Purcell ready to quit ‘unpredictable’ Fort Liard gas play

Company: Natural gas play in Northwest Territories has been ‘unpredictable;’ significant production declines over last two years

Gary Park

Petroleum News Calgary Correspondent

Purcell Energy may finally beat a retreat from its troubled Fort Liard natural gas operations in the lower Northwest Territories — once rated as the hot spot of Canada’s North.

Five years after making a potentially rewarding find with estimated recoverable reserves of 600 billion cubic feet, the Calgary-based junior E&P said it is weighing the full range of strategic options for the “volatile and unpredictable” property.

That could mean holding on to the property, selling it or spinning it off as a separate entity.

In a statement March 23, Purcell laid out a bleak picture, based on two years of wildly fluctuating performance at Fort Liard.

“Production has declined significantly,” Purcell admitted. “This has made it difficult to reliably forecast total company production and the resulting cash flow. In addition, capital has been invested without the expected production results.

“All of this has meant that the company’s positive results and solid growth in other areas have been overwhelmed by the ongoing challenges at Fort Liard.”

It disclosed that its overall proved and probable reserves dropped through 2004 to 13.6 million barrels of oil equivalent from 18.6 million barrels, partly stemming from technical revisions at Fort Liard, while Fort Liard production dropped to 1,100 boe per day of the company’s output in the final quarter of 2004 from 1,700 boe per day a year earlier.

The 1999 discovery was rated as a stunning find that Purcell thought might be the base to return to its exploration roots to broaden its production base and add reserves.

In 2003 more than half Purcell’s output was expected to come from its K-29 and M-25 wells in the Northwest Territories, although there were early signs of trouble in late 2000 when K-29 encountered water and Purcell was forced to halt trading of its shares. Water has remained an irritant along with technical complications experienced last year in drilling development wells with Chevron Canada Resources.

There was talk at one time of doubling water handling capacity to allow K-29 and M-25 to produce at optimum rates close to 70 million cubic feet.

But more troubling signs surfaced in 2001 when Gilbert Laustsen Jung Associates assigned reserves to M-25 and K-29 of 206 billion cubic feet — figures Purcell President and Chief Executive Officer Jan Alston questioned, arguing pressure data pointed to gas-in-place volumes “considerably higher” than the independent engineering firm’s estimate.