Nova Scotia’s offshore oil dream awaits better news
Shell’s decision to seal two exploration wells off Nova Scotia has set back the province’s dream of offshore riches, but analysts say it’s early days in what may prove to be a complex geological hunt.
Wade Locke, a resource economist at Memorial University says Shell’s confirmation this week it’s abandoning the Monterey Jack well, along with news its Cheshire deepwater well did not have commercial quantities of oil, are not confidence boosters.
“It doesn’t look good. That’s not a good sign,” he said in a telephone interview from St. John’s, N.L.
In 2003, optimism abounded that as the plays in shallower waters such as the Sable Offshore Energy Project wound down, the efforts in deeper waters would yield oil and keep royalties flowing and jobs on rigs and research vessels.
The provincial government enthusiastically unveiled a strategy titled “Seizing the Opportunity.”
“New offshore projects would set the stage for new industrial developments, and offer opportunities for exporting the surplus,” it predicted.
But Locke – who has observed the East Coast industry for decades – says much has changed over the past decade, and not for the better in the marginal economics of Nova Scotia’s offshore efforts.
He says higher oil prices are needed to encourage deepwater offshore projects, with longterm prices of $80 to $90 per barrel as a realistic benchmark for offshore developments, rather than current prices of about $55.
The distances from shore of more than 200 kilometres and the technical challenges of drilling in waters over two kilometres deep raise the costs and complexities of the projects as well, he adds.
Shell has an option to drill additional exploration wells in parcels of land it bid on before the Canada-Nova Scotia Offshore Petroleum Board, but has not announced plans yet for further activity.
Locke says that silence is worth noting: “If there was commercial potential, they wouldn’t have stopped (drilling).”
Petroleum geologist Grant Wach, a professor at Dalhousie University, has said the search for oil off Nova Scotia’s deeper waters is in its early days and it’s too soon to judge the fallout from the two sealed wells that have provided data for companies to pore over.
He’s noted that more than two dozen exploration wells were drilled before Hibernia was confirmed as a major discovery on Newfoundland’s Grand Banks.
However, Locke recalled there were major federal incentives in that era and worries about oil security – and the age of concerns about climate change and the imposition of carbon taxes was far in the future.
“We had gone through the oil price crisis of 1973-74, and Newfoundland was a potential source of oil ... and the federal government covered a huge chunk of the drilling costs because we wanted Canada to have a secure supply,” he said.