Chevron, EnCana take the lead

Two Mackenzie Delta exploration wells expected to spud within a month

Gary Park

Petroleum News Calgary correspondent

Partnerships led by Chevron Canada Resources and EnCana are stepping up to the plate this winter to keep Mackenzie Delta exploration alive, while those who have carried the load in recent seasons take stock.

They are filling a space vacated this winter by Devon Canada and Petro-Canada, who have been the most active drillers, partly to protect their license commitments and partly to evaluate their mixed successes.

Chevron expects to spud a well on Ellice Island by mid-January and EnCana is poised to start drilling “in the first part of February,” spokesmen for both companies told Petroleum News.

For the Chevron partnership with BP Canada Energy and Burlington Resources Canada, a permit was issued last month to drill on Exploration License 404. The same trio reported a commercial gas find from North Langley K-30 last winter on license 392, 81 miles northwest of Inuvik, Northwest Territories.

Rod Maier, Chevron Canada’s northern gas program manager, said that access roads have been built and a rig has been located for the Ellice Island well and, despite a warm fall, drilling should start by mid-January. He said the total cost, including testing, should be about C$30 million.

In addition, Maier said a 50-50 joint venture by Chevron and BP plans seismic testing this winter of license 417 — a parcel covering about 47,000 acres south of Ellice Island on the Mackenzie Delta.

The companies made a successful bid of C$13.2 million for license 417, including a work deposit of C$3.3 million, in a 2002 call for bids by Indian and Northern Affairs Canada.

The K-30 well was tested at a restricted flow rate of 18 million cubic feet per day from the Tertiary interval, but Maier said no reserve estimates have yet been released.

EnCana will drill on Richard’s Island

The “pure exploration” well follows two winters of seismic work and is part of EnCana’s strategy to gain exposure to larger areas by building longer-term resources through conventional exploration, he said.

Although the delta exploration is a “very small component” of EnCana’s capital budget, the region is seen as a possible attractive new source of supply now that gas prices and the supply-demand picture have changed, Boras said.

Finding new reserves in the delta region is vital to the success of negotiations on an overall design for the proposed Mackenzie Valley pipeline and the chances of starting deliveries before 2010.

Maier said there have been “extremely active” negotiations lately between the Mackenzie Delta Producers Group, whose members own the three largest onshore discoveries totaling 6 trillion cubic feet, and the Mackenzie Delta Explorers Group, consisting primarily of U.S. and Canadian independents.

The two groups have the challenge of reaching a transportation deal that can raise volumes on the pipeline from the 800 million cubic feet per day from the anchor fields to 1.2 billion cubic feet per day to support an ownership stake by the Aboriginal Pipeline Group.

Mackenzie regulatory filings expected in 2004

However, he said Chevron still expects regulatory filings to be made in 2004, which keeps alive the prospect of gas deliveries before 2010.

Boras said that “from an overall standpoint, it’s important to see the pipeline move forward as efficiently as possible” to add fresh reserves to the North American market.

In an earlier interview with The Canadian Press, Brian Frank, the new president of BP Canada, said he is worried that the proposed pipeline could be too small to accommodate new delta discoveries.

He said Imperial Oil, the lead partner, wants the pipeline capacity to reflect long-term commitments from explorers, who are not in a position to make them until they have made more discoveries.

Frank said there “should be more flexibility in the pipeline design ... to take into account exploration success over the next couple of years.”

In a mid-December speech at Lake Louise, Alberta, Imperial Senior Vice President K.C. Williams struck an upbeat note, saying “we are optimistic about our chances of achieving success.”

Given the complex, long-term, capital-intensive nature of the project, he was “pleased with the progress we’ve made and the momentum we’ve gained.”

But Williams cautioned that delays should be expected “because this is a new process and we are breaking new ground.”

He confirmed that the Mackenzie proponents continue to work towards filing regulatory applications this year.