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ExxonMobil announced it will not extend the life of its Sable Offshore Energy Project. (CBC)

Nova Scotia's offshore natural gas industry received a blow Thursday when ExxonMobil announced it will not extend the life of its Sable Offshore Energy Project.

The company made its decision after evaluating significant untapped discoveries in the Sable Basin.

In March, ExxonMobil applied to conduct seismic testing to explore two previously identified gas fields under the seabed east of Sable Island.

The decision not to proceed was based on "project economics," ExxonMobil spokesperson Merle MacIsaac said Thursday.

The end of the line for Sable, which has a life expectancy of about 25 years, is bad news for the Nova Scotia government.

The project has generated $1.3 billion in royalties since production began in 1999.

"Its discouraging. This is a real problem," said Paul McEachern, managing director of the Nova Scotia Offshore/Onshore Technologies Association, a trade group for the oil and gas industry.

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The Canada-Nova Scotia Offshore Petroleum Board said there were no takers when it put two parcels of land up for bid in the Sable Basin. (www.cnsopb.ns.ca)

"We were informed by ExxonMobil today. They've told us they can't proceed with it because the price of gas is at a record low. They tell us they are looking for a third party to help them develop these fields, but the economics are not there."

Natural gas prices have plummeted in recent months. Futures for August delivery declined 17 cents, or 3.6 per cent, to $4.40 per million British thermal units on Thursday. It was the lowest close for natural gas since June 1.

News of Exxon's decision came just hours after the Canada-Nova Scotia Offshore Petroleum Board announced that there were no takers when it put two parcels of land up for bid in shallow waters within the Sable Basin.

MacIsaac said the two events "are not unrelated, but this was the result of a separate exercise where we evaluated the significant discovery licences in the area."

Nova Scotia's only other natural gas project is slated to come online in early 2011. EnCana will produce natural gas from the Deep Panuke field, located about 250 kilometres southeast of Halifax on the Scotian shelf.