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Mackenzie Valley Leases Bring High Dollars

Mackenzie Valley Leases Bring High Dollars

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

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

In the Delta-Beaufort region, scene of hot exploration plays in the 1960s, '70s and early '80s, Imperial Oil Ltd., Shell Canada Ltd. and Gulf Canada Resources hold an estimated 11 Tcf of known reserves. Canadian technical authorities calculate that the region harbors another 55 Tcf of gas yet to be discovered. The valley is largely virgin terrain, opening up for the first time as a result of native land claims settlements that have also sharply improved the outlook for laying a pipeline south to connections with the mainstream North American grid in Alberta.

The Canadian technique of auctioning northern development prospects is crafted to make sure they will be worked rather than banked for long periods. Payment takes the form of commitments to conduct exploration programs, with the work required to be done over the next nine years. To make sure the buyers mean business, 25% deposits are required.

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

The Anderson organization, reviewing supply and demand trends across North America, maintains there can no longer be much doubt that there will be a need for northern development, and sustained strong prices show it is coming sooner rather than later.

BP Canada president Tim Holt, a veteran of its international parent corporation's Alaskan operations, issued a statement describing the Delta-Beaufort acquisition as "a key building block for delivering future growth from Canada."

In the Canadian gas capital of Calgary, energy stock boutique Peters & Co. described the auction as "the kind of dramatic transformation that occurs in economic feasiblity studies when natural gas hits C$5 (US$3.45) per thousand cubic feet." The financial analyst added a word of caution, however: "Though northern exploration has the potential to yield results that will transform the North American natural gas market, the impact may not be for another 5-10 years."

Gordon Jaremko, Calgary

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