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Canada’s Beaufort wakens Record bidding indicates majors turning to Arctic frontier; greens anger locals Gary Park For Petroleum News
As global oil giants ExxonMobil and BP jostle for position in the Canadian Arctic waters, pledging record amounts to lock up exploration rights, they also seem to be moving inexorably to a head-on clash with environmentalists.
Whether they have their sights set on oil or natural gas or both, the two companies have made record work commitments totaling almost C$1.8 billion — 25 percent of that already paid over in work deposits — to expand their presence in the Canadian portion of the Beaufort Sea, led by BP which made winning bids of C$1.18 billion for one 500,000-acre block, C$15.1 million for 507,000-acre parcel and C$1.1 million for rights to 503,000 acres.
The rush over the past two years into Canada’s northern frontiers has stunned industry observers and awakened opposition in the environmental world.
Co-venturers Imperial Oil (69.6 percent owned by ExxonMobil) and ExxonMobil Canada brought the Beaufort out of its prolonged slumber in 2007 by risking C$585 million for 508,000 acres in the Beaufort, with another C$13.1 million coming from two other successful Beaufort bids.
In addition to its major bid, BP also landed two other Beaufort parcels totaling 1 million acres for C$16.2 million in work commitments; a partnership of MGM Energy 60 percent, ConocoPhillips Canada 27.5 percent and two units of Phillips Petroleum 12.5 percent pledged C$1.75 million for 507,000 acres; and ConocoPhillips made a solo winning bid of C$2.54 million for 486,000 acres.
Eastward extension of existing Imperial-ExxonMobil license All four Beaufort parcels were an eastward extension of the Imperial-ExxonMobil license.
In addition to paying the 25 percent deposits, the companies have five years to drill an exploration or delineation well to earn a four-year extension on their license. If they discover enough hydrocarbons to allow sustained production they can qualify for a significant discovery license, which gives them indefinite tenure of the acreage.
This revival of interest in the Beaufort comes on the heels of four low-key years for the Beaufort-Mackenzie Delta region, largely because of uncertainty associated with the protracted regulatory process for the Mackenzie Gas Project.
In the absence of any industry nominations there were no sales in 2003 and 2005.
Otherwise a joint-venture by Chevron Canada Resources and BP Canada Energy committed C$61.9 million for 138,500 acres in the Mackenzie Delta in 2004, while in 2006 there were two winning bids — C$1.2 million by EnCana 37.5 percent, Anadarko Canada 37.5 percent and ConocoPhillips Canada 25 percent for 140,000 acres and C$11.6 million by Shell Canada for 247,000 acres, both on the Delta.
Federal grants boosted Beaufort drilling in 1970s, 1980s The Canadian Beaufort established its credentials in the 1970s and 1980s, when federal government grants covered up to 80 percent of wells drilled in frontier regions by companies more than 75 percent owned by Canadians, which racked up a host of significant discovery licenses.
The major find occurred in 1984 when Gulf Canada Resources (a predecessor company of ConocoPhillips) reported its Amauligak discovery believed to contain 350 million barrels of oil and 1.4 trillion cubic feet of gas.
But exploration took a dive when federal grants were withdrawn and a moratorium was imposed on the construction of a gas pipeline along the Mackenzie River Valley until aboriginal land claims were resolved.
When the Mackenzie Gasline Project came to life this decade there was a brief flurry of renewed activity in the Delta and Central Mackenzie Valley of the Northwest Territories and, in 2006, Devon Canada drilled the first wildcat in the Beaufort in 17 years, in hopes of a major gas strike to bolster its case for space on the proposed MGP pipelines. Instead, it struck an estimated 240 million barrels of recoverable oil and has shelved its exploration program.
The Beaufort comeback was partly explained by BP Canada spokeswoman Hejdi Feick, who said that expanding the company’s holdings in the Beaufort — where its 1998 takeover of Amoco Canada gave it 15 significant discovery licenses and two exploration licenses covering 1 million acres in the an area where Canada and the United States are haggling over the boundary line — is “very much part of our ongoing business development activities to grow and add to our existing base.”
She said the frontier play offers the chance to improve North American’s energy supply and enhance security.
Subject to permits, Imperial-ExxonMobil plans 3-D seismic Imperial Senior Vice President Randy Broiles last year said the Imperial-ExxonMobil acreage represents an opportunity to add to Imperial’s Beaufort resource base and “is consistent with our continued interest in energy development for Canada.”
The Imperial-ExxonMobil joint venture has contracted two ships and, pending approval from the National Energy Board and The Inuvialuit aboriginal community, plans to conduct 3-D seismic work this summer.
Feick said BP will develop an exploration plan after consulting with various stakeholders in the region, including aboriginals and environmentalists.
She said dealing with issues on wildlife and stakeholder benefits is not something that can happen overnight.
The identity of this year’s other bidders was not disclosed, but Benoit Beauchamp, executive director of the Arctic Institute of North America, based at the University of Calgary, told the Calgary Herald he would have expected ExxonMobil to make a bold move to expand its real estate.
“Now that BP has arrived, that’s a whole different game,” he said. “It demonstrates what we’ve known for a couple of years … that the industry is looking north.”
Beauchamp suggested it might need infrastructure spending from up to six companies to lower the risk to the point where the region can be opened up to petroleum development.
He said the changing patterns of world oil supplies and the shortage of opportunities for big conventional oil discoveries could mean the Arctic is last frontier.
In the run-up to the sale, ConocoPhillips Canada President Kevin Meyers made no secret of his company’s interest in the properties, saying the blocks were “really significant postings in terms of acreage size.”
To other observes the significant difference now from the 1970s and 1980s is that companies are putting their own money on the line and are not counting on Canadian government support.
Powerful environmental lobby The other issue that has changed in the interim is the emergence of a powerful lobby by environmental organizations that are prepared to take legal action.
The World Wildlife Fund made a last minute attempt to delay the June 2 deadline for this year’s bidding round, arguing that awarding Beaufort licenses contravened Canada’s Oceans Act, until the federal government completes a management plan to protect Beaufort habitats for polar bears and whales.
The WWF also argued there are no proven techniques for handling oil spills in “such dangerous iced waters.”
A government spokesman said delaying the sale would be a “major setback to responsible economic development” in Canada’s North and would undermine the confidence of companies thinking about investing in the region.
The successful bidding prompted federal Indian Affairs and Northern Development Minister Chuck Strahl to comment that issuing the exploration licenses gives momentum to the government’s goal of promoting economic and social development in the North and bolstering Canada’s Arctic sovereignty claims, while ensuring the “unique and delicate environment is protected for future generations.”
Nellie Cournoyea, chief executive officer of the Inuvialuit Regional Corp., which plans a key role in economic development of the land claims covering the Western Arctic, said her community looks forwards to the economic benefits of reestablishing interest in Beaufort exploration.
She said the lead time needed to “identify and develop these resources” will ensure that the Canadian government, industry and Inuvialuit have an opportunity to advance parallel research and other initiatives to protect the Beaufort marine environment and its associated wildlife.
Earlier, Cournoyea had lashed out at WWF claims that there is no management regime for the Beaufort, saying that showed “total disrespect for the people who have continually tried to be good guardians of what the region represents.”
“We are sick and tired of having out future economic wellbeing blindsided by environmental organizations that poke their self-righteous noses into someone else’s backyard without having the decency to consult with us or offer any realistic alternatives,” she said.
Northwest Territories Premier Floyd Roland expressed “increasing frustration with southern-based advocacy groups promoting decisions which impact the lives and economic future of northerners.”
He said the NWT government supports “responsible and managed development” of its resource sector and will not be swayed by outside interference.
To date, the WWF has not indicated whether it will pursue legal options to challenge the auction process.
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