Big Gas Finds Improve Canada's Outlook

The Canadian natural gas community shows signs of curing its excess-capacity headache the easy way --- by finding enough supplies with a few major wells to fill up the expanded pipeline grid.

Another demonstration is under way to show that Canada's near north can deliver supplies on a large scale when prices reach levels that justify exploration on the deeper, costlier side of the drilling spectrum. Alberta Energy Co. stepped forward with the second major drilling success in northeastern British Columbia in less than a year. AEC predicted its discovery well alone - a 9,300-foot-deep one in the Ladyfern area 60 miles northeast of Fort St. John - will produce 60 MMcf/d. A second successful well into the formation, described as a Slave Point dolomitic reef, was being prepared for production testing.

AEC Oil and Gas President Randy Eresman described the region as "home to world-class wells and high-impact reserve additions. This find looks a lot like the nearby Hamburg-Slave Point A gas pool, which has produced 330 Bcf since its discovery in 1983."

While the B.C. exploration play is more expensive than shallow drilling in southern Alberta and Saskatchewan, the costs remain a fraction of multibillion-dollar price tags on megaprojects for Alaska and the Northwest Territories which engineering firms are currently being recruited to design in the United States and Canada. Near-north production is also achieved in a matter of weeks, or months at most, because the B.C. finds are within comparatively easy reach.

In the Ladyfern region for C$60 million (US$41 million) this winter, AEC expects to drill nine wells, lay six miles of gathering pipeline, build a treatment facility and install an additional 12-kilometer line to send sales-ready gas into the TransCanada-Nova transportation grid.

Production and reserves estimates will be released after completion of the drilling program. But in hearings before the National Energy Board on a pipeline for the first Ladyfern discovery, Murphy Oil Co. President Harvey Doerr said it represents more than 200 Bcf of new reserves. With numerous additional wells remaining to be drilled by Murphy and partner Apache Canada Ltd., estimated productive capacity already exceeds 130 MMcf/d. The NEB approved the Murphy pipeline, with the construction schedule calling for completion by March 15.

Testimony before the NEB also indicated that AEC will achieve its quick production schedule by taking over a pipeline that the NEB approved for other participants in the Ladyfern play, Ricks Nova Scotia Co. and Predator Corp. The line came available after Ricks sold its interests to Murphy, cutting minority interest owner Predator out of the action and leaving it to demand compensation with a lawsuit in Alberta Court of Queen's Bench.

Evidence before the NEB indicated that Murphy and AEC combined are installing enough new pipeline capacity to achieve production increases of 350-400 MMcf/d from the Ladyfern area. Cooperation may be in the works. Doerr told the NEB "we have had some discussions with AEC about jointly hooking up those pipelines. And we have had some discussions with AEC with respect to combining facilities."

The Ladyfern play is only the most spectacular Canadian winter drilling campaign to disclose results so far. Industry associations and financial analysts are projecting a record 17,000-19,400 wells in western Canada this year. So far in 2001, about 63% of successful completions have been for gas production, although Canadian oil activity hs also accelerated as a result of strong prices.

When the NEB approved Alliance Pipeline, gas regulators and producers alike predicted there would be excess capacity in the Canadian grid of up to 2 Bcf/d. But all concerned kept their options open by saying the excess could take as long as five years or as little as 24 months for supplies to catch up depending on drilling results. The Ladyfern discoveries alone show signs of going one-third or more of the way towards making up for the 1.3 Bcf/d that Alliance added to western Canada's long-distance capacity.

Gordon Jaremko, Calgary

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