Another Canadian takeover bid by Hunt Oil and a snap decisionduring the holiday season by the National Energy Board, highlightthe industry’s eagerness to take advantage of soaring gas marketswith new Canadian supplies.

Only two weeks after hearings on a vigorously contested case,the NEB authorized a subsidiary of Oklahoma-based Ricks ExplorationInc. to lay a new gas pipeline connection from Alberta into a hotexploration area in northern British Columbia. The board rejectedefforts by rivals Murphy Oil Co. and Apache Canada Ltd. to makeRicks wait until it justifies the project by proving and countingup reserves expected to be discovered by a drilling campaign underway this winter.

At the same time, Dallas-based Hunt Oil Co. has launched anuninvited, $C1.03 billion (US$710 million) offer to buy Canada’s27th-largest gas producer, Berkley Petroleum Corp. It is Hunt’sthird foray in a year into Canada. The Texans lost a bidding waragainst Anderson Exploration Ltd. for Ulster Petroleums Ltd. inApril but two months later succeeded in scooping up NewportPetroleum Corp. with a friendly offer of C$489 million (US$337million).

Hunt’s targets have all belonged to a large, frustrated segmentof the Canadian gas community as companies that have been farbetter at exploration and production than at persuading investmenthouses to bid up under-valued share prices. Berkley immediatelyspurned the Hunt offer as “opportunistic and inadequate,” andanalysts predicted it would prove to be only an opening bid.Berkley entered 2000 with gas production approaching 150 MMcf/d anda formidable array of growth prospects including operations in theprolific Fort Liard area of the southern Northwest Territories.

That area also is one of the attractions in the Ricks case. Inapproving the pipeline connection for an area in B.C. near itsboundary with northern Alberta known as Ladyfern, the NEB said itwas “satisfied that there is a reasonable expectation thatsufficient gas supply exists.” Ricks was authorized to go ahead onconstruction when it reaches productive capacity of 30 MMcf/d —less than one-fifth of the new link’s potential capacity. AlbertaEnergy Co. supported the proposal, saying it too has an aggressivedrilling campaign under way in the area this winter.

While wells in the region remain confidential “tight holes”because there is keen competition for land positions, disclosuresby Beau Canada Exploration suggested that a discovery well by itand Murphy flowed 60 MMcf/d on new reserves of up to 500 Bcf. Thedisclosures stopped in the fall after Beau Canada, like Berkley anunder-performer on the stock exchanges, was taken over by Murphy.The ability of Canadian gas fields and producers to deliver wasunderlined by the NEB’s latest monthly report on exports to theUnited States. The record showed that as of Sept. 30 — or the endof the first 11 months of the 1999-2000 contract year — Canadianexport deliveries rose by 7% to 3.2 Tcf. Eleven-month revenues shotup by 57% to US$9.8 billion, thanks to a 47% increase in averageprices at the border to US$3.06 per MMBtu.

The quick decision on the Ricks case demonstrated willingness bythe NEB to co-operate with a Canadian industry strategy of turningtowards deeper, costlier and much more prolific drilling targetswith the proceeds of increased prices. In a market assessmentreport just before the Ricks decision, the board said it was forcedto cut previous projections of Canadian supply growth by 2002 inhalf to 1.1 Bcf/d due to reliance among producers on cheap, shallowand low-reserve targets in southern prairie regions that developedduring the 1998-99 oil price slump.

The board said its new projection could turn out to bepessimistic if the industry carried out declared intentions toswitch to northern and western regions along the Rocky Mountainfoothills. The NEB also acknowledged a much more confident supplyprojection, rooted in findings that a rapid return to the prolificgas targets is developing, by the Petroleum Services Association ofCanada.

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