Supply-hungry natural gas producers have voted with their wallets to name Nova Scotia a drilling hot spot for the next five years. With Marathon Canada Ltd. leading the pack, nine producers pledged to do C$527 million (US$350 million) in exploration work as the price for obtaining access to 15,800 square kilometers of sub-sea gas prospects from the Canada-Nova Scotia Offshore Petroleum Board.

The fall auction of five-year rights at a single stroke raised the industry’s commitment to drilling offshore of Nova Scotia by 50% to C$1.5 billion (US$1 billion) within this decade.

Premier John Hammdrew described the new auction’s results as “a strong vote of confidence in Nova Scotia.” While the discovered total reserves offshore of Nova Scotia are about 10 Tcf, Canadian industry analysts such as Ziff Energy Group rate 50 Tcf as a realistic forecast of the area’s potential. The fall auction followed the first 22 months of production and deliveries by the allied Sable Offshore Energy Project (SOEP) and Maritimes &Northeast Pipeline, the launching of a new production project by PanCanadian Energy at a discovery called Deep Panuke, an expansion commitment by M&NE, and a proposal for a new sea-floor pipeline by El Paso Corp.

Marathon, a subsidiary of its Houston namesake, led 70% of the action at the fall auction. It scooped up a 1,350 square kilometer (520 square-mile) parcel on its own for C$176.7 million (US$116 million) in work commitments, and a second prospect about the same size for C$193.6 million (US$125 million) as 50% senior partner in a group that also includes Murphy Oil Co. and Norsk Hydro Canada Oil &Gas. Each of the Marathon parcels are in water depths ranging from 3,300 feet to 11,500 feet.

Company officials described the region as harboring “great potential” that calls for a “much stronger presence.” The scale of the potential is expected to become clearer within a few months. Marathon is about to start a deep-water well at a previously acquired prospect called Annapolis, while Kerr-McGee intends to commence one early in 2002.

Seasoned industry observers on the Canadian Gas Potential Committee describe the Nova Scotia play as a revival of true wildcat exploration, with high-budget drilling going after major new geological targets, that very little is known about. International-scale gas merchants also are watching the new exploration with keen interest, making preparations to break into a region that so far largely belongs on the trading side to Duke Energy Marketing, sales agency for SOEP.

A move is ahead from Atlanta-based Mirant Corp., which is emerging as the top dealer in Canadian production as a result of its acquisition of TransCanada Gas Services this fall from TransCanada PipeLines (see NGI, Oct. 15). Mirant’s predecessor, Southern Co. Energy Marketing, earlier took over management of Pan-Alberta Gas and CanWest Gas Supply (see NGI, June 5, 2000 and July 17, 2000). After the TransCanada transaction closes by the end of this year, about one-third of Atlanta-based Mirant’s daily trading volumes in the 20 Bcf range will be Canadian.

In a Calgary interview, Mirant’s senior vice-president in charge of gas trading, Gary Morsches, said the merchant intends to fill the only gap in its Canadian supply portfolio by getting in on the action offshore of Nova Scotia. He added that while Mirant has yet to firm up a plan to accomplish the move, it will be made. Morsches described Canadian drilling frontiers as major production expansion opportunities, compared to the much more “mature” targets available in the United States.

Along with Marathon, takers of new properties offshore Nova Scotia at the fall auction included a who’s-who of Canadian producers with a penchant for frontier exploration and development. Marathon’s associates in the bidding, Murphy and Norsk Hydro, are both partners in the Hibernia oil platform on the Grand Banks of Newfoundland. New Nova Scotia prospects were also acquired by Canadian Superior Energy Inc., BEPCo Canada Co., PanCanadian, Shell Canada Ltd., Richland Minerals Inc. and Petro-Canada.

The drilling-rights parcels have nine-year terms, with the owners required to spend their work commitments within the first five years. The next step in the process will be reviews, before exploration licenses are finally awarded, by federal and provincial authorities,with particular attention being paid to setting conditions on drilling in or near environmentally sensitive areas, where the East Coast fishery continues to be active such as Browns and George’s Banks.

In the wake of the heavy auction, the offshore petroleum board cancelled a second one that had been scheduled for December, in favour of organizing a bigger sale. The agency set a date of March 31 for receiving nominations of more exploration prospects that the industry would like a chance to bid on.

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