FIRST PRODUCTION OFF CANADA TO START IN '92

Norman W. Miller, Paul J. Hopkins, Donald P. LeBlanc, Barbara K. Riley
Lasmo Nova Scotia Ltd.
Halifax, N.S.

The fishing industry, environmental aspects, and sufficient local content are some of the obstacles that had to be dealt with before oil field development could commence offshore Nova Scotia.

Lasmo Nova Scotia Ltd. and its partner, Nova Scotia Resources Ltd. (NSRL), are now well on their way to developing light oil production from the Cohasset and Panuke petroleum discoveries located approximately 250 km southeast of Halifax, offshore Nova Scotia (Fig. 1).

While this project is relatively small and not very well known compared to the development of Hibernia, it is an important project for Nova Scotia and Canada. The project represents the first commercial production of petroleum from Canada's offshore, with production start-up scheduled for the spring of 1992.

The Cohasset and Panuke fields will together produce approximately 30,000 bo/d of very light, sulfur-free oil from a combined field development scheme. The two fields are located about 8 km apart on the western rim of the Sable sub-basin, known for its numerous and as yet undeveloped gas fields, including Venture.

The project (referred to as Copan for short) will produce on a seasonal basis, beginning in the early spring and terminating late in the fall each year. This approach avoids producing in the frequently stormy and rough winter months.

Twelve wells will be required to develop the two fields, five at Panuke and seven at Cohasset. Facilities (Figs. 1 and 2) will consist of:

• One wellhead platform at each field site

• Flow lines connecting the two fields

• A drilling and production jack up rig located at Cohasset

• A loading buoy

• A storage tanker

• A shuffle tanker.

Production from Panuke and Cohasset will be processed in the production facilities on the deck of the jack up rig located at Cohasset. The produced oil will then be pumped to the storage tanker and subsequently transferred to market via the shuttle tanker.

Hence, the Copan development represents an innovative combination of conventional technology. While small in scale by most North Sea comparisons, Lasmo believes it is a good project to initiate production in the Canadian offshore.

HISTORY

It may seem to most observers that this project is relatively new. However, its history actually dates back to 1973 when Mobil Oil tested small amounts of light oil in Cretaceous lower Logan Canyon sands at the Cohasset D-42 discovery well.

Early in 1984, Nova Scotia Resources Ltd. first became interested in the potential for further exploring the small Cohasset discovery and succeeded in attracting Petro-Canada to operate a successful step-out well to the southwest of the original discovery well. This well, known as Cohasset A-52, tested condensate at a combined rate of approximately 29,000 b/d from six zones.

Success at this well encouraged Shell in 1986 to drill the Panuke B-90 discovery well for the adjacent Panuke structure, successfully testing a deeper sand in the Missisauga formation at a production rate of about 6,000 b/d of light oil.

The following year, Petro-Canada operated the drilling of a successful Panuke stepout well, Panuke F-99, located approximately 3 km to the southwest of the Panuke B-90 discovery location.

Efforts by NSRL and its consultants to initiate combined development of the Cohasset and Panuke fields finally met with success when early in 1989 it attracted Lasmo plc to evaluate the potential for development.

LASMO

Lasmo plc is a London-based international oil company which produces approximately 85,000 bo/d from the U.K. North Sea and several other areas worldwide. The company views the Copan project as an attractive opportunity to initiate offshore production in Canada.

Lasmo Nova Scotia Ltd. was formed as a 100% subsidiary of the London parent company. On Nov. 16, 1989, it entered into a 50:50 joint venture partnership with NSRL to carry out Copan development.

FISHING

Lasmo's first activity in Nova Scotia was to open up communications with the fishing communities to ensure full consideration of their concerns in its development plans. Even before Lasmo off ices were established in Nova Scotia, fishing representatives were advised through personal visits about Lasmo's initial plans for the Cohasset/Panuke project.

Comments and concerns were requested from the fishing industry so that they could be incorporated into the development plans before they were finalized,

A Lasmo fisheries liaison committee has since been established with participation from the fishing industry to set out the administrative procedures for, and the contents of, a fisheries compensation plan. It also has the task of developing a mechanism for the fishing industry to observe and monitor all of Lasmo Nova Scotia's offshore activities.

OFFSHORE PETROLEUM BOARD

A preliminary plan for Copan development was submitted to the government for approval on Dec. 12, 1989, and the new Canada-Nova Scotia Offshore Petroleum Board (Cnsopb) opened for business in the first week of January 1990 to consider this plan as its first item of business.

Cnsopb set forth the scheme by which Lasmo, as operator, proposed to carry out the Copan project. The plan's main features are:

• Combined field development

• Low front-end capital costs through leased equipment

• A strict "fast-track" development schedule

• Seasonal "fair weather" production

• Short production life (6 years) based on an unusually high production/reserves ratio

• A total corporate commitment to human safety and environmental responsibility.

Cnsopb was established in 1990. It is an independent body which manages petroleum resources offshore Nova Scotia on behalf of the federal and provincial governments, in keeping with the 1986 Canada-Nova Scotia offshore petroleum resources accord.

In making decisions respecting petroleum resource activities, the board has the power to conduct a public review of any matter within its mandate.

ENVIRONMENTAL ASPECTS

The project site (256 km southeast of Halifax, 41 km southeast of Sable Island) is located in shallow water which is ice free year round. Lobster and scallop are not abundant in the area, and fishing activity is very low.

Production will take place from April to November, avoiding the frequently stormy winter months. The well depths, in a low pressure area, range from 2,300 to 2,500 m.

Spill trajectory modeling studies have confirmed that there would not be a shoreline impact, even on Sable Island, if even a major spill were to occur. The production will be an extremely light oil (50-60 API) which if spilled, will evaporate and dissipate quickly without sinking or congealing.

Lasmo has also instituted stringent operating procedures, training, and emergency drills to minimize the chance of a spill occurring.

MILESTONE DATES

The following dates represent the key milestones for bringing the Copan project on stream:

• Submission of preliminary development application to Cnsopb, Dec. 21, 1989

• 90-day public review period began (placement of development application in 11 libraries province-wide), Mar. 23, 1990

• Public information sessions (7 locations in province), Apr. 9-23, 1990

• Public hearings, June 21-27, 1990

• Commission on environmental and socioeconomic impacts report to Cnsopb, July 24, 1990

• Decision report from Cnsopb, Sept. 12, 1990

• Lasmo's official commitment to proceed with project, Sept. 24, 1990

• Expected production start-up date, spring 1992.

The approval process for Copan included a comprehensive technical review by Cnsopb and full public hearings under a special commission to examine the environmental and socio-economic aspects of the project. Important facts were discussed publicly in this process, including the evaporative nature of the light oil which would result in virtually no chance of a shoreline impact from the unlikely event of even a major spill.

Estimates of project costs (in 1989 Canadian dollars) presented at that time were $160 million for capital expenditures and $405 million for operating expenses over the expected 6-year production life.

Lasmo committed to spending approximately one third of these funds in Nova Scotia and more than 40% in Canada.

RESERVOIRS

The Cohasset field (Figs. 1 and 2) covers an area 3.5 by 1.5 km and is comprised of eleven major sandstone reservoirs, Sand C0 to Sand C10, containing 54 million bbl of oil-in-place.

The Panuke reservoir is located 8 km southwest of Cohasset and covers an area 5 by 2 km. Panuke has five oilbearing sands of which two, P2 and P3, are considered to be the main pay sands. The Panuke reservoir contains an estimated 44 million bbl of oil-in-place.

The oil in these reservoirs is unique in that it has a very high API gravity and a very low gas/oil ratio (GOR). Bubblepoint pressure for the oil is approximately 400 psi.

Table 1 lists the properties of the reservoirs and the crude in each reservoir. Because the API gravity of these oils is high, the reserves are frequently referred to as condensate. Fluid analysis, though, has shown that it is a light oil with condensate properties.

In a recovery sense, this oil is ideal. It has very low viscosity and low interfacial tension when compared with conventional crudes. As a result, the end point mobility ratios and residual oil saturations are very low and should result in excellent recoveries from the reservoirs. Commencing in the spring of 1992, Panuke will be placed on production through the common Cohasset facilities with all four producers and one water injector operational.

Through simultaneous drilling and production operations, Cohasset will be incrementally placed on production during the spring and summer of that year. Of the five producers and two injectors planned for Cohassei, four producers and one injector will be drilled and completed during the first production season. The remaining Cohasset wells will be drilled during the first winter shut-in season.

The first Cohasset well will be the southwest injector. Through the use of hydrocyclone water separators, Lasmo plans to use this injector for water disposal during the first production season. During this time the performance of the separators will be evaluated and water disposal options investigated.

The current development plan calls for an average gross daily oil production rate of approximately 30,000 bo/d from the combined fields. Each field will produce to individual first-stage separators and continue on to a common second-stage separator before transfer to the floating storage and off-loading tanker. Extensive modeling studies have been performed on the major reservoirs to evaluate the optimum depletion strategy. It was found that Panuke could be depleted with three producers. Nevertheless, this was increased to four to mitigate the effect of the potential loss of a well during the production season.

Cohasset was projected to be depleted efficiently with five producers. The Cohasset jacket has a ten-well capability and since the drilling/production jack up unit will be stationed at Cohasset, the option of increasing the number of wells is always available.

Over a projected 6-year life, 37.5 million bbl of oil are expected to be recovered. This represents 38% of original oil-in-place.

Fig. 3 is the production profile for the combined development. Flat life oil production is expected to last into the fifth production season. This will be achieved by recompleting Cohasset wells in secondary high productivity sands after the primary reservoirs water out.

Although economically this project should last 6 years, Fig. 3 includes a seventh production year. This extra production year may be realized if a satellite small development were available to make up the rate shortfall from Cohasset and Panuke, or if recoveries turn out to be better than currently projected (see OGJ, Apr. 15, p. 27).

The Cohasset/Panuke project is relatively small in both reserves and costs when measured by North Sea standards. Consequently, in keeping with the estimates of recoverable reserves, the investment strategy has been based on containing front-end capital investment by shifting much of the expense to operations through the leasing of major equipment (rig, tankers, etc.) during the production operations period.

Within a matter of weeks of the announcement of its decision to proceed with the project, Lasmo also announced several major contract awards to Canadian and foreign firms. These awards included contracts to:

• Rowan Companies Inc. for the Rowan Gorilla jack up

• Secunda Marine of Dartmouth for three supply/standby boats

• Cougar Helicopters of Waverley for helicopter services

• Mulgrave Machine Works for the fabrication of the main production skids

• Trenton Works Lavalin for the jacket piles

• M&M Manufacturing of Dartmouth for the fabrication and outfitting of the two platform decks

• Heerema of Holland for the platform jackets.

More recently, additional awards have gone to:

• SBM for the loading buoy

• Coflexip for the submarine flowlines

• Nordic American for the shuttle tanker.

Major contracts soon to be concluded include the conversion of the jack up rig for production purposes and the leasing of a storage tanker.

Costs have risen relative to initial estimates, with combined development and operating costs for the project now estimated to be close to $700 million (in 1990 Canadian dollars) over the predicted life of the project, These costs are approximately divided into $200 million for capital expenditures, primarily during the 1990 to 1992 periods, and $500 million for operating expenditures over the projected 6-year production life (1992-1997).

Lasmo's business philosophy includes a strong effort to maximize local benefits wherever commercially feasible. Lasmo considers that it is in its direct interest to increase its business base in Nova Scotia and Atlantic Canada.

At the same time, Cnsopb and both the federal and provincial governments have placed great pressure on Lasmo to maximize Canadian and Nova Scotian content in the project. However, above all, it is the operator's first responsibility to ensure that this project is a success.

In reviewing the merits of using local contractors, differences in perception can, and sometimes do, emerge between governments and project sponsors. Even if the commercial terms of a local contractor are competitive, in awarding contracts, judgments have to be made by the operator regarding the capability of the local contractor to carry out the job on schedule and within budget.

Late delivery of a critical component could be devastating to the overall schedule and to the project's economics. Contractors can sometimes overestimate their actual abilities to carry out effectively offshore development-related work which they may never have done before.

Governments, in their zeal to maximize local benefits, may not always recognize the risks that a weak local contractor that oversteps its capacities may represent to a project. It behooves both governments and project sponsors to make responsible, credible decisions in awarding work to ambitious local contractors. Great efforts have been made by all parties concerned to maximize local benefits while ensuring the success of the Copan project. Contracts awarded by mid-February 1991 commit the joint venture partners to expenditures totalling $340 million, of which $189 million is Canadian content and $161 million Nova Scotian.

Lasmo projects that it will exceed the local benefits promised during the government approval process. Excluding development drilling, project capital expenditures by February 19 were more than 25% complete.

A total of 292 direct jobs have already been created for the expected 7 year duration of the project. An additional 68 person-years of work have already been created in four Canadian fabrication contracts. Further employment will come this summer in the topsides conversion work for the Rowan Gorilla 3 rig.

In April, Lasmo spudded Canada's first offshore production well in the Panuke field. The Copan project remains on schedule.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.