Canadian industry interest in arctic drilling is warming up in the regulatory thaw signaled by the National Energy Board (NEB) with its December approval of the Mackenzie Gas Project, but the rigs will remain frozen out of offshore prospects until further notice.

In response to industry requests, the Canadian government has posted 14 natural gas and oil rights parcels covering 12,842 square kilometers (4,957 square miles) of the Northwest Territories as for sale in an auction that closes June 21. The posting is the biggest arctic drilling rights sale in recent memory. The auctions are driven by industry. In the Canadian system of maximizing the rewards of public or Crown resource ownership, companies nominate targets then bid for them at competitive auctions.

In Alberta, British Columbia and Saskatchewan buyers pay cash traditionally known as a bonus on top of token lease rentals for exploration and development prospects. On the northern and offshore frontiers controlled by the federal government, payment takes the form of work commitments plus deposits of a portion of their projected costs.

In the spring northern auction a 70% majority -- 8,978 square kilometers (3,465 square miles) -- of the drilling targets up for grabs are in the central Mackenzie Valley, far inland from Canada's arctic coastline.

The land properties are clustered around Norman Wells, where a 1920s oil discovery led to construction of the Canol Pipeline as a temporary defense project during the Second World War then a production and pipeline system in the mid-1980s.

The northern oil operation, using wells on artificial islands built in the Mackenzie River, initially yielded 30,000 b/d or more but has since gradually run down due to natural depletion of the reserves.

Identities of auction participants are not disclosed until after the sales. But observers say Imperial Oil, 70% owned by ExxonMobil Corp., is a natural suspect because it made the original Norman Wells discovery and owns the current production. Other oil and gas majors, such as Chevron Corp., have long records of interest in the region. MGM Energy, a Calgary-based independent dedicated to northern drilling, is armed with $30 million to revive dormant exploration from selling a share in a Mackenzie Delta property to Kogas Canada, an arm of South Korea's natural gas company.

The Norman Wells region is also thought to be a natural candidate for a northern foray into using imported U.S. shale gas technology. Canadian adaptations are in rapidly spreading use to drill for tight oil with horizontal wells and multiple stages of hydraulic fracturing. The new approach is rapidly becoming common in Canada's western provinces, where industry trade associations predict shale technology will be used in more than 5,000 wells for liquids-rich gas or oil this year.

Unlike the northeastern United States and Quebec, western and northern Canada have a long history of being accustomed to heavy gas and oil field technology and have not yet sprouted popular environmental protest movements against hydraulic fracturing.

But prospects of any revived arctic offshore drilling have ignited widespread resistance, thanks largely to fears raised by the blowout last summer of BP's Macondo well in the Gulf of Mexico. A quiet technical review of cold water exploration methods, begun by the NEB before the southern accident, has expanded into a major public inquiry with 110 participants that have already filed 60 submissions that mostly oppose industrial operations in the Beaufort Sea.

The three offshore drilling rights parcels posted for sale in the spring auction are close to the Beaufort coastline in natural gas-prone areas, although the region also has oil discoveries and its gas is at times rich in liquid byproducts. Canadian industry observers say the new offshore targets have potential to add high-value production as well as volume to the Mackenzie Gas Project, which includes a network of dispersed Mackenzie Delta wells, a field gathering pipeline web and a liquids extraction plant.

But the NEB's arctic drilling inquiry has to be finished before new drilling applications are considered. The board's files are already studded with warnings that a northern well blowout has potential to have worse and much longer-lasting effects than the Gulf of Mexico spill due to the preserving nature of the vastly colder Canadian arctic climate.

The Canadian difference is obvious to anyone who has ever visited the nation's northern coastline, said a winter submission to the NEB inquiry by well-traveled Canadian engineer Michelle Danielson. Her filing includes a video record of a sight on an Ellesmere Island beach that she says should convince the board to think more than twice about allowing any activity with potential to end in an arctic hydrocarbon spill.

Danielson's video records traces left on a Ellesmere Beach called Eskimobyen by an ancient arctic tribe of bowhead whale hunters known as the Thule. "Whale oil still saturates the beach even though the Thule have not been there for over 500 years," she wrote.

"I am not against development, but the arctic is a very special place that deserves more care and more safety measures than anywhere else in the world," Danielson told the NEB. "How long will the effects be from an oil spill if whale oil still saturates the beach over 500 years later?"

The NEB is allowing plenty of time for such questions to be aired in its arctic offshore drilling inquiry. Participants have until April 1 to make further information filings. The board has promised to take into account results of U.S. inquiries into the Gulf of Mexico spill.

The NEB has awarded research contracts to experts on four topics: arctic oil spill response, travel trajectories for slicks on northern waters, a comparative examination of Norwegian and British standards for cold-water offshore drilling, and a review of geological hazards known from previous generations of Canadian arctic drilling.

After the written information all becomes available, the NEB will hold meetings in May or June in the arctic seaboard communities of Inuvik and Iqaluit and the northern urban centers of Yellowknife and Whitehorse. A meeting or hearing is also scheduled for August or September of 2011 in Inuvik, with special broadcast and telephone connections for northern residents who are unable to attend in person.

No date has been set for the inquiry to conclude in a report that the NEB says will eventually clarify requirements for Canadian arctic offshore drilling.

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