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

The vision comes from Ziff Energy Group. At a launch for the newexploration campaign in the Canadian gas capital of Calgary, theenergy economics consulting house released a paper projectingproduction of 1.2 Bcf/d — a 140% jump — out of the Sable Islandregion by 2005. Reserves offshore of Nova Scotia could hit 50 Tcf,the Ziff organization added.

The newcomer, Canadian Superior Energy Inc., has vowed to drilla C$24-million (US$16-million) Sable-area well this year. PresidentGreg Noval said the target is the same geological formation, knownas the Abenaki Reef, where PanCanadian Petroleum Ltd. scored itsstellar 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 aveteran geologist who established ExxonMobil as the dominantindustry participant offshore of Canada’s East Coast 30 years agoas exploration chief of the former Mobil Canada, Don Axford.Superior recently achieved a rare feat among Canadian juniors onfrosty stock exchanges by raising C$14.5 million (US$9.7 million)with a share sale. Superior scooped up 448 square kilometers (173square miles) of Sable-area drilling prospects at a Nova Scotiaauction last fall. Noval said his firm has received numerousovertures for “farm-in” drilling partnerships by senior companies.The initial drilling target, titled the Marquis Prospect, lies4,500 metres (14,700 feet) beneath the seabed in shallow waters ata location 25 kilometers (16 miles) southwest of the PanCanadiandiscovery and 250 kilometers (156 miles) southeast of Halifax.

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

The Ziff report observes that confirmed gas finds offshore ofNova Scotia, at 10 trillion cubic feet, exceed comparablyestablished Arctic reserves. “Given discoveries to date andindustry expectations, the current resource estimate of 18 Tcf forthe Scotian Shelf is conservative. An ultimate resource potentialon the order of 50-plus Tcf or more for the Scotian Shelf might notbe unreasonable.” Ziff vice-president Rick DeWolf, a Halifax-bornenthusiast, also pointed out that the pioneering, ExxonMobil-ledSable Offshore Energy Project created favorable politicalconditions. Unlike the Arctic, Nova Scotia has a clear regulatorysystem and a known fiscal regime crafted to be internationallycompetitive, with royalties limited to a nominal two% untilprojects repay their costs including a return five% above long-terminterest yields on Canada Savings Bonds. SOEP’s allied deliveryroute to Boston, Maritimes & Northeastern Pipeline, was laidwith capacity to more than double its current 500 MMcf/d deliveriesby low-cost additions of compressor power, the Ziff groupestimates.

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

DeWolf predicted new pipeline projects will be announced overthe next 12 months as contenders to keep on growing the East Coastgas industry after M&NP reaches the limits of its expansionpotential. The Ziff paper suggests sustained growth lies ahead: “Ifoffshore Nova Scotia proves to be only half as productive as theU.S. Appalachian gas basin, the least productive gas-prone regionin North America, then production could easily exceed two Bcf/d by2010 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 companywith its high hopes for drilling offshore of Nova Scotia. Industryholdings of drilling prospects jumped 25% in the auction ofSable-area territory last fall to 62,332 square kilometers (24,060square miles).

Gordon Jaremko, Calgary

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