Northwest Territories Industry Minister Dave Ramsay has fired the starting gun for a return to drilling in the Canadian Beaufort, but lead player Imperial Oil has remained in the starting blocks, mulling its next move.
After mixing and mingling with industry decision-makers at the Arctic Technology Conference in Houston, Ramsay felt confident enough to predict that the partnership of Imperial, ExxonMobil and BP is “very optimistic about moving things forward ... sooner rather than later,” and might be ready to submit a regulatory application in summer 2013.
Imperial spokesman Pius Rolheiser was much more circumspect, telling Petroleum News his company was not ready to confirm it intends to shrug off years of inactivity in the region and move to the drilling stage.
“We continue to assess options and develop plans for potential further exploration activities,” he said.
Ramsay is also certain that oil will be the primary target if exploration goes into full swing, based on estimates that the Canadian section of the Beaufort holds 90 billion barrels of recoverable oil, but Imperial is sticking to its traditional line, refusing to choose between oil and natural gas.
He said the key players in the Canadian Arctic are “anxious to move forward and are looking at the Beaufort as an opportunity” to ship oil to southern Canadian and United States markets.
Ramsey touts potential
That prospect would be bolstered if there was a major find in the Canol shale play of the Central Mackenzie Valley, he said.
Ramsay is so bullish on the Beaufort that he told delegates at the Arctic Technology Conference in Houston in early December that “based on geological analyses from the U.S. Geological Survey as well as our own advisers, the potential discoveries (of oil and gas) in the waters off the coast of the NWT may rival the Gulf of Mexico.”
But he conceded that the first commercial development is more likely to come from the Central Mackenzie Valley, not the Arctic coast.
“Experts have told us there are billions of barrels in the Central Mackenzie Valley,” where tests have pointed to oil containing 20 percent to 60 percent liquids-rich gas, Ramsay said.
The hiatus in drilling Canada’s Arctic offshore stems from a review of rules for Arctic offshore drilling, a process that was blindsided by BP’s Macondo well blowout in the Gulf of Mexico.
Confidence in the industry’s ability to safely explore and develop Arctic resources was further jolted when Royal Dutch Shell was forced stop work on one offshore Alaska well due to encroaching ice and held off completing its other wells.
That adds to the pressure on Imperial and its partners to convince Canada’s National Energy Board that they have the technology to arrest any undersea blowout.
3-D seismic gathered
Rolheiser said the joint-venture trio gathered 3-D seismic data from their two large exploration blocks in 2007 and 2008, formed their partnership in mid-2010 and this year participated in geotechnical and environmental baseline work along with ArcticNet, an international network of scientists from universities and governments.
He said that Aboriginal Affairs and Northern Development Canada issued new exploration licenses to the partnership this year because of delays caused by the Arctic offshore review, effectively restarting the clock that gives the companies until 2019 or 2020 to start drilling and secure extended rights to the Beaufort permits if a significant discovery is reported.
Imperial has also been coy about whether it will conduct drilling from an ice-strengthened ship.
Of the two licenses, BP acquired one in 2008 for a work commitment of C$1.18 billion, while sister companies Imperial and ExxonMobil obtained their lease in 2010 for a spending pledge of C$585 million.
Central Mackenzie Valley focus
While the Mackenzie Gas Project, designed to ship up to 1.8 billion cubic feet per day of Arctic gas to North American markets, is held up indefinitely pending an improvement in the outlook for gas prices as well as reaching a fiscal agreement with the Canadian government, the focus in Canada’s Arctic has shifted to the Central Mackenzie Valley where spending on roads and well-site preparations is expected to reach C$100 million this winter, Ramsay said.
Key operators in the area include MGM, whose two exploration licenses are under a farm-in agreement with Shell Canada, which has also made a combined work commitment of C$137 million for two licenses of its own. Other leading players are Husky Energy and ConocoPhillips Canada.
Ramsay said any oil discovered in the area would have immediate access to market through Enbridge’s 40,000 barrels per day pipeline, which is currently operating at only 25 percent of capacity. The line from the aging Norman Wells oil field connects with the North American pipeline network at Zama in northwest Alberta.
He said there is also the possibility of a second oil pipeline and a natural gas pipeline, which could potentially carry gas for LNG export projects, being built out of the Central Mackenzie Valley.
MGM ‘very excited’
MGM President Henry Sykes told a recent Peters & Co. conference his company is “very excited” about the extent of activity planned for the Canol this winter, which he described as “significant, given that this play wasn’t on the radar screen two years ago.”
Husky drilled two wells last winter at its lease and completed 220 square miles of 3-D seismic over two exploration blocks adjacent to MGM’s project.
Husky said it plans to further evaluate its two wells this winter and build an all-weather road, which Sykes noted is a “very expensive” undertaking, pointing to a level of commitment to the play.
On the long-quiet Mackenzie Gas Project, Rolheiser said his company still has a scaled-down employee group assigned to the venture.
He said the prospect of “dialogue on a fiscal agreement remains open” if either side wants to restart discussions. “We continue to see it as a viable opportunity under the right economic conditions. We continue to be hopeful.”
—Gary Park
