Beaufort beckons; majors bid C$52 million

EnCana partnership acquires offshore exploration license adjacent to Richard’s Island wells; Shell Canada dips into offshore

Gary Park

For Petroleum News

Regardless of uncertainties surrounding the Mackenzie Gas Project, which holds the key to getting any gas out of the Mackenzie Delta-Beaufort Sea, Canada’s northern exploration prospects are attracting strong interest.

In the latest rights sale, a partnership of EnCana, Anadarko Canada and ConocoPhillips Canada made a successful bid of C$40.27 million for 140,000 acres on the Mackenzie Delta and Shell Canada took its first step into the Canadian Arctic offshore, bidding C$11.55 million for 247,000 acres in the Beaufort Sea, 120 miles northwest of Inuvik, Northwest Territories.

The auction was the first in two years by the federal Department of Indian and Northern Affairs.

In also going offshore, the trio of EnCana 37.5 percent, Anadarko 37.5 percent and ConocoPhillips 25 percent has signaled even greater optimism in its adjacent Richard’s Island lease where two successful wells were drilled in 2004 and 2005.

The Umiak N-16 exploration well and N-5 delineation well are now before the National Energy Board for significant discovery licenses that allow the owners to extend the license term based on flow testing that indicates a hydrocarbon accumulation and the potential for sustained production.

In applying for the licenses, EnCana said the wells produced “encouraging results.”

For now, however, EnCana is trying to decide if and when it might drill on the new property.

Shell: acquisition part of strategy

The company was not responsible for posting the Beaufort parcel and has said its work commitment will probably involve only seismic studies initially to evaluate the potential, rather than drilling.

But Shell’s entry to the offshore and the EnCana partnership’s decision to stretch its horizon are a positive note at a time when Mackenzie lead partner Imperial Oil has warned that rising construction and labor costs are pushing the C$7.5 billion venture closer to a breaking point.

Companies pressing NEB

Failure to establish a single jurisdiction could slow the development of gas prospects outside the Delta anchor fields.

Another test of the northern mood follows the closure this month of a call for bids covering six parcels in the central Mackenzie Valley.

In the meantime, International Frontier Resources has bulked up its working interest in the same region, moving to 16.11 percent from 10.867 percent on six freehold acreage parcels — four covering 47,570 acres in the Summit Creek area where it is involved in an exploration program with Husky Energy and two of 21,100 acres in the southern Colville Hills.

International Frontier has working interests ranging from 3.1 percent to 10.875 percent in the early 2004 B-44 oil discovery by Northrock Resources.

Devon finds positives in Beaufort well

“We did encounter hydrocarbons and that is what we were after,” he told Petroleum News.

The disappointment was in failing to uncork a grand prize.

The exploration portfolio of the parent company, Devon Energy, spans from lower to higher risk prospects, of which Paktoa was “in the high-risk category as far as reaching resource levels that would give us commercial momentum,” Scott said.

Although results of the well are still being evaluated, the company has already decided to file an application with the National Energy Board for a Significant Discovery License, which conveys the company’s belief, based on flow testing and geological and engineering factors, that there is a hydrocarbon accumulation and the potential for sustained production.

Devon Energy President John Richels told a conference call that a Significant Discovery License would allow the company to retain the mineral rights “in perpetuity.”

Scott said Paktoa C-60 was a successful operation, being drilled on time and on budget.

He also said the steel drilling caisson, which was used in 2003 by EnCana to drill the McCovey prospect north of Prudhoe Bay, “performed to our expectations.”

But this point, Devon does not have the SDC under contract from its Norwegian owner for any future drilling operation.

Under the terms of its C$225 million exploration commitment for exploration licenses covering 846,000 acres in the Beaufort, Devon is required to drill four wells by August 2009 to extend the terms of the permits.

For now, Scott said the company is “evaluating our alternatives and we have not made final decisions.”

A number of factors weigh in that decision, including a decision to proceed with the Mackenzie gas pipeline, along with the forecast economics of the gas industry.

—Gary Park