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Hunt for gas in Canada’s far north is hot again
Gary Park, PNA Canadian Correspondent
The Western Canada sedimentary basin — still the dominant source of Canada’s oil and gas riches after 50 years of being exploited — spreads its way across Saskatchewan, Alberta and eastern British Columbia before edging like a thumb-tip across the 60th parallel into the southern Northwest Territories and Yukon.
That northernmost finger nail has suddenly become one of the hottest gas plays in North America after three huge gas discoveries in the space of a year.
Lured by the finds totaling more than 1 trillion cubic feet, a mix of majors, senior independents and little-known juniors are swarming into the region, poised to spend hundreds of millions of dollars and setting the stage for a showdown between two pipeline giants, TransCanada PipeLines and Westcoast Energy.
The magnet has been the discoveries in the NWT’s mountainous, high-risk Liard Valley:
• In March 1998, Ranger Oil and partners, including Unocal Canada, announced the discovery of gas well P-64, flowing 16 million cubic feet a day from reserves estimated at 200 billion cubic feet.
• In March-May 1999, Chevron Canada Resources and its nine partners announced their C$16 million, K-29 discovery, estimating production at up to 100 million cubic feet a day from about 600 billion cubic feet of reserves.
• In May 1999, juniors Berkley Petroleum and Paramount Resources reported their F-36 well was testing at 45 million cubic feet a day and capable of producing 250 billion cubic feet.
Chevron find fifth best of 74,000 wells Daily output at 100 million cubic feet from Chevron find would place it fifth among the 74,000 wells drilled in Canada. But Chevron, respected among analysts for its caution, was careful not to over-react.
Randy Dahlman, Chevron’s Fort Liard exploration and development manager, said time is need to evaluate recoverable reserves and decide whether to drill a second well. Others were less restrained.
Jan Horejsi, senior vice-president at Ranger, said the Fort Liard region has the potential to be “an international play.”
“It’s huge; it’s a company maker for sure,” proclaimed Jan Alston, president of Purcell Energy, which was first to hit on the Liard play and has 24 percent of K-29.
Wilf Gobert, an analyst at Peters & Co., forecast a “dramatic” surge in NWT activity over the next five years. “How can any big company ignore these developments?”
John Mawdsley, an analyst with FirstEnergy Capital, said pools of 100 billion cubic feet must be found in the North to justify spending C$10 million to C$30 million on a well. But he said the maturing Western Canada sedimentary basin is forcing companies northward as they try to breathe new life into a basin “a lot of people feel is over drilled.”
Confidence in the region’s future was reinforced in an Arthur Andersen survey of 53 leading Canadian oil and gas chief executives, with 21 percent — compared with 5 percent in 1998 — rating the North as having the greatest potential for new gas reserve discoveries.
A few voted with their wallets, notably Berkley which has a 21 percent working interest in the K-29 well, 50 percent in the F-36 well and 33.3 percent of an additional 50,000-acre exploration license where K-36 was discovered.
The Calgary-based junior said it will invest up to C$100 million more on NWT exploration and development programs over the next 12 months, targeting pools in the 250 billion to 600 billion range.
Turf war between pipeline projects Talk of connecting the finds to Canadian and US markets by mid-2000 has triggered an instant turf war between Westcoast and TransCanada.
Westcoast wants access to the gas to support its 23.6 percent stake in the C$4.5 billion Alliance pipeline and its shipping commitment of 66 million cubic feet per day. It gained the initial edge by signing an agreement with the Acho Dene Koe Band to develop a pipeline and processing infrastructure.
TransCanada quickly countered by obtaining NWT government backing to extend its huge Alberta network into the NWT in a bid to head off Westcoast.
Subject to regulatory approval, it also promised to spend C$100 million on the project, building a 200 million cubic feet per day line, ready for service by April 2001.
With 1 trillion cubic feet already discovered in the Liard Valley and the potential for another 3 trillion to 5 trillion cubic feet, TransCanada’s senior vice-president of northern development Bob Reid said: “It’s the dawn of a new era in terms of the focus we’re going to place on the north.”
The eight companies forming the Liard Valley Producers Group want an early resolution of the issue before it becomes bogged down in a jurisdictional and legal wrangle and some are hoping to start shipments in mid-2000. But they have carefully avoided choosing between TransCanada and Westcoast.
Investment activity spurred Meantime, discoveries have spurred action from a number of directions.
• Gulf Canada Resources sees any pipeline reaching into the NWT as reigniting its 20-year hopes of connecting the Mackenzie Delta to southern markets. Further prompted by bullish gas price forecasts, Gulf believes the 1970s discovery of 2.4 trillion cubic feet — plus 12.7 trillion cubic feet offshore — is even economic at today’s prices. It is fast-tracking internal studies of the market outlook, new pipeline technologies and growing infrastructure development to assess the development prospects. Its hopes have been lifted by TransCanada’s pledge to eventually build a pipeline to the Delta if it wins the Liard battle.
• The Canadian government is inviting bids for 1.79 million acres on four offshore parcels in the Mackenzie Delta-Beaufort region. Licenses will be issued on the basis of work commitments and will last until September 2008.
• The Yukon, hoping the neighboring NWT finds will help establish mutually beneficial infrastructure, has issued a call for bids for Eagle Plains basin and Peel plateau in north-central Yukon, the territory’s first such offering in more than 20 years. The area contains 500 billion cubic feet of gas and 9.5 million barrels of oil already identified. But aboriginals are still refusing to allow the Yukon’s portion of the Liard region to be included in a nomination round, although progress is being made in settling 14 Native land claims.
The latest breakthroughs aside, there is not yet a universal stampede to the North. Imperial Oil, Canada’s largest integrated petroleum company and a partner with Shell Canada and Gulf in half of the Delta’s discovered 12.2 trillion cubic feet of gas and potential 65 trillion cubic feet, has turned the heat down. “It’s a future project,” said company spokesman Hart Searle. “It’s hopefully a resource that at some point we can more intensely develop.”
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