A new lease on life in Nova Scotia25 October 2018
Offshore exploration and subsea production is a major topic, with operations getting under way in hot spots around the world. As the industry seeks new cost-efficient reserves, the economic benefits are pushing many regions to attract the gaze of energy majors. Jim Banks speaks to Sandy MacMullin of the Nova Scotia Department of Energy and Mines about the prospects on Canada’s eastern shoreline.
Around the world, many contracts for offshore exploration and subsea production are currently being awarded, and there is intense competition among the different regions to attract energy majors with the promise of new production potential. Norway has awarded 78 contracts for exploration in the North Sea, Brazil is conducting a round of auctions for offshore discoveries, and Guyana’s offshore assets are being split and sold. The area around eastern Canada – Nova Scotia and Newfoundland – has also attracted attention with the promise of plentiful deposits.
For Nova Scotia in particular, an analysis of seismic data and information generated by previous exploration efforts off the coast suggests great potential, and there is keen interest in what happens with BP’s current well. Earlier this year, BP received approval from the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB) to drill a deepwater exploration well – Aspy D-11 – on its exploration license.
“For offshore Nova Scotia, there is eight billion barrels of oil potential and 120 trillion cubic feet of gas potential,” says Sandy MacMullin, executive director of the petroleum branch at the Nova Scotia Department of Energy and Mines. “Upon completion of its current well, any successful announcement by BP would draw the eyes of the world to Nova Scotia.” MacMullin leads the region’s efforts to identify and market investment opportunities to oil and gas companies. His team coordinates the ongoing programme of geoscience research work to investigate areas of risk, as well as highimpact and quick turnaround items, and oversees the gathering of deep-sea core samples to analyse them for hydrocarbons. He also works on the development of policy and regulations.
“We have made use of the data and refined our work, though there are still some interpretive ambiguities,” he explains. “We have had to extrapolate shallower water interpretations into most of our deepwater areas. With the recent Shell wide azimuth seismic data, and the Monterey Jack and Cheshire deepwater wells, we are able to analyse and update deepwater interpretations for oil and gas potential. This is a competitive market. A decade ago, we felt we were competing with Norway and the Gulf of Mexico. We now realise that every region has different fiscal, geological and political risk.”
Last year, Shell announced that it would close operations at the Monterey Jack exploration well, and that deepwater wells did not discover commercial quantities of hydrocarbons. However, MacMullin’s team is keen to build on the history of the region, which proved successful in the shallower waters around Sable Island.
“There is nothing like the prospect of being hanged in the morning to focus your mind,” says MacMullin. “A decade ago, we were losing interest in offshore exploration, while seeing huge revenues for the Sable Offshire Energy Project (SOEP), a project that we knew would not last forever. As offshore royalty dollars flooded Nova Scotia, we knew the renewal of development would prove successful. We decided to validate whether Nova Scotia is a significant place of interest to the industry. Big oil saw us as a high risk, but we were fiscally stable. “An expert assessed the existing data and helped identify more geoscience. He told us we had a wealth of data that we could readily analyse to the standard Shell or BP upkeep internally,” says Macmullin.
Decades in development
“Our first offshore activities were in 1959, but we actually did not drill until about 1967, when Mobil Oil drilled the first well on Sable Island,” explains MacMullin. “The very first offshore discovery was made in 1969 by Shell Canada with the Onondaga offshore well. It was between 1992–99 that we had the first offshore project in Canada, which proved that production was possible year-round in the harsh North Atlantic.”
During the aforementioned decades, the six gas fields at SOEP were discovered. For a period in the 1980s, Mobil was pegged to develop the Venture gas field by itself. The project was deemed non-economic due to falling prices, but interest would rekindle throughout the decade. The SOEP would ultimately lead to the development of a domestic gas market for the first time in Nova Scotia. At the end of the 1990s, energy majors had made commitments to invest $600 million to explore 19 offshore parcels. “A little over ten years ago, we looked at falling natural gas prices, which were due to advances in fracturing technology, and we could not compete with the Marcellus shale gas for the New England market. We were faced with the prospect of Nova Scotia being gas prone and unable to compete.
“Between 2009–11, we spent $15 million on the Play Fairway Analysis project with a look to evaluate oil potential, especially in deepwater areas. We released our analytical data to the public in early 2011.” MacMullin explains. “Subsequently, Shell announced a $970-million exploration commitment for four parcels. BP followed with a bid of more than $1 billion for another four parcels. Now, BP is drilling its first well after extensive 3D seismic analysis.
“An important factor is that we have built a brand for geoscience work sourced out of Nova Scotia,” he adds. “It is peer reviewed, and we always flag the soft spots in the data and interpretations. We’ve taken an all-encompassing approach, covering all aspects of the petroleum systems of offshore Nova Scotia. By releasing our analysis for free, the industry also gains an independent check on its work.”
A friendly environment for E&P
As companies risk the harsh waters of the North Atlantic, MacMullin has been working to ensure that Nova Scotia is a hospitable environment for E&P activity. An important element of his work is to help guide regulation and policy improvements, and remove regulatory uncertainty.
“We can have some control over regulatory risk and we need that process to be as efficient as possible, with no unnecessary delays in regulatory ruling,” he says. “In Nova Scotia, and in Canada as a whole, there are many groups that are concerned about spills and other issues concerning exploration and production, as well as First Nation consultation, so we need to take a look at those concerns, despite geological risk being our main focus.”
The Frontier and Offshore Regulatory Renewal Initiative (FORRI) is a federalprovincial partnership working to modernise the regulatory framework for oil and gas activities in Canada. It is currently focusing on the development of a modern suite of operational requirements, known as the Framework Regulations. FORRI is a partnership between Natural Resources Canada, Indigenous and Northern Affairs Canada, the Nova Scotia Department of Energy and the Newfoundland and Labrador Department of Natural Resources, with involvement from the Canada-Nova Scotia Offshore Petroleum Board, the Canada- Newfoundland and Labrador Offshore Petroleum Board, and the National Energy Board.
“We need to remain vigilant on the regulatory side. Nova Scotia sets the regulations with the national government, so we work closely with Ottawa. FORRI is enabling the industry to take advantage of new technologies but we do still have some concerns about the environmental approval side. The government has moved to make that more efficient, but the new approach is yet to be tested. We have had a recent case in which a BP well went through three years of approval before receiving a regulatory ruling. We currently have a nineyear exploration licence,” says MacMullin. The new process is expected to reduce unnecessary delays. An efficient regulatory environment is essential if a region with a small population and high levels of debt is to benefit from the royalties that will accrue from successful production activities.
“Nova Scotia’s debt is about $16 billion – that is $16,000 for every person in the region. One 2Tcf gas project generated $2 billion in royalties alone, so three separate governments – Conservative, Liberal and one New Democratic Party – have all seen the value in offshore since 2008,” MacMullin remarks.
“Even in an era of climate change, oil and gas cannot go away overnight. Whether it is energy, fertilisers, plastic or any other product from the industry, we need to fuel the economy that fosters energy innovation. Competition fires innovation, so we need a marriage between oil and gas, and energy efficiency going forward,” he adds.
There is a similar story in Newfoundland, where the offshore oil industry has made significant contributions to the provincial economy. This is partly why Newfoundland recently unveiled plans to double oil production by 2030, with a target of 100 new exploration wells, a review of regulations, enhanced seismic data and advance cost-saving tie-back technology to extract more from existing sites.
For Nova Scotia, much depends on the success of BP’s latest well. Whatever happens, it will be a signpost for how MacMullin and his team will approach the next milestone in the development of the region’s offshore industry, on a journey that he has always tried to ensure is grounded in fact rather than aspiration.
“The well could be the biggest thing in 2018,” he stresses. “It could find nothing, it could be technically successful but not economic, or it could turn out to be economically viable. We can learn from any of those scenarios in terms of what to do with more geoscience research as we gather more data. If BP announces a successful well, then we can still look at how to further derisk source presence. We are constantly refining our knowledge.”
“We always try to be diligent in our approach to geoscience, and an important part of that is testing new ideas with the private sector, so that we are grounded in our thinking. All of our analytical data will eventually enter the public domain. Then it can be analysed in any way that potential investors choose, and help an energy major to attract partners for a project,” he adds. “We have seen it work, and will continue to perform high-valued, low-cost and efficient geoscience research for the foreseeable future.”