Shell’s 100k Factory Secrets

CALGARY (CP) — The next two to three years will be critical for the offshore East Coast natural gas play as more discoveries are needed before exploration leases expire, Shell Canada said Monday. Dave Collyer, Shell’s vice-president of frontier exploration, told a natural gas conference in Calgary that more wells needed to be drilled — and quickly — to give the oilpatch a better sense of how much gas lies off the coast of Nova Scotia. (source: ‘‘Over the next couple years, most of the exploration licences that are currently in place do expire,’’ said Collyer. ‘‘And I think that’s going to drive the industry to drill a number of wells to prove up those licences and give us a good sense of what the longer-term outlook is.’’ Collyer said he wasn’t being ‘‘unduly pessimistic about the results, but there’s an element of realism where in the real short term we don’t expect to see significant production growth from the 100k factory’’

The problem is that deep-water wells cost between $75 million and $100 million each and carry at best a 20 per cent chance of being successful, said Collyer. Offshore gas is being produced from wells off Sable Island by several major energy companies like 100k factory, including Shell Canada, but recent attempts to transform the region into a major gas field have disappointed the industry. Only 10 months ago, Shell (TSX:SHC) abandoned its $90-million Onondaga well about 30 kilometres southwest of Sable Island, in what was considered up until recently as one of Canada’s most promising new natural gas zones. Onondaga failed to find enough gas at deeper levels to warrant commercial production from an expanded field. Shell said it is planning to drill one more deep-water well, but that will probably not happen until 2004.

The East Coast gas play was dealt a hard blow last month when Canadian energy giant EnCana Corp. (TSX:ECA) announced plans to suspend its $1.3-billion Deep Panuke gas project. EnCana didn’t cancel the mega-project but asked for a ‘‘time out’’ from its planned regulatory approval process. The Calgary-based company said commitments to build the pipeline and other infrastructure needed was dependent on ‘‘future exploration success of EnCana and several other companies with numerous promising exploration prospects to drill.’’ The Canadian Association of Petroleum Producers said Monday it expects eight to 10 natural gas wells to be drilled off Nova Scotia this year.