Canadian Offshore: Deep Panuke leads new Scotian shelf gas developments

PanCanadian Energy Inc., Calgary, currently is in the design phase of developing its Deep Panuke gas field southeast of the Sable Offshore Energy Project (SOEP)-site of the first major gas discovery and development on the Scotian shelf (see map).

First gas from the $2 billion (Can.) SOEP was delivered to the Maritimes and Northeast Pipeline (M&NP) Dec. 31, 1999. The project is now producing and shipping more than 500 MMcfd to markets in Atlantic Canada and New England.

The SOEP involved construction of three offshore processing platforms, two onshore processing plants, more than 186 miles of subsea pipelines, and a 34-mile liquids onshore pipeline. Production currently comes from Thebaud, North Triumph, and Venture fields-three of six fields in the Sable region, and additional production is under consideration. Tier 2 development would also tie in Alma, Glenelg, and South Venture fields by 2006 at a cost of more than $1 billion (Can.). Engineering work is now under way to tie in Alma field; the remaining fields would be tied in sequentially.

Ownership interests in SOEP are Mobil Oil Canada Ltd., a unit of ExxonMobil Inc. 50.8%; Shell Canada Ltd. 31.3%; Imperial Oil Resources Ltd. 9%; Nova Scotia Resources Ltd. 8.4%; and Mosbacher Operating Ltd. 0.5%.

Deep Panuke

A PanCanadian decision to proceed with work on the Deep Panuke field followed three successful appraisal wells after the discovery, all of which flowed at average rates of more than 50 MMcfd-the maximum capacity of the testing equipment-on multiday tests.

Gerald Macey, PanCanadian executive vice-president of exploration, said the field is the most significant discovery in Atlantic Canada in more than a decade. He said it is emerging as a world-class play, and its proximity to markets and pipelines offers PanCanadian the potential to substantially increase reserves and production.

The field, which the company estimates has reserves of 1 tcf, underlies the abandoned Panuke-Cohasset crude oil field and is located in 148 ft of water about 34 miles southwest of Sable Island. PanCanadian has 100% interest.

Larry LeBlanc, vice-president of East Coast operations for PanCanadian, said the company is preparing an engineering analysis, which will then lead to tendering and a development plan application for submission to regulators. He said front-end engineering and surveys for some environmental work have already been tendered. But major project commitments will not be made until the company receives regulatory approval, expected in late 2002.

LeBlanc said a business principle important to success is the need to streamline the regulatory process on the East Coast where a number of onshore and offshore agencies have jurisdiction.

The PanCanadian executive added there is no "cookie-cutter," one-shoe-fits-all approach to projects on the Scotian shelf, and each one is slightly different because of its environment. He said it is a very young basin, but in time more similarity in project designs may develop as has happened in the North Sea.

Panuke will have a production design capacity of 400 MMcfd with turndown capability. It will be designed to allow for future expansion to produce 650 MMcfd.

The company is now involved in the predesign and concept selection phase for the $1 billion (Can.) project. That cost estimate may vary by as much as 30%, however, as data are refined.

Detailed engineering and procurement-and then an 18-month onshore fabrication schedule-will follow the initial phase. Related pipeline construction will be carried out concurrently with offshore installation. Commissioning of facilities will likely take 4-6 months. First gas is expected from Panuke field in late 2004 or early 2005; it has a projected 25-year life.

Current project design options call for two or three bottom-founded offshore platform structures in 148 ft water. In both the two and three platform cases, the existing Panuke jacket, formerly used to produce oil, will be used to accommodate dry wellheads and production manifolds. Additional development wells will be drilled from the existing Panuke jacket. A jackup drilling rig will complete the suspended delineation wells, which will be tied back to a processing platform.

A two-platform development will also use a second new bottom-founded platform to accommodate a gas processing system, utilities, a helicopter landing pad, a refueling station, and crew accommodations. Pedestrian-service bridges will interconnect new platforms to existing ones.

A three-platform configuration would require two new bottom-founded platforms in addition to the existing Panuke platform. The second platform would accommodate the gas processing system and power generation, while the third platform would be used for utilities, a helipad, refueling station, and crew accommodations.

LeBlanc said PanCanadian will use monopod jackets similar to those used at the Sable development because they are the most economic choice in shallow water.

The gas processing system for Deep Panuke will consist of separation, measurement, dehydration, and hydrocarbon dew-point control. The field is considered a sour gas reserve, with raw gas containing about 0.2% hydrogen sulfide, so the processing system will include gas-sweetening equipment. Some H2S content is typical of the carbonate formation on which Deep Panuke is located. Full acid gas processing will be done offshore through application of an amine unit to remove H2S and carbon dioxide. After its removal from the raw gas stream, H2S will be oxidized in an incinerator and converted to environmentally benign sulfate in a seawater scrubber prior to ocean discharge.

Pipelines

Market ready gas will be produced offshore and transported via subsea pipeline to an existing onshore plant at Goldboro, NS, to an interconnect with the main M&NP pipeline for shipment to markets in Canada and the northeastern US. Gas liquids will be transported to the Goldboro processing plant via a second subsea pipeline for delivery to existing onshore gas liquids transportation facilities at Goldboro.

During the front-end engineering and design study, an alternative design will be considered under which gas liquids would be combined with sales gas and transported to Goldboro in a single, multiphase pipeline for processing at existing facilities or new processing facilities PanCanadian would build at Goldboro. An onshore plant at Point Tupper currently extracts about 7,100 b/d of propane, 4,000 b/d of butane, and 11,000 b/d of condensate from the Sable fields. A 34-mile liquids pipeline connects the Goldboro and Point Tupper plants.

In June, PanCanadian and M&NP announced an agreement for the pipeline to transport up to 400 MMcfd of gas from Deep Panuke as early as July 2004. The pipeline's $500 million Phase IV expansion project would almost double capacity to 1 bcfd. It would be completed in late 2004 or early 2005 to tie in with first production from Deep Panuke.

The Canadian segment of the existing M&NP 30-in. diameter line runs from Goldboro, NS, 345 miles to the US border. The line, completed in October 1999, has a peak day capacity of 530 MMcfd that can be increased to 800 MMcfd with additional compression. From the US border, the mainline extends to an interconnection with the Portland Natural Gas Transmission System near Westbrooke, Me. The two lines also jointly own a section from Westbrooke to Haverhill, Mass. From Haverhill, the line connects to the Tennessee Gas Pipeline Co. system at Dracut, Mass., for deliveries into other areas of Massachusetts.

Partnership interests in the M&NP line are Westcoast Energy Inc. 37.5%, Duke Energy 37.5%, Mobil Canada 12.5%, and Emera Inc. 12.5%. Duke's $8.5 billion US takeover of Westcoast will give Duke a dominant 75% interest in the line.

Robert Evans, chairman of M&NP, said the system is designed to meet anticipated increases in natural gas production in eastern Canada and can be readily expanded to transport new gas supplies as required.

Westcoast said the target of the M&NP partners is to double system capacity to 1.2 bcfd by 2005 and to 2 bcfd by 2010.

M&NP is filing applications with Canada's National Energy Board and the US Federal Energy Regulatory commission for project review and approval of an expansion program consisting of mainline compressor and looping facilities.

M&NP said an open season held last fall drew widespread interest from local distribution companies, electric power generators, and third-party marketers which nominated more than 1.7 bcfd for transportation service on its Canadian facilities and nearly 1.3 bcfd in nominations for transportation service in the US.

Canadian nominations requested deliveries along the mainline and laterals to Point Tupper, Halifax, and St. John, in Nova Scotia.

The pipeline said US nominations requested deliveries of "substantial" volumes into Algonquin Gas Transmission Co.'s proposed HubLine interconnection at Beverly, Mass. The majority of the nominations are for services during 2004-06.

M&NP said it would incorporate any additional market demand into yearend regulatory applications for construction of additional expansion facilities.

Additional exploration

Meanwhile, companies are gearing up for an increased exploration effort to prove up additional gas reserves. Industry interest in the region is now focusing on the deepwater Scotian Salt basin, which runs parallel to the Nova Scotia Coast and north from the US border to the Laurentian sub-basin. The area is about 140 miles off Nova Scotia's east coast.

The industry has made work commitments in successful bids for licenses in prospective shallow and deepwater areas totaling more than $1.56 billion (Can.) over the next 5 years on lands covering more than 19 million acres. Drilling costs for deepwater wildcat projects in the region can range up to $50 million (Can.)/well.

Companies with significant exploration licenses or production licenses in the region include a roster of companies with deep pockets: BP Canada Energy Co., Chevron Canada Resources Ltd., ExxonMobil Canada Properties, Hunt Oil Co., Imperial Oil Resources Ventures Ltd., Kerr-McGee Offshore Canada Ltd., Marathon Canada Ltd., PanCanadian Petroleum Ltd., Shell Canada, Sable Offshore Energy Inc., Gulf Canada Resources Ltd., and Texaco Canada Petroleum.

The level of industry interest in the region and its potential was indicated by successful bids for nine new exploration licenses announced in November totaling more than $527 million (Can.) from major US and Canadian operators.

Minimum bid permitted was $1 million (Can.), and the bids represent the amount of money the bidder intends to spend exploring the land parcels during the initial 5 years of a 9-year license. Successful bidders must still apply for and receive work authorization for specific projects on the lands.

The largest single bid in the latest round was almost $177 million (Can.) from Marathon Canada for a 100% interest in a 333,669-acre block.

Marathon was also lead partner in another bid worth more than $193 million (Can.) for a parcel covering 337,447 acres. Marathon has a 50% interest, Murphy Oil Co. Ltd. 25%, and Norsk Hydro Canada Oil and Gas Inc. 25%. Marathon will be operator for the consortium. Both parcels are in deepwater areas of 3,280-11,480 ft.

Other successful bids (in Can. $) included:

• PanCanadian Petroleum and Petro-Canada bid $75.9 million, with each holding a 50% interest.
• Canadian Superior Energy Inc. bid $41.3 million and $15.5 million on separate parcels.
• PanCanadian Petroleum and Shell Canada bid $10.5 million, with each holding 50%.
• BEPCo. Canada Co. bid $6.7 million.
• Richland Minerals Inc. submitted bids of $4.28 million and $2.7 million on separate shallow parcels in depths of 160-330 ft.

Marathon Canada and Kerr-McGee Offshore Canada Ltd., Canadian unit of Kerr-McGee Corp., have expanded their Scotian shelf interests and are planning deepwater projects.

Marathon said it now holds five exploration licenses in the region, covering 1.92 million acres. Phil Behrman, senior vice-president of worldwide exploration for Marathon, sees the area as having great potential.

Marathon has spudded a test on the Annapolis block near its new exploration permits and plans additional activity in 2002.

The Annapolis test is being drilled on Exploration License 2377 in 5,741 ft of water, the deepest offshore test in the region to date. Marathon has contracted the West Navion drillship for the project. It is specially designed to operate in ultradeep water and harsh environments such as the North Atlantic.

Marathon, operator of the Annapolis well, has a 30% interest. Partners are PanCanadian 26%, Norsk Hydro Canada Oil and Gas 25%, and Murphy Oil 19%.

Marathon also has a 37.5% interest in a well on the Southampton Block where PanCanadian is operator with a 37.5% interest, and Murphy has a 25% interest.

Kerr-McGee also is venturing into deepwater and plans a drilling project in 2002.

The company acquired interests in four offshore exploration licenses from Canadian 88 Energy Corp. for $10.5 million. The licenses, 125 miles south of Halifax, NS, and about 100 miles from the Sable region developments, cover about 1.5 million acres and are in water depths of 500-9,200 ft.

Kerr-McGee will operate the four licenses, with a 50% interest, and Canadian 88 will retain the remaining interest. Kerr-McGee also acquired 2D and 3D seismic over parts of the licenses area and expects to drill the first wildcat on the properties in 2002.

Seismic activity

There has been intense seismic activity on the Scotian shelf, and other operators are poised to move into deepwater operations.

PanCanadian and Ocean Rig ASA formed an East Coast drilling partnership for use of the Eirik Raude semisubmersible drillship, particularly for deepwater projects. The unit will be based in Halifax and is being winterized and outfitted for offshore drilling. It arrived partially completed from Pascagoula, Miss.

PanCanadian said completing and basing the rig in Halifax will build local construction and operating capabilities, create significant opportunities, and help accelerate the pace of deepwater drilling in the area.

The Eirik Raude will be available for operations by July 1, 2002. Electrical work is being completed. The rig will then be moved to deeper water for installation of six thrusters. Installation of drilling equipment and commissioning tests for the unit will follow.

Jeff Rose, PanCanadian general manager of frontier and international operations, said the unit would be available for use both by PanCanadian and by other East Coast operators.

PanCanadian has interests in 4.9 million gross acres (2.7 million net) offshore Nova Scotia. It holds rights in 17 Significant Development Areas and operates 16. Marathon operates the other. PanCanadian also holds two production licenses.

Rose said the Jurassic-age Abenaki carbonate margin, where Deep Panuke is the first discovery, has very high potential for more, similar gas finds in the future.

"We have an acreage position along that margin and several more prospects to drill in the next few years. We see much potential for more gas," Rose said.

Shell Canada, Mobil Canada, and Chevron Canada Resources have joint interests in three exploration licenses in deepwater on the continental slope beyond Sable Island covering more than 1.17 million acres. They have shot extensive seismic in the area.

Shell and Mobil are also involved in a second consortium with Imperial Oil, which holds six exploration licenses in the Sable sub-basin which surrounds the current Sable production area. Mobil and Shell each have a 40% interest and Imperial 20% on the block where there are work commitments of $192 million(Can.).