By Darren Campbell -- Development in the NWT’s Beaufort Delta seems to grab the headlines. But most of the wells drilled and licences sold since the mid-1990s have been in the Sahtu. And if a pipeline is ever built, the region could be booming.
On August 23, 1920, an Imperial Oil Ltd. exploration crew struck commercial quantities of oil near Norman Wells. It was a big find – with anywhere from 600 to 700 million barrels of oil estimated to be in place. Yet the discovery didn’t lead to a flurry of more exploration, discoveries and production like it has in places such as Alberta where similar big oil strikes occurred. While the prolific field, located in the heart of the Northwest Territories Sahtu region, has produced approximately 220-240 million barrels of oil so far, as its discovery date creeps closer to the century mark, its oil is still the only petroleum being produced out of the Sahtu.
It’s a reality that makes it tempting to dub the region “The Undiscovered Country” – the title of the 1991 Star Trek film. Except the label wouldn’t be correct. Sure, Norman Wells is the lone producing field in the region, which also includes the communities of Colville Lake, Deline, Fort Good Hope and Tulita and covers 280,000 square kilometres. And yes, with only approximately 200 exploratory wells ever drilled there, it’s under-explored. But the Sahtu isn’t undiscovered, just its resources.
And while developments in the NWT’s Mackenzie Delta and Beaufort Sea regions, situated north of the Sahtu, seem to grab more headlines, most of the wells drilled and exploration licences issued since the mid-1990s in the Northern reaches of the NWT have occurred in the Sahtu. It’s clear why the region has attracted that kind of interest. Some reports state the NWT has potential natural gas reserves of 82 trillion cubic feet and 5.7 billion barrels of oil. Not all of that potential lies below the surface in the Sahtu. But the prospect of finding another Norman Wells, plus known discoveries of nearly 0.5 tcf of gas despite limited drilling, makes the region an enticing frontier for the oil and gas industry.
“It’s the last remaining area, other than the offshore, where you have the potential to find huge reserves,” says Pat Boswell, president and CEO of Calgary-based junior explorer International Frontier Resources, a company that has acquired over 480,000 gross hectares in the Sahtu. “So few wells have been drilled up there.”
But that could change in that not-too-distant future. For the Sahtu seems ripe for an exploration boom if the right ingredients are in place. Some of them already are. Since 2000, annual calls for bids and land sales has been held for the central Mackenzie Valley (essentially the Sahtu region) by the federal government, giving industry yearly opportunities to bid on land there. It’s also a proven but lightly explored hydrocarbon province thanks to past discoveries of oil and gas, notably the Norman Wells field and gas finds near Colville Lake. And just as important, a land claim agreement was signed off with the federal government in 1994. It gives aboriginal people in the region the ability to determine who can work on their traditional lands and on what terms. With the land claims in place, the Sahtu communities are willing to play ball with industry.
Industry has already shown its interest in the area. There are 24 exploration licences active involving some of Canada’s biggest oil and gas players, including Petro-Canada, Husky and Apache Canada. Industry has made almost $230-million in work commitments to the federal government for those licences. And this spring will surely see more licences issued and more million-dollar commitments made when the results from the federal government’s 2007 central Mackenzie Valley call for bids are announced.
However, there are some missing ingredients, too. There is no natural gas pipeline in the Sahtu to get gas discoveries to market. Imperial Oil’s proposed Mackenzie Gas Project would solve that problem. But regulators are still reviewing the 1,200-kilometre pipeline that would start in Inuvik and wind through the Mackenzie Valley to the Alberta border. There is great concern that regulatory delays and rising costs may result in Imperial Oil delaying or scuttling the MGP altogether even if it gets approval to build it.
One other missing ingredient – at least from the industry’s perspective – is the lack of an industry-friendly regulatory framework in the NWT. “The climate’s fine. The resource is fine. The trouble with the entire region North of 60 is the quagmire of regulatory boards,” says Clay Riddell, chairman and CEO of Paramount Resources Ltd. and MGM Energy Corp. MGM Energy, along with partner Apache Canada, has over 380,000 hectares of land near Colville Lake.
Riddell and other Calgary oil barons have long been frustrated by the regulatory state of affairs in the NWT. It’s vastly different from what they face in Alberta where only one regulatory body – the Alberta Energy and Utilities Board – is often the judge and jury of proposed oil and gas projects that take place solely within provincial boundaries. In the NWT, depending on what land claims area a project is proposed in, one or more regulatory boards could review it before a decision is made. More regulatory boards involved generally means a longer review process and delays in approving or rejecting projects. In the end, regulatory delays increase the cost of doing business in a place like the Sahtu. Boswell thinks the NWT’s regulatory regime does discourage other companies from investing in the Sahtu.
But if industry can somehow work through its Northern regulatory phobia, it has a region where the people are willing to accept development on its lands and take advantage of the jobs, contracts and other benefits that come with them. Still, access to land isn’t simple to obtain. In Alberta, companies negotiate with individual landowners to gain access. Not so in the NWT, where land in regions like the Sahtu is mostly owned by the federal government or by aboriginal people. Under the 1994 Sahtu Dene and Metis Land Claim Agreement, the Sahtu Dene and Metis people have title to 41,437 square kilometers of land, including ownership of subsurface resources on 1,838 square kilometers. The federal government owns much of the remaining land in the Sahtu and the subsurface resources.
If a company wants to explore in the Sahtu, it is required to consult heavily with the communities that could be affected by potential seismic and drilling projects. They must also negotiate access and benefits agreements with Sahtu district land corporations. No oil and gas activity happens without these agreements in place. They cover some major issues: how a company will consult affected communities; maximizing employment, training, business, supply and service opportunities for Sahtu residents and businesses; and providing compensation to anyone involved in hunting, trapping and fishing in the event negative impacts occur due to oil and gas activities.
This kind of consultation and negotiating can be time consuming for industry and it’s sometimes a heavy burden on the Sahtu’s tiny communities. But it’s seen as essential work by the Sahtu’s aboriginal people if oil and gas activity is going to happen. “Companies are much more accommodating and willing to go to these measures we’re putting to them,” says Arthur Tobac, vice president of the Yamoga Land Corporation in Fort Good Hope. “We didn’t want the companies to just show up for a few hours but to get to really know the people and do the best they can to protect the wildlife and the environment. They’re going the extra distance to accommodate our concerns and allowing us to participate in these projects. We get a say in them.”
Companies working in the Sahtu seemed satisfied with the status quo as well – even though it means extra effort and money to pull it off. “We have a good working relationship with the people up there. I think that’s because we consider the First Nations people there more of a joint venture partner,” Boswell says. “There’s been some hiccups but we’ve overcome those. By and large there seems to be a core group of folks up there who are pro-development.”
But it’s not development at any cost. In the Sahtu, aboriginal people still cling tightly to the old ways – hunting and trapping. In Colville Lake, for example, the latest NWT statistics report over 80 percent of households say they still get most or all of their food from wild game They don’t want the caribou, moose and birds to be chased away by noise and pollution from oil and gas activities. They don’t want water to be wasted or polluted, either.
Deline has recently had to come to grips with this issue. In 2005 and 2006 Petro-Canada, Talisman Energy Inc. and Devon Canada were awarded exploration licences near the community. Seismic work has already taken place and drilling could soon follow. The work from these projects means big bucks flowing into Deline and jobs for its residents like ice road construction, water and fuel hauling and seismic slashing. Deline’s unemployment rate was 30.4 percent in 2004. But despite the need for more job opportunities, Deline Land Corporation president Leroy Andre says oil and gas activities can’t happen at the expense of the wildlife or the environment.
Andre says Petro-Canada is currently consulting with the community about future drilling plans on a lease near the community and where it wants to drill is, “pretty much right in the middle of an important winter [caribou] feeding area in our territory,” Andre says. “That’s one of the main issues to resolve. Protection of the caribou is very important. We don’t want to allow things to go ahead and find out later on we had an impact. [Oil and gas activity] is an important economic driver for us right now but we’ve survived without it for many years and it wasn’t a big deal. We work with it because it’s here. The main thing is that the environmental issues are dealt with and that they’re at the forefront with these companies.”
Concern for protecting the environment has led to compromises between Sahtu communities and industry. In Colville Lake, MGM Energy and Apache have been busy in their drilling efforts here. The partners have drilled 10 wells, cased eight and made two discoveries since 1996. But after a busy drilling season in 2005 where they drilled a total of five exploratory wells on EL’s 399 and 414, the community asked for a break. “The elders were saying give the land a little bit of a rest,” says Richard Kochon, chief of Behdzi Ahda First Nation in Colville Lake. “There was too much running around the country. There was 18-wheelers going day and night.” MGM and Apache followed that advice and haven’t drilled on their Colville Lake leases the past two winters, although both sides have held meetings to talk about when drilling might start up again.
While taking a break from drilling might be good for the land, it doesn’t lead to new discoveries. And the region’s oil and gas potential continues to tantalize companies. Particularly when there is already an oil pipeline in place – a buried line that is 898 kilometre-long and takes crude oil from Norman Wells to Zama, Alberta – that has plenty of spare capacity as the Norman Wells field’s production slowly declines. Unfortunately, another oil strike has eluded explorers since the 1920s. “Much of the exploration efforts there have tried to find another Norman Wells,” says Fred Calverley, a retired geologist who worked 30 years in the NWT for companies like Chevron during his career. “Companies have said, “We need another Norman Wells.” But it’s proven to be unique.”
But a breakthrough might not be far off. In 2005 Husky Energy, part of a five-company consortium that includes International Frontier Resources, announced it had found oil and gas on EL 399 at its Summit Creek B-44 well near Tulita. The discovery was a sizeable one. Tests reported flow rates of approximately 20 million cubic feet of gas per day and 6,000 barrels of light crude. Meanwhile, hydrocarbon potential also oozes from EL 413, which straddles Sahtu land and Gwich’in Tribal Council land northwest of Fort Good Hope. Calgary’s Kodiak Energy Inc. got regulatory approval in February to conduct an 85 kilometre seismic program on this 80,937-hectare property. Kodiak believes the block may potentially hold large quantities of oil and gas, perhaps as much as one billion barrels of oil and 600 bcf of gas.
And it’s the chance to find hydrocarbons of that size that brings the Petro-Canada’s and Husky’s of the world to the Sahtu to explore. Despite the fact another big strike the size of Norman Wells hasn’t been found in over 80 years, there is no doubt in Boswell’s mind that large oil and gas deposits are waiting to be found in the Sahtu. He says it is just a matter of looking hard enough for them. Boswell adds that it’s the drill bit that will ultimately hit the jackpot and find the next Norman Wells. “I’m absolutely convinced,” Boswell says. “I just don’t know how many wells it’s going to take. But we’re as close to finding it as anybody.”
