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Nexen, Shell primed for deepwater drilling


Shawn McCarthy — Global Energy Reporter

Ottawa— From Wednesday’s Globe and Mail

Calgary-based Nexen Inc. and its partner Royal Dutch Shell PLC are trumpeting a major oil find in the Gulf of Mexico, a discovery that will serve as a test of feared regulatory gridlock in the prolific oil-producing region.

Nexen said late Monday that the Appomattox field contains some 250 million barrels of oil equivalent, making it one of the larger discoveries in the Gulf of Mexico in recent years. Royal Dutch Shell executives said Tuesday that, with the 250-million-barrel Appomattox discovery, the company has added about 500 million barrels of oil to its Gulf of Mexico resource base in the past two years.

Despite a promised regulatory clampdown on safety measures in the Gulf, the companies said they are confident they will soon be able to resume drilling on the recent offshore discoveries, including the prolific Appomattox field.

The companies are waiting on word from the U.S. government on when it will end the moratorium on deepwater drilling so they can begin to appraise and develop the properties. Nexen owns 20 per cent of the deepwater Appomattox play, while Shell has 80 per cent and is the field operator.

“We do plan to follow up with appraisal drilling but obviously, it will be after the moratorium,” Nexen spokesman Tim Chatten said Tuesday. “Both Nexen and the operator Shell are pretty excited about this and it’s a high priority when we’re able to drill there again.”

Industry associations warn that new regulations being planned by the Obama administration could delay the resumption of drilling, and result in higher costs that would discourage investment. But Mr. Chatten said Nexen and Shell remain confident that they’ll be quickly back in business once the moratorium is lifting, a move that is expected next month.

“From what we’ve heard so far, we’re not overly concerned in terms of our ability to continue operations in the Gulf, either for us or for our partners Shell. … We’ve always targeted best practices so I don’t think that it will change our ability to operate there.”

In a statement Tuesday, Shell said the outlook for deepwater drilling off North America “remains positive, despite the current drilling moratorium in the Gulf of Mexico.”

The global oil giant expects to increase its production in the Gulf to more than 250,000 barrels of oil equivalent, including its share of output from the Perdido project, the world’s deepest offshore drilling and production platform, which began pumping crude last March.

The companies first announced a major discovery at Appomattox last spring, after an exploration well was drilled in 2,200 metres of water to a total depth of 7,600 metres. (The ill-fated BP Macondo well was in 1500 metres of water, with a total depth of 5,200 metres.)

But the planned drilling program was halted after the government imposed its moratorium following the BP explosion. And analysts sounded a note of caution about the industry’s future in the Gulf.

“While this is another data point on the company’s strong track record of recent exploration success, we would note that the current political environment surrounding the Gulf of Mexico could have an impact on the market’s willingness to assign full value to the discovery,” Andrew Potter, analyst with CIBC World Markets Inc., said in a note.

The U.S. Department of Interior is expected to announced planned new offshore drilling regulations this week, a move that would pave the way for Interior Secretary Ken Salazar to announce an end to the moratorium. But industry and government officials expect a delay in drilling activity as companies move to comply with the new regulations and certify with the government that they have done so. And it will take time to clarify the details of the regulations and whether the federal Bureau of Ocean Energy Management, Regulation and Enforcement will have adequate resources to provide quick action on permits.

“I think this is going to take quite some time to work through a series of new regulations and expectations about how to move forward,” said Whitney Stanco, Washington-based analyst with Concept Capital.


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