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Petroleum News: Newfoundland at a crossroads

Invites bids on 11 parcels in three regions in attempt to stir fresh interest in a region looking for first discovery in two decades
Gary Park
For Petroleum News
Newfoundland has decided to go big in hopes of breathing new life into an offshore that has failed to notch a commercial discovery in more than two decades, has posted only seven exploratory wells (all of them dry) in the past six years and generated barely C$40 million in successful bids at its latest land sale.
The Canada-Newfoundland and Labrador Offshore Petroleum Board has outlined the conditions of three separate Calls for Bids this year, representing the third-largest auction of offshore drilling rights in its history.
Included in the plans are 11 parcels covering 4.23 million acres of oil and natural gas exploration properties.
Three are in the well-established Jeanne d’Arc basin, home of Newfoundland’s three producing oil fields — Hibernia, Terra Nova and White Rose.
Of the rest, three parcels are in the Sydney basin and five are in the Western Newfoundland and Labrador offshore — two emerging prospects that hold the key to the province’s future as a hydrocarbon region.
Special interest will be paid to the Sydney basin, which accounts for 45 percent of the total acreage up for bids.
It is making its debut following the 2002 resolution of a 38-year offshore boundary dispute between Newfoundland and Nova Scotia, which saw arbitrators award 78.5 percent of the 15,000 square mile Laurentian sub-basin to Newfoundland.
What the Newfoundland government and industry need is a strong response to the Calls for Bids by the Nov. 15 deadline to reverse a drift that has badly dented the once unlimited optimism in the offshore, where C$18.65 billion has been invested in exploration over the past 30 years.
Five wells expected in Orphan
Recent years have been like a cold shower for Newfoundland other than a late 2003 Call for Bids that generated a startling C$673 million for eight parcels spread over 5.3 million acres — all of them in the Orphan basin, where only six wells have been drilled.
Those parcels were taken by the same ownership — Chevron Canada Resources, ExxonMobil Canada and Imperial Oil, although Shell Canada has since entered the partnership with a 20 percent stake, leaving Chevron with 50 percent and ExxonMobil and Imperial with 15 percent each.
Most of the plays in the basin are 6,500 feet to 9,800 feet, 25 to 35 times deeper than Jeanne d’Arc plays.
The consortium conducted two 3-D seismic programs over the past two summers and has signed a two-year contract with Ocean Rig to start exploratory drilling this year.
At C$100 million per well, it is widely expected that five wells will be completed over the contract term — a high-stakes gamble to test the belief that the Orphan basin has at least four oil pools each larger than Hibernia’s 884 million barrels.
Now the Sydney basin could bring another element to Newfoundland’s hydrocarbon potential.
To date the industry has barely scratched the surface of the prospect, logging two offshore wells and gathering about 1,000 miles of 2-D seismic from 1981 and 1983.
What the province needs is a strong response to achieve a turnaround in its most recent land sale when just under C$40 million was bid for five parcels representing 1.05 million acres.
The most notable acquisition was made by Husky Energy, which bid C$35 million for a 5,325 acre parcel close to the Terra Nova field.
The outcome, along with moves by several majors to cut exploration spending and either sell or trade exploration licenses, was a setback in an 18-year history of land sales that have posted C$1.7 billion in bids for 26.6 million acres.
But many industry experts shrug off the discouraging record, arguing that the knowledge of the region’s geology is still limited.
To date, they point out, only 350 wells have been drilled offshore Newfoundland and Nova Scotia compared with more than 15,000 in the Gulf of Mexico, partly reflecting the cost discrepancies between the two basins.
Pierre Alvarez, president of the Canadian Association of Petroleum Producers, has said the key to a breakthrough is to raise the number of wells to 10 to 15 per year.
Steven Paget, an analyst with FirstEnergy Capital, is confident that advances in offshore geology and the closeness of Canada’s East Coast to key U.S. markets, will ensure that exploration continues.
But the outlook for the next two or three years is tied in part to the number of companies willing to submit minimum bids of C$1 million for parcels in the Jeanne d’Arc and Sydney basins and C$250,000 for Western Newfoundland and Labrador.
Subject to government approval, successful bidders receive an exploration license for a term of nine years, but must drill a well within four years to validate the full term of the license.

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