Oilweek

Nalcor Energy has some enticing data on the Labrador Shelf's exploration potential. Its job now is to get it into the right hands.

I still say Nova Scotia has a system of attracting oil and gas exploration to its offshore basins better than that of Newfoundland and Labrador.

But Nalcor Energy seems on its way towards levelling the jurisdictions' playing field.

My reasoning for this view stems from the company's mind-reeling revelation that it has discovered three new, potentially hydrocarbon-rich basins off Labrador's coast.

How did this come about? Well, the Newfoundland and Labrador Crown corporation is heavily involved in a number of energy sectors, the two most prominent being hydroelectric development and production in western Labrador and oil and gas exploration on the province's Grand Banks.

The firm, while possessing equity in oilfields about 350 kilometres east of St. John's, has during the past several years been searching for hydrocarbons onshore and offshore.

By February 2011, Nalcor had spent approximately two years and $20 million drilling two exploration wells in western Newfoundland. A third was cancelled because testing of the others proved disappointing.

But the drilling and seismic surveys did provide substantial knowledge about the region, and it will be disappointing if Nalcor gives up completely on that region of the Rock, something I don't think is in the cards.

Western Newfoundland's vast geology—onshore and off—indicates impressive reservoir potential, but the region is woefully underexplored.

Never mind that for now, because some truly ticker-thumping news has come to light about Nalcor's offshore exploration activities.

In its pursuit of making the Rock's already-dynamic petroleum industry much more dynamic, Nalcor, throughout the past few years, spent about $26 million contracting and carrying out myriad projects centred on seismic surveying, core analysis and other facets of exploration within Newfoundland and Labrador waters.

The company has focused primarily on the Labrador Shelf while giving some attention to the Jeanne d'Arc Basin—home to all three of Newfoundland's productive oilfields—and other areas of the province's sea floors.

As a result of Nalcor's hard work, Labrador waters now boast three new, promising basins.

The provincial government and industry have known for some time that the Labrador Shelf holds more than four trillion cubic feet of natural gas.

However, Nalcor's undertakings point to the possibility of the three recently found geological structures containing commercial quantities of crude oil.

"What we found are some very, very, very attractive basins, which the information is telling us are oil-prone, not gas-prone," Nalcor president and chief executive officer (CEO) Ed Martin says. "We can clearly say [the structures] are there, but you're going to have to put a drill bit in to see whether [oil] is there or not. We have identified significant, new prospective basins that are of a size and class that are—and it's an overused term—but they're world-class. If you compare these structures to structures around the world, they're on the large size; on the very large size in some cases."

This, I am convinced, will spur a land-parcel bidding frenzy once the Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB) offers exploration rights on the Shelf.

"It's a game changer," says Bob Cadigan, president of the Newfoundland and Labrador Oil and Gas Industries Association (NOIA). "It quadruples the size of the prospective areas we have offshore."

News of the discoveries has electrified the air throughout the Newfoundland's oilpatch and NOIA member offices.

"I think a lot of our members they're just starting to realize now how much more potential this will give us in the long term," says Cadigan. "So if you think about it, we have three [oilfields], four with Hebron, producing in the Jeanne d'Arc Basin. That's just one basin. We've discovered four new ones off the coast of Labrador, so it's really important."

Two years could pass before the C-NLOPB opens the basins to exploration, yet according to Martin there is no shortage of companies expressing keen interest in the region, including from many that have never operated in the province.

"So far, we've had discussions with numerous oil companies regarding this data, many of whom are not yet active in Newfoundland and Labrador and they have all expressed strong interest in our findings," Martin says.

The three basins, Childley, Henley and Holton, get their names from locations along Labrador's coast.

Another place known as Hawk Basin was already known, but Nalcor's satellite information and seismic data show the geology as being much larger than previously estimated.

Does that classify it as another new basin? Who cares?

The main thing is that the total, massive acreage of these basins—larger than the combined size of those within the North Sea—is frontier material that one day may complement or exceed the Jeanne d'Arc Basin in petroleum production.

I doubt whether Nalcor will drill in any of them. Instead, its game plan aims to draw a maximum number of players to offshore Labrador.

"Our job now is to find as many companies in the world as possible, get this data in their hands," says Martin. "Once they see it, [we will] have scheduled sales so that not only one or two are in bidding, but we hopefully can get eight, 10 or 12 companies bidding on this prospective land."

Drilling, especially in weather and seas as harsh as Labrador's, is quite an expensive proposition.

Pack ice and icebergs are especially prevalent there and can create havoc, thus generating excessive costs, if a drilling project is not prepared and operated properly.

Even when work goes smoothly and calamity is averted investment remains substantial.

This is why Nalcor has gone with gathering information rather than pouring money into exploration wells.

The firm's $20-million experience in western Newfoundland might also have tempered its enthusiasm for drilling and led it to take the tactic of acquiring, assimilating and selling exploratory data.

Nalcor's work includes 2-D seismic, rock physics studies, analysis of seabed cores, tectonic plate movement analysis, mapping of natural oil seeps from seafloors into ocean waters and bio-stratigraphic analysis using trace fossils.

Companies interested in Labrador's basins have to pay Nalcor for information about them, which makes me wonder whether that is an effective stratagem.

A few years ago, Nova Scotia invested $15 million creating a program called Play Fairway Analysis. It offers, cost-free, a wide range of seismic data and other information on all of the province's basins.

Play Fairway's extensive services, available free for the entire world, are credited with enticing BP p.l.c. to commit last fall to spend $1.04 billion exploring four deepwater land parcels covering close to 1,400 square kilometres about 300 kilometres southeast of Halifax.

As well, Shell Canada committed to an expenditure of $31.8 million to acquire four exploration licences. Two are deepwater while the rest are in relatively shallow seas near Sable Island.

And in January 2012, Shell committed to a $970-million work program to acquire for other Nova Scotia offshore blocks. Seismic programs on those are planned for 2014, with drilling possible in 2015.

BP's executive vice-president of exploration called the acquisitions "one of the most promising new deepwater areas to be licensed in recent years," but without the Play Fairway Analysis, Nova Scotia might still be languishing in exploration purgatory.

Nalcor too is on the right track with its exploration objectives, but could complete them faster, more effectively, I believe, by providing free to oil companies the knowledge it has accumulated on all of the Rock's basins.

Of course, more exploration creates greater chances of significant discoveries and developments, and Nalcor—and its Newfoundland political bosses—should do all they can to promote wider exploration throughout all Newfoundland and Labrador waters.

-- Wes Reid

This morning--early this morning--I enjoyed breakfast with Peter Mansbridge, Packers Plus executives Dan Themig and Peter Krabben and three or four hundred industry types at The Westin in downtown Calgary, another in the Speaker Series that Packers Plus has been hosting over the last few years to bring different perspectives on the energy business--and the business of energy in Canada--to its epicentre.

To say that Mansbridge is an icon of Canadian journalism would almost be an understatement. For more than 45 years, the current anchor of the CBC's flagship The National has plied his trade, from the wilds of northern Manitoba to a rooftop at the Vatican, where he anchored The National on the eve of the funeral of Pope John Paul, to Berlin, where he broadcast from in front of the Berlin Wall as it was dismantled by those from the east and the west. In fact, he told his audience, he has broadcast from every continent on earth save Antarctica, and he's working at crossing that off his professional bucket list before he calls it a career.

But today he wasn't broadcasting. He was in Calgary on a private stop, and left at 11 this morning to return to Toronto to anchor this evening's newscast. What he brought were stories--stories of the fall of the Berlin Wall, stories of being mistakenly identified as the president of Poland as he paid private respects as Pope John Paul lay in state in St. Peter's Basilica, stories of meeting and interviewing newly-elected President Barack Obama four years ago, and of being invited to watch Marine One lift off from the lawn of the White House ("It's really neat!" Obama opined to Mansbridge).

But he also brought advice to his audience, advice that he says can only help as the industry struggles to convince Canadians of the importance of access to world markets for its crude oil and natural gas, of the environmental strides the industry has taken since the first draglines bit into the oilsands 45 years ago. To ensure Canadians get it, he say, the industry has to be transparent in all that it does, and from where he sits, the industry is doing that better now than it has done in the past; better, in many cases, than the government itself.

To make his point, Mansbridge related back to Canadian-born director James Cameron's visit to the oil sands in the fall of 2010. Meeting with Cameron on the last day of his tour, in Edmonton, Mansbridge asked the director how it had gone. Cameron was, Mansbridge said, enthusiastic about how he was treated by his industry hosts. "Everything I wanted to see, I saw. Every question I asked, was answered," Mansbridge quoted Cameron.

"His mind was not changed by what he had seen, but his attitude had been," Mansbridge said, and it was the transparency of the industry in telling the director its story, of its successes and failures and ongoing initiatives to improve its environmental footprint, that changed that attitude.

The Canadian oil and gas industry is waist deep in a quagmire of  misinformation that is being circulated about its operations, the latest of which was an overtly one-sided airing of a documentary called Shattered Ground on CBC's The Nature of Things that broke new ground in misrepresenting hydraulic fracturing and its impacts on aquifers and seismic stability.

It is against this opaque tunnel vision that the oil and gas industry in Canada, and governments in oil and gas jurisdictions from Victoria to St. John's, must bring the kind of transparency that Cameron received in the oil sands.

Because of research and development into oilfield enhancement, the old Maxwell House slogan "Good to the Last Drop" is becoming the hydrocarbon sector's mantra, globally.

In Atlantic Canada evidence of this is obvious from the funding being provided to post-secondary institutes by Big Oil in attempting to develop technologies that minimize the costs of maximizing oilfield output capabilities.

Oilfield production enhancement, happening in oilpatches worldwide, could help supersize Atlantic Canada's already sizeable offshore petroleum play.

I wish it were happening at a faster pace and on a grander scale, but who's complaining?

The important thing is that oil and gas firms continue contributing financially to the R&D endeavors of the region's universities and colleges.

These undertakings, while creating incentive to scour, say, Newfoundland and Labrador's Grand Banks for more reservoirs, are leading to oilfields lasting longer.

A substantial percentage of the R&D focuses on fashioning new technologies to reduce expenses associated with offshore exploration, development and production.

This could eventually make feasible the exploitation of myriad offshore hydrocarbon pools resting within the Jeanne d'Arc Basin.

Industry has known for years of their existence, but they remain too small and isolated for development at acceptable profit margins.

The same might be applied to the Labrador Shelf and Nova Scotia's Scotia Shelf and their stores of natural gas.

Off Newfoundland and Labrador, deepwater areas such as the Flemish Pass, the Orphan Basin and the Laurentian Sub-basin may one day offer enormous oilfields. These geological structures might also hold other less substantial reservoirs.

Right now, their distant geographies, harsh climates and many abysses make exploration and development an abysmally expensive proposition.

That could change with increased R&D funding for places like Newfoundland and Labrador's Memorial University (MUN), where future technological developments could lead to increased activity.

Speaking of the Laurentian Sub-basin, it just might be that R&D's technology advances have triggered the latest exploration licence shopping spree in Newfoundland and Labrador.

Shell Canada Limited offered a work commitment of $97 million for five land parcels comprising 13,000 square kilometres in the Laurentian Sub-basin, situated between southern Newfoundland and northern Nova Scotia.

"Right now we are in the early stages and we are going to (do) seismic and other technical work," says Shell spokesman Stephen Doolan. "This will help us determine whether we are looking for oil or gas."

The area potentially contains about one billion barrels of crude and nearly 10 trillion cubic feet of natural gas.

Those figures may be correct. Then again, they may evaporate or rise significantly after sufficient exploration.

A case in point: the original estimate for Hibernia was approximately 300 million barrels of light, sweet, recoverable crude, but that estimate has risen by some 500 per cent since oil was first produced in 1997. Another estimate spike is expected once enhancement technologies are applied to the discovery.

The Canada-Newfloundland and Labrador Offshore Petroleum Board also received a work commitment of some $19.9 million from three companies (Husky Energy, Suncor Energy and Repsol E&P Canada) for a parcel in the Flemish Pass, which may one day prove as lucrative to industry as the Jeanne d'Arc Basin, home to Newfoundland's three producing fields and a fourth, soon to be developed.

Last summer, Statoil announced a 200-million-barrel discovery at its Mizzen property in the Flemish Pass. That's not exactly huge by offshore standards, but to hit a reservoir even that size in an area where very few wells have been drilled is remarkable.

"It's a basin that's had 10 wells, plus or minus," says Bob Cadigan, president of the Newfoundland and Labrador Oil & Gas Industries Association (NOIA). "That's all that's ever been drilled in that basin."

Statoil believes 200 million barrels is just the start, so has decided to delay development until it makes another significant discovery. "Our focus, right now, is to prove up the resource potential in the Flemish Pass Basin by continuing to explore for additional volumes of oil," says Atle Aadland, vice-president of Statoil Canada Offshore. "From 2012 to 2013, we are drilling two new wildcat wells in the area and potentially additional wells in 2014 and beyond."

Could the exploration investments stem from confidence not merely in Atlantic Canada's petroleum potential but in technologies and strategies arising from R&D stimulus?

The latest example of petroleum firm benevolence occurred last October when the Hibernia Management and Development Company Ltd. (HMDC) presented MUN with $11.8 million for research and development, just the latest in a string of recent endowments from the consortium.

In January 2011, HMDC put $2.4 million toward simulation training equipment for the Offshore Safety and Survival Centre (OSSC). Located in Foxtrap, a town about 50 kilometres west of St. John's, the facility is an arm of MUN's Marine Institute.

And in June, it gave the university's Faculty of Education $5 million for training teachers tackling science, technology and engineering in the Kindergarten to grade-12 system.

The latest HMDC gift to MUN will go toward a new laboratory plus research work involving trying to squeeze as many barrels of crude as possible from Hibernia's aging wells.

"What we will do is we will actually run different types of experiments at reservoir conditions," says MUN professor Lesley James, the first person to claim the Chevron Chair in Petroleum Engineering.

The position specifically entails strengthening the capacity for petroleum engineering research in the Faculty of Engineering and Applied Sciences. No conditions were attached to the research funding, but HMDC expects to be the first to get research results.

And so it should.
-- Wes Reid

The race is on.

After much deliberation, the editorial team here at Oilweek has come up with five finalists for selection as Oilweek Producer of the Year for 2012. The five were selected based on their activity over the past year or so in the western Canadian oil and gas sector. Production growth, activity levels and locations and financial performance were all taken into account in arriving at their selection as finalists.

To tell the truth, a solid argument could be made for each of the companies to be selected Producer of the Year. But we're going to let you, our readers, make the final decision. Two voting sites are now open that will determine who will be Oilweek's 2012 Producer of the Year.