led Sable Offshore Energy Project 25 miles away for about C$30 million (US$21 million), potentially triggering expansion by 500 MMcf/d M&NE. But Tuer has also said the possibility of a new, separate pipeline is also under review as a "strategic issue." PanCanadian is the exclusive owner of the Panuke field, and one of the biggest holders of drilling rights offshore of Nova Scotia with interests averaging a 55% majority share in 4.5 million acres (7,030 square miles) of gas prospects.

On land along M&NE, meanwhile, a far smaller firm than Canada's counterpart to the Texas-based Burlington and Union Pacific empires has chalked up a discovery that would be considered respectable in the western provinces. Corridor Resources Inc., a Halifax-based independent founded by Nova Scotia-born veterans of the western industry, said it is hot on the trail of a target with reserves possibly exceeding 300 Bcf.

Corridor and drilling partner Potash Corp. of Saskatchewan reported test flows of about 2.4 MMcf/d from a well near Sussex, New Brunswick, into a formation about 8,000 feet deep. Titled McCully, the 5.5-square-mile target zone is just 35 miles from M&NE.

Corridor President Norm Miller said the discovery "signals an exciting new exploration play" and stands out as "much larger than anything we expected onshore in the Maritimes." The region has a long history of tantalizing gas discoveries, with wells tapping only pocket-sized reservoirs that deplete almost as fast as they can be production-tested. Corridor reported the new find did not follow the old pattern. Pressure stayed exceptionally high at more than 4,100 pounds per square inch during the production tests, and no invasion of water arrived to end the gas flows.

While Corridor and Potash Corp. formulate plans for follow-up drilling to start early in the new year to establish its McCully's true size, activity is also advancing at other New Brunswick sites. Along with Corridor and Potash, participants in the regional drilling play include Columbia Natural Resources Canada Ltd. and Marico Oil & Gas Corp. Disclosures have been kept to a minimum in order to avoid tipping off rivals at provincial government auctions of drilling prospects, but industry participants say there is potential for some production to start in 2001.

Gordon Jaremko, Calgary

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