An offshore project is shrinking, but Arctic plans are growing as Canadian natural gas producers work out the kinks in their next generation of large-scale supply projects.

EnCana Corp. declared intentions to craft a scaled-down version of its Deep Panuke project offshore of Nova Scotia, while Imperial Oil Ltd., senior partner in the Mackenzie Valley scheme, said the capacity of the proposed northern pipeline has been bumped up.

EnCana reported that results of two new wells were good enough to restore its confidence in proceeding with Deep Panuke. But the performance, while reducing a risk that the reserves would turn out not to support development, fell short of justifying a full-scale revival for the original C$1-billion (US$770-million), 400 MMcf/d project.

At the site 150 miles southeast out to sea from Halifax, a well called Margaree flowed about 53 MMcf/d in production tests of a 70-metre (25-feet) thick gas-bearing pay zone. A second well, a partnership with ExxonMobil and Shell Canada, hit 100 metres of gas-bearing geology that was not tested but defined the extent of the Deep Panuke reservoir.

The development project was suspended since February after questions about the scale of the 1990s discovery led to suspicions that it might be less than a threshold size of 1 Tcf. EnCana said the original development applications will be withdrawn and new plans will be prepared, but set no target date for presenting them.

Chief Operating Officer Randy Eresman said “there is still plenty of work to do.” He reported discussions are under way on hooking up Deep Panuke to the four-year-old Sable Offshore Energy Project led by ExxonMobil and on the new capacity that will be needed on the allied Maritimes & Northeast Pipeline. EnCana’s action follows a succession of drilling disappointments offshore of Nova Scotia, where wells cost up to C$100 million (US$75 million) apiece and the exploration pace has dropped off from an enthusiastic burst of activity triggered by initial Deep Panuke successes.

The hunt is not over, however. An exploratory well is currently under way by a partnership between Calgary-based Canadian Superior Energy and Canadian exploration interests of the El Paso organization.

Optimism about the resource endowment runs much higher among Canadian producers with Arctic interests. At a presentation to the financial community, Imperial Senior Vice President K.C. Williams said a strong response to a preliminary auction of transportation service on the proposed Mackenzie Valley pipeline prompted the sponsors to increase its size. The proposal now calls for an initial 1.2 Bcf/d on a 30″ line being designed to have built-in capacity for raising deliveries to 1.9 Bcf with additions of compressor power.

The preliminary sounding, a call for non-binding expressions of interest from prospective shippers, generated responses from 20 companies, Williams reported. The new design calls for an initial capacity 50% greater than the 800 MMcf/d than the sponsoring producer group of Imperial, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada expect to produce from their own wells on the Mackenzie Delta.

While the consortium members have been sitting on their discoveries since the 1970s, further exploration is under way by a host of other producers such as Chevron Canada, Devon Canada and Petro-Canada. “We hope we see lots of exploration in the North and that new people will want to sign on,” Imperial Chairman Tim Hearn said. The more gas the better all around, he added. Williams reported that work continues on the front with more potential to disrupt the Canadian Arctic project than any doubts about gas reserves — relationships with the Aboriginal majority in the Northwest Territories.

Choosing his words carefully, Williams said “we have cultivated and maintained significant Aboriginal direct involvement.” The one-third ownership held by a consortium of communities, the Aboriginal Pipeline Group, does not mean all elements of the northern population are on board. A large group astride the southern portion of the Mackenzie Valley route, the Deh Cho, continues to hold out for increased attention and benefits. Williams said “Aboriginal support is essential to development — and we have been working diligently to maintain and build this support . . . this process will continue.”

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