Discoveries are approaching 1 Tcf in a southern portion of theNorthwest Territories, which is emerging as Canada’s hottest newnatural-gas drilling play, fanning flames under a simmeringregulatory and political dispute over pipeline service throughAlberta.

Paramount Resources Ltd. and Berkley Petroleum Corp. say theyuncovered at least 250 Bcf of marketable gas with a single well inthe Liard area of the southern Northwest Territories. The well wastested at 45 MMcf/d and the companies expect to drill severaladditional development and exploration wells with production of50-100 MMcf/d by next summer. The find follows a discoveryestimated at 400-600 Bcf, also with a single Liard well by ChevronCanada Resources Ltd. Both drilling campaigns are continuing andexpanding with early-2000 targets set to put the region intolarge-scale production.

The drilling successes come amid intense, behind-the-scenesefforts to settle a budding major jurisdictional wrangle involvingTransCanada PipeLines Ltd., subsidiary Nova Gas Transmission andthe Territorial, Alberta and federal governments. Industry sourcessay secretive efforts to avoid a long, costly fight with potentialto hamper development of northern gas have reached high politicallevels. Alberta Premier Ralph Klein is said to have set aside partof Canada’s May 22-24 Victoria Day holiday weekend for privatepeace talks with territorial counterpart Jim Antoine. Thediscussions went ahead with encouragement from National EnergyBoard chairman Ken Vollman, industry sources said.

While results of the conversations are unknown, no news is heldto be good news in this case. It started with a formal, legalappeal in mid-May by the Territorial government for the NEB toseize jurisdiction over Nova’s 11,000-mile Alberta pipeline grid,which has for 45 years been a jealously-defended provincialresponsibility. Nova was created by the Alberta legislature as aninstrument of provincial economic policy. Alberta governments ofall political stripes have staunchly retained jurisdiction overNova service and tolls for the Alberta Energy and Utilities Board.TransCanada’s lawyers succeeded in preserving the status quothrough the takeover of Nova last year. No replies to the northernappeal against the jurisdictional status quo were immediately filedand the silence continued after the weekend talks, encouraging hopethat a settlement will be possible. The Liard drilling hot spot isjust across the southern boundary of the Territories with northernBritish Columbia and Alberta. The Territorial demand was triggeredby expectations of heavy gas action accompanied by frustrationsover access to the Alberta grid as a means to reach long-distancepipelines including TransCanada and the affiliated Foothills andAlberta Natural Gas systems.

While Westcoast Energy Inc. has built an extension of its B.C.into the Liard area, its capacity is only 300 MMcf/d and marketingoptions are limited compared to crossing Nova. However, on FridayWestcoast announced an agreement with the Acho Dene Koe, the localIndian community that owns much of the land in the Liard area, todevelop new gathering, processing and transportationinfrastructure. The plan would involve an extension of Westcoast’sexisting Pointed Mountain pipeline and could include an extensionof Alberta Energy Co.’s Maxhamish line. An expansion of itsexisting system could be included as production ramps up.

But the Territorial government seems set on gaining access tohigher priced markets via the Alberta grid. The government said itwas shut out of negotiations that led to a new distance-basedtolling system on Nova regarded as highly unfavorable by northernauthorities. The Territories say the NEB needs to take jurisdictionover the Alberta grid in order to create an avenue of compulsoryconsultation and regulatory appeal in such tolling cases. TheTerritories also suggest Nova has only refrained from buildingnorthern extensions because border crossings would put the Albertagrid under federal jurisdiction virtually automatically.

Canadian gas producers, meanwhile, show rising interest in thenorthern gas play. South of the Liard area, in northeastern B.C.,monthly government sales of provincially-owned resource rights havebeen on the rise since February. Buyers in May, when sales jumped50% to C$11.3 million (US$8 million) from the same month a yearago, included Paramount and Berkley with purchases of B.C.prospects next door to their Liard program. Geological trendsthroughout the region are believed to harbor rich deposits. A 1998resource assessment by the NEB projected marketable gas reserves inthe southern Northwest Territories and adjacent Yukon at 10 Tcf,with up to 1.8 Tcf available for a supply cost of C$2/Mcf(US$1.40).

Westocoast’s Terry Killacken said the pipeline is expecting atleast 100 MMcf/d to be flowing out of the area by next spring and”easily” 300-400 MMcf/d within two years. “Our system will beattached to the Alliance Pipeline and it’s attached to Nova now.Producers in Liard will have a lot of options” coming throughWestcoast.

Gordon Jaremko, Calgary; Rocco Canonica

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