Central Mackenzie gears up

Husky to spud two exploratory wells; MGM Energy eyes following winter for shale oil well; activity could rescue NWT from doldrums

Gary Park

For Petroleum News

Husky Energy and an MGM Energy-operated partnership are wasting no time rolling out exploration plans for parcels they acquired in July at a record bidding auction for the Central Mackenzie Valley.

Their preliminary moves lend added weight to speculation that the onshore Northwest Territories could be on the verge of an oil boom, restoring economic hope to a region that has seen dreams of a Mackenzie Gas Project flourish and falter over the last decade.

The evolution of horizontal drilling and well fracturing technology has opened the door to possible significant crude oil formations that generated C$536 million in work commitments for 11 parcels, with Husky startling observers by bidding C$376 million for two wholly owned adjacent parcels totaling about 434,000 acres.

Husky said Nov. 3 it has signed access and benefits agreements with First Nations in the region opening the way to exploration and expects to start drilling two wells in February 2012.

MGM plans shale oil well

The junior explorer said the lands acquired last summer along with an existing exploration license are prospective for multiple Devonian-aged shale oil plays at depths of about 2,500 feet to 8,200 feet.

The partnership acquired three licenses at the latest sale totaling about 628,000 acres for a gross work commitment of C$5 million, with the parcels lying within 20 miles of Enbridge’s existing 40,000 barrels per day pipeline from Norman Wells to northern Alberta. Currently, only about one-third of the pipeline capacity is being used.

MGM President Henry Sykes said in a statement his company is “very excited” about opportunities that the emerging play provides.

The company said it will continue geological and geophysical work on the parcels to determine drilling locations, but will forgo any drilling or seismic activity on its natural gas prospects in the Mackenzie Valley during the upcoming winter, although it will recommence activity if there is any progress on a Mackenzie Valley pipeline.

Husky will drill vertical well first

However, he said Husky will take a “very rigorous” approach to developing those prospects, initially drilling a vertical well to be “clear about the potential.”

Peabody said that outside of its oil sands operations, Husky expects its Western Canada resource play development will gain prominence, adding to the current daily production of 160,000 barrels of oil equivalent.

“Our strategy is to continue to shore up that solid foundation by repositioning our investment into an emerging portfolio of oil and liquids-rich gas resource plays,” he told analysts.

Currently, Husky is heavily focused on about 900,000 acres of resource lands, which include the liquids-rich gas prospects at Ansell, Kaybob and Kakwa.

Seismic data

Although gas exploration in the NWT has been shelved over recent years by the languishing Mackenzie Gas Project, owners of that project’s anchor fields — Imperial Oil, ExxonMobil Canada, ConocoPhillips Canada and Shell Canada — all joined Husky this year in making successful bids for Central Mackenzie rights.

Husky has made the most decisive moves in the Central Mackenzie, but ConocoPhillips Vice President Clayton Reasor said his company’s successful bid of C$66.7 million for 216,000 acres is targeted at an unconventional “Canol shale play,” with the emphasis on liquids, not gas.

Geologists have pointed to two formations named Canol and Hare Indian which underlie land around the communities of Norman Wells and Tulita and that some suggest could hold more than 1 billion barrels of recoverable crude. The rock could also yield gas liquids such as propane, ethane and pentane.

McLeod to lead NWT

He headed off two other candidates in a secret ballot to gain the support of his 18 fellow members of the legislature, which has no political parties and is run by consensus government.

McLeod, who was formerly minister of industry, trade and investment and is seen as a consensus builder, said his priorities are to attract new investment to a struggling economic region, diversify the economy, find answers to the NWT’s high cost of living and shortage of affordable housing, resolve unsettled land claims for aboriginal communities and accelerate a prolonged process to transfer control of the NWT’s lands, resources and royalties from the Canadian government.

There is a broad agreement that unless the NWT has control over its land, water, wildlife and resources the approval process for major infrastructure projects, such as the Mackenzie Gas Project, or MGP, will deter future investment in its vast mineral and petroleum riches.

Declining population

McLeod wasted no time deciding to retain his oversight of the MGP, which is bogged down in negotiations between the proponents and Canadian government over a fiscal agreement and is lagging so far behind the behind the development of shale gas in North America that analysts question whether the project will proceed this decade.

Peter Tertzakian, with ARC Financial, said the MGP has “long-term merit, but the structural disruption of shale gas diminishes its viability.”

Brendan Bell, McLeod’s predecessor in the MGP post, told the Canadian Press news agency in October that the transfer of power from the federal government is the first issue facing the legislature.

He said there is a consensus among legislators and within the NWT that the region should “look and act and feel a lot more like a province, with more responsibility and authority over lands and resources.”

But that move hinges on the contentious issue of how much responsibility is given to the public government and how much to aboriginal governments, Bell said.

—Gary Park