BUSINESS

Expectations along the Scotian Shelf

Michael Clugston January 10 1983
BUSINESS

Expectations along the Scotian Shelf

Michael Clugston January 10 1983

Expectations along the Scotian Shelf

BUSINESS

Michael Clugston

The biggest Christmas tree in Nova Scotia last month weighed nearly 10,000 tonnes, towered 12 storeys over Halifax Harbour and glowed under an inverted cone of lights in the night sky. To the big oil companies, the semi-submersible drilling rig John Shaw, temporarily in the harbor for servicing, is another major chip in the gamble for offshore gas. But, to Nova Scotia businesses and government, the Shaw and the six other rigs off the coast foreshadow a season of rejoicing that could stretch down through the decades. “The 1980s represent the most challenging decade for Nova Scotian businesses and for people in Nova Scotia since the era of wooden ships and iron men,” says David Dibblee, chairman of the new Offshore Trade Association of Nova Scotia.

Since the late 1960s, residents of both Nova Scotia and Newfoundland have been tantalized by evidence of petrochemical treasures just beyond the horizon. Hopes are high in Newfoundland because of reports that an estimated 14.7 billion barrels of oil lie beneath the Grand Banks; a storehouse that could rival Alberta’s reserves. But, so far, Newfoundland’s offshore activity has been all but strangled by the two-year argument between St. John’s and Ot-

tawa over who owns the oil and how it should be developed. The possibility of an accord grew last week after Energy Minister Jean Chrétien and his provincial counterpart, William Marshall, announced in St. John’s that they had hammered out a tentative settlement to the dispute. Declaring agreement on a “new avenue” to the management issue, Chrétien said that it was up to the federal and provincial cabinets to accept it within 10 days. Failing that, the issue would await the rulings of the federal and provincial supreme courts.

Even if a settlement is reached, Newfoundland will be playing catch-up to Nova Scotia, which struck a deal with Ottawa last March over similar issues and has entered the offshore energy play in earnest. Spurred on by federal cash—Ottawa will pour $2.5 billion in tax writeoffs and grants into the province’s offshore development in the next three years—energy companies have launched ambitious drilling programs to search for the estimated one trillion cubic metres of natural gas trapped in the region’s porous undersea rock deposits. At the same time, the spin-off effects for Nova Scotia’s economy are already proving significant as new companies spring up to handle subcontracts handed out by major players such as Shell Canada, Mobil Oil and Petro-Canada.

Record-high bankruptcies (1,010 in the first 11 months of 1982) have severely depressed the local economy, making the offshore possibilities even more enticing. But the outlook is not uniformly optimistic. For one thing, there is still no solid proof that there is enough profitable gas to market. For another, Nova Scotia does not even control the development. International energy prices and the federal government-through its dominance on the federal-provincial joint administration board—will determine future production levels. In addition, the 2,000 jobs created so far have not led to any noticeable improvement in Nova Scotia’s jobless total of 52,000, and experts doubt that gas revenues alone will change Nova Scotia from a “have not” to a “have” province. Still, there is “electricity in the air,” as one Halifax businessman put it.

A great deal of attention is now focused on the Venture gas structure near Sable Island. An all-important appraisal well will be drilled there this month. If it does not strike sufficient gas to satisfy the exacting economic formula for commercial viability, the exploratory drilling “boom” will continue elsewhere. But if enough of the resource is found at Venture, the intricate and massive development process will begin, with a target of bringing gas to shore by 1987 or 1988. “Our confidence [in Venture] is pretty high,” says Stuart Aitken, Halifax-area manager for Mobil Oil Canada Ltd., the company operating the Venture well. “But it is not high enough yet,” he adds, “to assure the National Energy Board that the gas is there and that there would be a surplus available for export.”

The “threshold” for commercial viability is between 600 billion and 900 billion cubic metres of natural gas in any one field. That volume then has to be measured against the cost of development, the price that the gas will command, existing tax structures and the availability of markets before a decision is made to proceed. Unlike oil, gas must be piped to market, and, with the formidable additional cost involved, the oil companies look for sales contracts lasting 20 years—the life-span of the gigantic delivery machines involved. Mobil plans to spend most of 1983 calculating the cost estimates if Venture provides no “shocks or surprises,” as Aitken puts it. Meanwhile, work will continue elsewhere on the continental shelf and slope. “I’m no geologist but I think it would be statistically unusual to have an extensive area like the Nova Scotian offshore yield only one field of commercial size,” Aitken says.

Even without calculating the long-term profits, the benefits that have flowed to Nova Scotia from its March, 1982, agreement with the federal government have been substantial. In less than eight months, $1.6 billion worth of offshore drilling agreements were signed with oil companies—which could mean that roughly $800 million will be spent directly in the province.

Shell, Mobil and Petrocan are committed to drilling 29 wells within six years on lots totalling 22 million acres.

Recently, about 50 new companies, involved in everything from rig-servicing contracting to crewing agencies, have sprung up. Shell alone has spread its business among 200 subcontractors in the province.

“There is no question that this is the most exciting business climate in my career,” says Dibblee, whose own firm, Leefax Services Ltd., provides management services to major contractors and subcontractors.

For his part, Premier John Buchanan has taken a somewhat paradoxical position. He has attacked federal involvement in the economy, criticizing Crown corporations in particular for “endangering the productivity and economic welfare of this country.” Still, federal

tax writeoffs and incentive grants have been largely responsible for the offshore developments that Buchanan welcomes so volubly. Not only has he made his peace with Petrocan in his own province, but Buchanan has also expressed interest in the possibility of the province becoming a partner in building an onshore gas pipeline.

If Nova Scotia is off and running in the race to develop the offshore, Newfoundland has been held at the starting gate by the dispute with Ottawa. Despite signs of an imminent settlement, the sense of frustration among many Newfoundlanders over the impasse remains. Says Christine Fagan, president of the St. John’s Board of Trade: “We have had so many false expectations in the past that I’m not going to build up my expectations [over the talks].” Although the Board of Trade supports Premier Brian Peckford’s stance—that the province owns and should control the offshore resource—its members disagree with Peckford’s view that Newfoundland can afford simply to outwait the federal government. Research into

the effects of the stalemate shows that several large fixed-asset investments, for which Newfoundland could have competed, have already gone to Nova Scotia. It is little consolation in St. John’s that Hibernia’s buried treasure is far more impressive than Venture’s. Says Fagan: “It’s so frustrating to know that we do have the resources offshore and it’s just a matter of tapping them.” It is a message that the politicians may finally be prepared to heed.