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British Columbia gas strikes among Canada’s largest Early tests reveal gushers, but run afoul of a fur trapper, gossip at a social hockey game and a flurry of lawsuits Gary Park PNA Canadian Correspondent
It’s rated one of the hottest natural gas plays in North America and it’s caught up in a tangle of intrigue.
The Ladyfern area of northeastern British Columbia has generated what are claimed to be two of the 10 largest onshore finds in Canadian history, unprecedented response at recent land auctions and a C$6.1 billion lawsuit.
It has also become bogged down in regulatory wrangling over its impact on the livelihood of a lone fur trapper.
But, for now, the industry is riveted by tantalizing glimpses into the size of the discoveries over the last year by Murphy Oil and Alberta Energy Co.
Murphy and its 37 percent partner Apache have reported three discovery wells, one testing at 100 million cubic feet per day and now producing at 46 million cubic feet per day, the maximum allowed in British Columbia.
AEC said its discovery well tested at sustained production volume of 60 million cubic feet per day.
Both companies are now pursuing about C$100 million worth of delineation drilling to get a better fix on reserve and production numbers. Until then they won’t offer any projections, although their enthusiasm is undisguised.
“This is a significant well,” said Harvey Doerr, president of Murphy’s Canadian subsidiary.
Randy Eresman, president of AEC Oil & Gas, said his company’s find “is in a region that is home to world-class wells and high-impact reserve additions.”
Some industry analysts have been even less restrained. “This is a hell of a well,” said Wilf Gobert, with Peters & Co., of Murphy’s find. Find close to pipelines Ladyfern is ideally positioned for major growth, being close to the Fort Liard play in the lower Northwest Territories where discovery wells have tested at 130 million cubic feet per day and also close to two major export pipelines — the established TransCanada PipeLines network and the newly opened Alliance system — as well as any future pipelines from the U.S. and Canadian Arctic.
Discovered reserves in British Columbia’s northeast sector are currently placed at 25 trillion cubic feet, with the remaining undiscovered potential rated by the National Energy Board at another 31 to 49 trillion cubic feet.
Optimism is, however, tempered by the complex nature of the region’s geology.
Nels Carlson, a consultant who tracks exploration activity, said 88 wells have been drilled in the area over the past five years and, of those, only 15 percent have reported significant finds.
Martin Molyneaux, research director of FirstCapital Energy, said “it’s not exactly like shooting fish in a barrel,” given the need for deep, expensive wells.
A Murphy spokesman acknowledged the risks, saying the key to hitting pay dirt is finding porous areas of the reef. “It’s a sophisticated hit and miss,” he said.
And, as Murphy has learned, the risks extend beyond pure exploration. Trapper argues against pipeline In seeking NEB approval for a 10-mile loop pipeline to bring its wells on line, Murphy collided head-on with Lee Morin, a trapper who argued a pipeline would encroach on his trap lines and ruin his business. He tied up a regulatory decision for two weeks.
But Kemm Yates, an attorney for Murphy, told the NEB it should consider the public interest, which was more than simply Murphy’s commercial stake. “We are dealing with getting a significant amount of gas to market,” he said.
The NEB sided with Murphy and allowed the pipeline loop to proceed before spring break-up. The alternative was a 200-day delay, costing the British Columbia government up to C$30 million in lost royalties.
Meanwhile, Murphy has become embroiled in a round of suits and counter suits involving Ladyfern.
In documents filed in Alberta Court of Queen’s Bench, it alleged that Predator Energies Partnership “surreptitiously and illegally” obtained confidential information about its discovery.
It said the Predator group used trade secrets and confidential information to outbid Murphy and Apache for an adjacent 2,080 acres, setting off a bidding war that has pushed prices for publicly owned mineral land from C$1,026 per hectare (a hectare is 2.471 acres) in early 2000 to C$7,515 and finally C$15,241 in July. The intense bidding has extended into 2001, with British Columbia now collecting as much in a single land sale as it normally receives in a full year.
Murphy said the damages and interference with its economic relations could exceed C$100 million.
The Predator group retaliated with a C$6.1 billion action against the plaintiffs, accusing them of attempting to destroy its business, claiming compensatory damages and asking the court to intervene in Murphy’s operations in the area.
But a partial settlement has left Predator on its own in the legal fight. Oklahoma-based Ricks Nova Scotia, which held a 75 percent interest in the disputed land, backed out by transferring its interest to Murphy. The remaining 25 percent is being held in trust pending a resolution of the ownership dispute covering 3,500 acres. Information sources in dispute Predator has insisted its land-buying decisions were based on information published last March, when the flow rate from the Ladyfern discovery was placed at 31 million cubic feet per day and the depth of the well was estimated at 9,100 feet.
It also said an employee of Beau Canada, purchased last October by Murphy for C$380.3 million, disclosed significant information about Ladyfern to colleagues in the change room following an oil and gas league hockey game. The employee indicated the well voided 120 million cubic feet per day during a four-day production test.
Predator further claimed that another individual associated with the Murphy joint venture disclosed well pressure data from the test well on the understanding the joint venture did not consider that information to be proprietary or a trade secret.
G. Steven Farris, president and chief operating officer of Apache Corp., Apache Canada’s parent company, accused Predator of engaging in a blatant attempt to “divert attention from the facts.” He said Apache would continue to “vigorously prosecute” the case.
But, for now, Ladyfern and northeastern British Columbia has seized the spotlight as Canada’s liveliest gas play, regardless of the costs and risks.
The number of rigs in the region has quadrupled in three years to more than 100 and the British Columbia government has played an active part in promoting the area, reducing royalties for wells drilled on land purchased before Jan. 1, 2002, to 9 percent from 15 percent, while pledging C$103 million to upgrade area roads.
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