Offshore Perception and Reality - Another View

In his article on the perception and reality of Nova Scotia.s offshore (Offshore Perception and Reality, 1 September), Neal Dawe of OTANS wonders why there is "still so much pessimism" with respect to the offshore. After reading the article, the answer should be obvious - proponents of Nova Scotia's oil and gas industry have the unfortunate habit of overselling the offshore.

Consider, for example, his claim that "the oil and gas industry employs approximately 4,000 Nova Scotians at any given time". This claim runs counter to the provincial government's employment statistics for 2002 (presented in Nova Scotia Statistical Review 2003) which state that the oil and gas sector employed 2,400 Nova Scotians: 1,000 in oil and gas extraction and a further 1,400 in support activities for mining and oil and gas extraction. The 4,000 figure appears to come from a misreading of the provincial Review, which shows that between 1998 and 2002, an average of 4,000 Nova Scotians were employed in "mining and oil and gas extraction" annually.

Mr. Dawe suggests that one reason why Nova Scotians are pessimistic about the offshore is that they have a "bad taste in their mouths" because the much heralded offshore oil boom in the 1970s failed to materialize. The sources of the "bad taste" aren't restricted to the 1970s - in 1999, the provincial government entered into a $1.1 billion agreement with Sempra Atlantic to distribute natural gas to "all 18 counties and 75 percent of the households", shutting out a number of communities including Berwick and Antigonish. By late 2001, Sempra Atlantic had backed out, delaying the distribution of natural gas in this province by several years.

Mr. Dawe's interpretation of "dry holes" is interesting for a number of reasons. First, the claim that "21 of those [exploratory wells are] significant discoveries", is surprising, given that "21" was the number of "significant discoveries" listed by CNSOPB in a November 2000 report. One would have hoped that the number of "significant discoveries" would have increased since then. Second, according to the Nova Scotia Department of Energy's glossary of energy terms, a dry hole is "A well that does not yield sufficient volumes of gas and/or oil to support commercial production". Although a "significant discovery" may yield useful geological information, unless it can support commercial production, it does not help the bottom lines of the companies paying for the exploration.

Even the expiration of exploration licenses does not appear to bother Mr. Dawe, since, in his words, expiration "means that new companies, possibly smaller and more bullish, will have an opportunity to enter the Nova Scotia offshore". This may well occur (and for the sake of the offshore industry, let's hope it does); however, it glosses over the fact that drilling in a frontier region like offshore Nova Scotia is extremely expensive when compared to onshore drilling. For example, the cost of onshore drilling typically falls in the range of $3 to $7 million, whereas the offshore Nova Scotia costs between $30 and $100 million. As a result, many 'junior' exploration companies may find it too difficult to raise the necessary capital to operate in such a high-risk environment.

Mr. Dawe also raises the question "Has Nova Scotia's offshore really dried up?" (which he assures the reader is not the case). Nova Scotia's offshore has not "dried up"; however, at present, with existing technology, abundant world supplies of natural gas, and the growing popularity of LNG, Nova Scotia's offshore is looking less attractive to many companies. This may change one day when deep and ultra-deep drilling for natural gas in an offshore environment such as Nova Scotia's becomes more commonplace.

Perhaps what is more telling is not what Mr. Dawe's article contains, but rather what it has omitted. For example, no mention is made of declining royalties which, paltry as they are, fell from $10.6 million to $9.2 million between 2001 and 2002. Similarly, the decline in Sable output and Shell's reevaluation of the size of the reserve are not discussed. Neither, for that matter, is the concern expressed by the Auditor General over the lack of audited meters for measuring the volume of gas coming ashore (fortunately, the province has indicated that proper metering is now to take place).

Mr. Dawe concludes his article with the startling observation that "one can understand why pessimism is par for the course in this province". Quite the contrary, when it comes to the offshore, most Nova Scotians are far from pessimistic, they are in fact realistic.

Published: Chronicle-Herald. 7 September 2004.