Natural gas-centric Encana Corp. announced Friday it is selling certain assets and shutting in some wells as a way of dealing with low natural gas prices, but Nova Scotia’s Deep Panuke project isn’t on either list.
And that’s a little surprising to some people in this part of the world, especially considering the history of Deep Panuke and the fact it still isn’t set to start production until July 1.
Deep Panuke, a so-called conventional gas discovery off the Nova Scotia coast, had been treated like the unwanted stepchild of Encana for many years. Once upon a time, the Calgary company labelled it a non-core asset and a sales target because it didn’t fit with Encana’s efforts to focus on more cost-effective shale gas projects.
A conventional gas project such as Deep Panuke taps a reservoir of natural gas, whereas a shale gas project collects natural gas trapped within a rock formation, which flows after the rock is fractured.
Deep Panuke was originally a $1.1-billion project of PanCanadian Energy Corp., but when that company was merged with Alberta Energy Co. in 2002 to create EnCana, Deep Panuke was put on hold by the new management until costs were greatly reduced.
The costs were cut to the point where it is now considered a $700-million project.
Encana never found a buyer and, over time, the company seemed to change its tune about Deep Panuke.
Deep Panuke seemed to get a lift in 2008 when Encana decided to hive off its oil business into a new company, Cenovus Energy Inc., leaving the new Encana to focus on the remaining natural gas operations.
Friday, Encana CEO Randy Eresman said on a conference call that, despite low natural gas prices, Deep Panuke is targeted to go into production July 1, barring any unforeseen problems.
“The (Deep Panuke) facility itself is designed to be able to produce up to 300 million cubic feet per day, and the economic range of production might be in the range of 100 million to 300 million cubic feet per day at any one given point in time.
“How we will produce the facility is something ..... we will decide as we go and it will, to some degree, be related to the market at the time.”
Encana says Deep Panuke has a fixed cost structure so, even with the low market prices for natural gas, the company will want to put the four “really strong producing wells” into production to recover the costs. Management says the flow of gas could be adjusted after costs are recovered.
The current plan is to start Deep Panuke in the middle of its range of production with 200 million cubic feet per day, but the company has the ability to turn production up or down depending on market conditions. The output is being acquired by Spanish energy company Repsol, owner of the liquefied natural gas plant in Saint John, N.B., according to Encana.
Analysts still expect Encana to sell Deep Panuke one day, but that doesn’t appear to be soon.
Instead, Encana is selling 40 per cent of its Cutbank Ridge Partnership — 165,516 hectares of undeveloped natural gas lands in northern British Columbia with proven undeveloped reserves of about 900 billion cubic feet — to Mitsubishi Corp. of Japan for $2.9 billion.
Mitsubishi is to pay $1.45 billion when the deal closes next Friday and will invest the remaining $1.45 billion over the next five years.
Encana also said Friday it will cut about 250 million cubic feet per day of shale gas production in both Canada and the United States, and it may cut another 600 million cubic feet if adverse market conditions persist.
