Shell abandons dry oil well off Nova Scotia's coast
Cheshire well abandoned after failing to find commercial quantities of oil
The huge cost of exploring oil and gas off Nova Scotia was made clear yet again Wednesday by one of the partners in the Cheshire well that was abandoned earlier this month by lead operator Shell Canada.
Suncor said it will write off $105 million in the third quarter — its 20 per cent share of the costs of drilling the "non-commercial" Cheshire well 250 kilometres off Nova Scotia.
By extrapolation that would put the total cost of the well at $525-million. Shell Canada is the lead partner with 50 per cent ownership. ConocoPhillips owns 30 per cent.
When asked for its costs, Shell Canada would not say what it spent on Cheshire, except that the $525-million extrapolation is "inaccurate."
"The joint venture agreement in place for Shelburne involves more than just the ownership percentages so the calculation isn't that straightforward," spokesman Cameron Yost said in an email statement Wednesday evening.
"However, for competitive reasons, we don't provide cost breakdowns for the individual elements of the campaign or details on our commercial agreements."
In a release Wednesday, Suncor said Shell had informed it its drilling was complete and the exploratory well was not commercial.
"As a result, in the third quarter of 2016 Suncor will write off its share of the cost of the well which, under the commercial terms of Suncor's farm-in agreement, is expected to be approximately $105 million (after-tax)," Suncor said in a release.
Drilling at the deep water well was halted for months earlier this year after a key piece of equipment broke off and fell to the ocean floor in a winter storm.
The March 5 incident occurred after the drill ship Stena IceMax had disconnected from the well because of bad weather. Shell had neared its targeted depth of 7,532 metres when it ceased drilling and sealed Cheshire.
Too early to be discouraged
Shell's abandonment was first reported last week by the business website AllNovaScotia.com, which is how Nova Scotia Minister of Energy Michel Samson found out about it.
After Shell Canada responded to media inquires Wednesday, Grant Wach, a petroleum geologist at Dalhousie University, told the Canadian Press it's too early to be discouraged by the abandoning of one well in the early stages of exploring the deep waters off the Scotian shelf.
"It probably took 30 wells to find the [Newfoundland] Grand Banks discovery. One well in a completely unexplored basin, that's why you're drilling. You don't know what's there," he said.
Another exploration well
Shell said it will now move to a second planned exploration well called Monterey Jack about 120 kilometres away from Cheshire in the Shelburne Basin.
Earlier this year, BP announced it was delaying its exploration program in deepwater Nova Scotia until 2018. Like Shell Canada, BP has announced plans to spend $1 billion looking for for oil off the province's coast.
Samson noted $2.2 billion in exploration spending commitments have been made between Shell, BP and Norway's Statoil.
"There is a level of confidence within those companies that there are significant hydrocarbons that exist off the coast of Nova Scotia," Samson said.
23 significant discoveries from 127 wells
The Canada-Nova Scotia Offshore Petroleum Board says there have been 127 exploration wells drilled offshore Nova Scotia since the first well was drilled in 1967.
To date, there are 23 declared significant discoveries in offshore Nova Scotia, eight of which have been declared commercial discoveries.
The regulator said roughly one in five exploration wells have encountered a significant accumulation of oil and/or natural gas.
Most of these significant discoveries are natural gas accumulations.
According to its website, "given the limited number of exploration wells offshore Nova Scotia and the associated geological uncertainties, there is a low probability that an exploration well will encounter commercially viable quantities of hydrocarbons."
With files from The Canadian Press