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Canada: N.S. offshore energy suffers setback

Nova Scotia's sluggish offshore energy sector has suffered another setback as several major energy companies have opted out of plans to spend up to $275-million on exploration.

Companies that included ExxonMobil Canada Ltd., Shell Canada Ltd. and Kerr McGee Offshore Canada Ltd. allowed a dozen offshore exploration licences to expire last week.

The exploration permits were issued in 1999 as part of a record $592.5-million licence sale as companies were flocking to the waters off Nova Scotia while the massive Sable natural gas project was being completed.

Last week's decision by these major producers is significant because it highlights the dimming prospects for a major oil or natural gas discovery off the East Coast. The companies had five years to look at the data, and have now decided not to drill after a round of exploration that officials hoped would yield the next big discovery.

Except for EnCana Corp.'s Deep Panuke natural gas discovery, the exploration work has had disappointing results, and major energy players are shifting their efforts to the waters off Brazil or West Africa, where there have been promising finds recently.

At the same time, Marathon Oil Corp. is planning on drilling a major well in deep water off Nova Scotia this summer and Canadian Superior Energy Inc. is also planning more gas exploration near Sable Island.

“There was all that land went out [for licensing] and not much was drilled on,” Calgary offshore energy analyst Ian Doig said in an interview.

“Companies are giving up and leaving because they're frustrated with the politics and the regulatory system, but all that would be minimized if someone made a major discovery,” Mr. Doig said. “There hasn't been a land sale there this year because there is no interest. There is a winding-down process under way.”

Allan Jeffers, spokesman for ExxonMobil Canada in Halifax, said the company drilled two offshore wells in recent years that didn't yield commercial amounts of petroleum and is now involved with a third offshore exploration project.

He said the firm, which had held licences for $121-million of exploration work on five offshore blocks, evaluated the sites and then decided not to proceed with drilling.

Each firm took the licences out in 1999 by depositing 25 per cent of the proposed expenditure with the Canada-Nova Scotia Offshore Petroleum Board. After five years, they have decided not to drill.

Barbara Pike, spokeswoman for the Canada-Nova Scotia Offshore Petroleum Board, said the organization is now calculating how much the oil companies spent evaluating the sites.

“There have been millions of dollars spent on these licences, and that is without drilling a well,” she said, adding that a great deal of seismic testing and data acquisition was done.

She noted there are still 43 active exploration licences off Nova Scotia to do about $1.2-billion worth of exploration work.

Ms. Pike said that the expiration of the licences is just “a normal part of business” for the regulatory board.

“You have an exploration licence issued for a certain period of time and operators acquire the data they're looking for and they continue to evaluate it.

“The land reverts back to the Crown and the cycle begins all over again.”

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