Canadian Superior Targets Offshore Nova Scotia

Driven by a vision of Nova Scotian production more doubling within four years, an ambitious junior Canadian natural-gas hunter has set out to prove that offshore targets are no longer just the playground of the industry majors.

The vision comes from Ziff Energy Group. At a launch for the new exploration campaign in the Canadian gas capital of Calgary, the energy economics consulting house released a paper projecting production of 1.2 Bcf/d --- a 140% jump --- out of the Sable Island region by 2005. Reserves offshore of Nova Scotia could hit 50 Tcf, the Ziff organization added.

The newcomer, Canadian Superior Energy Inc., has vowed to drill a C$24-million (US$16-million) Sable-area well this year. President Greg Noval said the target is the same geological formation, known as the Abenaki Reef, where PanCanadian Petroleum Ltd. scored its stellar Deep Panuke discovery and recently launched a C$1-billion (US$665-million) project to produce 400 MMcf/d.

While new, Superior has a pedigree. The company's chairman is a veteran geologist who established ExxonMobil as the dominant industry participant offshore of Canada's East Coast 30 years ago as exploration chief of the former Mobil Canada, Don Axford. Superior recently achieved a rare feat among Canadian juniors on frosty stock exchanges by raising C$14.5 million (US$9.7 million) with a share sale. Superior scooped up 448 square kilometers (173 square miles) of Sable-area drilling prospects at a Nova Scotia auction last fall. Noval said his firm has received numerous overtures for "farm-in" drilling partnerships by senior companies. The initial drilling target, titled the Marquis Prospect, lies 4,500 metres (14,700 feet) beneath the seabed in shallow waters at a location 25 kilometers (16 miles) southwest of the PanCanadian discovery and 250 kilometers (156 miles) southeast of Halifax.

The Ziff organization rates the East Coast as a quicker, easier and cheaper candidate for development than the other Canadian frontier that has lately captured more public attention, the Arctic. The new study points out that gas only has to travel 1,200 kilometers (750 miles) to Boston - compared to 2,000 kilometers (1,250 miles) from the Gulf of Mexico, 3,600 kilometers (2,250 miles) from western Canada, 5,500 kilometers (3,450 miles) from the nearest Arctic gas in the Mackenzie Delta-Beaufort Sea region.

The Ziff report observes that confirmed gas finds offshore of Nova Scotia, at 10 trillion cubic feet, exceed comparably established Arctic reserves. "Given discoveries to date and industry expectations, the current resource estimate of 18 Tcf for the Scotian Shelf is conservative. An ultimate resource potential on the order of 50-plus Tcf or more for the Scotian Shelf might not be unreasonable." Ziff vice-president Rick DeWolf, a Halifax-born enthusiast, also pointed out that the pioneering, ExxonMobil-led Sable Offshore Energy Project created favorable political conditions. Unlike the Arctic, Nova Scotia has a clear regulatory system and a known fiscal regime crafted to be internationally competitive, with royalties limited to a nominal two% until projects repay their costs including a return five% above long-term interest yields on Canada Savings Bonds. SOEP's allied delivery route to Boston, Maritimes & Northeastern Pipeline, was laid with capacity to more than double its current 500 MMcf/d deliveries by low-cost additions of compressor power, the Ziff group estimates.

On top of export outlets, Canadian markets for East Coast gas are expanding as distribution systems are completed in Nova Scotia and New Brunswick while Gaz Metropolitain Co. and Enbridge Inc. advance their Cartier Pipeline project for westbound deliveries of Sable gas to Quebec. Noval predicted a Nova Scotia gas discovery could be put into production within three or four years. He estimated that output as low as 30-40 MMcf/d could be economic due to the production, pipeline and processing network sired by SOEP and M&NP. He said development would be difficult if prices fell below US$3-$3.50 per MMBtu, but that forecasters expect gas to keep on fetching $5 or more in the northeastern U.S.

DeWolf predicted new pipeline projects will be announced over the next 12 months as contenders to keep on growing the East Coast gas industry after M&NP reaches the limits of its expansion potential. The Ziff paper suggests sustained growth lies ahead: "If offshore Nova Scotia proves to be only half as productive as the U.S. Appalachian gas basin, the least productive gas-prone region in North America, then production could easily exceed two Bcf/d by 2010 and could peak at about 5-6 Bcf per day in the longer term."

The Ziff paper also points out that Superior is in good company with its high hopes for drilling offshore of Nova Scotia. Industry holdings of drilling prospects jumped 25% in the auction of Sable-area territory last fall to 62,332 square kilometers (24,060 square miles).

Gordon Jaremko, Calgary

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