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Canadians Commit to Gas Drilling Prospects in Far North

Canadians Commit to Gas Drilling Prospects in Far North

Canadian producers, inspired by optimism about continued growth in exports to the United States, have staked new claims on northern natural gas drilling prospects and taken a step into Alaska. Ten Calgary-based gas developers secured 2,950 square miles of resource rights in the central Mackenzie Valley district of the Northwest Territories.

The action spelled commitment to drill rather than building land inventories. In Canada, northern prospects are obtained by bidding work pledges rather than cash at auctions held by the federal government. The companies made combined commitments to do C$57.5 million (US$39.6 million) in exploration work over the next eight years.

The buyers included household names of the Canadian gas exploration community: Anderson Resources (an arm of Anderson Exploration), Northrock Resources, Berkley Petroleum, EOG Resources Canada (the new name for Enron Oil and Gas), International Frontier Resources, Pacific Rodera Ventures, AEC West (a division of Alberta Energy Co.), Renaissance Energy, Paramount Resources and Canadian Natural Resources.

At the same time, Alberta Energy's wholly-owned AEC Oil & Gas (USA) Inc. farmed into a drilling play on land and offshore in shallow waters near the Prudhoe Bay oilfield. The Canadian company's agreement with Phillips Alaska and Chevron U.S.A. covers about 220 square miles of hunting grounds including prospects billed as hot named McCovey offshore and Grizzly Gomo on the North Slope. The drilling campaign is scheduled to start at McCovey by first-quarter 2001, where AEC will earn a one-third interest in any discovery. Phillips and Chevron retain one-third each. AEC described its Alaskan step in the same language the Canadians are using to explain the revival of drilling in the Northwest Territories after a pause since the mid-1980s - as a blow to strengthen "longer-term" growth prospects.

In the Canadian producer, pipeline and regulatory communities, there is widespread consensus that a northern pipeline is truly at hand this time. Its construction is held to be six to eight years down the road after making due allowances for lengthy regulatory proceedings, although senior federal government officials say privately that the pace could quicken if a cold winter or two cause steep price spikes and light a fire under U.S. interest in the north.

The officials say up to half a dozen proposals are in various gestation stages. All are permutations and combinations of two dormant northern pipeline megaprojects left over from the 1970s and early '80s: the Alaska Natural Gas Transportation System, and a Mackenzie Valley route. In Canada, regional leaders have already chosen up sides, with the Yukon government backing ANGTS while the Northwest Territories supports a Mackenzie line.

The northern hunt is expected to accelerate again this month, with an auction Aug. 14 of drilling prospects on the Canadian answer to the North Slope --- the Beaufort Sea-Mackenzie Delta region. As a result of heavy interest, federal authorities posted 1,133 square miles of properties for sale in 10 parcels scattered across much of the Delta and extending into shallow waters of the Beaufort. The forces driving the northern revival were put in perspective by the latest quarterly report on the international gas trade from the U.S. Department of Energy's fossil fuels branch. In a historical review, the agency pointed out that Canadian exporters have been in growth mode since the onset of deregulation and energy free trade, setting a consistent track record that breeds confidence and optimism. Between 1985 and 1999, the annual volume of Canadian deliveries to the U.S. multiplied 3.6-fold to 3.37 Tcf from 926 Bcf. The Canadian share of the U.S. gas market grew 3.3-fold to 15.4% from 4.6%. Revenues quadrupled to US$7.3 billion last year from US$1.8 billion in 1985.

The U.S. energy department added that all the evidence it sees suggests that both the volumes of Canadian exports and their share of the American gas markets "should continue their upward trend for the foreseeable future."

In Washington, the government analysts suggest their counterparts in Natural Resources Canada have been "very conservative" with their current forecast, which says gas exports will take until 2005 to reach 4 Tcf then only grow to 4.1 trillion by 2010. The Americans point out that the Canadian government outlook assumes no further new pipeline projects will come along.

Besides the northern revival, that official conservatism excludes possibilities being discussed within the industry for an expansion of Maritimes & Northeast Pipeline or even an entirely new East Coast export route as a result of a drilling campaign under way by PanCanadian Petroleum and others to expand on the operations base established with the Sable Offshore Energy Project.

Gordon Jaremko, Calgary

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