PanCanadian Ramps Up Deep Panuke Field

Backed up with a C$1 billion investment to recover at least 1 Tcf, PanCanadian Petroleum Ltd. said it would immediately begin commercial development on its Deep Panuke offshore natural gas field. Located about 250 kilometers southeast of Halifax, plateau sales production from the field is expected to be 400 MMcf/d following startup in early 2005.

"This is a very important day for Nova Scotia," said CEO David Tuer during a news conference. "This will have a material impact on the economy, but there is a potential that exists beyond this startup." He said PanCanadian has a "huge stake in Nova Scotia," and that the company "absolutely thinks there is more gas out there" than the estimated 1 Tcf it hopes to produce.

Initially, the Calgary-based company plans to drill four wells at three gas plays. Since 1999, PanCanadian has drilled four wells into Deep Panuke. During tests, each of the wells flowed at more than 50 MMcf/d. In December, PanCanadian said its fourth well, drilled to a depth of 15,105 feet, flowed 63 MMcf/d in production tests (see Daily GPI, Dec. 19, 2000).

PanCanadian holds a significant lease position offshore Nova Scotia, with 15 exploration blocks and two production licenses that cover more than four million gross acres. Its average working interest is 55%, and PanCanadian operates 16 of the licenses. In Deep Panuke, it holds 100% interest.

No additional delineation or development wells are planned in the Deep Panuke reservoir this year because the company's drilling program offshore Nova Scotia will focus on new exploration activities, but Tuer said that the latest ramp up may stimulate more exploration and production.

"This project will be a significant accelerator," said Tuer. He said he expected PanCanadian's announcement to encourage other producers to move forward with development plans in the region. But even if it was the only company operating, he said Deep Panuke would be economically viable.

Even if no more gas reserves are found, he said PanCanadian's stake in the project would "stand alone." He said, "if we found nothing else, we'd still do it. This is a world class play." The scope of the field will "provide us with significant market volumes. And while there is a lot of engineering and optimization design work to be done, we are very confident that the development of Deep Panuke will create long-term value for our shareholders and the province of Nova Scotia."

Asked about pipeline capacity, Tuer said it was premature to know whether the current capacity is adequate. If the production began today, the gas would flow through the Maritimes and Northeast pipeline. Tuer said he would love to "have the challenge" to produce enough gas to require more capacity.

Westcoast Energy CEO Michael Phelps told Reuters news service after a New York investors conference last week that he expects Maritimes & Northeast gas volumes to triple in five years to more than 1.6 Bcf/d.

He said Maritimes fully expects to be the gas transporter for PanCanadian's Deep Panuke field. At an energy conference hosted by FirstEnergy Capital Corp. in New York, Phelps said the Deep Panuke gas was Maritimes' to lose because building a new pipeline would be much too expensive. The Deep Panuke project is in very close proximity to the Sable Offshore Energy Project, which currently provides all the gas transported on Maritimes & Northeast. However, the Sable partners also plan to increase gas production. Adding Deep Panuke probably would require additional pipeline as well as compression. Maritimes currently ships about 550 MMcf/d of gas to the U.S. Northeast.

If the Deep Panuke ramps up as expected, it could encourage development of the transcontinental link, which experts say has been missing from the Canadian natural gas scene - and which would help supply Quebec and Ontario. Just last month, a Canadian pipeline that would link to the M&NE was proposed by Montreal-based Gaz Metropolitain and Calgary-based Enbridge Inc. (see Daily GPI, Jan. 22), and under that proposal, the Deep Panuke gas even has the potential to back off Alberta supplies that could be diverted to the West Coast.

The proposed Cartier pipeline would run east to west, 164 miles along the St. Lawrence River between Quebec City and the western border of New Brunswick, with an allied short link to the M&NE. The 20-inch line is scheduled to go into service by 2004, capable of carrying 184 MMcf/d immediately and up to 340 MMcf/d with the addition of compressors.

"Wouldn't Californians love to have that kind of reserve sitting on their doorstep?" Tuer asked of Deep Panuke. He said PanCanadian wants to "help to be part of a project " but first, the production has to "have sufficient capacity when we are ready to go."

However, PanCanadian already has approached Enbridge about providing capacity from the field. Enbridge president Pat Daniel confirmed last month that PanCanadian is considering proposals to connect Deep Panuke to markets in both the northeastern United States and eastern Canada. Daniel said Enbridge presented PanCanadian with a range of possibilities, including an entirely new, subsea direct route to the U.S. Atlantic seaboard from the production field. Whatever method the gas is taken out, Tuer said pipeline service was a "priority" as the project ramps up.

PanCanadian expects to file a development plan application with the Canada-Nova Scotia Offshore Petroleum Board by the third quarter of 2001. As part of the application process, stakeholders will be consulted, said the company. The application will include all of the project's details, including geological, engineering and construction data, environmental and safety plans, socio-economic impact studies and a Canada-Nova Scotia industrial benefits plan.

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