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Vol. 11, No. 39 Week of September 24, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Beyond the Delta

Imperial reviews Beaufort Sea discoveries, says part of on-going work

Gary Park

For Petroleum News

Imperial Oil is thinking beyond the Mackenzie Gas Project, but not with the current thought of tying its larger Arctic natural gas resources to a Mackenzie Valley pipeline.

Its geologists are taking a fresh look at a slew of big-time discoveries made in Canada’s Beaufort Sea during the 1960s and 1970s, Imperial Senior Vice President Paul Smith told a Peters & Co. conference.

He said the company, 69.6 percent owned by ExxonMobil, wanted to advise shareholders and potential investors that if the Mackenzie infrastructure is built “those kinds of resources can be developed.”

However, company spokesman Pius Rolheiser cautioned against making any direct links between the evaluation of Imperial’s holdings north of the Mackenzie Delta and the proposal now before regulators to build a Mackenzie Valley pipeline.

He told Petroleum News Sept. 18 that the Mackenzie project is confined to the three Delta anchor fields, which hold 6 trillion cubic feet of reserves (half of them in Imperial’s Taglu field).

Imperial has 44 significant discovery licenses

Imperial, alone, has 44 significant discovery licenses, both onshore in the Mackenzie Delta and offshore, and is the designated operator of 26. (The licenses are awarded when regulators agree with a company’s assertion that it has found an accumulation of hydrocarbons with the potential for sustained production.)

But Rolheiser emphasized that the review of the leases outside the Delta is “not a major new effort.”

Instead, it is part of an on-going effort that could involve such matters as maximizing value, consolidating leases or divestment/acquisition plans, or re-looking at assets in the light of advances in technology.

The Mackenzie project has always been seen as the springboard to opening the Mackenzie-Beaufort gas basin, which the National Energy Board believes holds 9 tcf of discovered and 52 tcf of undiscovered resources, and eventually tapping 40 tcf of discovered and undiscovered resources in the Arctic Islands, where Imperial holds 1 million acres of leases.

Devon filing for discovery license

Imperial Chief Executive Officer Tim Hearn recently hinted at extending Arctic exploration into the shallow Beaufort in particular following Devon Canada’s drilling earlier this year of the first Beaufort exploration well in 16 years, a C$60 million well that Devon Energy President John Richels said “encountered hydrocarbons but not the trillions of cubic feet of natural gas we were looking for,” although the company is filing for a significant discovery license.

Whether Devon continues with the rest of its Beaufort program hangs largely on if and when the Mackenzie pipeline is built.

Smith conceded there are “many barriers to cross before we are able to see the true potential of (the Arctic) resources, but they remain another future source of production in our diverse and high-quality resource portfolio.”

He said the Mackenzie project, while the most advanced undertaking Imperial has in the Arctic, only opens the door to “this exiting region (which) extends far beyond the Delta of the Mackenzie River.”

Beaufort finds shelved for lack of pipeline

The Beaufort finds were made with a major infusion of federal government incentives, but got shelved when hopes for a pipeline from the Delta were postponed and gas prices slumped.

On the Mackenzie project, Smith gave an upbeat assessment of the outlook, strongly indicating that despite delays and continuing resistance from the Deh Cho First Nations Imperial is concentrated on moving ahead.

“Once we have regulatory approval to proceed and better understand the economic conditions, we will be in a position to make a decision on the project,” he said.

Smith said “much progress” has been made in the past year, notably the start of regulatory hearings by the National Energy Board and Joint Review Panel that are expected to involve 150 days in 26 communities when they wrap up.

However, given the panel’s request to stretch its hearings from mid-December into 2007, final regulatory verdicts are not expected before late 2007, Smith said.

Otherwise, negotiations continue on “benefits and access agreements” and “substantial progress” has been made with four of the five First Nations groups, he said.

The intention remains to reach a deal with the Deh Cho and “to have those agreements fully ratified and executed,” he said.

“We are encouraged by the recent Deh Cho land claim settlement offer tabled by the federal government, which could help clarify land issues and progress discussions between the Deh Cho and the Mackenzie project,” Smith said.

On the cost-inflation front, which some analysts suggest will see the Mackenzie budget climb from C$7.5 billion to C$10 billion when updated numbers are released later this year, Smith said the project is facing the same cost and schedule pressures as all major energy ventures “brought on by unprecedented global demands for energy infrastructure.”

“The upfront capital costs for frontier projects are significant and the Mackenzie Gas Project is facing upward pressure on costs, including commodity pricing for equipment, steel, labor and fuel, with an unprecedented regulatory process.”



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