Arctic Oil Town Fears Future as Imperial's 1920s Wells Shut

(Bloomberg) -- When oil topped $100 a barrel three years ago, the tiny village of Norman Wells in Canada’s high arctic was gearing up to be the “Dubai of the Mackenzie River,” with oil revenue bringing prosperity to all.

Now, with oil at half that price and one of Canada’s oldest wells set to close, the future is less certain for the 750 residents in the Northwest Territories town.

Imperial Oil Ltd., the Canadian unit of Exxon Mobil Corp., will probably shut in the wells this month, ending almost a century of production in the area about 1,700 kilometers (1,000 miles) north of the Calgary energy hub. Production is being halted after the lone Enbridge Inc. pipeline that carries oil south from Norman Wells was brought down late last year, Lisa Schmidt, an Imperial Oil spokeswoman, said by phone. Schmidt declined to say if production will resume.

The town that grew up along the Mackenzie River back in 1920, when oil was first pumped, has lived off the operations ever since. Gas produced from the site is used to generate electric power for the homes, and a steady stream of oil workers fill the local curling club and restaurants. Yet restoring the pipeline and resuming production will, at best, only buy the town time, said Mayor Nathan Watson.

“This has been a slow steady decline of this field for a number of years,” he said by phone. “We are approaching the end. Within five to 10 years, something will give.”

Production Drops

Oil output dropped to just under 9,000 barrels a day last year, down 73 percent from its 1991 peak of 33,000 barrels, according to National Energy Board data. Profits earned by the federal government, a one-third owner, fell to about C$75 million ($57 million) in 2015 from C$109 million two years earlier, according to Indigenous and Northern Affairs data. 

Last September, Calgary-based Imperial announced it was looking for a buyer for the site and it still is, Schmidt said. That will be almost impossible unless Enbridge’s 50,000 barrel a day Line 21 is restored, Watson said.

Running from Norman Wells to Zama in Northern Alberta, Line 21 is the sole means for transporting crude out of the area. Enbridge said in November that concern about stability on an area of the Mackenzie River’s south slope prompted them to shut the line.

The Calgary-based pipeline operator “continues to work closely with our customers as well as our stakeholder communities as we move forward on remediation planning,” spokeswoman Suzanne Wilton said in an e-mail Jan. 31. “We are in the early stages of planning and have not finalized a timeline or scope of work.”

Dubai North

The future of this arctic town seemed less dire a few years ago when oil traded as high as $115 a barrel., Watson said.

“We were gearing up to be the Dubai of the Mackenzie River,” he said.

At the time, other producers were showing interest in the region. Calgary-based MGM Energy was exploring alongside ConocoPhillips, Imperial Oil, Royal Dutch Shell Plc and Husky Energy Inc. in the Canol Shale of the territory’s central Mackenzie Valley. Producers had committed more than C$625 million in exploration spending at land auctions since 2011. A National Energy Board report in 2015 estimated the Canol and Bluefish formations hold about 190 billion barrels of oil in place, which would make them the largest in the country. Oil companies have since suspended work amid the biggest oil rout in decades.

Crude futures were trading at about $53 a barrel on Thursday, about half what they reached in mid 2014.

While Imperial’s planned shutdown has been the talk of the town, residents aren’t clear what will happen next, said Peter Stilchak, president of the Norman Wells Chamber of Commerce. “There are rumors like crazy,” he said. “At one point, they are shutting down but nobody knows when or what or how big an impact it will be.”


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