The hunt for natural gas on the east coast of Canada is poised to step out to a new frontier offshore

The hunt for natural gas on the east coast of Canada is poised to step out to a new frontier offshore of Quebec — if the aspiring explorers can avoid tripping over a potential for a territorial dispute with neighboring Newfoundland.

An agreement to launch an exploration campaign in the Gulf of St. Lawrence has been reached by Corridor Resources Inc. of Halifax and Montreal-based Hydro-Quebec. The deal calls for technical evaluation of targets and recruitment of an experienced operator of deep-water drilling to take on wells in an area known as the Laurentian Channel. Hydro-Quebec vice-president Jean Guerin described the initiative as “strategic” for the biggest energy organization in French Canada.

While the agreement specifies an initial commitment by Hydro-Quebec of only C$500,000 in exchange for rights to earn an 18.75% share in drilling properties held by Corridor, the Montreal corporation has made a commitment to put C$330 million (US$250 million) into hydrocarbon exploration by 2010.

The Quebec government maintains that its province stands out among the remaining prospective, little-explored drilling frontiers in North America. The jurisdiction counts more than 200,000 square kilometers (80,000 square miles) of sedimentary rock liable to harbor gas in five basins. Just 381 wells have been drilled over the past 140 years, and only 78 of the sites were selected using recognizably modern seismic survey techniques.

The targets of the new partnership, Cape Ray and Old Harry, lie offshore in water depths of up to 1,500 metres. Old Harry has had its affectionate nickname for generations, as a massive structure well known to geologists but beyond reach until the latest deep-water drilling technology came along. Old Harry sprawls for more than 20,000 hectares (200 square kilometers, or 80 square miles) when viewed from the top, and has thickness that enhances its attractions to explorers. But on top of acknowledged risks involved in expensive deep-water drilling into almost entirely unknown formations, there is a political catch.

The prospects, and especially old Harry, butt up against the offshore boundary line between Quebec and Newfoundland. A border dispute has yet to erupt openly in any formal way. But the region has a long record of generating rival claims, especially since the Canadian maritime governments are perennially strapped for cash and zealously claim rights to any resources liable to spin off revenues.

Political leaders of all stripes in Newfoundland, encouraged by a 2002 arbitration award that gave it 70% of the territory affected by an offshore boundary dispute with Nova Scotia, have made it known they do not necessarily accept the Quebec version of its border. At the same time, the Canadian federal government does not readily cede offshore mineral rights to any provincial jurisdiction.

The national government in Ottawa has a key role in any dispute over offshore resources. Federal primacy over subsea mineral rights was upheld in a 1970s court battle with Newfoundland, and jurisdiction has been shared subsequently with provincial governments for political, rather than legal, reasons under “accords” or co-operation agreements. Corridor has applied for federal licenses covering the drilling prospects where it holds Quebec permits.

Hydro-Quebec is understood to have quietly made overtures to political leaders, encouraging them to try for a Quebec counterpart to the jurisdiction-sharing accords the federal government has separately with Newfoundland and Nova Scotia. The packages include collaborative granting of resource leases and co-operative regulatory agencies, the Canada-Newfoundland Offshore Petroleum Board and the Canada-Nova Scotia Offshore Petroleum Board.

No target date was set for dispatching drilling rigs to Old Harry and Cape Ray in the Laurentian Channel. But Corridor has established a record as an independent explorer with connections, staying power and technical capability.

Founded in 1995 by Norm Miller, a Nova Scotia-born veteran of Shell Canada and Petro-Canada, to try building a home-grown entry into the East Coast industry, Corridor achieved its first production in April. Backed by larger partners, the Halifax firm put together a start on developing an extensive gas property on land in New Brunswick titled the McCully Field by delivering 2.3 MMcf/d to a mill owned by Potash Corp. of Saskatchewan. The plans call for additional drilling and eventually a connection with Maritimes & Northeast Pipeline about 30 miles from the McCully site.

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