Three upstart oil and gas companies search for profit in Atlantic Canada’s rough and tumble oil and gas sector
Sometimes small companies can make a big impact. In a region where industry titans like Encana Corp., ExxonMobil, Husky and Statoil are spending millions of dollars and producing large quantities of oil and natural gas, several junior exploration companies are also busy trying to make their mark.
Take East Coast Energy Inc., for example. It’s plumbing the depths of the Pictou coal field in Nova Scotia for coalbed methane. In rural New Brunswick, SWN Resources Canada is preparing to drill wells to gain a better understanding of the region’s geology as it searches for big shale gas fields. And Black Spruce Exploration plans to delineate an oil and gas field discovered in the mid-1990s on the western edge of Newfoundland and Labrador.
Each company is navigating the shoals of regulation, public opinion and geological learning curves as they try to realize their dreams of creating economic opportunity in the communities they operate in, and making some money in a business where the risks are high but the rewards can be sweet.
Patience and persistence are the key words that East Coast Energy president and CEO Julie Cohen uses to describe the company’s efforts to bring its coalbed methane project to fruition in Pictou County, Nova Scotia and accomplish something historic. “Our goal is to be the first onshore producer of natural gas [in Nova Scotia],” Cohen says.
That quest to make history began more than five years ago, when the privately-held company acquired a licence spanning 90 square kilometres of the Pictou coal field where others have explored unsuccessfully since the 1980s for coalbed methane.
In September, East Coast Energy successfully flow tested a well producing natural gas from a pilot well-pair drilled late last year. The company spent the summer prepping for the test that provides a clearer picture of the rate at which gas can be produced from the coal seams. The company isn’t there yet. To date, Cohen says East Coast Energy has spent $6 million exploring for coalbed methane. In 2011, the company drilled a small test hole in the McLellan’s Brook area to acquire core samples and verify the presence of coalbed methane. That verification also extended its production agreement with the province for another five years. “That was a big step forward,” Cohen says. “It’s a unique basin … the geology is a bit complex.”
The next exploration payoff came in late 2013, when the company hit coalbed methane with two test wells, drilling into the nine-metre thick Foord coal seam at a depth of 650 metres. “It was a milestone back in December. We successfully drilled the first horizontal well in the Pictou coal field. That was a big accomplishment,” Cohen says.
At the peak of last year’s drilling activity, Cohen says about 85 local companies provided services at the site, including wireline logging, drilling, welding, well testing and security.
Methane is a major component of natural gas. To extract gas from a coal seam, water is removed from the coal by drilling into it to reduce the reservoir pressure, allowing the gas to separate from the coal and flow up the well. Hydraulic fracturing is not part of the extraction process East Coast Energy is using in Pictou County.
Cohen says how long this phase takes depends on how quickly the water desorbs from the coal bed seam. “We can’t compare it to any other well because it’s a pilot well, the first of its kind in the Pictou coal field. You have to be very patient with the process. It could be two months, four months, because you want to have a steady charge, a nice flow.”
The size of the coalbed methane prize in Nova Scotia is large. According to a study prepared by ICF Consulting Canada Inc. for Nova Scotia’s Department of Energy, there is 3.9 trillion cubic feet of undiscovered coalbed methane resource potential onshore in Nova Scotia. The challenge for East Coast Energy, if it discovers enough gas in Pictou County and can produce it economically, is where to sell it. The natural gas produced at Nova Scotia’s two offshore fields (Encana Corp.’s Deep Panuke and the ExxonMobil-operated Sable Offshore Energy Project) is transported through the Maritimes and Northeast Pipeline to markets in the northeastern United States.
But shale gas production has exploded in the U.S., flooding Nova Scotia’s traditional market with natural gas. As a result, prices for the cleanest burning fossil fuel have generally been very low in North America in recent years, so low that companies are struggling to make money producing the stuff. Where will East Coast Energy find the markets to take its coalbed methane and how will it transport it to those markets?
It’s a question Cohen isn’t focusing on right now. Instead, she’s zeroing in on achieving commercial production and isn’t saying where the natural gas could end up or how it might get to market. “I’m just focusing on extracting the methane, but I’m going to have options in whom to sell it to,” Cohen says.
Playing with fire
If you can’t stand the heat, get out of the kitchen. So goes the old cliché. Apparently, SWN Resources Canada doesn’t mind a little heat. One year after encountering fierce opposition as it mapped shale deposits in New Brunswick, the company is planning to drill four vertical test wells, ranging in depth from 1,000 metres to 4,000 metres, to collect samples of rock and get a better picture of the local geology.
SWN achieved a milestone in late August when the provincial government approved its environmental impact assessment. “Now, there are a number of other permits and licences that we need in order to continue,” says Chad Peters,
SWN Resource’s manager of exploration. “There’s still a lot more regulatory (stages) to go through.” SWN Resources is a subsidiary of U.S.-based Southwestern Energy Company, the fourth-largest producer of natural gas in the U.S. The parent company has developed shale gas fields using hydraulic fracturing in Arkansas, Pennsylvania and Texas. It’s hoping to achieve similar success north of the border. Some estimates peg New Brunswick’s undiscovered onshore shale gas potential at 1.3 trillion cubic feet.
In New Brunswick, the company was awarded 10,000 square kilometres of land in 2010 for $47 million in exploration work commitments. The land stretches from southwest of Fredericton to the coastline along the Northumberland Strait, making SWN Resources the largest onshore oil and gas licence holder in the province.
The company has since mapped the subsurface using 2D seismic surveys and airborne and magnetic gravity surveys. The next step is drilling the four test wells: two in Kent County’s Lower Saint Charles and Galloway, the other two in Queen’s County near the Bronson Settlement Road and the Pangburn area.
Peters says the company won’t be hydraulically fracturing at this time. Hydraulic fracturing uses water, chemicals and sand pumped into a well at high pressure to fracture tight rock and release gas trapped in the rock. “These wells do not involve stimulation at all. These are pure science wells. It’s a chance for us to drill down, get a better understanding of the geology and find out if there is the potential for oil or natural gas.”
For each well, SWN Resources will build a three-hectare wellpad and roads to access the sites. Construction of the wellpads and drilling is estimated to take up to 90 days for each location and cost between $4 million and $6 million apiece. The company is looking to drill the wells in 2015.
Peters hopes the company doesn’t face the opposition it did in 2013 when it was mapping shale deposits in the area. SWN Resource’s efforts to collect seismic data sparked violent protests over the prospect of development, hydraulic fracturing and fears that groundwater will be affected. Blockades were set up to prevent it from doing its work, and on Oct. 17, 2013 six RCMP cars were set on fire and dozens of protesters were arrested near the village of Rexton.
Peters says the company is focusing on stakeholder consultation to prevent that sort of nastiness from happening again. “There’s a lot of misinformation circulating around so we’re trying to continue to engage with First Nations and various communities in which we’re operating, talking to them about the process, the economic impacts, the types of services that we need,” Peters says.
In Newfoundland and Labrador, Black Spruce Exploration saw last year’s plans for unconventional oil and gas development founder on the shoals of public opinion and concerns over hydraulic fracturing.
But like any small oil and gas company, it’s learned to think on its feet and now it’s focusing on more conventional approaches as it targets delineation drilling and seismic surveys on the province’s west coast.
David Murray, president and CEO of Black Spruce Exploration Corp., figures there’s at least five to seven years’ worth of exploration work to do in the conventional oil and gas opportunities the company has. He says the company plans to take an old axiom about measuring twice and cutting once a little further. “We want to measure four times before we drill,” Murray says. “We’ll do more prep work before we start punching holes.”
Since arriving in the province a couple of years ago, the company has amassed controlling interests in seven exploration licences on the west coast, both onshore land and offshore. While much bigger companies have been producing and exploring in the province’s portion of the North Atlantic for decades, the west coast and the waters of the Gulf of St. Lawrence have been virtually ignored. Only 10 wells have ever been drilled in the Gulf alone and some industry observers think the potential to discover oil there is huge.
The subsidiary of Ontario-based Foothills Capital Corp., also led by Murray, drew plenty of attention last year when it proposed to frack two onshore-tooffshore exploration wells. One well was located in Sally’s Cove near Gros Morne National Park, and the plan met with swift opposition from tourism operators and environmental groups alike. The provincial government has since suspended acceptance of proposals to frack exploration wells in the province pending an independent review.
Topping the company’s list of conventional projects is the Garden Hill field on the Port au Port Peninsula, where 37,500 barrels of light oil and 90 million cubic feet of gas have been produced since Hunt Oil drilled a discovery well in 1995. Black Spruce Exploration has a farm-in agreement with Enegi Oil plc, a U.K.-based company holding the production lease. Both companies are hammering out the details of a drilling program to further delineate the reservoir.
To start, Murray says they’ll utilize a mining rig capable of obtaining core samples from two extension wells to “test out our ideas. If the early wells turn out, we’ll drill more wells. If the early wells don’t turn out, we’ll have to rethink our strategy.” If all goes well, Murray says a larger, conventional petroleum rig capable of reaching depths of 5,000 metres and drilling horizontal wells will be brought in.
Black Spruce Exploration is also prepping for a 3D seismic survey of two offshore exploration licences acquired under a farm-in agreement with St. John’s-based Ptarmigan Energy. The survey will cover the bulk of one exploration licence that contains a pair of oil prospects and a small portion of an adjacent licence.
Meanwhile, Murray hasn’t given up on fracking wells in Newfoundland and Labrador. The provincial government has appointed an independent panel to review hydraulic fracturing. To address concerns that fracking could potentially contaminate drinking water in the area, Murray says the company will double-case wells anywhere from 50 metres to 150 metres past the well intersection with drinking water. “It’s an extra level of protection below the ground. We plan to do it that way. It’s not required, it’s not legislated, we just think it’s a good business practice.”