Canadian Arctic Exploration Moves Full Steam Ahead

Undaunted by gyrating prices or Alaskan competition, the next big steps in reviving natural gas exploration in the Canadian Arctic have begun on schedule.

Anderson Exploration Ltd. and Akita Drilling Ltd. christened a new, purpose-built, C$20-million (US$13-million) northern drilling rig. At the same time, an ice-strengthened seismic survey vessel arrived at Tuktoyaktuk on the coast of the Beaufort Sea to work for the Calgary company, Canada's fifth-ranked gas producer with output in the 800 MMcf/d range.

Both pieces of equipment will make a prompt start on a C$370-million exploration campaign on 1.9 million acres (2,970 square miles) of northern resource properties held by Anderson. The ship, the GECO Snapper, was scheduled to start a C$70 million (US$47 million), three-dimensional seismic survey program in shallow waters of the Beaufort as soon as the Inuvialuit natives of the Mackenzie Delta (also known as the Eskimos of the western Arctic) wrapped up their annual beluga whale hunt (usually by Aug. 1). The rig will shortly be on its way from the fabrication yard that built it in Edmonton and will start its first well for Anderson about 10 miles southeast of Tuktoyaktuk as soon as the tundra freezes hard enough to support an ice road and heavy equipment.

The new rig and associated work camp were built as high-rise units with a "small footprint" or to operate in confined space by Canadian industry standards. The layout, with drilling gear stacked vertically in the 175-feet-tall rig and the employees living in a three-story barracks built from portable trailers, is designed to let drillers venture out into the Beaufort on ice islands after the ship nails down new targets.

"Nothing has changed really," said company founder J.C. Anderson in explaining the market outlook driving commencement of one of Canada's most ambitious gas exploration campaigns ever. He described the drop in gas prices into the US$3/MMBtu range this summer from the winter peak near $10 as just confirming that the continental market is in "delicate balance" and easily moved.

Anderson said that, put in the longer perspective a senior gas producer needs, the price movement was generated by "a little bit of an excess supply" largely owed to reactions to the winter spike among industrial consumers that could switch fuels or suspend operations while it lasted. In the view of Anderson and other top Canadian producers such as Alberta Energy Co., the supply-demand balance is close enough that a modest increase in gas use could generate another spike. In the Arctic, "we're talking about not producing for another five to six years," Anderson said.

In the meantime, "there's going to be a lot of gas burned." Even at current annual consumption rates - 22-23 Tcf in the United States and 6-8 Tcf in Canada - "seven years out we will have burned 180 Tcf of gas or so." With reserves in the lower-48 U.S. states estimated at 166 Tcf and Canada's connected inventory down to 60 Tcf, prices in high enough ranges to justify expanding the industry into the north are "almost a given," Anderson predicted. "When we started doing this everybody thought I had a size two hat and a 54-inch belt. Now everybody wants to be there."

He took no sides in the continuing debate over construction of an Alaska or Mackenzie Valley pipeline. The market outlook indicates that both will be needed and the only questions center on timing, he suggested. On the Canadian side, native communities in the Northwest Territories are pressing ahead on coming up with a plan for participation in a Mackenzie line, including ownership interests as well as political and environmental support.

Nellie Cournoyea, an Inuvialuit leader and chair of the territorial aboriginal pipeline working group, said the next step will be an August meeting to thrash out a native proposal to put before the principal owners of established Arctic gas reserves: Imperial Oil, Gulf Canada and Shell Canada.

Anderson set a target time of 2005-2010 for starting production when it launched its northern campaign in mid-1999, rapidly becoming the biggest single owner of drilling rights in the Canadian north. "We don't think that's changed," the company's founder said. "It works even if Alaska goes ahead." But the transplanted Nebraskan, who arrived in Canada with the old Amoco organization in the 1960s, added "we in Canada should beat them to the punch and get ours (the Mackenzie pipeline) approved first."

Cournoyea acknowledged that there are divisions within the native community. The Inuvialuit, armed with a land-claim settlement that includes ownership of mineral rights where Anderson is hunting, are already partners in the drilling, through a joint venture with Akita as the principal contractor. Among the Dene farther south, land claims remain under negotiation for some groups and they remain reluctant to make any commitments that might affect potential settlements. But any eventual deal with the gas producers on a pipeline does not have to be unanimous on the native side, said Cournoyea, a former territorial premier.

"We're progressing very nicely," Cournoyea said. "One way or another, we'll be moving ahead and working with the exploration companies."

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