Explorers lose Mackenzie test case; Petro-Canada hikes Arctic offer — again

From Petroleum News

“Imperial, lead partner in the Mackenzie Gas Project, with Shell Canada, ConocoPhillips Canada and ExxonMobil Canada as its partners, flatly rejected that idea…”

The Article

Faced with increasingly bleak natural gas exploration prospects, Canada’s Mackenzie Delta and Beaufort Sea has seen its troubles compounded by a National Energy Board ruling that could give independent E&Ps second thoughts about embarking on new wells.

Canada’s energy regulator sided with Imperial Oil in its disagreement with six explorers who wanted the proposed gas gathering pipelines and main line down the Mackenzie Valley declared a “single pipeline” falling under NEB jurisdiction.

Instead the board upheld the status quo, which puts the gathering network and a processing plant at Inuvik, Northwest Territories, under the Canada Oil and Gas Operations Act and the Mackenzie Valley line under its own control.

Anadarko, BP, Chevron Canada, Devon Energy, EnCana and Nytis Exploration, all members of the Mackenzie Explorers Group, wanted the gathering operations to be overseen by the NEB, arguing that was necessary to achieve just and reasonable tolls, non-discriminatory service and fair access to transmission systems.

Imperial, lead partner in the Mackenzie Gas Project, with Shell Canada, ConocoPhillips Canada and ExxonMobil Canada as its partners, flatly rejected that idea, insisting that the gathering lines in the Mackenzie Delta and a natural-gas-liquids line from Inuvik to Norman Wells should be subject to the COGO Act.

The NEB endorsed that argument, ruling that COGO is designed to regulate oil and gas exploration and development in the Northwest Territories in a safety and environmentally friendly way, whereas the NEB’s role is to protect the public interest where oil and gas are transported across jurisdictional boundaries by regulating traffic, tolls and tariffs.

Explorers group disappointed

Devon Canada Vice President Michel Scott told Petroleum News that the explorers group was “disappointed … no doubt” because it viewed the Mackenzie project as a “basin-opening” pipeline that should be exploration friendly by ensuring there was some form of economic recourse to a higher tribunal for explorers who were unhappy with the terms being offered.

He said the choices now are for explorers to “accept the deal that is put in front of them or build their own facilities.”

“We’d like to see the whole set of facilities be as exploration friendly as possible,” Scott said.

The NEB decision has created “uncertainty and will have an impact on the pace of exploration,” he said, suggesting third-party companies face an added challenge to fund their programs.

An Imperial spokesman told reporters that his company was pleased to now have clarity on how to proceed with the Mackenzie project.

Winter outlook already shaky

The outlook for the 2006-07 winter was already shaky. Devon has put drilling on hold while it evaluates results from a C$60 million well in the Beaufort Sea.
On top of that it has relinquished more than 400,000 acres of rights and has said it would be open to taking on a partner.

A partnership of Chevron and BP has indicated its waning optimism by inviting expressions of interest on an areawide farm-in opportunity for about 1 million acres of exploration acreage near the Mackenzie pipeline corridor, where 3-D seismic has identified prospects over about 308 square miles.

Anadarko will provide a reading on the level of enthusiasm when it seeks buyers for its Arctic holdings as it unloads all of its Canadian assets.

They include a 25 percent stake in the Umiak N-16 discovery well and N-5 delineation well on Richard’s Island and 140,000 acres of Delta leases that it acquired in partnership with EnCana and ConocoPhillips earlier this year for C$40.3 million.

Appeal under consideration

Scott said lawyers for the explorers group are still considering the decision to decide if an appeal is possible.
However, he conceded that the group’s priority is still to get the main line built without which there is “no hope of getting any gas out of the region.”

The NEB left one shred of hope for the explorers by saying it “remains concerned” about appropriate tolls and access to the gathering pipelines and “the methods for resolving disputes on these matters.”

It has indicated that proposed mechanisms to satisfy those issues will be discussed during the current round of NEB hearings on the project and could be part of the board’s final ruling in 2007.

For now, the proposed gathering system is intended to have initial capacity of 1.075 billion cubic feet per day when it comes on stream in 2011. Of that total 830 million cubic feet will come from the anchor fields at Taglu, Niglintgak and Parsons Lake, leaving 245 million cubic feet available for third-party shippers holding discoveries north of Inuvik.

But the explorers group has estimated that initial gas volumes take up almost all of the planned gathering pipelines, leaving little scope for any new discoveries in the Mackenzie Delta and Beaufort, suggesting that another pipeline might have to be built to connect with the main line.

—Gary Park