June 1999


Bidding off Nova Scotia; Terra Nova activity; Ecuador seeking investors

June 1999 Vol. 220 No. 6 

Kurt S. Abraham, 
International Editor  

Nova Scotia’s latest bidding round sets a record

Looking beyond short-term oil prices, operators have bid a record amount of money for 22 exploration tracts in Nova Scotia. The Canadian province closed its latest bidding round on April 29, 1999, and winners were announced the following week in Houston, at the Offshore Technology Conference. For rights to 19 offshore blocks, companies bid a record C$592 million. In addition, three onshore tracts were awarded for C$9.8 million.

"This is the start of a new era," said provincial Premier Russell MacLellan, who led the Nova Scotian delegation to Houston and personally announced the winners. "It shows that the petroleum sector has confidence that Sable (Island) is just the beginning of Nova Scotia’s vast oil and gas potential." The Canada-Nova Scotia Offshore Petroleum Board oversees bidding on offshore leases, which are good for five to nine years. The Nova Scotia Petroleum Directorate handles bidding for onshore leases, which are valid for three years.

Within the latest round is the single largest bid in Nova Scotian history. A partnership of PanCanadian Petroleum, Marathon Canada, Murphy Oil Canada and Norsk Hydro Canada Oil and Gas bid more than C$93 million for Parcel 11, due south of the Sable Island area (see map). The second-largest award, totaling C$71.6 million, was made to PanCanadian, Marathon and Murphy for Parcel 10, immediately adjacent to the northwestern portion of Parcel 11. In addition, Imperial Oil successfully bid C$71.1 million for Parcel 12, adjacent to the southwestern side of Parcel 11.

Nova Scotia Map

The awarding of 19 licenses represents the largest offshore exploration investment in Nova Scotia’s history.

Four new companies — Murphy Oil, Richland Minerals, Canadian 88 Resources and Corridor Resources — will participate in exploration offshore. Meanwhile, onshore activity is set to increase with the award of exploration rights to Hunt Oil and Northstar Energy.

Newfoundland is also upbeat. Preceding MacLellan’s announcement was a presentation by Brian Tobin, premier of the province of Newfoundland and Labrador. In assessing current activity within the province, Tobin happily noted that oil production from Hibernia field offshore Newfoundland is expected to total about 40 million bbl during 1999, or an average 110,000 bpd. Present output is 100,000 bopd, with a rise to 135,000 bopd set to begin shortly. A further increase to 180,000 bopd also is planned.

Meanwhile, Newfoundland’s next producing oil field, Terra Nova, "remains on schedule and on budget," said Tobin. "Construction of the FPSO hull is progressing well . . . (and the vessel) should be installed at Terra Nova in August 2000. First oil is slated for December 2000 at 115,000 bpd, eventually rising to 125,000 bpd."

Tobin is excited about further potential in Jeanne d’Arc basin, home to Hibernia and Terra Nova. Regulators estimate that up to 5 billion bbl of oil and 50 Tcf of natural gas may remain to be discovered. Additional discoveries of 100 million bbl of oil or more, apiece, are possible. Finding costs are said to be $1.25/bbl. The Canada-Newfoundland Offshore Petroleum Board has issued a 1999 call for bids on 10 parcels covering 1.3 million hectares.

Ecuador looks for investors. A high-powered delegation from Ecuador also descended on OTC to lure additional upstream business. Officials included the country’s president, Jamil Mahaud Witt (who assumed office in August 1998), Energy & Mines Minister Rene Ortiz and Petroecuador President Jorge Pareja. President Mahaud told a crowd of more than 600 that Ecuador is saddled with the worst financial combination possible — "the lowest GDP in Latin America and also the highest inflation." Yet, he noted, the country is blessed with many natural resources.

To make the business climate more palatable to foreign firms, Mahaud has begun by straightening out the government. "We decided that we wanted to bring a new way of thinking to government. We now have a working relationship with our congress. In addition, I instituted three new rules. First, we want to have a very honest government. It is time to put ethics into it. Second, we want to respect the environment. And third, we will try all ways possible to open up our economy and encourage investment."

To expand production to 605,000 bopd by 2002 and 700,000 bopd shortly thereafter, Petroecuador is offering five existing oil fields for joint ventures — Shushufindi, Sacha, Libertador, Auca and Cononaco. However, Dr. Pareja said this will require additional investments totaling $4.5 billion over the next five years. He said that Ecuador’s average daily production cost is $2.07/bbl, and the recovery rate has only been about 20% so far. WO

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