The U.K. plans to introduce a 10% tax on profits from North Sea oil and gas production. This is a supplemental tax, in addition to the 30% corporate tax that companies already pay, note Andrew Lees and Jeff Schleppy, analysts with Stifel, Nicolaus & Co. Inc. The tax increase is offset, however, by several positive moves that are designed to encourage North Sea spending. Significantly, the government is raising the capital deductions for development expenditures from 25% to 100%. This would put development spending on an equal footing with exploration spending, which has always been 100% deductible. Additionally, interest expenditures will be deductible against the new tax. The net result is that most active companies will pay lower cash taxes, effectively increasing their cash flows. Also, the government intends to set a date to abolish existing royalties that are paid on production. The initiative will be meaningful to companies with production that pre-dates 1982, as these fields carry a 12.5% royalty. Initially, it appears the tax-law changes will favor companies that have older production and spend money on exploration and development. Companies with newer fields, and those that don't carry out ongoing drilling programs, will pay more for the privilege of pumping North Sea oil and gas. 1 Canada Marathon Canada, and partners Encana Corp., Norsk Hydro and Murphy Oil, are drilling on the Annapolis Block (Exploration License 2377) offshore Nova Scotia. The group's G-24 well is licensed to go to 19,313 ft. The partners are pursuing the same objectives (believed to be a turbidite sand play) as their deepwater B-24 well, which was abandoned at 11,467 ft. after a well-control event that has been characterized as a near blow-out, reports Calgary-based consulting firm Canadian Discovery Ltd. The G-24 well is some 1,640 ft. from the B-24 well. Another offshore development will see El Paso Corp. partner with Canadian Superior Energy to drill a well on Canadian Superior's Marquis prospect early this summer. The companies have entered into a joint venture to develop Canadian Superior's 100%-owned land holdings in the shallow waters of the Scotian shelf; Marquis consists of two exploration licenses covering approximately 110,000 acres, prospective for Jurassic Abenaki reef. The prospect is on trend and 16 miles to the northeast of Encana's offshore Deep Panuke Field, which has a number of wells capable of flowing 50 million cu. ft. of gas per day from Abenaki reef. 2 Canada Three successful exploration wells have been recently drilled by Devon Energy in the Girouxville/Dreau area of the Peace River Arch region, northern Alberta. These Devonian light oil wells were flowed at rates of about 500 bbl. of oil per day. The area historically produces from Middle Devonian Gilwood/Granite Wash sands, but operators have also been targeting a Middle Devonian Beaverhill Lake sand in recent years, says Canadian Discovery. That interest follows Northrock Resources' significant Beaverhill Lake sand oil discovery at Girouxville East in 1998. These localized Beaverhill Lake sand units are found in a predominantly carbonate succession and have considerable potential in the region. Devon and Northrock have been actively exploring this region during the winter, with Devon drilling more than 14 exploratory wells and Northrock at least six. 3 Canada Also in Alberta's Peace River Arch region, Enterra Energy Corp., Calgary, announced the results of an exploration discovery at Gordondale, near the British Columbia border. The Gordondale 12-17-79-11W6M NPW gas discovery was drilled to a total depth of 7,839 ft. in the Mississippian Debolt formation. The well encountered gas potential in four separate formations, and the lowest formation is already completed and on production at 2 million cu. ft. per day, plus liquids. The company plans to evaluate the other zones with follow-up drilling during the spring and summer. Enterra claims to have identified at least 15 additional drilling locations ranging from 650 to 8,000 ft. in depth. The area has multizone potential, with more than 10 different producing formations. 4 Canada Calgary firm Quarry Oil & Gas Ltd. has drilled a gas discovery in West Currant Field, northeastern British Columbia. During production testing, the C-36-L/94-A-9 well was flowed at 2.5 million cu. ft. of gas per day from the Lower Cretaceous Gething formation. The company also has two other wells in the area that are cased and awaiting completion. All three wells were drilled to total depths between 3,706 and 4,100 ft. into the Triassic, which is an important regional producer, says Canadian Discovery. According to Quarry, its use of amplitude versus offset (AVO) techniques has increased the drilling success for medium-depth gas prospects in this area. The company recently shot three lines of new 2-D seismic data over the West Currant area and is planning to drill additional prospects prior to year-end. 5 Norway Statoil has made an oil discovery in the Staer structure about three kilometers northeast of its Norne Field in the Norwegian Sea. The 6608/10-8 wildcat was drilled in 376 meters of water in production license 128 to a total measured depth of 2,660 meters in early Jurassic rocks. A sidetrack, 6608/10-8A, was drilled 600 meters out from the vertical well to determine the size of the field. Some 110 meters of cores were cut, showing good production potential. Statoil notes that the discovery could be developed in concert with several other accumulations in the area. Next, the company plans to drill a wildcat on its Blameis prospect, east of Norne. 6 Italy A large gas discovery has been made off the southern coast of Sicily. The Panda 1 was drilled to a total depth of 2,570 meters in 467 meters of water in Sicilian Channel Block G.R14.AG. Operator Agip has confirmed that 300 meters of gross gas interval was encountered, and a test over two intervals flowed at a combined rate of 19 million cu. ft. of gas per day. The company, which owns a 37.5% interest in the discovery, estimates that reserves could be between 300- and 400 billion cu. ft. Partners in the project are BG Group, with 37.5%, and Edison Gas, with 20%. 7 Egypt Houston-based Apache Corp. flowed gas at the rate of 17.4 million cubic feet per day during testing of its Abu Sir-1X (Blue prospect) deepwater well on its 2.3-million-acre West Mediterranean Concession. The well, which was drilled to a total depth of 7,530 ft. in 3,255 ft. of water, was tested from perforations at 6,620 to 6,724 ft. in the Pliocene Kafir El Sheikh formation. The total pay interval was 311 ft. Apache operates the concession and holds a 55% contractor interest; RWE-DEA has 28.333%; and BP holds the remaining 16.667%. Additionally, Apache has an onshore discovery in the South Umbarka concession in the Shoushan sub-basin in the Western Desert. The Selkit 1 wildcat tested at a constrained rate of 5,103 bbl. of oil from 9,523-54 ft., which is the top of a 64-ft. oil column. The 10,370-ft. well is about 1.5 miles west of Khepri Field and has already been connected to production. Apache owns a 100% contractor interest in the concession. 8 Nigeria Calgary-based Nexen Inc. says a second oil discovery has been made on offshore Block OPL 222. The Usan 1 well was drilled to a total depth of 8,940 ft. in 2,450 ft. of water, and encountered several oil-bearing reservoirs. One zone was production-tested and flowed at a restricted rate of 5,000 bbl. of oil per day. Nexen owns a 20% interest in the block, which is operated by TotalFinaElf; other partners are ExxonMobil and ChevronTexaco, both with 30%. The group plans to drill an appraisal well to the Usan discovery by the end of the year. The Ukot discovery, which production-tested at the rate of 13,900 bbl. of oil per day, is some six miles south. 9 Gabon Pioneer Natural Resources Co., Dallas, has confirmed its Awena Marin 1 wildcat, in the offshore Olowi permit, encountered 41 ft. of net pay in the Upper Gamba sands. The well, drilled to a total depth of 3,600 ft. in 80 ft. of water, flowed 12 million cu. ft. of gas during a two-hour test. The well also encountered nine ft. of net oil pay in the Lower Gamba, which was noncommercial but extended the company's Olowi Marin 1 discovery, located some eight miles to the northwest. Pioneer plans to drill two additional wells this year to continue its appraisal of the Olowi Marin 1 discovery. 10 Brunei IHS Energy Group reports that Brunei Shell Petroleum will develop Egret Field, 43 kilometers offshore Seria and seven kilometers northeast of the company's Fairley Field. Plans for the $79-million project call for 20 wells and two platforms. The first phase will have 12 gas wells, and is expected to be onstream in mid-2003. The second phase will focus on oil production. Egret, which was discovered in 1971, presently has nine abandoned wells. 11 Indonesia Unocal Corp. has drillstem-tested a deepwater delineation well on its Gendalo-Gandang Field in the Kutei Basin at the rate of 30 million cu. ft. of gas and 2,200 bbl. of condensate per day. The Gendalo 3 well, offshore East Kalimantan in the Ganal production-sharing contract area, was tested from a single interval between 11,559-11,638 ft. Drilled to a total depth of 13,070 ft. in 5,082 ft. of water, Gendalo 3 encountered 102 ft. of net pay. The delineation test is about 2.8 miles east of the Gendalo 1 discovery. Unocal, which operates and owns an 80% interest in the field, estimates gross reserves at between 2- and 2.5 trillion cu. ft of gas, plus 50- to 150 million bbl. of condensate. Agip is a 20%-working-interest partner.