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Vol. 11, No. 25 Week of June 18, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Looking for Arctic partners

Devon, Chevron-BP JV hopes to continue Mackenzie Delta-Beaufort exploration

Gary Park

For Petroleum News

Changes are afoot in Canada’s northern regions, with two key operators inviting new partners to join them in exploring the Mackenzie Delta and Beaufort Sea.

Both Devon and a Chevron-BP joint venture say they are open to involving others to help push ahead with their programs.

In both cases, the response could determine when the next wells are drilled in a costly, challenging environment.

Currently, the Chevron-BP JV is making preparations to drill two wells this winter, while Devon has obtained a license amendment to stall its next well until the 2007-08 winter.

The joint venture is open to farming out stakes in four exploration licenses covering 1 million acres of the Delta-Beaufort including stake in the winter wells, Sharon Murphy, Chevron vice president of policy, government and public affairs, told Petroleum News.

For now, Chevron and BP have decided that the four exploration licenses were unlikely to match the scale or size needed to compete with other opportunities available to the two companies, she said.

But Murphy said the licenses could open the door for a new player to “establish a presence in a proven hydrocarbon region at a reasonable cost” or allow established explorers to expand their holdings.

She said the decision to look for a partner is not a sign of diminishing interest by Chevron, which holds firm to its belief that the Delta-Beaufort will eventually emerge as a major producing area.

Devon remains open to third parties

The same message came from Devon Canada Vice President Michel Scott, who said the company has been unable to come to terms in the past with potential third parties, but the door remains open.

Now that Devon has managed to extend by one year its commitment to drill a second well in the Beaufort “there is more time for something that makes sense” to develop, he told Petroleum News.

In the meantime, Devon, after failing to make the hoped-for multi-trillion-cubic-foot discovery this year with its Paktoa C-60 well in the Beaufort has, for a nominal refundable fee, persuaded the Department of Indian and Northern Affairs to move the commitment to drill a well this winter to next.

In any event, Devon had not locked up the steel drilling caisson (SDC) deployed by EnCana in 2003 at the Alaska Beaufort McCovey prospect and used for Paktoa, leaving it with no choice but to postpone its upcoming winter plans, Scott said.

That is emphatically not a sign that Devon has any thoughts of pulling back from the Arctic, Scott said, noting the company remains confident the Mackenzie Gas Project will go ahead.

He said the one-year delay “works well for us” because it narrows the gap between when a well has to be drilled and when gas could be delivered from the Beaufort to market — a prospect Devon has indicated would be unlikely before 2015.

“It just means we have a bit more time on our side and lets us keep our options open,” Scott said, emphasizing that Devon’s objective is to “keep rolling” in the Beaufort.

Devon applying for significant discovery license

Although the C$60 million Paktoa well did not unlock an elephant, Devon is still applying for a significant discovery license that indicates it has found a sufficient accumulation of hydrocarbons to produce at a sustained level, but not enough to provide the economic impetus Devon would have liked.

For all that, Scott said the Beaufort and Mackenzie Delta remain part of Devon’s portfolio of long-term global exploration opportunities that usually receive 20 percent of the company’s capital spending allocation.

The Chevron-BP JV completed two wells that were outside its four exploration licenses in April last year and is applying for significant discovery licenses for both, Murphy said.

The Olivier 2H-01 and 3H-01 wells, which reached depths of 9,765 feet and 8,850 feet, respectively, and cost about C$30 million each, were part of the JV’s initial plans to drill as many as five exploratory wells in hopes of laying the foundation for a new North American supply source.

The company already has interests in 28 significant discovery licenses in the Delta, Beaufort and Yukon, while BP has interests in more than 20 such licenses in the Beaufort and Arctic Islands.

Explorers want fair access to Mackenzie gas line

All three companies are among six Mackenzie explorers trying to persuade the National Energy Board to take regulatory control over the entire gas-gathering and the Mackenzie Valley pipeline that are part of the Mackenzie Gas Project, placing regulation of tolls and tariffs under the board.

Imperial Oil, the chief Mackenzie proponent, is arguing at a board hearing that the gathering system should fall under the Canadian Oil and Gas Operations Act, which covers exploration, drilling, production, processing and transportation of gas in the Northwest Territories, while the NEB Act applies to pipelines that cross the territories.

Gerry Farrell, a lawyer for the Mackenzie explorer group, said regulation of the gathering system under the NEB Act is necessary to achieve fair tolls, non-discriminatory service and fair access to transmission systems.

For the foreseeable future, he said the proposed gathering system “is the only economic means of access to new and existing fields in the Mackenzie Delta portion of the basin.”

The board has indicated it will issue a ruling before the end of July.

Scott said that whatever the verdict it is not a consideration in Devon’s drilling plans “at this time,” although what conditions will ultimately apply to accessing the Mackenzie pipelines is “quite important to us.”

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