With a regulatory decision on Canada's Arctic natural gas pipeline project on the horizon, industry has sent a signal that plans are being made for fresh northern drilling -- including offshore work.

A Canadian government auction has drawn takers for 4,963 square kilometers (1,985 square miles) of new exploration licenses on the Mackenzie Delta and off its coast in the Beaufort Sea.

The drilling rights were obtained in exchange for commitments to do C$109 million (US$107 million) in work on the properties, supported by C$27 million (US$26 million) in cash deposits.

Chevron Canada dominated the sale by scooping up a 2,059-square-kilometer (823-square-mile), deep-water seabed exploration target 225 kilometers offshore of Tuktoyaktuk on the Delta coast. The Calgary-based subsidiary of Chevron Corp. paid for the target with a C$103 million (US$101 million) work commitment, including a C$25.8 million (US$25 million) deposit.

MGM Energy Corp., a Calgary-based independent exploration firm dedicated to northern development, picked up 2,904 square kilometers (1,160 square miles) of Delta drilling targets for work commitments of C$5.6 million (US$5.4 million) including a deposit of C$1.2 million (US$1 million). MGM also took on an 802-square-kilometer exploration lease farther south, in the central Mackenzie Valley, with a pledge to do C$1.7 million (US$1.6 million) of work including a deposit of C$425,000 (US$416,000).

MGM has established about 1 Tcf of Delta and Mackenzie Valley gas reserves with previous drilling and holds extensive rights to additional Arctic land exploration properties. The gas independent is the only company outside the Mackenzie Gas Project's ownership group -- Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada -- that has booked capacity on its proposed pipeline to date.

The National Energy Board (NEB) remains committed to handing down a ruling on the project in September, although parallel federal government consultations with aboriginal communities required by the Canadian constitution have potential to delay final ratification by the cabinet in Ottawa.

Chevron's new Beaufort lease is an addition to a 2,808-square-kilometer Canadian Arctic offshore property awaiting exploration while the NEB conducts a drilling safety review. Originally a technical examination focused on engineering matters, the review has been widened into a public inquiry as a result of BP plc's oil spill in the Gulf of Mexico.

While Imperial, ExxonMobil and BP stayed out of the latest auction, all three have extensive exploration properties in Canadian waters of the Beaufort. The trio this summer formally teamed up in a joint drilling venture for the region, following about a year of discussions. Action by the group awaits the outcome of the NEB review. BP kept its Canadian Arctic exploration properties and Alberta oil sands leases as future growth possibilities when it sold its older producing assets in British Columbia and Alberta to Apache Corp.

The exploration and production firms are not the only believers that Canadian Arctic assets will be connected to markets. The beleaguered and delayed Mackenzie project will be built, predicts Ziff Energy Group Vice President Bill Gwozd: "100% -- it is going to go ahead. Our forecasts just have it proceeding, with test delivery volumes starting in November of 2018," he said in an interview.

He calls Arctic gas -- including both the Mackenzie Delta and Alaskan varieties -- a pillar of the North American energy outlook. The opinion is partly rooted in a long-range view akin to the wide perspective of the industry majors behind the northern megaprojects.

Current price lows are seen as eventually bound to curb supply development, bringing on a turn in the economic cycle towards increases. Ziff research shows Arctic gas is not the most expensive kind. Total supply costs of gas from remote, deep and high-risk wells in the Alberta foothills of the Rocky Mountains, for instance, are greater than for the jumbo established Delta reserves.

Shale gas is technically capable of growing into about one-third of North American supplies, Gwozd estimates. But there is no guarantee that full potential will be reached due to the locations of some of the top deposits in environmentally and politically sensitive areas which are mounting formidable resistance to development, he added.

The bottom line for gas supplies is, Gwozd suggested, that "putting all your eggs in one basket is not appropriate. You've got to spread them around. Things that people thought would never happen have happened. You have to have different sources of supply."

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