Mackenzie Valley Leases Bring High Dollars
For the second time this summer, Canadian natural gas producers
have voted with their pocketbooks to revive northern drilling and
expectations that an Arctic pipeline will be built.
At an auction of government-owned mineral rights by Indian and
Northern Affairs Canada, seven companies paid C$465.8 million
(US$315 million) for 2,735 square miles of drilling prospects on
the Mackenzie Delta and in neighboring shallow waters of the
Beaufort Sea. The Arctic land awards followed a C$57.5-million
(US$39.6-million) sale of 2,950 square miles of properties farther
south in the central Mackenzie Valley district of the Northwest
Territories. The sharp differences in prices reflect knowledge of
In the Delta-Beaufort region, scene of hot exploration plays in
the 1960s, '70s and early '80s, Imperial Oil Ltd., Shell Canada
Ltd. and Gulf Canada Resources hold an estimated 11 Tcf of known
reserves. Canadian technical authorities calculate that the region
harbors another 55 Tcf of gas yet to be discovered. The valley is
largely virgin terrain, opening up for the first time as a result
of native land claims settlements that have also sharply improved
the outlook for laying a pipeline south to connections with the
mainstream North American grid in Alberta.
The Canadian technique of auctioning northern development
prospects is crafted to make sure they will be worked rather than
banked for long periods. Payment takes the form of commitments to
conduct exploration programs, with the work required to be done
over the next nine years. To make sure the buyers mean business,
25% deposits are required.
The Delta-Beaufort gas hunters include Shell, BP Canada, Chevron
Canada, Burlington Resources Canada, Anadarko Canada, Petro-Canada
and Anderson Exploration's Anderson Resources. The Anderson
organization startled the Canadian gas community and underlined
the new heights that northern development expectations have reached
by accounting for 48% of both the new Arctic acreage and the
financial outlays to obtain it. Anderson, built from scratch into a
top-10 Canadian gas producer by a former Amoco engineer, J.C.
Anderson, has long stood out as a conservative survivor of the
sector's cycles with a knack for calling the turns.
The Anderson organization, reviewing supply and demand trends
across North America, maintains there can no longer be much doubt
that there will be a need for northern development, and sustained
strong prices show it is coming sooner rather than later.
BP Canada president Tim Holt, a veteran of its international
parent corporation's Alaskan operations, issued a statement
describing the Delta-Beaufort acquisition as "a key building block
for delivering future growth from Canada."
In the Canadian gas capital of Calgary, energy stock boutique
Peters & Co. described the auction as "the kind of dramatic
transformation that occurs in economic feasiblity studies when
natural gas hits C$5 (US$3.45) per thousand cubic feet." The
financial analyst added a word of caution, however: "Though
northern exploration has the potential to yield results that will
transform the North American natural gas market, the impact may not
be for another 5-10 years."
Gordon Jaremko, Calgary
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