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Clearing way for Canol shale Infrastructure, regulatory streamlining gain attention as activity picks up in Central Mackenzie; development could be 5 years away Gary Park For Petroleum News
Although commercial development of the Devonian Canol shale play in the Central Mackenzie Valley of the Northwest Territories is as far as five years down the road, the pressure is building to start planning for major oil and natural gas pipelines and to relieve a regulatory bottleneck in Canada’s North, according to key players in the region.
John Hogg, vice president of exploration and development with MGM Energy, told a symposium in Calgary that if the Canol play takes off producers would need significantly more capacity than is currently available on Enbridge’s existing Norman Wells oil pipeline to northern Alberta.
That system can carry up to 39,500 barrels per day, but is currently down to 13,000 bpd as the productive life of Imperial Oil’s Norman Wells oil field continues to wind down after yielding about 300 million barrels.
However, Hogg said the Enbridge line is “nowhere near big enough”, while the region does not have a gas line and “we’re going to need one of those too.”
He said the question that is looming is how fast Enbridge or TransCanada could build pipelines and what size would be needed.
“The next couple of drilling seasons will really tell us what the potential of this play is,” Hogg said.
Approval time a challenge Adding to the challenges is the length of time it would take to gain approval to twin a line that already exists, he said, noting that it currently requires six to 15 months for MGM’s regulatory group to obtain a permit for an exploration well, compared with six to eight weeks in Alberta.
Hogg said MGM is involved in only one or two wells a year, asking: “What happens if we go to development and we want to drill 20 or 30 wells a year?”
He said that if the Canol is deemed commercial, year-round drilling would dramatically reduce costs, assuming the Canadian government and industry build a road to Norman Wells, estimating that one-third of the drilling costs in the Central Mackenzie Valley are spent just getting to the site, including the use of a 240-mile ice road.
Hogg said the answer is to build all-weather roads as Husky Energy is doing this winter, overcoming the loss of ice roads in the spring melt and the constant maintenance to support heavy trucks.
Some help could be at hand if the Canadian government strikes a deal to transfer control over land, resources and water to the Northwest Territories government, ending years of inconclusive negotiations.
NWT officials in Ottawa A large delegation from the NWT government, including Premier Bob McLeod, spent two days in Ottawa at the end of January meeting Prime Minister Stephen Harper and federal officials.
McLeod entered the meetings in an upbeat mood, suggesting the NWT is “on the verge of achieving devolution (of powers). We are advancing on many fronts. It seems like everything is coming together.”
The prospect of a breakthrough is especially important for the mining industry, which the Conference Board of Canada predicted could see the value of output rise to C$1.3 billion in 2020 from C$732 million in 2011, with five new mines scheduled to open over the next four years.
A spokesman for Aboriginal and Northern Affairs Minister John Duncan said his government is determined to reach a deal “which will be an important and positive step in the evolution of Northern governance and will deliver economic benefits to the NWT.”
The NWT government is confident that devolution will ease the regulatory burden that has been identified by Hogg and others as a barrier to development of the NWT’s vast oil, natural gas and hydro-electric resources.
With four of seven aboriginal governments in the NWT having signed agreements-in-principle on devolution, McLeod believes there is sufficient backing from native communities to proceed if a pact is reached with the federal government.
MGM, Shell drilling In the meantime, MGM, with Shell Canada as a partner, has spudded its first vertical exploration well in the Canol play, estimating it will take until about mid-February to drill, core and log.
Once drilling has reached target depth of about 6,700 feet, the well will be completed in the Canol and Bluefish zones and flow tested — operations that MGM hopes to complete by the second week of March.
Husky drilled two exploration wells last winter and plans to repeat the effort this winter.
MGM, Shell and Husky have joined ConocoPhillips and Imperial Oil in forming an explorers’ group because, in Hogg’s words, “we need to have synergies and share.”
He said results from MGM and Husky drilling this winter should provide some clarity around oil and gas rates.
Although it will be difficult to achieve a stabilized flow over a short period of time “at least we’ll get a sense of what the gas-oil ratio is. That’s the critical element that we would all like to know.”
Conoco spuds In addition to the MGM and Husky drilling, the National Energy Board has reported that ConocoPhillips spudded an exploration well Jan. 26 and has approval for two more wells.
The conference, sponsored by CI Energy Group, also heard Colleen Sherry, senior tight oil regional geologist for Vermilion Energy, draw similarities between the Horn River Basin of northeastern British Columbia and the Central Mackenzie Valley shales.
She and Roy Benteau, petrophysical advisor for Vermilion, had identified the Canol play when looking to replicate the Horn River in the oil window, but their company opted not to post the land, leaving MGM to snap up a large portion of the rights.
“Everything that is working in the Horn River you can now start to look for in the Canol and your opportunity for development starts to move forward,” Benteau said, describing the larger pores in the Canol as similar to what might be seen in the Eagle Ford in Texas.
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