Producers put up healthy exploration budgets to show natural gasdevelopment has only begun on Canada’s East Coast with the SableOffshore Energy Project and Maritimes &amp Northeast Pipeline. Ahighly successful auction of drilling prospects offshore of NovaScotia also confirmed faith in the region that the merger of ExxonCorp. and Mobil Corp. will not cause a contraction of the buddingeastern Canadian gas industry.

Producers, including the Canadian arms of both internationalgiants, signaled they intend to pay even more attention to theregion in the latest auction of prospects by the Canada-Nova ScotiaOffshore Petroleum Board.

About 6,500 square miles of exploration leases were scooped up.Off Canada’s East Coast, where leases are priced in workcommitments rather than cash, producers pledged to spend C$592.5million (US$415 million) over the first five years alone of thenine-year terms. The industry also extended its reach beyond theshallows around Sable Island into waters up to 6,500 feet deep.

Exxon affiliate Imperial Oil Ltd., committed itself to C$100million (US$70 million) in exploration work on two parcels covering557,380 acres in water depths ranging from 650 feet to 6,500 feet.Imperial’s new chief of “upstream” exploration and development inCalgary, senior vice-president K.C. Williams, indicated the companyis enthusiastic about new exploration as well as less risky workclose to Sable with partners. Williams said “acquiring 100%-ownedacreage offers Imperial maximum flexibility in moving forward toassess the commercial potential. These deep-water parcels are new,unproven plays and they present an exciting explorationopportunity.”

Mobil Canada, far from pulling back in anticipation of becominga wholly-owned subsidiary of Exxon in the intended merger, stayedin the forefront of the action. Mobil’s Canadian arm, long the topexplorer off the East Coast, is the senior partner in SOEP and hasa hand in M&ampNE as well.

With Imperial along as a 20% partner, Mobil Canada and ShellCanada (40% each), made a successful C$192-million (US$134-million)group bid for a 1.17 million-acre package of parcels adjacent toSOEP, now under construction for about C$2 billion (US$1.4billion). Mobil and Shell (33.3% each) also teamed up with ChevronCanada Resources Ltd. (33%) on a C$92-million (US$64-million)commitment to explore an additional 652,550 acres in the Sablearea.

Also in the Sable region, PanCanadian Petroleum Ltd. (30%),Marathon Canada Ltd. (30%), Murphy Oil Canada Ltd. (20%) and NorskHydro Canada Oil &amp Gas Inc. (20%) picked up 416,790 acres for aC$93-million (US$65-million) work commitment. A second parcel takenout by the group brought its total five-year exploration pledgeoffshore of Nova Scotia to C$174 million (US$117.6 million).

Not all the participants offshore of the East Coast aresubsidiaries of U.S.-based big producers. For C$1.05 million(US$734,000), Halifax’s home-grown Corridor Resources Inc. took a614,470-acre parcel in the Gulf of St. Lawrence off the west coastof Cape Breton Island. Canadian 88 Resources Corp., expanding on anaggressive expansion program in natural gas in the Rocky Mountainfoothills of its home Alberta, entered the gas-dominated drillingplays offshore of Nova Scotia with a C$29.99-million(US$21-million) commitment to a 753,150-acre package southwest ofSable Island that includes waters as deep as 6,500 feet.

The new exploration commitments come on top of another C$200million (US$140 million) in programs already in progress as aresult of Nova Scotia’s last auction of drilling prospects, whichdrew mostly the same takers. The enthusiastic response to the newauction prompted Nova Scotia Premier Russell MacLellan and hisNewfoundland counterpart, Brian Tobin, to describe Canada’s EastCoast as a budding North Sea. Both leaders pitched for moreindustry interest by attending the annual Offshore TechnologyConference in Houston.

Before the National Energy Board, meanwhile, Imperial deliveredanother reminder that the East Coast gas industry is growing evenbefore it begins producing with the scheduled start-up of SOEP andM&ampNE this November. Questioned hard by provincial authorities onan application for a long-term license to deliver its 43.2 MMBtu/dshare of Sable gas to Boston Gas, Imperial pointed out the projecthas already been expanded. SOEP has revised its reservoirmanagement plan to raise anticipated daily average production byabout 10% to 530,000 MMBtu, with peak-day capability also risingabout one-tenth to 640,000 MMBtu. About 55% of M&ampNE capacitycontinues to be earmarked for exports to the U.S., althoughCanadian demand is forecast to rise.

Imperial, assuring provincial officials that there shouldultimately be enough offshore gas to go around for Atlantic Canadaas well as the northeastern U.S., observed that SOEP is universallyaccepted as just the beginning “a ‘seed’ project of a new anddeveloping gas industry in the Maritimes.” Reserves on the Scotianshelf are currently estimated at 18 Tcf, and efforts are continuingbefore an environmental inquiry to open up new drilling prospectson Canada’s share of George’s Bank between southern Nova Scotia andNew England, where Canadian arms of the Amoco, Texaco and Chevronorganizations are keen to resume exploration that barely beganbefore protests by fishermen halted the work a dozen years ago.Speculative geological forecasts rate the gas endowment aspotentially on the scale of the Scotian Shelf.

Gordon Jaremko, Calgary

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