With a stunning drilling success Chevron Canada Resources Ltd.has delivered a sharp reminder to skeptics about the natural gasresources north of the U.S. border.

Canada still has a large endowment of undiscovered natural gasto fill up the developing new generation of export capacity – andit is within reach of the pipeline grid.

And contrary to another current piece of conventional wisdompopular in Canada, the traditional international “majors” of theindustry are still in the game rather than surrendering the fieldto younger “independents.”

The Canadian arm of San Francisco-based Chevron Corp. calculatedit found reserves of 400-600 Bcf with a single new discovery wellin the southern Northwest Territories, near Fort Liard. The companysaid its tests show the 10,000-feet deep well will deliver 70-100MMcf/d when it is put on production. That event is scheduled by Mayof 2000, after construction of pipeline and added facilities fivemonths before Alliance Pipeline is scheduled to put into serviceits new export route from nearby northeastern British Columbia toChicago.

The Chevron discovery is already within reach of the mostnortherly end of the mainstream Canadian pipeline grid. An arm ofWestcoast Energy Inc.’s B.C. system, which crosses into the Liardregion, has capacity for about 300 MMcf/d and has been operating atabout one-sixth of that potential.

Chevron reported although its Liard discovery well was completed20% under budget and six weeks ahead of schedule, it cost aboutC$16 million (US$11.2 million). But the find is one of thestrongest in a series since the early 1990s that has led Canadianproducers to describe the area – northwestern Alberta, northeasternB.C. and the southern Yukon and Northwest Territories – as alower-cost answer to the deeper regions of the Gulf of Mexico.Liard stands out as a true gusher in its field – a performer in thetop one-tenth of 1% of all 74,000 gas wells ever drilled in Canada.

Chevron Canada president Jim Simpson reported the company is”extremely pleased” because results of the Liard drilling to dateexceed expectations for the production capacity of the well, thescale of the reserves and costs. Additional exploration work isunder way, with selections of more drilling sites planned for thissummer.

The discovery was expected to heighten interest in auctions ofnew drilling prospects currently being held by the NorthwestTerritories and Yukon. Canadians are predicting they will netprices in the range of C$3/MMBtu (US$2.09) next heating season – abenchmark long held to be the key for accelerating northernexploration – due to newly abundant export pipeline capacity,rising demand and flat supplies in the U.S.

The high expectations showed in a deal between AltaGas ServicesInc. and Enbridge Inc., owner of Toronto’s Consumers Gas and apartner in Alliance (see related story this issue). Enbridge -founded as the owner of Canada’s principal oil transportationsystem, Interprovincial Pipe Line – accelerated its expansion intogas with a C$160-million (US$112-million) acquisition of a 35%interest in AltaGas. Enbridge president Brian MacNeill said thetime is ripe for buying into firm growth in the newly-emergingCanadian “midstream” sector of specialists in gas-gathering,processing, storage and liquids extraction. At Enbridge, “webelieve that the outlook for gas prices and demand growth is goingto stimulate significant expansion of western Canada production andassociated gathering and processing requirements.”

Gordon Jaremko, Calgary

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