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Analyst: Nova Scotia offshore just one of Shell’s interests

January 29, 2012 – 4:35am By JOANN ALBERSTAT Business Reporter

Shell’s renewed interest in offshore Nova Scotia is part of a plan to expand its exploration efforts globally, an industry analyst says.

Mark Gilman, an oil and gas analyst with the Benchmark Co., said the petroleum giant has been on a lease-buying spree over the last year or two after previous projects failed to produce results.

“One might call it an accelerated upstream reinvestment drive after a period in which their upstream results had delivered somewhat less than they might have hoped,” he said in an interview earlier this week from New York.

Royal Dutch Shell has also invested more in new technology as part of its strategy to meet growth targets, Gilman added.

Canadian subsidiary Shell Canada plans to spend $970 million on deepwater drilling in Nova Scotia’s offshore over the next several years.

The Calgary-based company is leasing four parcels on the Scotian Margin, a largely unexplored area 200 kilometres southwest of Halifax.

Shell has said it hopes to begin 3-D seismic surveys next year and could start drilling as early as 2014.

Gilman said the company, which abandoned a previous exploration program here seven years ago, must have reason to believe there’s a significant new oil source to be found.

“Post-2004, the industry had taken a fairly jaundiced view as to potentially significant future opportunities (in) offshore Nova Scotia,” the analyst said.

But a new study on the province’s offshore oil and gas potential could help breathe new life into the offshore sector.

The $15-million report, called the Play Fairway Analysis, was funded by the province and made public in June.

The analysis estimates offshore reserves at 120 trillion cubic feet of natural gas and eight billion barrels of oil — three times the previous estimate.

The four parcels acquired by Shell were identified in the study as having significant oil reserves. But so do four other blocks that were available but which received no bids.

Gilman called the latest Nova Scotia leases “not insignificant” but noted that Shell’s organic capital spending worldwide is almost $30 billion annually.

Analysts have said the price paid by Shell is the second-highest amount the company has ever paid for offshore blocks.

The highest amount was $2.5 billion, which the company paid in 2007 for six leases in Alaska’s Chukchi Sea.

Shell is slated to begin an Arctic exploration program this summer, according to the website for its U.S. subsidiary.

The two-year project, which also includes drilling in the Beaufort Sea, was slated to begin in 2010. But permitting was delayed when the U.S. regulator suspended exploration drilling in the wake of the BP spill in the Gulf of Mexico that year.

Meanwhile, it’s no surprise that Shell is also back in offshore Nova Scotia, a Calgary energy consultant says.

“With the sustained high oil prices, that’s causing a review of existing opportunities around the world,” said Paul Ziff, chief executive officer of Ziff Energy Group.

“There certainly has been a strong interest in offshore regions of all sorts of countries, particularly deepwater.”

Ziff, whose company has industry clients around the world, said the supermajors are increasingly being shut out of exploration by national oil companies, which now control three-quarters of the world’s reserves.

“The supermajors need to have a world portfolio that they can continually assess and select from among.”

Another industry trend is more focus on politically stable countries, rather than new opportunities in the Middle East or developing countries.

Technological advances may also boost the company’s chances this time, Ziff added.

“What is visible now is considerably enhanced from the technology of a decade ago. That allows either the existing theories to be revisited, or other carbon theories to be conceived.”

Another industry observer says he expects Shell will drill five exploratory wells here.

Other insiders have estimated the number could be twice that high.

Ian Doig, publisher of Calgary-based energy newsletter Doig’s Digest, said he bases his prediction on an estimated cost of $150 million per well.

“They’ve bought into the story and must have checked it out on their own,” he said of Shell’s plan following on the heels of the study’s release.

Doig said Shell will put three wells on the largest parcel and one each on two others, with the remaining lease used for the seismic surveys.

( [email protected])

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