PEL watchers:
This is from today's Globe and mail, longish article but very bullish on Ft. Liard and NWT gas in general.
Hunt for gas North of Sixty is hot again
by Steven Chase - Monday, July 5, 1999
Calgary -- The mosquitoes pack a bite like a rattlesnake, but the
tiny brutes haven't stopped oil and gas companies from working
through the summer in the Northwest Territories, lured by one
of Canada's most productive natural gas discoveries.
Companies usually wind down operations after the spring thaw
-- when the ground is too soft for drilling -- and don't start again
until the November freeze-up. But this year they are sticking
around, laying the groundwork for another crack at a big find.
The hub of the activity and excitement is the hamlet of Fort
Liard, which is benefiting from what analysts say is one of the
most exciting developments in the Canadian oil patch today.
For Dene Chief Harry Deneron, it's concrete proof that, for the
first time in 15 years, exploring for natural gas North of Sixty is
hot again. "It's not like they're going to pack up and leave now
after what's been found," he says with a chuckle. "They're going
to be here for awhile."
The area has seen three massive gas finds -- one in the spring
of 1998 and two this spring -- including a well owned by
Chevron Canada Resources Ltd. and partners that ranks in daily
output among the top one-tenth of 1 per cent of all wells drilled
in Canada.
Oil companies -- rarely seen in the North after the early 1980s,
when crude prices crashed -- have fuelled a mini-boom in the
NWT as they return to search for massive pools of natural gas.
They are now busy preparing for more exploration next winter,
upgrading roads and conducting seismic testing.
Mr. Deneron, the 57-year-old leader of the Acho Dene Koe
people in Fort Liard, population 600, welcomes the
development as a job-creating boon for the region.
Analysts say Canada's North holds the same promise of
untapped reserves that Alberta did 50 years ago, around the
time the first major oil strike took place at Leduc in 1947.
The exploration campaign has already paid off. Calgary-based
Chevron and partners said their K-29 discovery near Fort Liard
is one of the most productive natural gas wells in Canadian
history. The $16-million well has an estimated production rate
of 70 to 100 million cubic feet a day, many times the flow of the
average deep-gas well. It also sits atop a pool estimated to hold
between 400 and 600 billion cubic feet of gas.
Paramount Resources Ltd. and Berkley Petroleum Corp., both
Calgary-based partners in the Chevron well, reported another
Fort Liard discovery this May that tested at 45 million cubic feet
a day, with an estimated pool of 250 billion cubic feet
underneath.
And in the spring of 1998, Calgary-based Ranger Oil Ltd. and
partners announced a well from which they plan to draw gas at
a rate of 20 million cubic feet a day, with an estimated 200
billion cubic feet of reserves underneath. The magnitude of
these plays is comparable to finds in the Gulf of Mexico.
The exploration has revived Fort Liard, Mr. Deneron says. "We
went from a very dead economy to what's happening now. . . . If
there's anybody here who's not working, it's probably because
they don't want to work."
Oil and gas activity peaked in the North around 1981, fuelled by
sky-high oil prices and generous tax incentives for frontier
exploration, only to crash in the ensuing years along with
plunging prices.
This time, however, it is oil's former ugly sister, natural gas,
which is luring drilling rigs north.
"It has to do with the fact the price of gas has [nearly] doubled
in the last few years," says Clay Riddell, president of Paramount
Resources, which has spearheaded the development of the Fort
Liard area since parcels of land were auctioned off in the
mid-1990s.
A rapacious U.S. demand for natural gas has sent Alberta gas
prices soaring in the past few years to trade at around $3 per
thousand cubic feet, the highest prices in decades. Companies
are able to lock into long-term supply contracts at $3 for five
years. By comparison, the Alberta benchmark AECO (Alberta
Energy Co. Ltd.) gas price averaged about $1.40 in 1996.
It's numbers like this that have senior companies such as Gulf
Canada Resources Ltd. of Calgary thinking seriously about
pumping gas from the huge pools discovered much further
north, near the Arctic Ocean, about two decades ago.
Richard Auchinleck, Gulf's chief executive officer, says drilling
and pipeline technology has improved to the point where
tapping the northern gas pools may be profitable with strong
gas prices.
Gulf estimates that there are about 1.8 trillion cubic feet of gas
in properties in the Mackenzie Delta that it discovered two
decades ago with 25-per-cent partner Mobil Oil Canada Ltd. of
Calgary. The drop in energy prices in the 1980s made
development of northerly gas fields prohibitive in cost.
The area, called Parsons Lake, is 67 kilometres from the town
of Inuvik in the northwest corner of the NWT, or about 2,000
kilometres north of Edmonton. Gulf's share of the estimated
reserves would be about 1.3 trillion cubic feet, with an
estimated production of 200 to 300 million cubic feet a day
from the project.
"For us, to be able to double your gas production for a
company our size . . . that's tremendously exciting," Mr.
Auchinleck says.
Still, skeptics fear the hubbub over the NWT and natural gas --
which reached a boil at the annual Canadian Association of
Petroleum Producers (CAPP) conference in Calgary in June -- is
overblown.
"Over the years I've always been worried about CAPP
conferences. They are classic reverse indicators," says one
Toronto-based oil and gas analyst who asked to remain
anonymous. "A few years ago it was heavy oil, and of course six
months later things crashed. In 1993 it was gas prices, and six
months later in 1994 gas prices came down flat on their ass."
But other analysts say if strong gas prices hold, the NWT is ripe
for development. The area's geology is similar to that of the
Alberta Foothills and holds the promise of more large
discoveries.
Pipelines to carry the gas south have crept northward over the
years, and in at least one case, are already there.
Vancouver-based Westcoast Energy Inc.'s line is less than 20
kilometres from the Fort Liard plays.
"Reserves are being found up there that are difficult to find in
other areas of the Western Canadian Sedimentary Basin," says
John Mawdsley of FirstEnergy Capital Corp. in Calgary, referring
to the oil- and gas-bearing lands that include nearly all of
Alberta and northeastern British Columbia.
Demand for gas is expected to remain strong because
gargantuan additions of pipeline capacity to carry gas from
northern Alberta and British Columbia have outpaced
production by cash-strapped oil companies. That means empty
pipes that transporters will be desperate to fill.
The North represents the last untapped frontier for natural gas
in the country, analysts say. In the Mackenzie Delta region
alone, the National Energy Board estimates that there are nine
trillion cubic feet of discovered gas. It estimates there are
nearly 70 trillion cubic feet of undiscovered, but marketable,
gas between the 60th parallel and the Beaufort Sea, and
another 80 trillion cubic feet in the Arctic islands.
Mr. Mawdsley says frontier exploration needs big finds to justify
the $10-million to $30-million cost of deep wells in the NWT.
But he says pools of at least 100 billion cubic feet of gas -- such
as have been found in the three cases so far -- make it
worthwhile.
The NWT gives Canadian companies an opportunity to explore
for large plays in their own backyard, says Jan Horejsi, senior
vice-president at Ranger.
The Fort Liard region "has the potential to be comparable to an
international-type play," he says.
Land claims are a stumbling block to development in the
territory, from Fort Liard to the frigid Beaufort Sea, more than
1,000 kilometres north.
Mr. Deneron, the Dene chief, has earned a reputation as a deal
maker for allowing development of the Fort Liard region to go
ahead, despite the absence of land-claim settlements in the
area.
But the NWT is still dogged by overlapping land claims that
David Luff of CAPP fears could hamper development, including
pipeline rights-of-way.
"Even though companies have drilled some good discoveries,
there still is some clarity and certainty that we as an industry
need to have."
For instance, Mr. Luff says, "the lands Chief Deneron considers
to be part of the traditional land of his community: Do the other
[native] communities agree those are indeed the right
traditional lands?"
CAPP is calling on the federal government, the NWT and native
bands to untangle the problem of overlapping claims. "That's the
step that needs to be undertaken quite quickly," Mr. Luff said.
Meanwhile, the growing pools of gas expected to be pumped as
early as next spring are fuelling a race among pipeline
companies to ship it south to customers.
Westcoast Energy is sitting in the catbird seat when it comes to
the Fort Liard area, observers say. The company's pipeline at
Pointed Mountain, west of Fort Liard, is largely empty and has
the capacity to ship hundreds of millions of cubic feet a day
south into the B.C. pipeline system, which could carry the gas
to the Westcoast main line, to TransCanada Pipelines Ltd.'s
system, or the Alliance Pipeline Ltd. project, expected to come
on stream in October, 2000.
Calgary-based TransCanada's system ends in northern Alberta,
but Canada's biggest pipeline company says it plans to be a part
of the Fort Liard play, and shouldn't be counted out. "There is
some potential for us to build a large-diameter pipeline into the
area," says Ron Turner, a senior vice-president at Calgary-based
TransCanada.
Still, oil executives say TransCanada might be late to the game.
"I think the problem they've got is they are not going to be there
in time," said one Calgary oil man who asked not to be named.
Separately, Berkley and Paramount are eyeing the possibility of
building their own pipeline south to hook up with larger
transportation systems, says Mr. Riddell of Paramount
Resources.
As Alberta and B.C. gas plays are explored, claimed and
developed, companies will be driven north to the NWT in search
of the next big find, analysts say. "It's like a breath of new life in
this basin that a lot of people feel is overdrilled, [while] it's
largely untouched up there," says Mr. Mawdsley of FirstEnergy.
NORTHERN FINDS
Recent gas discoveries in the Fort Liard region of the Northwest
Territories:
March, 1998: Ranger Oil Ltd. and partners, including Unocal
Canada Exporation Ltd., announce the discovery of the gas well
P-66A, flowing at a rate of 16 million cubic feet a day. Partners
say they plan to draw gas from it at a rate of 20 million cubic
feet a day. Estimate of reserves near the well: more than 200
billion cubic feet.
March-May, 1999: Chevron Canada Resources Ltd. and
partners announce the discovery of the K-29 well. Estimated
production rate: 70 to 100 million cubic feet a day -- one of the
most prolific gas wells in Canadian history. Estimated raw gas
reserves in the vicinity of the well: 400 to 600 billion cubic feet.
May, 1999: Berkley Petroleum Corp. and Paramount Resources
Ltd. announce that the F-36 gas well flowed in tests at a rate of
up to 45 million cubic feet a day. Estimate of gas in the vicinity
of the well: 250 billion cubic feet.
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