Geologist says offshore New Brunswick ‘very underexplored’ for oil, gas

Posted May 13, 2011, at 7:47 p.m.

ST. JOHN, New Brunswick — It only took two empty wells before exploration companies abandoned drilling for oil and gas in New Brunswick’s waters 28 years ago, but experts as well as geologists who penned reports on the initial projects agree it was too soon to quit if the province wanted to tap into its offshore potential.

“It’s fair to say with two wells, you’re very, very underexplored,” said Carl Makrides, a geologist and petrophysicist with the Canada-Nova Scotia Offshore Petroleum board. He noted that 127 exploration wells have been drilled off Nova Scotia’s shores since 1967, and 207 wells total.

“Most regions drill a number of wells before they make their first discovery,” Makrides said.

At the end of April, after $15 million of geoscience analysis, Nova Scotia’s energy minister announced that the province’s offshore territory contains three times as much oil and gas as previously thought: 120 trillion cubic feet of natural gas and 8 billion barrels of oil.

This renewed questions about whether a similar discovery could be made off New Brunswick’s shores, which show oil and gas potential, according to seismic data collected in the 1960s and 1970s.

It took Nova Scotia’s explorers 35 wells before they made a commercially viable discovery in 1972 — gas worth the cost of extracting it — in what later would become the Thebaud Gas Field. Since that discovery, a total of five natural gas fields have been discovered off their shores around Sable Island, which are still producing actively to this day.

Nova Scotia’s successes came from years of seismic testing and drilling to determine the conditions under the ocean floor, to see which areas had potential, and to determine whether it was worth the cost to bring the oil and gas to the surface.

“It’s like a jigsaw puzzle you have to put together without having the benefit of the puzzle box,” Makrides said.

After Nova Scotia’s offshore successes in the 1970s, New Brunswick, too, was poised in the hopes of becoming a major offshore oil-producing province 40 years ago. From 1968 to 1973, Mobil Oil Canada Ltd. carried out four seismic reflection surveys in the Bay of Fundy. The company covered an area of 2,710 line kilometers.

Conditions were “favorable,” suggesting the potential for oil and gas, explained Dwight Ball, the president of Three-D GeoConsultants from 1981 to 1995. Ball compiled an extensive historical report on seismic coverage in the province’s waters for the Department of Natural Resources 20 years ago.

The Bay of Fundy is on top of a thick sedimentary column, Ball explained. It also has a thick unit of volcanic material and then below that is a very thick unit of sediments. These sediments in onshore New Brunswick contain hydrocarbon units — the sure sign for oil or gas — and there is a good chance that those hydrocarbon-bearing sediments exist deeper in the Bay of Fundy.

In 1975, based on these positive seismic results, a consortium of companies led by Mobil drilled a deep well in the Bay of Fundy, 50 kilometers southwest from Saint John. The well was named the Mobil-Gulf Chinampas N-37.

Chinampas was dry, failing to yield hydrocarbons. This was common for a first attempt, so in 1983, after more seismic testing, a second well — called Irving-Chevron Cape Spencer No. 1 — was drilled in the Bay of Fundy, this time led by a consortium with Chevron Canada Resources Limited. It was also dry, and this also was not out of the ordinary.

“In a new field that’s pretty much the norm,” Ball said. “Two holes in an area the size of the Bay of Fundy isn’t very much.”

But after 1983, offshore drilling in New Brunswick came to a halt. The licenses issued to Mobil by the Department of Natural Resources were transferred to another consortium, which included Irving Oil Ltd., in 1985. These then were converted to leases, which were issued to Chevron, which they canceled in 1987.

Not a single well has been drilled off New Brunswick’s shores since, nor has there been any industry interest, members of the Department of Natural Resources wrote in an email to the Telegraph-Journal.

“The results from the two exploration wells in the Fundy Basin years ago did not yield anticipated results and this may have impacted other interest in the offshore of the Bay of Fundy,” the department said.

Clint St. Peter, a former hydrocarbon geologist with the department who published several reports on the history of seismic testing a decade ago, said it may have been a mistake to discontinue drilling in the Chinampas well. The Cape Spencer well drilled through any rocks that could have had prospective value, but the earlier well likely could have gone deeper, St. Peter said.

“I suspect that they drilled through sections of rocks that they thought was prospective and didn’t find anything and said ‘well, it seems needless to drill any deeper’,” St. Peter said.

“That might have been a mistake. Who knows, because there’s never been a well drilled any deeper in that area, so who’s to know whether they would have made a discovery there or not.”

Besides drilling deeper, drilling in other areas of the Fundy basin could also prove fruitful, St. Peter said. Particularly, there may be carboniferous rocks in the northeast, under the Mesozoic layer. Similar rocks were found in the Moncton subbasin, an onshore area that has had known hydrocarbons for 150 years and where commercial gas was discovered a decade ago.

But offshore drilling is expensive, requiring more robust equipment the deeper you drill. Workers usually will have to live on the rigs, which jacks up the cost. A deep-water rig could cost more than $150 million, and shallow-water rigs can cost up to $100 million. By comparison, you could drill a well onshore for $1 million, Makrides said.

“It’s an order of magnitude cheaper onshore,” Makrides said. “It’s apples and oranges, really.”

Another impediment to offshore exploration in New Brunswick is the province’s lack of a federal accord. Nova Scotia, Newfoundland and Labrador and Quebec all have accords with the federal government for joint jurisdiction in offshore areas. The Supreme Court of Canada ruled that offshore resources belong to the federal government but all accords now in place give the provinces 100 percent of the benefits.

Premier David Alward has said he will pursue negotiations with the federal government. But until the accord comes to fruition, there can be no exploration in New Brunswick’s waters, even if industry interest piques.

“Today, New Brunswick does not have a joint management agreement in place for the offshore with the Government of Canada,” wrote the Department of Natural Resources. “Even if New Brunswick was approached by a company interested in exploring for oil and natural gas, DNR is not in a position today to issue an exploration or development approval at this time.”

Explorations in the Bay of Fundy would be considered high-risk, and certainly expensive, but as the price of oil increases, the bar for what makes oil and gas commercially viable becomes lower. This may be what piqued interest in the 1970s in the first place, during the “oil crisis,” the department wrote.

The price of oil quadrupled in the mid-1970s to $12 a barrel. On Friday afternoon, the price of Brent crude oil was trading around $114 a barrel.

“I know that some companies are willing to take very high risks depending on the price of oil and natural gas and what the future looks like,” St. Peter said.

The price of oil is probably the single biggest variable in determining the commercial value of extracting offshore oil and gas, Makrides agreed. In fact, Nova Scotia’s board is undertaking a geological study to determine whether undeveloped wells deemed not worth the risk in the past are more commercially viable now given today’s prices.

At the end of January, the price of Brent went over $100 a barrel for the first since 2008, on concerns about political unrest in Egypt, and prices have remained high, although volatile, since.

“Look at what’s happened to oil in the past year,” Makrides said. “Things can change very fast.”

Just because the only two wells ever drilled offshore from New Brunswick were dry doesn’t mean the area lacks potential, St. Peter said. After all, the seismic data from the 1970s suggested enough potential for two companies to drill below the ocean floor.

“It’s deep. It’s in the offshore. And it’s fairly high-risk. They drilled two holes there in the bay without discovery. So it makes expiration companies a little bit gun-shy,” St. Peter said. “But who knows what the future may bring?”

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