As construction begins on Alliance Pipeline, Canadiannatural-gas producers are mounting aggressive northern drillingcampaigns to fill up the added export capacity when it goes intoservice in October of 2000. Northeastern British Columbia, thestarting point for Alliance’s 2,320-mile route to Chicago, hasemerged as an E&ampP hot spot.

A record 635 wells were drilled in 1998 in the gas-rich region,a vast wilderness along the eastern slopes of the Rocky Mountainsand the southern legs of the Alaska Highway. While most Canadianforecasters predict poor oil prices will slow down the pacesomewhat this year by limiting exploration budgets, few expect therecord to stand for long. B.C. gas is projected to fill aboutone-third of Alliance’s initial capacity of 1.325 Bcf/d.

By the end of this February, the new B.C. Oil and Gas Commissionreported 480 new well applications. Rather than a slump,northeastern B.C. this winter has been the scene of a scramble tocomplete previously-approved wells and tie-in pipelines by anannual deadline of April 1.

A leading B.C. pipeline contractor, Transline Enterprises,reported working on 12 projects simultaneously after slow decisionson budgets among producers due to poor oil prices delayed the startof the annual winter field season almost until February. Most workmust be done in at-times bitterly cold weather between November andmid-March, because rapid spring thaws, ushered in by warm chinookwinds flowing in from the Pacific over the Rockies, melt thousandsof square miles of northern muskeg swamps into deep bogs impassablefor industrial equipment. One of the prouder boasts among the 14pipeline contractors in the regional industrial capital of Fort St.John is never having been forced to leave expensive pieces ofequipment mired in muskeg for the warm season.

Northeastern B.C., until the mid-1990s regarded as aforbiddingly remote and expensive frontier, this winter emerged asa highly fashionable place to be. Up to 86 drilling rigs were keptbusy by a who’s-who of 33 exploration and production houses rangingfrom Alberta Energy Co. and Beau Canada Exploration Ltd., throughHusky Oil Ltd. and Petro-Canada, to Suncor Energy Inc. and UnionPacific Resources Inc. Analysts and leading gas producers such asPoco Petroleums Ltd. rate northeastern B.C. as a highly competitiveanswer to the newer supplies in the United States in the deeperwaters and geology in the Gulf of Mexico.

B.C. wells have repeatedly yielded “world-class” test flowsreaching into the range of 60-80 MMcf/d. Gas specialists like Pocoobserve that while deep wells in northwestern Alberta andnortheastern B.C. cost C$5-$10 million (US$3.4-$6.7 million) orupwards of 10 times as much as shallow drilling in eastern Alberta,the difference in rewards is far greater for companies that canafford the frontier. A typical eastern Alberta shallow well,costing C$300,000-$700,000 (US$200,000-$470,000), yields reservesof 1 Bcf or less and production in the range of 1 MMcf/d. On thenorthern frontier, wells yield 20-50 Bcf of reserves and productionof 10-30 MMcf/d. In northeastern B.C., Canadian producers boastsuccess rates of 50% for exploration wells and 80% for developmentdrilling in known fields.

The flurry of B.C. activity follows successful negotiations on anew deal for the industry with the provincial government. As ofthis year, B.C. has cut royalty rates on fresh discoveries by up to40%, created the new oil and gas commission as a speedy”one-window” agency for project approvals, committed nearly C$100million (US$66 million) into road and allied “infrastructure”improvements, made peace agreements with native communitiesincluding MOUs, or memoranda of understanding, on consultationprocedures and clearly marked out the boundaries of environmentallyoff-limits areas that left about 75% of the region open forbusiness.

The B.C. frontier is catching on to the point where it has begunto attract international attention. When Richmond, VA-basedDominion Energy Inc. laid out C$390 (US$261 million) for RemingtonEnergy Ltd. in late February, the U.S. power and gas conglomeratemade a point of telling its shareholders that the deal spelled a”move into northeastern British Columbia, one of North America’smajor gas supply regions.” B.C. also figures as a star growthprospect in the forecasts of leading international consultinghouses including Chicago-based Gas Research Institute. GRI’s latestBaseline Projection this winter described the region as having”emerged over the last 10 years as an important region for naturalgas production.”

GRI accepts predictions by Canadians, including CAPP and a studyby the KPMG accounting house, that B.C. reserves additions andproduction will about double. Although the Chicago forecasters aremore cautious than the Canadians, GRI still foresees B.C. reservesadditions increasing to 1.6 Tcf/year by 2015 from a historicalaverage 700 Bcf. Annual production is expected to climb to 1.2 Tcffrom the 700 Bcf anticipated this year.

Canadians see faster growth rates than GRI largely on thestrength of pipeline additions including Alliance. Vancouver-basedWestcoast Energy Inc., owner of B.C.’s gathering web and a 23.6%interest in Alliance, underlined the high expectations March 10. Toconcentrate on growth prospects, Westcoast sold a reliable butconservative utility money-earner, distributor Centra Gas ManitobaInc., to Manitoba Hydro for C$245 million (See related story thisissue). Westcoast explained that it expects to spend C$1.6 billion(US$1 billion) this year on “core” growth ventures, includingAlliance and its 37.5% of Maritimes &amp Northeast Pipeline.

Gordon Jaremko, Calgary

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