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Vol. 15, No. 33 Week of August 15, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Giving hope a chance

Chevron succeeds in Beaufort bid, confident region ripe for major discoveries

Gary Park

For Petroleum News

The Canadian section in the Beaufort Sea is making a rapid comeback as an exploration frontier after stagnating for most of the last two decades, giving added hope to those who cling to hope of eventual Arctic development.

Coinciding with word that Imperial Oil (69.6 percent owned by ExxonMobil), ExxonMobil Canada and BP have formed a joint venture to pursue almost C$1.8 billion in work commitments on two adjoining parcels, Chevron Canada Resources has emerged as the successful bidder for a parcel directly west of the joint-venture properties.

It made a successful bid of C$103.3 million for 509,000 acres in deep water about 60 miles north of Herschel Island.

Chevron Canada Vice President David MacInnis said his company is signaling its “commitment to advancing the potential of the Beaufort as a future oil and gas producing region for the company.”

He said Chevron is confident major oil and gas discoveries could be made in the Beaufort, contributing to its growth strategy.

Work is already under way to develop a seismic program for submission to the National Energy Board, although Chevron will not comment at this stage on when drilling might take place.

The company is required to make its promised investment of C$103.3 million within five years to extend the term by another four years. If it makes a find it can apply for a significant discovery license, which effectively gives it indefinite tenure over the lease.

Asked if Chevron is open to a partnership for its new parcel, MacInnis said “anything is possible.”

He noted that the company already has interests in 10 Beaufort discoveries, including a 33 percent non-operator role in the 1984 Amauligak find, which is estimated by the National Energy Board to hold 235 million barrels of oil and 1.36 trillion cubic feet of gas and is operated by ConocoPhillips Canada. It also has 13 percent of the nearby Issungak discovery.

Geologists have calculated that the Canadian Beaufort could have 100 structures trapping substantial amount of oil and gas.

MGM bolsters holdings

The latest bidding round, conducted by Indian and Northern Affairs Canada, saw northern explorer MGM Energy bolster its Mackenzie Delta holdings by landing four parcels covering a combined 718,000 acres for work commitments totaling C$5.7 million.

It also made a successful bid of C$1.7 million for almost 200,000 acres in the Central Mackenzie Valley in the Colville Lake area, at the same time it is weighing the prospect of drilling an oil well this winter in the vicinity of an existing, under-utilized Enbridge crude pipeline from Norman Wells to northern Alberta.

Having stopped its Mackenzie Delta drilling last winter when faced with an indefinite wait for a final decision on the Mackenzie Gas Project, MGM turned to gathering seismic data from its Great Bear River property at a cost of about C$1 million.

It said an oil exploration program is possible at Great Bear, depending on results of the seismic program and access to market capital.

Otherwise, MGM said it does not anticipate any drilling or seismic activity during the upcoming winter, although operating plans will not be finalized until later this year.

John Hogg, MGM’s vice president of exploration and operations, told the Canadian Broadcasting Corp. that the C$1 million to C$2 million his company bid for the individual parcels is a bargain compared with the C$20 million to C$40 million it would have paid five years ago.

He said that is partly tied to uncertainty over the Mackenzie Gas Project and a loss of faith among some of the larger companies in the process.

Fresh hope

But observers suggest that the pursuit of offshore prospects by companies such as ExxonMobil, Imperial, Chevron and BP gives a fresh injection of hope to the outlook for development of the Mackenzie Delta and Beaufort.

However, Beaufort exploration plans hinge on results of a comprehensive review of Arctic offshore operations, which are expected to face an NEB hearing later this year.

MacInnis said Chevron will participate in that process, suggesting “new methods for ensuring responsible development of the northern resources.”

Chevron, BP and Imperial are urging the federal regulator to consider alternatives to its requirement, introduced in the 1970s, for equipment to be in place to drill a relief well in the same year that any oil spill occurs.

Chevron has also indicated it is developing a new-generation blowout preventer which it believes would make relief wells unnecessary.

The Inuvialuit Regional Corp., an Inuvik-based economic development body, has pressured the Canadian government to ban offshore activity, including lease sales, until the NEB review is completed.

The Inuit population of the region, which relies heavily on hunting and fishing for a livelihood, is concerned that a Beaufort blowout would be disastrous for local residents.

Concern about relief drilling

The environmental concerns, spawned by BP’s Macondo well blowout in the Gulf of Mexico, have been further fueled by the release of background material prepared for NEB Chairman Gaetan Caron, which suggest ice conditions and equipment limitations effectively mean it could take up to three years to drill a relief well in the Beaufort.

Obtained by Postmedia News under the federal Access-to-Information Act, the briefing notes which Caron used in an appearance before the House of Commons Natural Resources Committee in May leave the impression that companies dealing with a Beaufort blowout would be unable to drill a relief well in the same season a spill occurred.

The notes say that a relief well would need 100 to 120 days to complete, but ice vessel capabilities “mean that an operator would likely not have a continuous period to drill a well.”

In his appearance before federal legislators, Caron wavered when asked if the NEB believed it was possible to drill a same-season well.

“We have to examine that in detail, with a technical focus based on evidence, based on the best technical expertise around the world, and we’ll apply that to Canada when we find it. We do not have that today,” he said.

The NEB became regulator of Arctic offshore drilling in 1991, but has not authorized a Beaufort well since 2004 when Devon Canada got permissions to drill for gas in a water depth of only 36 feet. Its Paktoa C-60 well ended up striking oil.

The briefing notes for Caron said the Mackenzie Delta Spill Response Corp., a nonprofit organization that would be involved in a cleanup operation, has “no offshore capability.”

The support vessels and equipment that were available in the 1970s and 1980s have been either sold or mothballed over the past 20 years due to the hiatus in Beaufort drilling other than Paktoa C-60.

According to the internal documents, the NEB also allowed Devon to install an alternative well-kill system as an extra precaution, along with Paktoa’s blowout preventer. Devon was allowed to carry out a demonstration of the device after completing its exploration work and shutting the well.

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