Thursday, February 19, 2009

Repsol's Purchase of Nova Scotia Gas May Allow Greater Flexibility for Canaport LNG Terminal

You have to dig deep to understand offshore moves

By ROGER TAYLOR Business Columnist
Wed. Feb 18 - 9:53 AM


SOMETIMES the actions of the energy companies can be difficult to figure out, especially for those of us who aren’t directly involved in Nova Scotia’s offshore energy sector.

One example of this was the surprise announcement Monday that Spanish oil company Repsol YPF had agreed to buy all of the gas EnCana Corp. will produce from its Deep Panuke project.

The move was an interesting one because it brought a major new player into the Nova Scotia energy mix and seems to confirm once and for all that the $750-million Deep Panuke project will indeed begin production sometime next year. But the announcement was also attention-grabbing because it wasn’t an outright sale of the project.

To understand the confusion, one needs some context.

A number of years ago, EnCana, headquartered in Calgary, indicated it would move away from conventional natural gas projects to concentrate on gas found in rock formations.

Since Deep Panuke was a conventional development, it was considered a non-core asset by the company, which meant that it could have been sold any time a buyer showed up with the right offer.

When management changed at EnCana a couple of years ago, the new executive team seemed less anxious to unload Deep Panuke. In fact, after several years of delays, EnCana decided it would go ahead with development of Deep Panuke.

Yet many Nova Scotians still felt that deep down, the company didn’t have its heart in keeping the project and would sell Deep Panuke if it could.

Meanwhile, Repsol, which has reportedly acquired exploration rights for parcels off Newfoundland, seems to be interested in getting involved in joint ventures to search for more oil and gas in the Atlantic region. A Repsol spokesman indicated the company was anxious to deploy an advanced deep-sea exploration system it owns to find gas reserves that might have been overlooked.

The company spokesman said in an earlier news report that the technology has helped to discover reserves at exploration sites around the world that were missed because of the reserves were in deep water.

Onshore, the energy giant is the majority owner of the Canaport liquefied natural gas terminal in Saint John, with Irving Oil. Having a ready supply of natural gas from Deep Panuke nearby seems to have been deemed necessary by the company to ensure that natural gas contracts would be honoured even if deliveries of LNG were delayed or reallocated to a more lucrative LNG market around the world.

Even though Repsol has indicated it wasn’t necessary for it to acquire Deep Panuke, it is assumed that EnCana could have sold the project outright. One wonders if EnCana has another motivation for maintaining a presence in the Nova Scotia energy sector.

The terms of the deal with Repsol have not been released, but the contract is good for the life of Deep Panuke and involves all gas extracted from the site, which is estimated to be 200 million to 300 million cubic feet of natural gas per day.

Some people may be concerned that the single purchaser arrangement may somehow affect royalty’s Nova Scotia collects from Deep Panuke production.

I’ve been told the provincial Energy Department has become more sophisticated in dealing with complex energy contracts in recent years and unless this most recent deal conforms to revenue expectations, the government has the right to take legal action.

( rtaylor@herald.ca)

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