NGI The Weekly Gas Market Report
For the second time this summer, Canadian natural gas producershave voted with their pocketbooks to revive northern drilling andexpectations that an Arctic pipeline will be built.
At an auction of government-owned mineral rights by Indian andNorthern Affairs Canada, seven companies paid C$465.8 million(US$315 million) for 2,735 square miles of drilling prospects onthe Mackenzie Delta and in neighboring shallow waters of theBeaufort Sea. The Arctic land awards followed a C$57.5-million(US$39.6-million) sale of 2,950 square miles of properties farthersouth in the central Mackenzie Valley district of the NorthwestTerritories. The sharp differences in prices reflect knowledge ofthe areas.
In the Delta-Beaufort region, scene of hot exploration plays inthe 1960s, ’70s and early ’80s, Imperial Oil Ltd., Shell CanadaLtd. and Gulf Canada Resources hold an estimated 11 Tcf of knownreserves. Canadian technical authorities calculate that the regionharbors another 55 Tcfof gas yet to be discovered. The valley islargely virgin terrain, opening up for the first time as a resultof native land claims settlements that have also sharply improvedthe outlook for laying a pipeline south to connections with themainstream North American grid in Alberta.
The Canadian technique of auctioning northern developmentprospects is crafted to make sure they will be worked rather thanbanked for long periods. Payment takes the form of commitments toconduct exploration programs, with the work required to be doneover the next nine years. To make sure the buyers mean business,25% deposits are required.
The Delta-Beaufort gas hunters include Shell, BP Canada, ChevronCanada, Burlington Resources Canada, Anadarko Canada, Petro-Canadaand Anderson Exploration’s Anderson Resources.The Andersonorganization startled the Canadian gas community and underlined thehigh expectations for northern development by accounting for 48%of both the new Arctic acreage and the financial outlays to obtainit. Anderson, built from scratch into a top-10 Canadian gasproducer by a former Amoco engineer, J.C. Anderson, has long stoodout as a conservative survivor of the sector’s cycles with a knackfor calling the turns.
The Anderson organization, reviewing supply and demand trendsacross North America, maintains there can no longer be much doubtthat there will be a need for northern development. Sustainedstrong prices show it is coming sooner rather than later.
BP Canada president Tim Holt, a veteran of its internationalparent corporation’s Alaskan operations, issued a statementdescribing the Delta-Beaufort acquisition as “a key building blockfor delivering future growth from Canada.”
In the Canadian gas capital of Calgary, energy stock boutiquePeters & Co. described the auction as “the kind of dramatictransformation that occurs in economic feasiblity studies whennatural gas hits C$5 (US$3.45) per thousand cubic feet.” Thefinancial analyst added a word of caution, however: “Thoughnorthern exploration has the potential to yield results that willtransform the North American natural gas market, the impact may notbe for another 5-10 years.”
Behind the scenes, work continues on as many as six proposalsfor Arctic pipelines, with Canadian authorities expecting to seeformal applications emerging in 2001 and early in the year if acold winter sets off sharp price spikes. All are variations ondormant projects left over from the 1970s, the still-missingnorthern link in the Alaska Natural Gas Transportation System and aCanadian-based route through the Mackenzie Valley.
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