Canadian Central Northwest Territories is the New Hot Prospect

A new Canadian subarctic exploration campaign is developing -- closer to market than the contested Mackenzie Gas Project -- after a group led by Husky Energy Inc. chalked up its second drilling success in the central Northwest Territories.

The latest well, in the central Mackenzie Valley about 110 kilometers (70 miles) south of Norman Wells, flowed 5 MMcf/d of natural gas in restricted production tests, Husky reported. The new well further heightened interest among explorers by tapping a geological zone, the Cretaceous, where no gas had ever been found before in the northern Canadian region.

Targets for further drilling next winter will be chosen after reviewing the well results and seismic surveys that will be conducted this summer, the company said. A 2004 drilling success in the region by the Husky group yielded daily test flows of 20 MMcf of gas and 6,000 barrels of light oil and gasoline-like condensate.

Husky and partners Northrock Resources, EOG Resources, Pacific Rodera Energy and International Frontier Resources also scooped up 884 square kilometers (354 square miles) of potential new targets at a spring auction of exploration prospects by the federal Department of Indian Affairs and Northern Development. The acquisition increased the group's northern drilling rights holdings to 3,275 square kilometers (1,310 square miles).

The spring auction of central Mackenzie exploration properties sold a total of 5,168 square kilometers (2,067 square miles). Besides the Husky group, buyers included Talisman Energy, Devon Corp. and Paramount Resources. Northern Canadian drilling rights are bought with work commitments rather than cash. The companies pledged to conduct C$70.7 million (US$64 million) in exploration.

The emerging exploration effort has set off behind-the-scenes talk about possibilities of mounting a smaller, less contentious pipeline proposal than the Mackenzie Gas Project if it comes apart. The Mackenzie Valley Pipeline's (MVP) cost estimates are creeping up, recently reaching C$7.5 billion (US$6.8 billion), while at least a strongly vocal minority of northern residents continue to fight the plan.

The drilling in the central Mackenzie Valley is within reach of the established right-of-way of an oil pipeline completed 22 years ago to northern Alberta from Norman Wells. The route reaches about halfway to the proposed Arctic starting point of the MVP.

But Canadian gas producers are far from giving up on the MVP. The spring drilling rights auction also sold 1,564 square kilometers (625 square miles) of Arctic exploration prospects in the Mackenzie Delta-Beaufort Sea region for work commitments of C$51.7 million (US$46 million).

Arctic buyers included EnCana Corp., Anadarko Canada, ConocoPhillips Canada and Shell Canada. The drilling rights are near fields targeted for development by the MVP, which is about one-third of the way through lengthy hearings by the National Energy Board and an environmental Joint Review Panel of federal, territorial and native agencies.

MVP plans continue to be contested within the Canadian gas industry as well as between it and factions of the northern aboriginal community. MVP owners Imperial Oil, Shell Canada, ConocoPhillips Canada and ExxonMobil Canada this week flatly rejected a call for the NEB to declare the project's proposed Delta-Beaufort gas gathering web an open-access network subject to board regulation.

The Mackenzie Explorer Group -- Anadarko Canada, BP Canada, Chevron Canada, Devon Canada, EnCana and Nytis Exploration -- is pressing the board for action, saying it is necessary to ensure the MVP is a true "basin-opening project" that will foster an open northern gas production industry.

The struggle centers on the Mackenzie Gathering System or MGS for short, a 190-kilometer (120-mile) pipeline network that the project ownership group plans to build on the Mackenzie Delta. As proposed, the MGS would connect only three "anchor fields" owned by Imperial, Shell and ConocoPhillips -- Niglintgak, Taglu and Parsons Lake -- to the project's long-distance facilities. Those include a 457-kilometre (285-mile) liquid byproducts pipeline to the northern-most end of Canada's oil network at Norman Wells, as well as the planned 1,200-kilometer (750-mile) Mackenzie Valley Pipeline to the top of the TransCanada-Nova gas system in Alberta.

In a reply to the explorer group, senior MVP partner Imperial told the NEB the gathering system will be a separate operation with a different ownership structure. Prospective users of the gathering network are being offered part-ownership, Imperial said.

Imperial insisted that while it has been designated operator of both the long-distance pipeline and the gathering system, it would not be able to use its stature to look after only its own interests. Imperial said contractual arrangements will require it to follow orders of a management committee representing all partners in the gathering system. It is "unrealistic" to expect all terms and conditions of using the northern pipeline system to be laid out at this stage, "recognizing the MVP is still at least five years away from operation," Imperial said.

Copyright 2006 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

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