Providing coverage of Alaska and northern Canada's oil and gas industry
October 2006

Vol. 11, No. 40 Week of October 01, 2006

Changes afoot in Arctic

Anadarko, EnCana pull out of Canada’s Arctic, but good news on Mac gas line

Gary Park

For Petroleum News

EnCana has put its array of northern Canadian holdings on the block, Anadarko is looking for buyers for its Mackenzie Delta and other Arctic assets, Devon Canada has backed away from drilling in Canada’s Far North this winter and a Chevron Canada-BP Canada Energy joint venture is trying to farm out some of its exploration lands in the Mackenzie Delta.

On the surface, that could be interpreted as a bleak picture at a time when the Mackenzie Gas Project, which offers the only prospect to ship natural gas out of the Arctic, is grappling with regulatory delays and rising costs.

“There seems to be a changing of the guard, no doubt,” Michel Scott, Devon Canada vice president, told Petroleum News. “It seems some companies have decided it’s time to do something else.”

But the sale of assets could open the door to companies who are more committed to the Arctic.

Fresh dose of optimism for Mackenzie gas line

In addition, there has been a fresh dose of optimism in the Mackenzie Gas Project.

Indian Affairs and Northern Development Minister Jim Prentice told the Financial Post that negotiations on fiscal terms with the consortium could resume shortly after a summer lull while Imperial Oil re-evaluated the project and updated the price tag.

Prentice said he is expecting Imperial to submit a new proposal a year after sources estimated the partners were looking for C$1.2 billion in various federal benefits when the overall cost was estimated at C$7.5 billion — a number widely expected to climb by about one-third.

There has been talk that the federal government could strike a deal to take royalties in-kind and make a shipping commitment to support efforts by the Aboriginal Pipeline Group to take a one-third equity stake in the Mackenzie Valley pipeline.

In addition, Prentice indicated the government is making headway on a land claim settlement with the Deh Cho First Nations.

Chevron-BP partnership staying the course

Despite the search for buyers by EnCana and Anadarko, Chevron Canada spokesman Dave Pommer said his company is staying the course it unveiled in 2004.

In fact, the Chevron-BP partnership is working on corporate and regulatory approvals and attempting to negotiate the key contracts needed to drill two exploratory wells this winter.

The joint venture also expects to make an announcement “very soon” on its farm-out process, Pommer said, although he declined to indicate whether that would involve a new player in four exploration licenses covering 1 million acres.

But he was emphatic that Chevron is unwavering in its view that the Arctic has “tremendous potential” as a new gas basin to meet North American demand over the long haul.

“We came to our own decision, and it was not lightly taken, as to what we wanted to do.” Pommer said.

That program involves five exploration wells, at a cost of about C$30 million each, and started in late 2004 with 3-D seismic over 165 square miles.

Devon teamed up with Talisman, still committed

Devon is taking a break from drilling this winter while it evaluates results from its Beaufort Sea well which failed to yield the trillions of cubic feet hoped for, but Scott noted that the company teamed up with Talisman Energy in May to commit C$53.9 million for four exploration licenses in the Central Mackenzie Valley.

EnCana has hired CIBC World Markets as its financial advisor and expects to turn confidential information over to qualified prospective buyers in early October.

The assets include a 37.5 percent operated working interest in two exploration licenses and one significant discovery license in the Mackenzie Delta/Beaufort Sea along with various non-operated interests in 14 significant discovery licenses, which allow license holders to retain the minerals rights indefinitely after they provide evidence of hydrocarbon accumulations and the potential for sustained production.

In addition, EnCana has various interests in 19 significant discovery licenses and one production license in the Arctic Islands, dominated by two significant discovery licenses in the Drake Point and Hecla discoveries.

The decision to unload the holdings comes only four months after EnCana and its partners — Anadarko 37.5 percent and ConocoPhillips Canada 25 percent — made a successful bid of C$40.27 million for 140,000 acres in the offshore Mackenzie Delta close to the partnership’s Richard’s Island lease where two successful wells were drilled in 2004 and 2005.

The Umiak N-16 and N-5 wells are awaiting significant discovery license designation after yielding what EnCana called “encouraging results.”

EnCana ready to test value of northern assets

EnCana spokesman Alan Boras told Petroleum News that the exploration licenses acquired this year were seen as a “prudent” move to add value to the Umiak properties.

He said the big independent has decided this is a good time to test the value of its northern assets, which he described as “residual interests” inherited from EnCana’s founding companies.

“We believe they have value that will be realized in time,” he said.

The delays and rising costs faced by the Mackenzie Gas Project were not a factor in the decision, Boras said.

“We think the pipeline will come to pass,” he said, but for now EnCana would prefer to focus on its unconventional gas and oil sands resources.

Canadian Natural might have rejected Anadarko’s Arctic leases

Anadarko’s Mackenzie Delta and other Arctic properties are being actively marketed, along with Gulf of Mexico properties and international interests, Chief Financial Officer Al Walker said in mid-September.

“Targeted divestitures are expected to result in a portfolio of assets that is less capital intensive, more geographically concentrated and has better growth potential with lower execution risk,” he said in a statement.

The northern Canadian assets were excluded from Canadian Natural Resources’ US$4.1 billion purchase of Anadarko’s Canadian subsidiary, although Anadarko has not disclosed whether the assets were part of the original offering.

Some industry sources have suggested Canadian Natural spurned the assets because it is not sure the Mackenzie pipeline will be built. Canadian Natural did not return a call from Petroleum News.

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