The next growth step for Atlantic Canada’s fledgling natural-gasindustry has popped up on the horizon, in the form of a discoverywith potential to double offshore production and exports to NewEngland. Offshore of Nova Scotia, PanCanadian Petroleum Ltd.expects to know by the end of this year the true size of a gas findin the Sable Island region that it has christened Deep Panuke.

The first two wells, drilled in 1998 and ’99 to a depth of about11,500 feet to a new geological zone underneath PanCanadian’sPanuke oilfield as it began running dry, yielded spectacularproduction tests exceeding 50 MMcf/d each.

President David Tuer cautioned that the extent of the gasdeposit is not yet known, but added that two more wells this yearwill let PanCanadian “feel the edges” and put its engineers to workon development plans. In a briefing book used for an annualshow-and-tell tour of the financial community, PanCanadian keepsits estimates conservative but also makes it plain that a majordevelopment is on the horizon. An illustrative example of DeepPanuke’s potential describes a C$645-million (US$445-million)production development to tap 1 Tcf of reserves at a rate of 400MMcf/d for 15 years starting in the fall of 2003. That flow wouldnearly double the output that Sable Offshore Energy Project startedexporting to New England via Maritimes & Northeast Pipelinethis winter. PanCanadian’s scenario describes the Panuke projectas attractive at a gas price of US$2.50/Mcf, or a level well withinthe expectations of Canadian consensus on the outlook for gasexports.

Tuer said it is hard to imagine anything but a highly favorablestory for Canadian gas for at least the next five years as a resultof strong demand in the United States, the expanding internationalpipeline grid and encouraging drilling results from BritishColumbia to Nova Scotia.

The PanCanadian president, at a Calgary state-of-the-companybriefing, disclosed that M&NE has made overtures to connectDeep Panuke. The pipeline is understood to be capable of aboutdoubling its initial capacity into the 1 Bcf/d range with additionsof compressor power. But Tuer also indicated PanCanadian is keepingopen its options for developing its own delivery scheme. “That is astrategic issue we’re not ready to talk about yet,” Tuer said. ThePanCanadian president said “this discovery is potentially the mostsignificant in the company’s history. By the end of the year, we’llbe able to confirm or refute that.”

That is the kind of statement that is making believers out ofindustry interests such as the M&NE combination of WestcoastEnergy Inc. (37.5%) Duke Energy (37.5%), Mobil Canada-ExxonMobil(12.5%), and NS Power Holdings Inc. (12.5%). PanCanadian alreadyjockeys for top spot among Canadian gas producers by volume with BPAmoco Canada, Alberta Energy Co. and Shell Canada. PanCanadianexpects its production to nudge 1 Bcf/d this year and in 2001 topthat landmark, formerly the undisputed terrain of BP Amoco.

By the yardstick of low costs, PanCanadian claims top spotbecause of its stature as a Canadian counterpart to the Burlingtonand Union Pacific Resources empires in the United States.PanCanadian too is the heir to vast grants of land and mineralrights given to its parent, Canadian Pacific, to build atranscontinental railway in the 19th Century. In PanCanadian’scase, the original parent has kept an 87% interest and has nointentions of selling until the stock exchanges get over theirinfatuation with the Internet.

PanCanadian reports its finding and developing costs run in arange of C37-80 cents (US26-55 cents) an Mcf. Deep Panuke will sitin the middle of the range, at C67 cents (US46 cents) if themarketable reserves turn out to be in the trillion-cubic-feet rangeand lower to the extent that the next wells find a biggerreservoir. Deep Panuke is only the beginning of PanCanadian’sambitions for gas offshore of Nova Scotia, where the company hasownership interests averaging 60% in more than four million acres(6,250 square miles) after expanding its holdings last year at thehead of several prospect acquisition partnerships.

Gordon Jaremko, Calgary

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