By Brent Reaney -- A few years ago, oil and gas exploration in the NWT’s central Mackenzie region was rocking. Trucks were rolling and there was seasonal work for just about anyone who wanted it. Today, an uncertain future for the Mackenzie Gas Project and a tough environment in which to raise capital saw an exploration shutdown this past winter. Is it a break in the action or a permanent breakdown?
It’s a cold, dark winter morning as Dave Hodgson walks across the parking lot in front of his heavy equipment shop along the Mackenzie River in Norman Wells. Piles of snow have settled on his trucks, drifts encircling the tires. It’s clear the machines haven’t been anywhere this season and Hodgson’s not sure they’ll move before the spring melt, either. It’s his million-dollar row of metal.
In the contracting business for almost 10 years, times have been good for Hodgson. Each winter, his backhoes, loaders, cats and graders have been working to service the oil and gas industry. Today, the hands-on mechanic is fidgety, with little for his crew to do besides maintenance work on his largely idle fleet of about a dozen machines. Wearing a ball cap and jeans dirtied from work earlier that morning, he points at a row of trucks. “What’s sitting there? A couple million dollars or more worth of iron,” he says. “But that’s just how it is, feast or famine.”
It’s true. A couple of years ago, you’d have had a hard time finding a seat for breakfast in Norman Well’s small but bustling Rayuka Inn coffee shop. But this winter’s different. There’s nothing going on. No exploration. No drilling. No seismic. Nothing. A camp area on the edge of town is full of trailers and rigs that would usually be out working. And contractors like Hodgson can’t do much besides wonder where the good times went, cross their fingers, and hope for an opportunity to haul another load of government gravel.
The Sahtu region sits in the heart of the Northwest Territories, between the Deh Cho and the Mackenzie Delta. The centre of the heart, Norman Wells, came to be following the discovery of the massive oil field of the same name. Partly thanks to the Norman Wells find, many believe the rest of the Sahtu region holds tremendous potential for future discoveries. But both the region and the resource have long been isolated; the region without a road and the resource without a pathway to southern markets. But in the late 1990s, Imperial Oil dusted off a 20-year-old plan to plunk a pipeline down the Mackenzie Valley. A few years later, as the Mackenzie Gas Project papers were being prepared, exploration boomed as companies hoped to cash in on the North’s largest-ever industrial development.
Estimated to cost $16.2-billion, the MGP would connect Imperial Oil’s natural gas liquids line in Norman Wells with three sizable fields in the Mackenzie Delta, providing the vehicle to bring the region’s gas to market. From 2002 onward, just the idea of the MGP put trucks into motion and hundreds of people in the Sahtu to work in oil and gas exploration. Now, uncertainty over if and when a pipeline might be built, along with a global recession and a tightening of credit markets, has seen a total reversal of the situation. As more than one person will tell you, there wasn’t a single job in the Sahtu oil and gas industry this past winter.
In the NWT, just about everyone knows the MGP’s review process has taken longer than expected. The question is how much longer? According to the original Environmental Impact Statement filed by Imperial and partners, gas would have been flowing by early next year. Today, as the regulatory process winds on, final federal approval appears unlikely before the end of 2010. Estimating four years for construction, gas won’t flow until 2015 at the earliest. However, there’s no guarantee the project will be approved. Even if it is, the proponents may choose not to build it.
The uncertainty over the pipeline is what many blame for the Sahtu’s deep industrial slumber. And just about any businessperson with an eye on the pipeline will lay most of that blame at the foot of the Joint Review Panel. Charged with mapping out the MGP’s socio-economic effects, the JRP is a popular target. That’s largely because after more than one delay, the panel doesn’t expect to hand over its final report until the end of the year. “In Canada, we’re at the stage where I think we’re a bit too resigned – ‘Oh well, I guess it’s going to take another year,’” says Gary Bunio, chief operating officer of MGM Energy, the most active oil and gas exploration company operating in the Sahtu and Mackenzie Delta regions.
When you go down to New York or Boston and you have this conversation, people think you’re drilling in Papua New Guinea,” saus Bunio. “They go, ‘Well, how can this be? Aren’t you a developed country? Don’t you have rules?’ It’s a bit embarrassing at times.”
While MGM was active in the Mackenzie Delta this past winter, it’s been four years since they last drilled in the central Mackenzie area and things are unlikely to change next winter. “The short answer is it’s highly unlikely,” Bunio says of the chance MGM will be drilling in the Sahtu. “I wouldn’t want anyone to go out and buy any trucks right now under the hope that we would be coming in.”
Another company, International Frontier Resources, has also been staying away lately. About 10 years ago, IFR became the first small company to start picking up land in the central Mackenzie Valley. To date, IFR and its related consortium of companies, including big boys Husky and BG International, have spent $150-million on drilling in the region to go along with tens of millions in seismic work. Every time a well is drilled, 125 of the 3,000 people who live in the Sahtu are employed to make it happen. In 2008, the group drilled two wells at a total cost of about $40-million – two to three times more expensive than in a less remote area. That’s largely because the Sahtu lacks all-weather road access, meaning if industry wants a road, they have to spend at least a few million dollars building it. “We build the road and the minute spring comes, the road’s gone. So we have to rebuild it every year and that’s leading into us having to do a feasibility study on whether or not we can use helicopters and have a helicopter supported drilling program,” says Pat Boswell, IFR’s president and CEO. He adds that he’s seen three large partners leave the Sahtu primarily because of the cost of building the infrastructure needed to operate. To help deal with the problem, Boswell says he’d like to see a government-sponsored incentive – cash or tax break – to help pay for the cost of the roads.
Aside from operating expenses, Boswell says part of the reason for the shutdown has to do with Sahtu leaders’ demands during negotiations for Access and Benefit Agreements – something IFR still doesn’t have. In ABAs, companies working on Sahtu-owned land negotiate a deal, often including cash and employment guarantees, in exchange for the right to operate. “I think what happens in the area is the community is short sighted and they’re just looking for work for next year and they’re asking for unrealistic demands in their access and benefits agreements,” he says. “They have to realize we’re putting up all this money and taking all the risk to drill these wells so they’re going to have to work with us on this, because if they don’t, industry will just go and spend its money elsewhere.” No Sahtu aboriginal organization responded to repeated requests to be interviewed for this story.
The territorial government’s petroleum advisor in Norman Wells wants to see companies such as IFR and MGM come back to spend money in the region. “We, being Northerners, have got to let these companies explore,” says Frank Pope. “Once they make discoveries which are marketable, that is when the local communities should be looking for benefits, not up front so much while they’re exploring. Let them find something first.”
Pope, a Hudson Bay boy who came North in 1962, has been watching the oil and gas industry since the early ’80s. He isn’t alarmed by the current Sahtu slowdown, saying it’s just another bust in a boom-bust region. “My only issue here is I hope that contractors and local folks who have invested getting ready for this pipeline and for the exploration are able to survive without going broke,” he says, adding the territorial government has programs to help contractors make interest payments on equipment. “A lot of them have gotten through this winter, but I think they’d have a hard time getting through another winter.”
For Fort Good Hope’s Heather Bourassa, this past winter was certainly tough. The coowner of Arctic Circle Enterprises says her company started getting busy with oil-andgas exploration in 2002, a couple of years before Imperial officially filed the paperwork on the MGP. Up until last winter, Arctic Circle was bringing in drill rigs, delivering fuel and helping companies maintain roads and drill sites. At its peak, the company employed between 20 and 30 people – a sizable number in a community of about 600. This past season, they cut back to six. “We had to downsize big-time on staff. And we had some plans of buying or upgrading equipment and we’ve had to put all that on hold,” Bourassa says, adding she’s keeping a careful eye on things like power consumption while lobbying the government to start some regional infrastructure projects to help pick up the slack created by the industry hibernation.
And while it’s probably little consolation to Sahtu contractors, this year’s lack of seasonal jobs has also brought something of an unexpected benefit – a boost in trapping activity. April numbers from the NWT government show 160 trappers in the Sahtu, a roughly 47 per cent increase, to go along with an 18 per cent boost in the overall harvest. Both numbers were expected to increase before the end of the season in June.
And even in the oil and gas industry, things aren’t all bad. This past winter, Imperial Oil spent about $25-million as part of its long-term plan for the Norman Wells reservoir, drilling two wells and upgrading facilities – work that would have helped keep at least a few contractors in Norman Wells busy. “All of these things are geared towards optimizing our current operation and ensuring that the field has as long an economic life as possible,” says Pius Rolheiser, Imperial Oil’s spokesperson.
But with production at Imperial’s Norman Wells field in slow but steady decline, the question is whether exploration in the Sahtu’s most promising industry will ever wake up again. Ultimately, it all comes down to the pipeline: If it goes ahead, the obvious answer is yes, especially when it comes to natural gas.
Unsurprisingly, industry members are hoping for a positive outcome. “The fact of the matter is, the gas market will come back,” says MGM’s Bunio. “Natural gas is the most environmentally friendly fuel of anything you can burn. And this is one of the best places on the planet to get natural gas from, so (the pipeline), as long as it’s done responsibly … will go ahead.”
