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Exploration activities on Mackenzie Delta heighten gas pipeline optimism Companies roll out winter plans as freeze-up opens door to drilling; Aboriginal Pipeline Group fuels hopes by hinting a financing deal is in the works Gary Park PNA Canadian Correspondent
A surge of exploration activity on the Mackenzie Delta by companies intent on proving up northern gas reserves is bolstering optimism that a deal involving a pipeline along the Mackenzie Valley is drawing closer.
Now that a freeze-up has finally cleared the way to move rigs, Petro-Canada, Devon Canada Corp., Chevron Canada Resources and BP Canada Energy Co. are all ready to participate in winter gas wells on the Delta, while EnCana Corp. and its partners Conoco Phillips Canada Ltd. and Anadarko Canada Corp. have contracted for Delta seismic programs.
In addition, various combinations of Paramount Resources Ltd., Apache Canada Ltd., Canadian Natural Resources Ltd., Devlan Exploration Inc. and Vintage Petroleum Canada Inc. have wells planned for the Central Mackenzie Valley at sites strategically near the expected pipeline route.
All of the companies are among the independents expected to chase new gas reserves to gain an option on pipeline space if the Mackenzie Delta Producers Group — Imperial Oil Ltd., ConocoPhillips Canada, Shell Canada Ltd. and ExxonMobil Canada — takes the next step towards Delta development.
Recent events spur exploration The hopes of the independents are being raised by a convergence of recent events, notably indications that the Aboriginal Pipeline Group is close to obtaining the financial backing to gain a one-third equity stake in a Mackenzie Valley pipeline along with growing anxieties over the gas supply-demand outlook for North America.
“All the signals are there,” said Michel Scott, Devon Canada’s vice president of frontiers, when asked if a decision to proceed with a pipeline is possible this year.
He told Petroleum News Alaska Jan. 7 that Devon is “very encouraged by what’s happening” with the aboriginal group’s negotiations and with the growing emphasis on the need to develop frontier gas.
Ice road construction under way for Nuna well Here’s a breakdown of the known plans for this winter:
• Petro-Canada, as operator, and Devon Canada expect to spud Nuna I-30 in late January. The well, about 45 miles northeast of Inuvik, will probably be drilled to a depth of 11,800 feet. It is about 19 miles southwest and on trend with Tuk M-18, last winter’s discovery well, which was drilled 9,850 feet, tested at a restricted rate of 30 million cubic feet per day and has estimated sustained deliverability of up to 80 million cubic feet per day from recoverable reserves of about 300 billion cubic feet.
A spokesman for Petro-Canada told PNA that the Nuna well is about two weeks later than originally planned because of “unseasonably warm weather,” but “things have frozen up nicely due to a Delta cold snap that began last month and has continued into January.” He said ice-road construction is under way and a rig will be moved mid-month.
• Devon, which inherited major Delta and shallow Beaufort Sea acreage from its takeover of Anderson Exploration Ltd., plans to spud a second shallow gas well north of Inuvik with Petro-Canada and an undisclosed third party, Scott confirmed. He said drilling should start before the end of January.
• Chevron Canada, as the operator of record, and BP Canada hope to spud an C$8 million prospect well in March after completion of an ice road in the North Langley area 60 miles northwest of Inuvik and 60 miles west of Tuktoyaktuk. The partners are hopeful they will acquire “good information” from the well, which is expected to take one month to complete. Chevron and BP gained access to the property through a farm-in deal with Burlington Resources Canada Ltd.
• The EnCana-ConocoPhillips-Anadarko partnership has contracted for about 150 miles of two-dimensional seismic and up to 40 square miles of three-dimensional seismic over two Delta exploration licenses. Other seismic activities have largely been sidetracked by the fall decision of seismic joint venture WesternGeco to close its land operations in Canada and the Lower 48.
• ConocoPhillips and Shell Canada are continuing to evaluate seismic shot last winter, while ConocoPhillips has embarked on engineering work on the Parsons Lake gas discovery of 3.2 trillion cubic feet made by Gulf Canada Resources Ltd., which was bought by Conoco in mid-2001.
• Devlan Exploration hopes to complete and test three gas wells drilled two winters ago directly adjacent to the Mackenzie Valley pipeline route, while spudding one new well on the 1.07 million acres (net 636,462 acres) it holds in partnership with Vintage Petroleum Canada in the Grandview Hills area of Peel Plateau. If the gas prospects yield significant reserves, Devlan has identified about 150 locations for further drilling.
• Canadian Natural Resources plans three gas wells on its leases at Colville Hills northeast of Norman Wells, the most northerly producing oilfield in Canada. The company has indicated it may drill 40 wells over the next five years, proving three structures believed to have reserve potential of up to 250 billion cubic feet.
• Paramount Resources and Apache Canada, alternating the operator role, intend to drill two gas wells south of Colville Lake, with projected deliverability of up to 10 million cubic feet per day. They will likely drill to about 8,200 feet, spudding the first well about the third week of January, said Hugh Klassen, corporate operating officer at Paramount.
Financing news possible by mid-January Alongside the flurry of exploration activities, perhaps the most crucial breakthrough of all seems within sight.
Earlier this month, Aboriginal Pipeline Group chair Fred Carmichael was reported by Canadian Press as saying a “good news” announcement is possible by mid- to late-January on the financing needed to secure one-third Native ownership of the proposed C$3 billion Mackenzie Valley pipeline.
Having been rebuffed in November by the Canadian government in its bid for federal loan guarantees, the aboriginal group, while still negotiating with the government, has pursued other options, including a possible deal with the private sector.
It is believed that if the group can arrange C$300 million, it could obtain the balance through banks.
Aboriginal backing imperative But without the backing of the Aboriginal Pipeline Group, which represents all but one of the aboriginal groups affected by a pipeline right of way, Delta gas development and a pipeline would face the same impasse as 20 years ago when aboriginal opposition and uncertain economics saw the project shelved.
Meanwhile, the case for Arctic gas is rapidly gathering momentum as industry experts and government agencies warn of tightening North American supplies, galloping exploration costs and the looming prospects of price volatility. Replacing production a concern Against a background of the highest prices in almost two years, which carry reminders of the record values in early 2001, the Arctic is again in focus as a vital source of long-term volumes.
A Canadian gas insight report issued by Lehman Bros., the global investment bank, bluntly warned that unless the industry shifts its spending to more expensive, less mature areas of the Western Canada Sedimentary Basin it will become “increasingly difficult to offset production declines” in the region.
The study noted that overall Canadian gas production — which meets about 15 percent of U.S. demand — was down about 0.5 percent in 2002 and faces another decline of 2 to 4 percent in 2003.
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