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BP Dives Back Into Beaufort Sea, Rekindling Pipeline Dreams

A record sale of offshore drilling rights in the Beaufort Sea rekindled official hopes that Canada's on again-off again northern pipeline project will eventually be built.

BP Exploration obtained access to 6,113 square kilometers (2,360 square miles) of potential ocean drilling targets north of the Mackenzie Delta in exchange for commitments to do C$1.2 billion (US$1.18 billion) in work on the properties during coming years. The BP award included the largest single transaction in the long history of Canadian arctic drilling rights auctions -- C$1.18 billion (US$1.16 billion) in work commitments for access to a 2,023-square-kilometer (780-square-mile) parcel about 200 kilometers (125 miles) offshore of the chief Delta settlement of Tuktoyaktuk.

The arctic drilling rights auction also awarded smaller rights parcels for modest commitments in the Beaufort and on land in the central Mackenzie Valley to MGM Energy, ConocoPhillips Canada and Devon Corp.

Like the chief bidder in the last record sale -- Imperial Oil, which last year picked up an offshore parcel for C$585 million in work commitments (US$573 million) -- BP made no disclosures of gas or oil drilling targets or exploration schedules. Also like Imperial, BP said only that it continues to regard northern development as an integral element of long-range planning to ensure the company has access to a portfolio of supply development targets.

Canadian arctic exploration rights sales do not specify when or how successful bidders will fulfill their commitments. The rules enable corporations to bank large rights spreads indefinitely provided they do specified, modest minimum levels of work every few years.

BP is heir to one of largest historical accumulations of Canadian arctic gas and oil rights as a result of the company's 1990s takeover of Amoco Canada. In turn the Amoco properties were a legacy of a 1980s takeover of Dome Petroleum that prevented a multibillion-dollar corporate bankruptcy. High spending in the Beaufort, with years of government-subsidized intense activity by a company offshore exploration armada called Canadian Marine Drilling, strongly contributed to the Dome debacle.

In Ottawa federal Northern Development Chuck Strahl made no predictions about whether or when the stalled arctic pipeline scheme will advance. He also gave no new signs of whether or when the Canadian government might step forward with additional help. The minister only based big political claims and development hopes on the fresh sign of continuing interest in Canadian arctic resources provided by the record offshore drilling rights sale.

"Last year our [Conservative] government unveiled a new northern strategy based on four integrated priorities: promoting economic and social development, governance, environmental protection and sovereignty," Strahl said in an enthusiastic official statement applauding the companies that participated in the auction.

"By issuing these licenses to explore northern oil and gas resources we are fulfilling this promise: advancing economic growth and investment in the North, helping create jobs for northerners, bolstering our sovereignty, as well as ensuring the north's unique and delicate environment is protected," the Canadian minister said.

Former Northwest Territories premier Nellie Cournoyea, a fixture among the jurisdiction's aboriginal leaders, also rewarded BP and other companies that participated in the rights auction with applause from the chief native community on the Mackenzie Delta. "The Inuvialuit look forward to economic benefits through this reestablishment of interest in Beaufort Sea hydrocarbon exploration," Cournoyea said in a joint statement issued with Strahl.

But as chief of the community's investment conglomerate with interests ranging from river barges and airliners to oilfield equipment manufacturing and drilling, the seasoned Cournoyea stopped well short of predicting any rapid acceleration of arctic exploration. Instead, she made it plain that Delta community leaders are braced for a long wait for development hopes to be carried out of an as-yet period measured in years and potentially decades.

"The period of time required to identify and develop these resources will provide the government of Canada, industry and Inuvialuit with the appropriate opportunity to advance parallel research and other important initiatives that will ensure the ongoing integrity of the Beaufort marine environment and the wildlife it supports," Cournoyea predicted.

Construction of the Mackenzie Gas Project remains deferred for at least three years while partners Imperial, ConocoPhillips, Shell and ExxonMobil await the outcome of marathon regulatory reviews (see NGI, May 26). All heat went out of the Delta production and Mackenzie Valley pipeline project about a year ago when cost forecasts ballooned to C$16.2 billion (US$15.8 billion) and long regulatory delays developed.

Canada's National Energy Board completed its economic, engineering and safety review of the project more than a year ago. But the federal agency cannot hand down a decision until it receives a final report from a parallel socio-economic and environmental review by a joint panel of federal, territorial and aboriginal agencies. The panel's report was recently delayed until an unspecified time in 2009. Completion of the review will trigger further stages of final regulatory arguments, and potentially legal appeals, rather than snap decisions to go ahead on the project by the NEB or the industry.

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ISSN © 2577-9877 | ISSN © 1532-1266
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