Before the prolific but unexplored deepwater basins offshore Nova Scotia can be tapped, the players will have to ask themselves what comes first: the chicken or the egg? Or, in energy terms, will there be gas wells or pipelines first? To answer that question and overcome the considerable challenges in the region, producers and pipeline operators will need to work together establish a regional infrastructure before production actually can begin, an industry executive said Tuesday in Houston.

Andrew Houser, vice president of international operations, deepwater for Kerr-McGee Oil & Gas Corp., told delegates at the Ziff Energy Group’s North American Natural Gas Strategies conference that the Scotian Shelf is too large to not first consider how the product will eventually get to market.

“Also, will it be dry, sweet gas or rich, dirty gas?” Houser asked. “What will be the composition of new discoveries? What will the pipeline liquids limits be? There hasn’t been much background on it, and there’s a lot of concern that will influence our development and pipeline projects. We have to be prepared for the economic scenarios.”

In the end, Houser joked that it wasn’t actually a question about the “chicken and the egg,” but rather the Easter Bunny and “whether there will be enough eggs for all the players.” The “biggest egg will drive the solutions.”

An estimated 75% of the world’s deepwater reserves may be located offshore Nova Scotia, but its considerable technological and weather-related challenges have left it a “tremendously unexplored basin with a lot of potential,” Houser said.

In terms of deepwater drilling activity in the Scotian Shelf, Marathon Oil Co. and ChevronTexaco will have wells drilling this year, said Houser. Between now and 2003, EnCana plans to establish a multi-well program in its Deep Panuke discovery. And Kerr-McGee, Imperial Oil Co. and Shell will begin their drilling activities in 2003. Meanwhile, several other companies are in pre-development.

Still, Houser believes it will be 2004 before the Scotian Shelf’s potential “comes into focus,” and three to four years after that before production could actually begin.

“This is the period where we establish traction and get the programs ready,” Houser said. The preliminary data show the existence of a deepwater resource base, but to accelerate exploratory drilling, more studies need to be performed. The drilling outcomes in 2002 and 2003 will be the “bellwether for industry,” he said.

The Scotian Shelf offers advantages because of its proximity to the growing Northeast U.S. market and its huge natural resource base of both oil and natural gas. However, the technical challenges are somewhat daunting. “I think the industry has gotten a little ahead of itself,” he said. “We need tremendous cooperation…we have to get the infrastructure established. It’s different from other types of projects. But it’s manageable.”

Industry has to overcome the high uncertainty and risk from the immature exploration efforts, said Houser. Also, there has been a lack of significant 3-D seismic coverage. A harsh environment and rugged sea floor topography in some areas pose risks, as does the wide continental margin with the steep Shelf breaks. “We’re dealing with licenses that are 200 kilometers offshore…that will increase costs too.” Plus, there are environmentally sensitive areas and the region is used by several industries. Stakeholders will have to be involved at every step, Houser said.

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