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THE INDEPENDENTS 2003: Devon Canada loaded with commitments Canada’s northern front-runner has leases in eastern North Slope’s Point Thomson unit Gary Park Petroleum News
Devon Canada gave itself a head start on taking a leading role in the Canadian Arctic when it took over Anderson Exploration two years ago.
For C$7.1 billion (US$5.4 billion), including C$1.86 billion in debt and other obligations, it acquired the largest holding of exploration licenses in the Mackenzie Delta/shallow water Beaufort Sea at 1.8 million gross acres (1.4 million net), along with Anderson’s four-year commitment to Akita Drilling to use a new state-of-the-art, C$18 million Arctic rig.
Following on the heels on the purchase of Gulf Canada Resources by Conoco, before it became ConocoPhillips, that deal radically altered the ownership complexion of the region.
Gulf Canada was already an anchor member of the Mackenzie Delta Producers Group, while Anderson was taking tentative steps to find the gas reserves to commit to a Mackenzie Valley pipeline. They gave way to two U.S.-controlled companies.
Devon Canada, backed by first-half production from Western Canada of 715 million cubic feet per day of natural gas, 36,400 barrels per day of crude and 13,900 bpd of natural gas liquids, plus 20 million gross acres of land holdings, has built a powerful growth platform in Canada, along with its US$781 million deal in 1998 to merge the operations of Northstar Energy. At the same time it paid C$57.5 million to buy gas properties from Wascana Oil and Gas Partnership.
Inheriting Anderson’s ambitious frontier portfolio, Devon immediately occupied a place in the forefront of Canada’s future gas plays. In addition to the Arctic holdings it also became a player in the Foothills along the Alberta-British Columbia border.
While raking in steady returns from its conventional plays, it has decisively stepped up to the plate as the Mackenzie Gas Project emerged from two decades in mothballs and showed signs of finally becoming a reality.
In keeping with spirit of Anderson That was in keeping with the spirit of J.C. Anderson, the plain-spoken founder of Anderson Exploration.
Referring to the Akita program, he said: “We have no assurance that we will benefit financially from our efforts, since we are involved in exploration in its purest sense. That is, we are still at risk.
“I assure you, it takes an unusual amount of courage to be an explorer and to lay your ideas and capital on the line with no assurance of a return, although we are confident that we will be successful (in the Arctic).”
Walking the talk for Devon has involved partial success, some disappointment and a daring move to stretch the exploration horizon.
In partnership with Petro-Canada it drilled the Tuk M-18 well in 2002, following up a discovery by Imperial Oil 18 years earlier, and projected deliverability of 60-80 million cubic feet per day from recoverable reserves of 200-300 billion cubic feet.
However, three other exploration wells over the 2000-01 and 2001-02 winters were essentially rated as dry holes; the F-29 well last winter found structure but was wet and has been classified as unsuccessful; and the Nuna I-30 well operated by Petro-Canada did not reach total depth before spring thaw and was suspended.
Despite growing indications that the Mackenzie pipeline will proceed to formal regulatory applications in 2004 and the pressure on independent E&P companies to put numbers on the pipeline space they will need, Devon is shifting its northern focus.
Devon plans to drill in Beaufort It has shelved any plans to drill on the delta this winter, but is aiming to move exploration to the shallow waters of the Beaufort — the first at-sea drilling since the 1980s, when the industry, heavily bankrolled by taxpayers, made 26 significant discoveries (eight gas, four oil and 14 oil and gas).
In a project description filed with the National Energy Board in August 2002, Devon said it was following up a three-dimensional marine seismic program by finalizing exploration targets — outlining nine offshore prospects. Devon Canada President and Chief Executive Officer John Richels announced that his company was in talks to line up partners — none of them identified — for a major drilling push into the Beaufort, where exploration wells would carry an expected price tag of C$50 million-$85 million.
Aiming for a deal “over the next few months,” he said exploration could begin as early as the 2005-06 winter season, with wells being drilled in four successive years, with the hope of finding gas to feed into the Mackenzie pipeline by 2012.
But there are provisos in the company’s plans as it faces initial deadlines of 2005 on the license areas it acquired from Anderson — a timetable it says may be too tight, given its Beaufort thinking.
To date it has “initiated discussions with Indian and Northern Affairs Canada (which administers the leases) regarding license commitments.” There has been no further comment on whether it is making headway on that front.
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