Oil companies warm to Canada’s chilly waters

By Emily Pickrell
For the Houston Chronicle

Eastern Canadian provinces are promoting their cold offshore waters as a hot opportunity for finding new offshore oil plays.

One company that knows something about icy, remote waters — Norway’s Statoil — already has placed a multibillion-dollar bet on the Flemish Bay Basin off Newfoundland and Labrador.

After two intriguing but commercially nonviable finds, its investment paid off with one of the world’s largest oil discoveries of 2013 in the Bay du Nord — a gigantic reservoir estimated to hold up to 600 million barrels of recoverable oil.

Statoil now includes Newfoundland and Labrador among its key global exploration sites, and it has announced plans to begin more expansive drilling in the Bay du Nord to determine the potential of the reservoir.

As competition for new offshore discoveries intensifies, other companies also are taking a fresh look at the waters off Newfoundland and Labrador and neighboring Nova Scotia.

BP and Shell are investing billions in Nova Scotia, snatching up blocks auctioned in 2012 and undertaking comprehensive 3-D seismic programs over thousands of acres to identify potential drilling opportunities.

“What the eastern Canada find showed is that there are still places where you could make big finds that were not on people’s radar screen,” said Amy Myers Jaffe, executive director for energy and sustainability at the University of California, Davis. “Eastern Canada is like North American shale — it is located someplace where it is easily accessible to nearby markets where the oil can be refined and used.”

Representatives of Canada’s government and industry have booths at this week’s Offshore Technology Conference in Houston, hoping to pique more companies’ interests in Canadian oil and gas exploration. Provincial officials from Nova Scotia and Newfoundland and Labrador hosted news conferences Tuesday to discuss opportunities there.

Oil companies weigh a broad range of potential risks in deciding where to explore – geological uncertainty, technical challenges posed by deep water or icy conditions, political instability in some regions, and regulatory concerns.

Stability and proximity

As political turmoil has dampened the go-go approach toward some oil-rich regions including Libya and Russia, the stability and proximity of offshore Canada have become more alluring, despite the challenging sea conditions and relatively unknown subsurface geology.

“Canada is a stable country to invest in, with a government that is open to investment,” said Anita Perry, a spokeswoman for BP Canada.

“When an exploration team takes an interest, it is always about the rocks, above all else. But when we decide to go somewhere, one of the questions is, what are the regulations like? In Nova Scotia, they have set good and clear regulations that we felt we could work with.”

Seismic research

The provinces own the rights to offshore resources, so their governments have a strong incentive for promoting them.

To help garner more interest, Nova Scotia’s government invested in seismic research covering 70,000 square miles of its offshore waters. It then made the results publicly available in hopes of starting a geological knowledge base that one day could compare with the extensive understanding of Gulf of Mexico geology.

“We have concluded that taking public money and putting it into targeted research, designed to address some of these geoscience uncertainties, is good public policy,” said Sandy McMullin, executive director of the Petroleum Resources Branch for the Nova Scotia Department of Energy, saying that the province has plans for further seismic research.

And in 2011, the Newfoundland government spent two years and $30 million conducting one of the world’s largest seismic surveys, spanning thousands of miles.

Helped with decision

Shell says the data and analysis in Nova Scotia’s seismic study informed its moves toward multibillion-dollar exploration commitments.

“It gave us real baseline information to make that decision,” said Larry Lalonde, a spokesman for Shell Canada, noting that while Shell has worked in Eastern Canada since the 1960s, receiving initial seismic data highlighted the potential of Nova Scotia’s waters.

“Because they did the work and did a package that people could look at, it encouraged us to look further,” he said.

The seismic research attempts to bring new data to theories about the oil-bearing quality of the sediment in the deeper waters, said Jim Keating, vice president of oil and gas for Nalcor, Newfoundland and Labrador’s state-owned energy corporation.

Keating hopes it also will help bring in new players for the region’s upcoming auction later this year, leveraging the success of the Statoil find.

The provincial governments also have key regulatory roles, and Canada’s Responsible Development Act is designed to ensure its federal government doesn’t duplicate the local oversight.

“The whole intent of the Responsible Development Act is to ensure the protection of our environment, as well as helping our projects to go through a streamlined regulatory process,” said Paula Caldwell, the Canadian consul general in Dallas. “It does not mean regulatory shortcuts. It just means that you don’t have duplications between federal and provincial regulations.”

Also helping make eastern Canadian exploration more viable are technological advances including new ice management systems to keep icebergs from damaging underwater facilities.

Expansion not assured

While Statoil says the stable regulatory environment and professional approach of Newfoundland and Labrador make it attractive, its interest in the Flemish Pass Basin does not necessarily mean a broader expansion into other eastern Canadian waters.

“We prioritize basins on a global scale,” said Jez Averty, Statoil’s senior vice president of exploration, North America.

“We rank all our basins across the globe, and we select where we will invest based on that rating.”