08/23/2012 02:47 EDT | Updated 10/23/2012 05:12 EDT

Shell says it is looking for oil, not natural gas, in Nova Scotia offshore

HALIFAX - Shell Canada (TSX:SHC) says it would reconsider its future plans to develop Nova Scotia's offshore if its $970-million deepwater exploration venture turned up natural gas instead of oil.

Erik B. Goodwin, Shell's venture leader for its deepwater Nova Scotia operations, said Thursday that the company's goal in exploring the province's southwestern offshore is to find oil.

"If we were to find gas, we would have to take a really hard look at it because the economics are so poor," Goodwin said following a speech to the Maritimes Energy Association in Halifax.

He said it would be difficult for the Calgary-based company to profit off natural gas in Nova Scotia.

"One of the principle roles of deepwater exploration is for oil and that's an important part of Shell's global portfolio," Goodwin said.

"There are other ways to make money with deepwater in gas but it would be very difficult here."

He said companies in Australia's offshore make a profit from liquefying natural gas from deep well drilling, but following that route in Nova Scotia wouldn't be as lucrative and would involve a large investment.

In January, Shell announced a six-year agreement to explore four deepwater areas about 200 kilometres from the province's southwest coast. Its winning bid was the highest for exploration rights ever awarded in Atlantic Canada.

In a province that has had its struggles in developing an offshore energy industry, the deal was hailed by the provincial government as a boon.

Unlike Newfoundland and Labrador, where a wealth of offshore oil has turned that province's finances around, Nova Scotia's resources industry is relatively small.

Output from the Sable offshore natural gas project, located about 225 km off Nova Scotia's east coast, has been in decline for a decade. In April, natural gas production was 32 per cent of what it was during its peak month in December 2001, according to provincial government figures.

The Deep Panuke natural gas project, about 250 kilometres southeast of Halifax, has encountered repeated delays. It is expected to go online this year.

Goodwin said expectations beyond the life of the exploration agreement should be tempered.

"To bring a new venture like this to a successful conclusion is not easy and it takes a long time and it doesn't always happen," he said.

"These kinds of ventures move very slowly ... and they always have a lot of uncertainties."

Barbara Pike, the executive director of the Maritimes Energy Association, said she's not surprised Shell's focus is on oil.

"It's what we said from day one," she said. "When you put in an exploration bid of $970 million on four offshore parcels, you're not looking for natural gas. You're looking for oil."

Plans to start drilling exploration wells in 2014 have been delayed to 2015, Goodwin said. The company also plans to open a small Halifax office in January that would employ three people.

Goodwin said the company needs to take 3D seismic images of the area to determine where to drill. He said the imaging will take place next summer, but that could extend into 2014 if the weather is bad.