Oilweek East Coast Supplement November 2012

rOlling On the rOCK With hebron–Ben nevis next up in the east Coast offshore, newfoundland and labrador is reaping the benefits

tO the POint the west coast of newfoundland is hoping to parlay its Green Point Shale formation into a grassroots oil industry

nOVA SCOtiA bAnKing On Shell With promises to spend nearly $1 billion, Shell Canada has rejuvenated the nova Scotia offshore industry

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taBle oF CoNteNts

4

editor’s Note

6

Nova scotia

WAiting gAme after more than two years of installation work, encana awaits first gas from deep Panuke

8

Newfoundland

rOlling On the rOCK With hebron–Ben nevis next up in the east Coast offshore, newfoundland and labrador is reaping the benefits

By Wes Reid

12

Newfoundland

tO the POint the west coast of newfoundland is hoping to parlay its Green Point Shale formation into a grassroots oil industry

By Wes Reid

16

Nova scotia

nOVA SCOtiA bAnKing On Shell With promises to spend nearly $1 billion, Shell Canada has rejuvenated the nova Scotia offshore industry

By Daniela Trnka

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N ov e m b e r 2 0 1 2 O I LW E E K s u p p l e m e N t

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editor’s Note

eDitOriAl Editor Dale Lunan | dlunan@junewarren-nickles.com Contributing Writers Wes Reid, Daniela Trnka Editorial Assistance Manager Samantha Sterling | ssterling@junewarren-nickles.com

All systems go new exploration initiatives are bringing renewed optimism to canada’s east coast offshore industry CaNada’s east Coast oFFshore

business has followed a trail as rocky as some of Newfoundland’s windswept fjords since the first well was drilled from an artificial island in 25 feet of water off Prince Edward Island in 1943.

Hillsborough #1 was drilled to 14,750 feet at a cost of $1.25 million—at the time, one of the most expensive wells ever drilled in Canada—and the fact that it came up dust dry was enough to keep drillers away for the next 20 years or so.

The first well was drilled on the Grand Banks in 1966 and was followed by 39 more. All but one failed to find commercial quantities of oil and gas. Further north, in the ice-infested waters off Labrador, a decade of exploration in the 1970s and early 1980s found lots of gas, but nary a drop of oil.

Things weren’t any better on the Scotian Margin. The first well on Sable Island was drilled in 1967 but was abandoned after encountering a highpressure gas zone. Then—as now, with Shell Canada Limited’s latest foray onto the Scotian Slope—oil was the target, not gas, and it would be a few years before gas was finally brought on stream in 1999 at the Sable Offshore Energy Project, which commercialized gas discoveries recorded at Thebaud in 1972, Venture in 1979 and North Triumph in 1986.

The Hibernia crude oil discovery in 1979, meanwhile, changed the fortunes of Newfoundland and Labrador, and set off a string of exploration successes that included Hebron in 1981, Terra Nova in 1984 and Whiterose in 1985. Three of those fields are producing; the fourth, at

4

east Coast oil & Gas

Hebron, is expected to come on stream in 2017, although its partnership group, led by ExxonMobil Canada, has not yet sanctioned the multi-billion dollar development.

Still, the Newfoundland offshore industry is happily absorbing a laundry list of developments, including Statoil Canada Ltd.’s 200-million-barrel discovery at Mizzen, in the Flemish Pass region east of the Grand Banks, and Chevron Canada’s plans to drill a third well in the Orphan Basin, north of the Flemish Pass.

And the Canada-Newfoundland and Labrador Offshore Petroleum Board has two calls for bids yet to finalize this year: six parcels covering 1.6 million hectares in the Laurentian Subbasin south of Newfoundland and a single parcel covering 208,899 hectares in the Flemish Pass.

In the Nova Scotia offshore, Encana Corporation is set to begin producing gas from its Deep Panuke project, while Shell Canada’s $970-million bid last December for four parcels in the most recent call for bids has ignited optimism in the service and supply sector. Just how deep that optimism should run will become apparent in early November, when the CanadaNova Scotia Offshore Petroleum Board opens bids for NS12-1, which offers 11 parcels covering 2.6 million hectares.

Shell Canada’s $1-billion commitment has provided a spark to the revival of the Nova Scotia offshore; the November 7 opening will determine whether that little spark will grow and feed other, broader interests in the Scotian Margin.

— Dale Lunan

Editorial Assistance Laura Blackwood, Brandi Haugen

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NoVa sCotia

WAiting gAme after more than two years of installation work, encana awaits first gas from deep Panuke

E

ncana Corporation’s Deep Panuke project involved the installation of facilities required to produce and process natural gas from the Deep Panuke field, approximately 250 kilometres southeast of Halifax on the Scotian Shelf.

Natural gas from Deep Panuke will be processed offshore and transported, via subsea pipeline, to Goldboro, N.S. for further transport to market via the Maritimes and Northeast Pipeline.

Single Buoy Moorings (SBM) Inc. has been contracted to build, own and operate, on a leaseback basis, the production field centre (PFC), which is designed to produce and process up to 300 million cubic feet per day of natural gas.

The gas is produced from four exploration wells converted to production service by the jack-up rig Rowan Gorilla III, while CO2 and hydrogen sulphide stripped from the gas stream in the PFC is injected into a deep formation. First gas is expected from Deep Panuke by year-end.

Clockwise from top left:

• The PFC being towed prior to being loaded on a heavy lift vessel for transport to Nova Scotia from the Middle East.

• The rock placement vessel Rollingstone

placing rock on the footings at the base of the PFC. wells to production wells at Deep Panuke and drilled a disposal injection well.

• On the drill floor of the Gorilla.

• The PFC is towed from Halifax harbour to the Deep Panuke site.

6

east Coast oil & Gas

PhotoS: SBm oFFShore

• Rowan Gorilla III converted exploration

PhotoS: enCana CorPoration

NoVa sCotia

N ov e m b e r 2 0 1 2 O I LW E E K s u p p l e m e N t

7

NewFouNdlaNd

Newfoundland, The Bull Arm fabrication site in orm will be built. platf s Nevi Ben ron– Heb where the

rOlling On the rOCK

By Wes Reid

8

east Coast oil & Gas

CoMPaNies serViCiNg aNd suPPlYiNg the Rock’s hydrocarbon sector don’t build roller coasters, they just ride them; not at fairgrounds but in the up and down gut-churning world of oil industry procurement and contracting.

Still, it looks like the Gravol can be put away for a while since many of those companies will be riding high for the next several years, in a province flush with petroleum sector projects of all sizes, some of them mega and coming on fast.

The firms—nearly 600 of them members of the Newfoundland & Labrador Oil & Gas Industries Association (NOIA)—already appear to be swamped with demands from a rapidly expanding offshore petroleum industry on the east coast of Newfoundland. The expansion could last for generations.

Such a generous offering of business opportunities wasn’t always available for NOIA members. At times, it was quite the opposite.

“There were some real trying periods,” says the association’s president and chief executive officer, Bob Cadigan. “There was a real scary period when Gulf pulled out of Hibernia around the early ’90s, but the government of Canada’s investment in Hibernia— I think [the stake] was about 8.5 per cent at the time—I think that’s proven to be an extremely valuable investment. Our biggest problem is that we’ll have a project, then we’ll have a gap, then we’ll have a project, then we’ll have a gap, so it gets very, very hard for companies to maintain capability between projects.”

In 1986, the price of oil plummeted sharply, creating a swirl of media and industry concern that the East Coast service and supply sector would collapse.

Photo: roBert younG

With hebron–Ben nevis next up in the east coast offshore, newfoundland and Labrador is reaping the benefits

NEWFOUNDLAND

Then there were the worrisome years that NOIA endured when development of Hebron–Ben Nevis was twice delayed.

The second time was in 2006, after the consortium controlling the offshore oilfield and its billion barrels of recoverable heavy crude walked away from negotiations with the province.

It couldn’t stomach the conditions that the province—led then

by Danny Williams—was applying to its approval of Hebron’s development.

They included 4.9 per cent equity in Hebron and a super royalty scheme designed to rise with oil prices.

The consortium eventually caved in and granted the province its wishes, but it wasn’t because those wishes were so exorbitant.

The real story lies in the fact that Williams refused to greenlight Hibernia South’s development until ExxonMobil Canada— the largest stakeholder in Hibernia (33.125 per cent) and Hebron (38 per cent)—acquiesced to his ultimatums.

ExxonMobil was itching to develop Hibernia South because, being a satellite field of Hibernia (some would argue they are different areas of the same field), its development was much less expensive than that of many discoveries around the globe. Essentially, the discovery needed subsea tie-backs and an extension of Hibernia’s platform.

In addition, Hibernia South’s 230 million barrels of oil are light and sweet and therefore can be easily sold.

Its low-cost, high-return attractiveness in conjunction with an emerging trend threatening Big Oil’s international interests created another, though less important, reason for Newfoundland and Labrador’s victory over ExxonMobil. It too is predicated on comparison.

What appeared to be an aggressive move by the province to secure 4.9 per cent equity in the venture wasn’t the bullying tactic that some national media and ExxonMobil made it out to be.

Venezuela, Ecuador, Russia and Kazakhstan were nationalizing and expropriating oil and gas assets, causing other petroleumproducing nations to pay heed.

A bargain Asking for 4.9 per cent, then, in the sometimes topsy-turvy universe of international petroleum, would have seemed a humble request.

This, along with the knowledge that Newfoundland and Labrador is a politically stable jurisdiction, grabbed ExxonMobil’s attention so effectively that it willingly returned to the negotiating table and ate crow while the province dined on its Hebron stake.

Those were the rough times for NOIA. These days, it’s all good. Cadigan notes that subsea installation and other work have reduced much of the downtime while the future presents a bevy of long-term megaprojects.

Though not overwhelming, they may eventually strain service and supply sector resources.

“What we’re starting to see now is some of the subsea developments and subsea maintenance filling in some of those gaps,

and that’s had a steadying effect on business,” Cadigan says from his office in St. John’s, N.L. “Actually, we’ve had a convergence of success. We had three subsea work scopes this summer. We’ll have, probably, a couple next summer. We had wellhead platform business and now Hebron. We had the Terra Nova FPSO in Marystown {N.L.] for about a 130-day [maintenance] turnaround.

It’s almost like the dog that chases the car and suddenly realizes the car has stopped.”

Instead of braking, though, that automobile is approaching fast in the form of Hebron–Ben Nevis procurements.

Located 350 kilometres east of St. John’s in the Jeanne d’Arc Basin, Hebron–Ben Nevis shares the same seascape as Newfoundland’s other producing fields, at Hibernia, Terra Nova and White Rose.

Hebron was discovered in 1980. Five major pools containing an estimated one billion barrels of recoverable, viscous crude comprise the field.

Estimated to be worth $20 billion over 30 years, it is generating tremendous excitement for NOIA and the Rock since the Canada­-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) approved the consortium’s development application last spring. Scheduled for first oil by the end of 2017, the field will cost about $8.3 billion to develop.

Its gravity-based structure (GBS) and some of its topside modules are to be built at the offshore petroleum industry fabrication centre where Hibernia was completed in 1997. The facility is located in Bull Arm, Trinity Bay, N.L. Safety first The spokesman for the Communications, Energy and Paperworkers Union of Canada, Brian Murphy, says “We’re all for it, but we would like to see the ultimate in safety.”

About 200 kilometres away, on the Rock’s south coast, the Peter Kiewit & Sons Co. fabrication facility at Cow Head will start building the drilling support module for the Hebron GBS in the first quarter of 2013. Approximately 500 workers are needed for the venture, expected to last two years.

“I don’t think we’ll have any problem getting people,” says Wayne Brake, president of the Canadian Auto Workers/Marine Workers Federation Local 20.

The union represents tradespeople at the site, which finished repair and maintenance work earlier this fall on the Terra Nova floating production, storage and off-loading (FPSO) vessel.

Suncor Energy Inc. shut down the rig’s operations last summer and sent it to the site for replacement of its water-injection swivel, as well as some subsea flow lines and the risers for handling hydrogen sulphide (sour gas).

A long-time member of NOIA, Peter Kiewit also provided the FPSO with general maintenance services and equipment upgrades.

Sandy Martin is Suncor Energy’s vice-president, East Coast. He says, “We have also been able to optimize the shutdown to complete other critical maintenance work scopes, all toward

N ov e m b e r 2 0 1 2 O I LW E E K s u p p l e m e n t

9

NEWFOUNDLAND

the goal of restoring production capacity, preventing future impairments and optimizing our production reliability going forward.”

ExxonMobil awarded Australian-based WorleyParsons a $285-million contract to oversee Hebron’s engineering, design, construction and procurement work throughout its five years of development.

Much of the procurement process has yet to unfold, but one deal recently saw WorleyParsons give NECL—a partnership between Newfoundland and Labrador–based North Eastern Constructors Limited, and Norwegian-based Apply Leirvik International—the task of fabricating a 3,000-tonne module providing living quarters for 220 tradespeople. The work will last about 30 months.

Husky Energy Inc. also has big plans for Newfoundland and Labrador’s oilpatch that will spur a healthy amount of service and supply activity.

If C­-NLOPB approval is granted, the company will build a $2-billion wellhead platform for the White Rose satellite fields West White and South White Rose.

“It will include the West White Rose and South White Rose development and the South White Rose development,” says Rob Peabody, Husky’s chief operating officer. “Our preliminary screening economics indicate this is going to be a very robust project.”

Arup Canada Inc. was awarded the pre-FEED/FEED (frontend engineering and design) contract to study and design the wellhead platform.

Yet another NOIA member reaping the rewards of a boisterous Newfoundland and Labrador offshore oilpatch, Arup’s FEED contract includes analyzing technical options for the

We’re shocked at our own success, to some degree.

— Bob Cadigan, president, NOIA

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East Coast Oil & Gas

Distance (NM)

ARGENTIA (Canada) . . . . . . . . . . . . . . . .

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BRUNSWICK (USA) . . . . . . . . . . . . . . . .

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TORONTO (Canada) . . . . . . . . . . . . . . . .

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NewFouNdlaNd

wellhead platform, a fixed structure also known as a concrete gravity structure.

If the wellhead is a go, its topside modules are to be built outside the Rock while the concrete platform could be built at Argentia, a town on Newfoundland’s south coast with a huge, ice-free docking facility that served as a U.S. naval base during the Second World War. The venture also requires months of preparatory work in the form of civil engineering and construction.

“It’s a big civil project, [especially with] the creation of the dry dock,” Cadigan says. “They’re going to excavate on land and break through a berm when the rig is complete and float it out into Placentia Bay for mating with the topsides.”

Construction at the site is expected to start sometime next year, with oil production slated to begin in late 2016 or early 2017.

The structure is a stripped-down version of the Hebron GBS, the former’s topsides being approximately 12,000 tonnes while the latter’s will be in the range of 38,000 tones. Husky decided to build a wellhead platform to improve production efficiency and costs.

The venture will turn Argentia into another offshore petroleum sector fabrication centre, making it one of several in Newfoundland and Labrador that are triggering a plethora of business opportunities for supply and service companies.

Throughout the Rock’s history of hydrocarbon exploration, development and production, supply and services have focused on offshore activities because the jurisdiction has never experienced onshore development and production, certainly not on a noticeable scale.

On the other hand, onshore exploration has been happening at intervals for more than 120 years, all of it on the province’s west coast.

Shoal Point Energy Ltd. is one of several junior oil companies operating there. It plans to apply, probably this winter, for a significant discovery licence for one of its three prospects on the Port au Port Peninsula.

The properties encompass 28,000 hectares of land, estimated to hold a whopping 23 billion barrels of light, sweet shale oil.

If the company extracts even a billion barrels of the energy source, it will have pioneered a western Newfoundland oilpatch demanding a dramatic rise in services and supplies.

Even right now there is a demand because companies exploring for hydrocarbons in the region must pay exorbitant rates to access rigs and other machinery and accessories from Alberta or the United States.

“We are very, very interested in speaking to people who would like to cooperate with us in trying to kick-start a service industry out here,” says Shoal Point president and native Newfoundlander George Langdon. “Generally, in our business you’re on the service side or the drilling side like we are. We don’t own the rigs or the service facilities. That’s a different thing that’s contracted out, but we obviously like to support each other. Over time, there should be an industry involved here.”

Until then, the service and supply sector will deal with the present onslaught of offshore business while keeping handy a supply of Gravol.

“We’re shocked at our own success, to some degree,” says Cadigan. “We’ll take it in stride and do our damndest to maximize what we can do and build capability through all these various projects and work scopes, and, hopefully, when they’re all complete, we’ll be able to participate even more deeply in the next projects.”

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N ov e m b e r 2 0 1 2 O I LW E E K s u p p l e m e N t

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newfoundland

To the point The west coast of Newfoundland is hoping to parlay its Green Point Shale formation into a grassroots oil industry

By Wes Reid

For Newfoundlanders heading out

west in search of work, the journey may one day become a whole lot shorter.

Their destination, instead of featuring mountains, foothills and big city Calgary, might instead boast rugged shores, fjords and small city Corner Brook.

That’s because a new oil and gas frontier could open in western Newfoundland, and George Langdon won’t be surprised if its recoverable hydrocarbon quantities rival those of the oilsands.

Langdon is president of Shoal Point Energy Ltd. The junior oil and gas company has interests in a New Brunswick natural gas prospect and owns three land 12

East Coast Oil & Gas

parcels comprising 280,000 hectares on the Port au Port Peninsula of western Newfoundland.

The properties cover most of the geology known as Green Point Shale and, according to one estimate, could hold 23 billion barrels of crude.

“We mightn’t have exactly the same amount of oil in place,” says Langdon, “but it’s in the same order of magnitude. We’re talking about hundreds of billions of barrels in place, I believe, in western Newfoundland. The big difference, though, is that it’s offshore. We’ve got to frac it, and there’s a big difference between the oil types. The oil from the

oilsands has to be reconstituted and blended with lighter crudes and so on and made into synthetic crude.”

A mere fraction of such mind-numbing numbers, if developed, would transform the region into a land of black gold opportunity.

Alas, the shale containing that fraction must be fractured for commercial extraction to occur—an unconventional and expensive proposition confounded by the myriad of faults and fissures running through the Green Point Formation.

This creates, at best, headbanging drilling problems, and what’s worse is that Newfoundland and Labrador

Photo: Wayne Guzzwell/Canadian Imperial Venture Corp.

Shoal Point Energy and Canadian Imperial Venture Corp. are partnering to explore the Green Point Shale formation in western Newfoundland, drilling from the tip of Shoal Point.

NewFouNdlaNd

23.5

1

billion barrels in place

billion barrels retrievable

Newfoundland’s Green Point Shale formation has significant resource potential.

lacks proper equipment and specialized technology.

Langdon isn’t worried. He realizes rigs and technical expertise are expensive, yet his philosophy is this: build it and they will come.

“It costs a lot of money to move the equipment in and move it out,” Langdon says. “What we have to attain is a sustainable industry that has local staging areas and local equipment. Once you have some of that infrastructure in western Newfoundland, it all becomes cheaper. In other words, if you’re drilling many more wells than just one at a time, then you can keep that equipment there and keep using it.”

Shoal Point and other local oil companies may pool their resources to buy or build their own rigs and support machinery.

Langdon says, “We’ve been approached by people with rig experience that are interested in either purchasing a rig, bringing it in and refurbishing it for western Newfoundland, or building it from scratch. In the future, the real upside of this is that a lot of the service industry could be based in western Newfoundland.”

The oil is there, enclosed in shale or not. Exploration started in the region in the late 1800s after people began noticing seeps in various areas.

The search for hydrocarbons has continued sporadically since then, with the provincial government currently leasing seven exploration permits in the area to oil and gas companies like Shoal Point.

This year, Investcan Energy Corporation will test oil flow rates of four wells at its Flat Bay and Robinsons prospects.

SourCe: aJm deloitte

Meanwhile, Newfoundland and Labrador–owned Nalcor Energy is deciding how to go forward with what Larry Hicks terms the “loads of gas” the company struck at one of its three Parsons Pond wells.

Hicks is a geologist with the province’s natural resources department.

“We know reservoirs have developed beneath the subsurface here,” he says.

“It’s just a matter of putting the straw into the right cup. So when they drill in western Newfoundland and the results say they didn’t find anything, don’t think there’s nothing there. That’s not the case at all. It could be they don’t put the drill in the right spot.”

Hicks admits that currently financing the operation almost demands a cup-inhand approach.

“A couple of years ago everything was in the upswing, but now it seems to be going down again,” he says. “The exploration dollars have been drying up, and it’s been hard for companies to raise money to do much exploration.”

Intending to help dispose of the downturn, the provincial government came up with the $5-million Petroleum Exploration Enhancement Fund.

It will finance the gathering of geoscience information that companies can access free of charge for exploration purposes.

“Once we get that data…we will have a very detailed data set for offshore and onshore western Newfoundland, which [explorers] can use to decrease the risks to do more exploration,” Hicks says.

Newfoundland and Labrador also has a $200-million offshore fund in place to,

among other things, aid industry in determining project viability.

Larry Boyd understands those risks.

He directs geosciences at the Calgary consulting firm AJM Deloitte. Shoal Point contracted that company to evaluate its Port au Port properties.

Boyd considers Green Point a worldclass resource but remains concerned about the geology of the area.

“The shale is really broken up quite a bit, and when a shale is broken like that, it can be very difficult to drill,” he says. “A lot of successful plays start out this way with really a lot of unknowns, and you’ve got to go out and drill and keep on drilling until you figure out how it works.”

Shoal Point’s prospects do have attributes other than a potentially monstrous amount of crude.

The oil’s viscosity, being very low, will fetch a high price and can be easily, quickly and cost-effectively shipped from excellent harbour facilities on the Port au Port Peninsula to nearby markets in the United States and Europe.

“The oil is 40 degree, we believe, API, which is something a little bit lighter than Hibernia crude,” Langdon says. “It’s within access to all the North American refineries on the East Coast. It’s premium product. It’s low sulphur. It’s on the ocean, so we have no pipeline issues.” nO gUArAnteeS Encouraging days indeed for western Newfoundland. However, no certainty exists that even one of the area’s three basins—Bay St. George, Deer Lake and Anticosti—will foster a viable commercial petroleum sector, offshore or onshore.

Newfoundland and Labrador’s 28,956 kilometres of coastline has at least 22 basins that can potentially produce hydrocarbons. Most have not seen a drill bit.

Many probably never will.

The province’s offshore oilpatch is substantial by any measure and continues expanding, but its three producing oilfields at Hibernia, Terra Nova and White Rose are centred in the Jeanne d’Arc Basin off the province’s east coast. A fourth, Hebron–Ben Nevis, is being developed in the same basin.

In addition to those discoveries, last summer Statoil ASA announced a find in the deepwater Flemish Pass registering 200 million barrels of crude.

N ov e m b e r 2 0 1 2 O I LW E E K s u p p l e m e N t

13

NewFouNdlaNd

re nc e St .L aw of Gu lf Gross Green Point acreage: approx. 720,000 acres net to SPE: 98%

EL1079R

Deer Lake EL1120 Corner Brook EL1070

Shoal Point site Stephenville

Grand Banks hydrocarbon grandeur aside, it is the Shoal Point story that may set in circulation a slew of front-page headlines provincially, nationally and internationally.

The company originated in 2006 and began work on the Port au Port two years later. With a small staff of about 10 and ambitions as large as its western Newfoundland properties, Shoal Point has drilled two exploration wells to date.

“We’ve drilled two wells over the last four years,” Langdon says. “Our second well, which we spudded in January of last year and finished in about May of this year, was entirely focused on the…Green Point Shale.”

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Newfoundland

Both were bored from the arrowshaped headland of Shoal Point out through sea floor beneath the shallow waters of Port au Port Bay. “We drill from the land but immediately deviate offshore,” Langdon says.

The play is located on a 137,000-acre block at the eastern extremity of Licence 1070 and can be developed almost entirely from shore.

Of the estimated 23.5 billion barrels of oil in place, Langdon seems sure that about one billion are retrievable.

“The consultant that we’ve used says that the best estimate, which has a 50 per cent probability, let’s say, of being higher or

regUlAtOry reCOgnitiOn Shoal Point must also acquire a significant discovery licence from the CanadaNewfoundland and Labrador Offshore Petroleum Board (C-NLOPB). The organization oversees and regulates the Rock’s offshore hydrocarbon activity.

“That’s a very important goal for us, because the land is expired as an exploration licence so we have to convert it to a significant discovery licence,” Langdon says.

He feels Shoal Point will receive enough financial backing—at least incrementally—to accomplish its goals. The plan is to have a tech-savvy company with deep pockets farm in on the project.

“I feel very optimistic that we’ll have a large partner in with plans to drill a well on each of our other properties,” says Langdon. “Looking at all contingencies, we would spend up to $15 million on each well and have some left over for the corporation, so $50 million would get three important wells. A $50-million investment would be a really good place to start for us, and after that we believe there’re going to be a lot more wells drilled, and that’s where you can, obviously, get up into the hundreds of millions of dollars, and after that you’re going into production as well.”

imaGe: adVanCed reSourCeS

Port Au Choix

Quebec

lower—that’s the way they use the statistics—is 23.5 billion barrels of oil in place on our three lands in western Newfoundland. Using a four per cent recovery factor—which is probably conservative, but it’s good for our estimates at the moment—that comes out to just under a billion barrels of recoverable oil.”

Hoping to establish a western Newfoundland oilpatch—something Langdon feels can be done within three years—Shoal Point must raise enough money to cover drilling costs, production tests and various other aspects of the enterprise.

“We mightn’t be able to get everything we want on our Christmas wish list all at once, like, for example, I’d like to have a $100- [million] to $200-million investment right now,” he says. “A hundred million dollars would get us six or seven wells over the next couple of years. I mightn’t get that right away, but I feel very confident we’ll be able to do one well at a time and finish the job down at the Port au Port Peninsula: drilling a well by this time next year, having it fracked, doing a production test on it and proving the concept.”

NoVa sCotia

nova Scotia With promises to spend nearly $1 billion, shell canada has rejuvenated the nova scotia offshore industry

By Daniela Trnka

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east Coast oil & Gas

NoVa sCotia Caught a really

big fish earlier this year when the Canada-Nova Scotia Offshore Petroleum Board (C-NSOPB) announced in January that Shell Canada Limited had won a bid to explore on four separate offshore land parcels in return for a $970million exploratory work expenditures commitment. Shell’s expenditure bid is a record for parcels off Canada’s East Coast and comes just in time to revive an offshore Nova Scotia oil and gas industry that had started to lag.

The offshore industry in Nova Scotia currently consists of two projects: the Sable

Offshore Energy Project (SOEP), which has been producing gas since 1999, and the Deep Panuke Offshore Gas Development Project which is expected to come on production in late 2012. The CohassetPanuke project produced oil from 19921999 but has since been decommissioned.

Shell’s record bid for the four land parcels comes on the heels of the Nova Scotia Play Fairway Analysis (PFA), published in June 2011 by the Nova Scotia Department of Energy.

“The Play Fairway Analysis was a good piece of work by the Government of Nova Scotia,” Shell Canada spokesman Stephen Doolan says. “While it is

Photo: enCana CorPoration

banking on Shell

Nova Scotia

&

OIL F O S L E R BA R CUBIC FEET

AL GAS R U T A N F O —

too early to say what we expect to find, oil is the preference.”

Interest in deep offshore Nova Scotia exploratory drilling was winding down in the late 2000s as recent exploration had not been successful, natural gas prices con­ tinued to soften and the region was gaining the reputation of being too high-cost and too high-risk. In 2007, the Nova Scotia energy ministry undertook the PFA, a resource analysis and data package project that would demonstrate to the industry that there were commercially attractive hydrocarbons to be discovered offshore Nova Scotia.

The Government of Nova Scotia, through the Offshore Energy Technical Research Association, funded the PFA beginning in 2008 at a total cost of $15 million. It was completed and published in June 2011, and the results of the progressively minded and aggressively marketed project were encouraging, to say the least. The PFA identified rich hydrocarbon potential offshore Nova Scotia to the tune of an “un-risked, yet to find” resource estimate of 120 trillion cubic feet of natural gas and eight billion barrels of oil.

Prior to the completion of the PFA, most Nova Scotia offshore resource estimates fell in the range of around 2.1 billion barrels of oil equivalent.

The PFA also suggested that the primarily oil-charged play in the southwestern

s

y Analysi

y Fairwa

tia Pla Nova Sco

part of the deepwater Scotian margin would be of interest to the large oil majors, based on their capability and capacity to operate in the challenging deepwater environment.

Shell Canada is certainly one such mega player, with a 40-year history of exploratory drilling offshore Nova Scotia, beginning in 1967 when it discovered natural gas at the Onondaga well south of Sable Island. This was Canada’s first offshore hydrocarbon discovery but the industry’s exploratory efforts faltered in the years that followed: 47 wells were drilled by 1977 without finding commercial quantities of hydrocarbons.

All Gas, All the time In 1982, Shell resumed offshore exploration and discovered deepwater natural gas, which would later contribute to the SOEP, in which Shell has a 31.3 per cent working interest.

“Shell was also the first significant explorer in the Gulf of Mexico and remains one of several large majors in terms of production out of the deep water Gulf of Mexico,” says Paul Ziff, chief executive officer of Ziff Energy Group in Calgary.

The $970-million work expenditures program on Shell’s land parcels is to take place during an initial six-year exploration period, which commenced on March 1,

2012 when the C-NSOPB officially issued four nine-year exploration licences for the four Shell parcels. The parcels cover an area of approximately 14,000 square kilometres in total and are located approximately 300–350 kilometres southwest of Halifax on the Scotian Slope.

Included in the $970 million of work expenditure commitments will be typical pre-exploration drilling activities, such as conducting environmental assessments, securing survey vessels, establishing logistics and support services such as chase boats, support vessels, helicopters, safety and evacuation training services, personnel sourcing and the opening of a shore-based office to coordinate all the logistics and supplies needed.

“They [Shell] did award their first contract for environmental work,” says Barbara Pike, executive director of the Maritimes Energy Association, an industry association located in Dartmouth, N.S., representing businesses that provide goods and services to the energy sector, both onshore and offshore, for both renewable and non-renewable energy sources.

“In 2013 they will start to acquire some seismic. They have some really interesting things going with the seismic, so in fact it’s a more significant seismic program than what we’re used to, it’s going to be much more high-tech,” Pike says in describing what Erik Goodwin, Shell’s Northern Atlantic Frontier team lead for Nova Scotia told an industry luncheon in Halifax on August 23.

“That’s one of the great things about having Shell offshore, is that they’ve got lots of experience in the offshore and will be bringing in a lot of the latest technologies and best practices that have been learned in the offshore around the world,” Pike says.

“All of the majors in particular are continually assessing and reassessing basins and often with the benefit of newer seismic than prior, and also with new theories, so it’s not the least bit surprising that Shell is looking around North America, whether it’s offshore Alaska or offshore the East Coast,” Ziff says.

In its Shelburne 3D Seismic Survey project description that was filed with the C-NSOPB on June 29, Shell outlines how it plans to identify and confirm

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NoVa sCotia

potential exploratory drilling locations within its licence areas through a 3-D seismic acquisition program and, at a later date, drill-site specific high-resolution 2-D seismic surveys to help identify potential seabed hazards.

Shell is planning on conducting phase one of the proposed seismic survey within the good weather window between April and September 2013, and possibly a second phase of seismic surveying in 2014 during the same window, depending on data collected from phase one.

Request for proposals (RFP) for the Shelburne 3D Seismic Survey were issued by Shell in August and a seismic contractor will be chosen based on the RFP criteria later this year.

Shell is also planning on opening a Halifax office in the first quarter next year, even though some seismic contractors may in fact have their own local shore-based facilities. “Initially we are

and in particular, its principal contractors, and we have extensive experience in supporting seismic survey work as well, so it’s a good fit for a company like us and we’re quite hopeful. There’s others at the game of course, but this is a good news story any way you slice it for the East Coast offshore community for sure, and the supplier community especially in Nova Scotia context where Shell is just a bright spot on the horizon. nO bAD neWS “There is no bad news in this because they will explore, and we here are very hopeful that Shell finds something and it really works out for them. But the really super good news is that they find something and other companies start looking too and the industry gets kickstarted in a big way. We don’t want to get ahead of ourselves but those are the hopes.”

“there Is no Bad neWs In thIs Because theY WILL eXPLore, and We here are VerY hoPeFuL that sheLL FInds somethIng and It reaLLY Works out For them.”

— Brian Lane, president, I.H. Mathers & Son Ltd.

looking to have about three staff in the Halifax office,” Doolan says. “As the project progresses this could increase, but initially it’s three. Staff there will initially support the seismic program in areas such as logistics, as an example”.

“Shell’s news in August was all good news for Nova Scotia,” says Brian Lane, president and chief executive officer of I.H. Mathers & Son Ltd., a fully integrated marine services provider based in Atlantic Canada. Established in 1872, I. H. Mathers & Son Ltd. and its affiliated companies provide a comprehensive range of marine, offshore and logistics services.

“The logistics is exactly where we come in,” Lane says. “That explains why we’re particularly interested in the potential opportunity of supporting Shell and their principal contractors, and we’re quite hopeful we can get some of that work. For a project like what Shell is planning, our company is well suited to support Shell, 18

east Coast oil & Gas

In addition to the preliminary excitement on the ground among Nova Scotia service and supply companies, the CNSOPB is looking forward to receiving its next round of bids for additional offshore blocks currently up for bid, on November 7. The board has established a one-year exploration land issuance cycle in which it accepts nominations for lands to be considered in the next call for bids in early December, followed by the opening of a call for bids in mid-April, and a close of the call for bids each November.

During the last round of bidding in which Shell successfully acquired its four exploration licences, a total of eight parcels were up for bid, four of which were nominated by industry. The November 7 call for bids contains 11 parcels, six of which were nominated by industry. Some industry participants have suggested that the next round of bids may continue to leverage off the content and extensive international

marketing of the PFA and Shell’s recent record bid for four offshore blocks.

“That kind of a bid does attract attention, there’s no doubt about it,” Pike says.

“I understand that there is a lot of interest and that there have been a few companies in taking a look. The C-NSOPB has an extremely high-tech geoscience research centre now. We used to just call it the core lab, but it’s gone well beyond that. They have had a steady stream of visitors, companies coming in with teams of people, not one or two, but dozens of people coming in to take a look at the information at the geoscience research centre. So there is a lot of interest, but remember too that the board has rightly and basically said that companies that don’t have the experience and don’t have the wherewithal financially, need not bother to apply, which is extremely important. And that’s been the right move as well.”

“Of course, we’ll find out what the real interest is in November when the call for bids closes, and that’s always a day we look forward to, to see what the results will be,” says Tanya White, director, public relations and administration at C-NSOPB. “I guess in addition, when a large operator like Shell does come into an area, [that] always tends to create additional interest from other recognized names, but again, the proof will be in the results of the call.”

As for what local service and supply companies can look forward to in the coming months and years from Shell’s exploratory work commitments, Doolan has confirmed that “Shell is committed to ensuring that full and fair opportunities for employment, procurement and contracting are provided for Nova Scotian and Canadian companies, including opportunities to support the seismic program initially.”

When asked about the size of the trickle-down effect on the local economy that $970 million of offshore exploratory spending will have, Pike suggested that effect could be “significant, like millions, tens of millions, maybe a couple hundred millions of dollars. It’s going to depend on some of the supply chain and how they actually do it. Obviously the [offshore drilling] rig is not going to come from Canada, obviously the seismic vessels are not going to come from Canada, but there is a lot of other support that will be involved. So it’s going to be significant.”

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