For the second time this summer, Canadian natural gas producershave voted with their pocketbooks to revive northern drilling andexpectations that an Arctic pipeline will be built.

At an auction of government-owned mineral rights by Indian andNorthern Affairs Canada, seven companies paid C$465.8 million(US$315 million) for 2,735 square miles of drilling prospects onthe Mackenzie Delta and in neighboring shallow waters of theBeaufort Sea. The Arctic land awards followed a C$57.5-million(US$39.6-million) sale of 2,950 square miles of properties farthersouth in the central Mackenzie Valley district of the NorthwestTerritories. The sharp differences in prices reflect knowledge ofthe areas.

In the Delta-Beaufort region, scene of hot exploration plays inthe 1960s, ’70s and early ’80s, Imperial Oil Ltd., Shell CanadaLtd. and Gulf Canada Resources hold an estimated 11 Tcf of knownreserves. Canadian technical authorities calculate that the regionharbors another 55 Tcfof gas yet to be discovered. The valley islargely virgin terrain, opening up for the first time as a resultof native land claims settlements that have also sharply improvedthe outlook for laying a pipeline south to connections with themainstream North American grid in Alberta.

The Canadian technique of auctioning northern developmentprospects is crafted to make sure they will be worked rather thanbanked for long periods. Payment takes the form of commitments toconduct exploration programs, with the work required to be doneover the next nine years. To make sure the buyers mean business,25% deposits are required.

The Delta-Beaufort gas hunters include Shell, BP Canada, ChevronCanada, Burlington Resources Canada, Anadarko Canada, Petro-Canadaand Anderson Exploration’s Anderson Resources.The Andersonorganization startled the Canadian gas community and underlinedthe new heights that northern development expectations have reachedby accounting for 48% of both the new Arctic acreage and thefinancial outlays to obtain it. Anderson, built from scratch into atop-10 Canadian gas producer by a former Amoco engineer, J.C.Anderson, has long stood out as a conservative survivor of thesector’s cycles with a knack for calling the turns.

The Anderson organization, reviewing supply and demand trendsacross North America, maintains there can no longer be much doubtthat there will be a need for northern development, and sustainedstrong prices show it is coming sooner rather than later.

BP Canada president Tim Holt, a veteran of its internationalparent corporation’s Alaskan operations, issued a statementdescribing the Delta-Beaufort acquisition as “a key building blockfor delivering future growth from Canada.”

In the Canadian gas capital of Calgary, energy stock boutiquePeters & Co. described the auction as “the kind of dramatictransformation that occurs in economic feasiblity studies whennatural gas hits C$5 (US$3.45) per thousand cubic feet.” Thefinancial analyst added a word of caution, however: “Thoughnorthern exploration has the potential to yield results that willtransform the North American natural gas market, the impact may notbe for another 5-10 years.”

Gordon Jaremko, Calgary

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