Devon: Pipelines could bring Yukon boom

Huge independent looks past territory’s rough edges to attractive prospects for oil, gas reserves; says infrastructure needed

Rose Ragsdale

Petroleum News Contributing Writer

Getting oil and gas producers to sink investment capital into Yukon Territory won’t be easy, but it can be done, says an executive with Devon Canada Corp. The Canadian arm of Oklahoma-based Devon Energy Corp. has spent $40 million to drill one gas well and an undisclosed sum to drill another in this remote region since August 2004.

“We operate the only gas field in production in the Yukon, and we’re the only company to drill oil and gas wells in the Yukon in recent years, said Michel Scott, a speaker at “Opportunities North 2005,” a conference and trade show held in Whitehorse Sept. 20-22.

“Yes, there’s been some activity in oil and gas in the Yukon, but it’s going to be difficult to get more activity until we do something to get more access to markets,” observed Scott, who serves as Devon Canada’s vice president for government and public affairs.

Yukon Territory has abundant petroleum resources to attract investment, including an estimated 20 trillion cubic feet of natural gas, according to government geologists.

But only 73 wells have been drilled in the territory since 1958. “The total is less than what’s drilled in Alberta on a slow day,” Scott said. One of North America’s largest independents, Devon has 29 percent of its roughly 2 billion barrels of oil equivalent and 26 percent of its 600,000 barrels a day of oil and 2.268 billion cubic feet a day of gas production in Canada.

Most of Yukon’s wells were drilled in the 1970s after Prudhoe Bay was discovered in Alaska in 1969. Gas output peaked in the territory in 1999 at 60 million cubic feet a day.

Scott observed that as things stand today, southern Yukon presents the best opportunities for oil and gas activity.

Exploration yields mixed results

The new well joined two others on line, contributing enough gas to boost Devon’s declining Yukon gas production to 29 million cubic feet per day from 12 million cubic feet, Scott said.

However, that single well was expensive, costing about $40 million once tied into the pipeline. “It cost about twice what it would have in a green area of B.C.,” he said.

Devon also drilled an unsuccessful exploratory well in February on its 270,000-acre leasehold near Eagle Plains in the northern region of the territory. Completing this 1,278-meter well took 41 days and presented unexpected logistical challenges resulting in high costs, Scott said. In short, there were few local businesses to hire services, which meant extensive planning and importing manpower and equipment from more populated areas to the remote well site, Scott explained.

Though he declined to say how much Devon spent on the Eagle Plains well, he did say it cost five times what a comparable penetration would have cost in a green area of B.C. “The Eagle Plains well is close to the Dempster Highway, but it still presented a challenge, and we underestimated that challenge,” Scott explained. “We think it’s possible to chop costs in half next time with better planning.”

Devon is not alone in expressing interest in the Eagle Plains area. Northern Cross, a small oil and gas independent, owns three producing oil wells in the region near the Dempster Highway.

“We’re hoping to market oil production from them locally as diesel and other fuels using trucks,” David Thompson, president of Northern Cross Energy Ltd., told Petroleum News Sept. 21. Yukon Territory is believed to contain a resource of at least 920 million barrels of oil.

Government has work to do

“Until we see solid movement on the Mackenzie Valley pipeline, it’s not worth it for us,” he told an audience of 200 gathered at the High Country Inn Convention Center Sept. 21.

Among areas Scott says need attention in the Yukon:

• Ability to compete on a world scale for capital;

• “You’ve got to be concerned how your royalty regimes match up,” he explained. “High energy prices bring new sources of competition. This means you also will be competing with unconventional gas plays south of the 60th parallel. Still exploration is moving north.”

• Clarity and timeliness in regulatory requirements;

• Surface and subsurface access on known and sustainable basins for at least 20 years: “Access to land is critical, and that’s crown land and First Nations land,” he said.

• Adequate infrastructure — but that will come with increased oil and gas activity, he said; and

• Access to markets.

“Mobilization costs for one well are tough to stomach when you don’t know when or how you’re going to get your production to market,” Scott said.

“We need both the Mackenzie pipeline at the northern end of the territory, and we need the Alaska Highway pipeline at the southern end,” he said. “Other basins like the Whitehorse Trough will need to wait on the Alaska pipeline.”