CALGARY – Nova Scotia’s struggling offshore energy sector suffered a potential death blow yesterday with the closure of the only remaining well slated to be drilled by a major oil company.
Marathon Canada Petroleum ULC said its $80-million exploratory well will be “permanently plugged and abandoned” after it failed to find oil, and though the company holds other licences in the area, it has no plans for further drilling.
The Crimson well was the last of the exploration wells being drilled or planned for the province’s offshore after a major project from ExxonMobil came up empty two weeks ago. No other wells have been announced.
The failure of the Marathon well, located in the deep water beyond the Scotian Shelf, is a major disappointment to believers in Nova Scotia’s energy potential and to a province that has struggled to fashion itself as a burgeoning energy frontier.
In the last four years, major oil companies, from Calgary-based EnCana Corp. to Texas-based ExxonMobil, have spent more than $1.2-billion pursuing costly drilling programs in the Atlantic Ocean off Nova Scotia.
No major discoveries have been made since 1998, when EnCana found a large gas pool at Deep Panuke. Billion-dollar plans to extract the gas are being revised, and the project has yet to be built.
“In the last few years, there has been nothing to show for the money spent off Nova Scotia,” said Steven Paget, an energy analyst with FirstEnergy Capital Corp. “They are batting zero, so any continued exploration will be more an act of faith than anything else.”
The province has one producing gas field — the Sable Offshore Energy Project that is responsible for an estimated 2% of the Nova Scotia economy — and desperately needs successful exploration to fuel new development.
The deep basin off the Nova Scotia shore, containing a thick pile of sediment, has been a siren song to geologists hunting for oil and gas, and once EnCana discovered Deep Panuke, an exploration frenzy took hold.
Similar basins off the shores of West Africa and northwestern Europe have proven prolific hydrocarbon producers, but the only way to discover whether oil and gas has in fact formed — and lodged in a rock structure that has held it — is to drill.
Wells are sunk up to several miles in the deep water, and hindered by strong currents and the icebergs carried from the north Atlantic and Labrador Sea.
Marathon spokeswoman Susan Richardson called the failed Crimson well “disappointing … obviously we’d like it to have been a success,” adding the company will use information gleaned from its drilling results to decide whether to sink further wells.
The Onshore/Offshore Technologies Association of Nova Scotia, an industry body, downplayed the significance of the well’s failure.
“We’re not dead yet,” said Tim Brownlow, the group’s chairman.
“Activity comes in cycles, so maybe we’re just at the end of a busy cycle,” he said adding that with just 130 exploratory wells drilled, the region is considered “virgin” by comparison with basins such as the oil-rich Gulf of Mexico, where more than 50,000 wells have been punched.
While no pending drilling projects have been announced, some tentative plans remain.
Calgary-based Canadian Superior Inc. says it aims to drill in the region this year, but the small company has no partners to help share the costs.
And BEPco, controlled by the wealthy Bass family of Texas, has applied to drill a well off the coast by 2007.
But the flight of oil companies from Nova Scotia will be tough to check.
In June, 12 company licenses to explore in the area expired, while the companies preferred to pay millions of dollars in penalties than fulfill the work commitments obliged under the licence terms — an indicator the firms hold little hope for the prospects of oil in the offshore region.
“I think there’s a serious re-interpretation of the geological model that has been used by many of our members underway,” said Brian Maynard, a specialist in Atlantic Canada with Canadian Association of Petroleum Producers.
The association has announced it will close the doors of its Halifax office next week, because it doesn’t believe members will be active enough in the province to justify a presence.
“It”s disappointing for everyone: the government, the people, the industry,” said Mr. Maynard, “but I think we’re going to see a long period of study before we have any more activity.”
Brian Lee Crowley of the Atlantic Institute for Market Studies said yesterday while he still thinks offshore energy can be successful in the long run, “in the short term things are not looking very good.”
Mr. Crowley, who is president of the Halifax think-tank, also stressed that oil exploration in Nova Scotia is in its infancy when compared with a region such as Alberta, but he said the string of costly disappointments may cause oil producers to look elsewhere.
“The question now is whether the companies will be discouraged,” he said, adding that the industry continues to call on the federal and provincial governments to reduce the “regulatory burden” that causes lengthy delays in the approval of drilling projects and greatly increases their costs.
Ian Doig, who edits an oil industry newsletter, said a sign that Nova Scotia’s oil dream is dying is that the government recently encouraged a terminal to import foreign natural gas.
“If you believed there were going to be great discoveries off your own shore, would you be eager for competition?” he said.
The Atlantic Provinces Economic Council said this month that a “major” new discovery was needed soon to revive momentum in the East Coast offshore and to sustain investment activity in the second half of this decade.
