Third in a three-part series —
If the mantra in the real estate world is location, location, location, in the world of offshore oil and gas exploration it’s seismic, seismic, seismic.
Two-dimensional seismic survey data, that is.
Using sound waves bounced off the seabed, these surveys tell the story of the geological layers beneath the seabed where pools of oil and gas could be found.
These 2-D surveys are the starting point of frontier exploration — mapping potential oil- and gas-bearing formations and structures before any drilling occurs.
There hasn’t been much 2-D off Newfoundland and Labrador in recent years.
More than 80 per cent of all the 2-D seismic data here was collected prior to 1984.
“It’s old da-ta and it’s not in a usable digital form,” said Bob Cadigan, president and CEO of the Newfoundland and Labrador Oil and Gas Industries Association (NOIA).
“If you’re going to explore, you have to do the seismic.”
Greenland’s west coast offers lessons in using seismic data to market offshore potential and attract exploration.
“Greenland had the foresight to acquire a significant amount of data — between 60,000 and 80,000 kilometres of 2-D seismic data — that they … were successful in marketing to dozens of companies,” said Jim Keating, vice-president of oil and gas for Nalcor Energy.
“That, in effect, created its own market.”
In the past decade, Greenland’s national oil and gas company, Nunaoil, worked with an international seismic company to collect survey data.
Following this, two rounds of offshore land sales saw 14 companies bid on 13 parcels of land off Greenland’s west coast. Nunaoil is partnered with those companies in each of the 13 exploration licences issued.
Last August, Cairn Energy reported signs of hydrocarbons during exploration drilling. The Scottish company plans to return there this summer.
For Keating, the Greenland lesson is simple: seismic data generates interest in offshore land sales that results in exploration.
The challenge in this province is to collect seismic survey data and make it publicly available to companies before annual land sales are held. Here, the surveys usually occurs after the land sale.
“You need the data acquisition and the land tenure system co-ordinated,” said Keating.
Nalcor could soon get a chance to act on the Greenland lessons.
It’s planning seismic survey as early as this summer, if a proposed program is approved.
Funding for the survey will come from the provincial government’s $20-million offshore geoscience development program.
That 2-D data will then be marketed to oil and gas companies.
“We think there are benefits to be accrued to the province by providing seismic information to companies,” said Shawn Skinner, provincial minister of natural resources. “To keep the rigs out there and to keep the momentum, we need to find new fields.”
Cadigan said this kind of “speculative” 2-D seismic helps drive exploration — as it did during the province’s busiest exploration period of the 1970s and early ’80s.
The seismic company does the survey in the hopes of finding a buyer for it later.
Cadigan said international seismic companies do speculative surveys all over the world and market their data to oil and gas companies — except in Canada.
Foreign-flagged ships need a temporary licence to work in Canadian waters — as long as no domestic ships are available and suitable to do the same work.
Those licences are issued by the Canadian Transportation Agency, a quasi-judicial body.
Among the specialized ships used in the offshore oil and gas industry: dredging vessels that dig glory holes in the seabed; construction vessels that install production equipment; saturated dive vessels used to hook up subsea equipment: and seismic survey ships.
P.F. Collins helps companies navigate the regulatory world of the Coasting Trade Act, which governs the operation of ships and drill rigs in Canadian waters.
“All these specialized vessels, they go round the world looking for special situations that will develop when they’re needed,” said Bernard (Tanny) Collins, president of P.F. Collins.
“But you can’t park a saturated diving vessel here in St. John’s and expect it to be economic. We just don’t have the type of industry here to support it on a regular basis.”
The same is true, Collins said, for other offshore oil and gas areas around the world.
“There might be 100 vessels in the world that are high-end seismic vessels,” he said. “Because of our environment, seismic activity can only really be effective season to season.”
It’s typically a late May to early November weather window when seas are less rough.
“If you get a lot of wave motion, you get poor-quality data,” said Collins. “These specialized vessels will come here during the ideal data recording period and then leave again.”
If the owner of a Canadian-flagged vessel objects to a temporary licence application, the process can take up to 120 days to complete as the Canadian Transportation Agency considers submissions from both sides.
“That’s a long time when you’ve got a short weather window,” said Paul Barnes, Atlantic Canada manager for the Canadian Association of Petroleum Producers.
“Any Canadian ship owner has the ability to protest,” said Cadigan. “And seismic vessels are persistently protested by one particular Canadian seismic company.”
That company is Geophysical Service Inc., with offices in Calgary and Houston, and a pair of seismic ships built in the late 1970s that have undergone major conversions.
In the past, the company’s 2D surveys have sparked exploration in the Orphan basin off Newfoundland’s northeast coast.
If a Canadian ship is deemed to be available and suitable for the survey work, no licence will be granted to the foreign-registered ship.
The result, however, is often no survey at all.
“These spec seismic companies are saying it’s not worth their while to come to Canada anymore because there are too many regulatory hurdles,” said Barnes.
Spec seismic ships used to do surveys for a few weeks off Newfoundland and Nova Scotia as they travelled to and from the U.S. Gulf of Mexico and the North Sea.
“They’re bypassing the East Coast altogether now, and that’s been a big challenge for us as an industry,” said Barnes. “These companies are helpful marketers of this basin.”
Cadigan does see signs of change on the horizon.
He said a recent ruling by the Canadian Transportation Agency suggests the importance of seismic technology could be considered in future decisions.
Last May, the agency ruled Norwegian-based PGS Geophysical could carry out 2D surveys off the south coast of Newfoundland for Husky Energy.
“That’s a very positive one,” said Cadigan.
In granting the licence, the agency found that “in the context of this specific activity, the need to survey the target area with more advanced technology is justified.”
Since 2009, both the province and the industry have discussed regulatory and fiscal incentives to spur offshore exploration. It’s called the offshore continental margin working group.
“It’s about trying to generate more activity — more drilling activity, more exploration activity,” said Skinner.
On the regulatory side, the province wants seismic data released in digital form, rather than paper form.
That data is stored and released by Canada-Newfoundland and Labrador Offshore Petroleum Board once survey confidentiality periods expire.
“We want them to release the information they have in a digital format because the companies are able to process that using digital techniques.
Skinner said no legislative changes are needed for such a move.
“It’s policy, so the board can do it on their own.”
Skinner said the board is considering the request.
As for fiscal incentives, Skinner said the province is not considering anything like the petroleum incentive program of the 1980s.
Those federal subsidies covered up to 80 per cent of exploration drilling costs incurred by Canadian drillers.
“No, we’re not looking to do that,” Skinner said. “What we’re trying to do is … lessen the risk at the front-end.”
The province would also expect compensation from industry for its seismic surveys, but he said no decisions have been made.
“If they’re going to get a pay-off at the back-end, we believe we should also see some pay-off for the people of Newfoundland and Labrador at the back-end.
He didn’t rule out equity or royalty discussions.
CAPP said it has not directly discussed exploration fiscal incentives, such as royalties, with the provincial government.
“At this point in time, our focus has been largely on the regulatory regime and things that we can do as an industry to reduce costs,” said Barnes.
“The royalty systems here are quite good and quite competitive worldwide.”
Elsewhere, he said the industry is seeing some signs of fiscal incentives, such as royalty relief for deepwater drilling.
“In Alaska, there’s royalty relief if you drill a dry well. You can write off some of those costs against future production or even current production on other fields,” said Barnes.
“Other jurisdictions around the world are looking at different fiscal measures in order to keep their basins sustainable into the future or to see more activity in them.”