Gas Project Development in BC Halted Over Land Dispute

On-again, off-again wrangling with natives over land claims and resource development has erupted yet again in an area undergoing a boom in gas exploration in northeastern British Columbia, setting back one gas project but not noticeably slowing down the overall pace of producer expansion.

One of eight bands in a regional federation known as Treaty Eight First Nations, the 200-member Halfway River First Nation, brought a field pipeline project by Petro-Canada to at least a temporary halt with a blockade. While visitors to the site said they spotted only a sign declaring the area under protest to be band property, Petro-Canada stopped work rather than risk antagonizing the group. Discussions were under way in the regional capital of Fort St. John, about 800 miles northwest of the Canadian gas capital of Calgary. The industry faced a frustration that has long been standard in the region. Gas projects in northeastern B.C. have for years only serve as triggers for re-igniting old feuds between the natives and provincial and federal governments.

Periodic protests and blockades rarely indicate outright opposition to industry, except in cases involving the most sensitive hunting and traditional lands. Natives routinely work for the industry in a variety of field roles across northeastern B.C. The protests center on creating political pressure on the governments to redress long-standing grievances, and especially to negotiate new interpretations of agreements on land rights, compensation and local benefits. Industry sources said efforts were under way within the Canadian Association of Petroleum Producers to come up with a strategy for reaching an overall agreement with northeastern B.C. natives, rather than leaving companies and bands involved in projects to sort out differences separately. There is a long history of regional memoranda of understanding, involving the B.C. Oil and Gas Commission as well as the industry. But the history includes repeated failures to arrive at lasting arrangements due to complex jurisdictional issues, especially involving divisions of responsibility between native, federal and provincial authorities. Such wrangling, on a large scale involving all the Treaty Eight bands, slowed down the National Energy Board's hearings on the new Alliance Pipeline between Fort St. John and Chicago but did not stop the project's approval or materially affect its construction schedule.

Northeastern B.C. is a complex, 50,000-square-mile region the size of New York State, studded with a diverse array of resource developments including mining and forest products as well as energy. Gas producers gained entry for the current round of expansion with a landmark agreement in 1997 that covered 17,000 square miles of the most sensitive territory along the eastern slopes of the Rocky Mountains. By a deal involving CAPP, the B.C. government, natives and environmental groups, industry agreed to declare 4,500 square miles entirely off limits in trade for retaining controlled access to 12,500 square miles. At the same time as Petro-Canada pops up as the latest victim of periodic disputes over other territory, production from the biggest western Canadian natural-gas discovery of the past two drilling seasons -- Ladyfern, about 60 miles north of Fort St. John -- is rapidly increasing towards 1.35 Bcf/d, the NEB has been told.

Canadian Natural Resources Ltd. made the projection in an application to the NEB to build a second pipeline for the area since the spectacular drilling successes began in 1999-00. The plan, submitted this summer and awaiting NEB rulings on next steps, calls for an eight-mile leg of 20-inch-diameter pipe with capacity to carry 680 MMcf/d. The route would cross the B.C.-Alberta boundary to put the gas into the Nova-TransCanada pipeline grid. CNRL reports that putting the gas into the Alberta system would be much cheaper than a link to Westcoast Energy Inc.'s B.C. grid because it would need extensive increases in capacity to handle all the new flows. The project schedule calls for the new link to be up and running by March 15, 2002, with the B.C. gas entering the Alberta grid at a point known as Owl Lake.

CNRL told the NEB that the discoverers of Ladyfern -- which also include AEC Oil & Gas Co., Murphy Oil Co. and Apache Canada Ltd. are in negotiations on a production-sharing agreement for the Ladyfern area. The pipeline application discloses that Ladyfern production currently stands at 450 MMcf/d: 50 MMcf/d by CNRL, 170 MMcf/d by AEC, and 230 MMcf/d by the Murphy-Apache exploration team. The companies have only begun to tap the gas, with new wells being drilled at a rapid pace and continuing to yield test flows of up to 100 MMcf/d apiece. A new team -- Northstar Energy Corp. and Grey Wolf Exploration Inc. -- is also beginning to show results.

Total Ladyfern production is projected in the pipeline application to reach 1.35 Bcf/d as transportation capacity becomes available: 400 MMcf/d by CNRL, 570 MMcf/d by AEC, 330 MMcf/d by Murphy-Apache and 50 MMcf/d by Northstar-Grey Wolf. CNRL told the NEB it estimates reserves found by its first three Ladyfern wells alone added up to 250 Bcf. More are being drilled at the rate of one a month by CNRL alone. The full scope of the find and others in northeastern B.C. remains elusive, with producers keeping drilling results confidential as long as they can in order to secure land positions before rivals can jump into the exploration plays and bid up costs of drilling prospects.

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