With the Mackenzie Valley entry in the northern pipeline race still live and decades of probing into coal seams beginning to show results, Canadian natural gas producers are expanding on their geographic and technical frontiers. In the latest Arctic drilling-rights auction held by the federal government, four companies made a total of C$13.3 million (US$8.6 million) in work commitments in order to obtain access to 180 square miles north of Inuvik, the chief town on the Mackenzie Delta.

Besides indicating that northern exploration programs are becoming increasingly focused on the basis of largely-confidential results, the commitments underlined Canadian expectations for the Delta-Beaufort Sea region. The auction was held on the heels of the late-winter announcement by the Delta producer group of Imperial Oil, Shell Canada, Conoco Canada and ExxonMobil that the Mackenzie Valley pipeline proposal remains live enough for it to carry out a C$250 million (US$160 million) “definition stage” including a development application in 2003.

The 2002 crop of drilling leases were taken out by newer participants in the action along the Canadian shores of the Beaufort Sea east of Alaska. The newcomers’ activity is understood to be premised on expectations of being able to book space on the pipeline if it happens. Their ranks include Canadian affiliates of the Alaskan producers that earlier this year declared the giant project contemplated for tapping Prudhoe Bay to be uneconomic.

In the new auction, Chevron Canada and BP Canada Energy Co. teamed up to pledge C$13.2 million (US$8.5 million) for a 75-square-mile parcel northwest of Inuvik. Devon Al Corp. and Petro-Canada combined forces to make a C$1.1 million (US$705,000) commitment on a much less known spread of 105 square miles in shallow Beaufort water along the shoreline of the Tuktoyaktuk Peninsula. The programs promised in turn for the properties will prolong the revival in Delta-Beaufort activity set off by gas sales and prices that have remained very strong by historical standards of the Canadian industry since 1999.

The revival is still mostly in early stages, with some programs reaching the point of drilling but much of the activity still preliminary technical surveys. In 2001 the federal department responsible for Arctic resources, Indian and Northern Affairs Canada, recorded a “major upswing” on the Delta that included two high-budget wells, 10 seismic surveys, three geochemical sampling studies and an expedition by a geological field party. Canadian industry spending in the region last year reached C$258.4 million (US$165 million). At the same time, on-again, off-again experiments with coalbed methane in Canada since the 1970s are on again to the point where the industry shows signs of spending serious money on its technical frontier.

In the Canadian gas capital of Calgary, a new survey by FirstEnergy Capital Corp. predicted that spending on efforts to tap coal seams will reach at least C$100 million (US$64 million) this year and possibly top C$150 million (US$96 million). The programs are attaining a scale beyond Canadian coalbed methane’s traditional stature as a “science project.” Apart from low-volume flows from experimental wells into seams beneath old conventional production facilities in eastern Alberta by a partnership of EnCana Corp. and the MGV subsidiary of Quicksilver Resources Inc., the financial house observed “there is no commercial coalbed methane in Canada.” At the same time, the industry canvass suggested that status quo is temporary: “But the situation is likely to change by the end of the year,” the financial house predicted.

While much of the work and its results remain confidential, Canadian industry fixtures have sketched out coalbed projects and declared intentions to step up the work. Both sides of the merger that created EnCana, Alberta Energy Co. and PanCanadian Energy, had field trials under way before their combination. Others in the lineup include Nexen Inc., Talisman Energy Inc. Penn West Petroleum Ltd. Burlington Resources, Devon Energy Corp. and Marathon Canada. The FirstEnergy survey counted about 30 Canadian coalbed methane pilot projects. They are in well-known, vast coal fields in Alberta and British Columbia that mostly lie tantalizingly close to the pipeline grid but pose technical issues of water saturation and complex geology.

Recurring failures to overcome the technical problems last fall prompted the Canadian Gas Potential Committee to suspend previous projections that the nation’s coalbeds would eventually prove to hold 251 trillion cubic feet. FirstEnergy pointed out that even if the increasingly aggressive experimentation only generates a recovery rate of 7%, or barely more than half the U.S. average of 13%, Canada will produce on the order of a respectable 19.5 Tcf of coalbed methane.

In the 1990s, there were no Canadian counterparts to the tax incentives that encouraged coalbed methane development in the United States. But that is changing, starting with a new royalty regime in B.C. The system offers credits of C$50,000 (US$32,000) against production royalties for each coalbed methane well drilled by February of 2004, and cost-of-service allowances for prolonged programs of draining water from deposits. Alberta policies are under review, but no promises of financial incentives have been made yet.

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