A large part of the oil and gas renaissance is a consequence of reviving old fields with new technology.
Pennsylvania, where the industry had its genesis in the mid-1800s, and mostly forgotten in favor of more prolific finds a century ago, is now repositioning itself to be a dominant supplier of natural gas. Light oil fields throughout Texas, Oklahoma and Alberta -- thought to have peaked in the 1970s -- are making such a vigorous comeback that North American energy independence is the new phrase du jour. And who would have said a few years ago that North Dakota, a small and stable producer up until 2007, would be the next energy superpower?
So, it’s with interest that we watch big dollars being attracted to one of the oldest North American oil fields, the Sahtu Region of Canada’s Northwest Territories.
Drilling 160 kilometers below the Arctic Circle, near Fort Norman, N.W.T., Theodore Link, a geologist for Imperial Oil, is credited for drilling the first commercial oil well in the region. Records suggest that when the bit hit pressurized oil at 122 meters deep, on Aug. 23, 1920, the column shot 21 meters high into the air. Inspired by the success, other wells were drilled and development of the high quality oil ensued, including a small regional refinery to make fuel for bush planes and equipment.
Earnest development of the known oil fields around Norman Wells came as a result of increasing angst about oil supplies during the Second World War, especially after the attack on Pearl Harbor in 1941. The pursuit of oil for national security kicked off the “Canol” project, an abbreviation for Canadian Oil. Further wildcat drilling in the Sahtu region was coupled with the construction of a pipeline to carry the oil to a refinery in Whitehorse. Petroleum products were then to be piped further south to ports like Skagway, Alaska, for consumption in the Pacific war theatre.
Harsh weather made Canol a gruelling endeavour that never reached its full potential before the war ended. Sadly, procurement waste and cost overruns rendered the noble project, “the white elephant of Whitehorse,” according to Newsweek. Nevertheless, the exercise served to prove the oil potential of the Northwest Territories.
And that’s why the Canol oil shale in the Northwest Territories is attracting big dollars these days. In the last 18 months, work commitments of nearly $630-million on 13 parcels of land have been made in the central Mackenzie Valley. The companies with the winning bids were Husky Energy, Shell Canada, Imperial Oil, ConocoPhillips and MGM Energy.
Some have pegged the prize in the range of two billion barrels of recoverable crude. As to be expected, new oilfield technologies, particularly horizontal drilling and hydraulic fracturing are the means to potentially extract these resources economically – a far cry from the wooden rigs with cable tools used in the past.
By 2016, the viability of the Canol play should be known. Companies active in the area have a five-year time frame for their exploration spending commitments.
Husky Energy was first into the region, shooting 220 sq km of 3-D seismic data, and casing two vertical test wells last winter. MGM Energy, partnered with Shell Canada, is expected to drill a vertical well in January. Others are gearing up for their exploration programs with close to $100-million on seismic work slated for this winter.
One thing hasn’t changed since Ted Link drilled his gusher 92 years ago: Remoteness and a lack of infrastructure and services are key challenges in the north. The operating window is only about 100 days. A lack of roads means that companies must barge heavy equipment up the Mackenzie River before it freezes. In addition, the need for temporary roads and well-site construction means high costs for resource evaluation. Estimates suggest a price tag of $20- to $25-million for MGM Energy’s upcoming vertical well test. Importantly though, the Canol shale play is near an underused Enbridge oil pipeline that extends 870 km from Norman Wells to connections that flow south from Zama, Alta.
The residents of the small communities in the NWT are bracing for a potential economic boom, as business and much-needed employment are bound to increase with any successful oil investment. In response, the territorial government has set up “exploration readiness” sessions, open discussions with industry, affected communities and Aboriginal representatives.
There is a retro feel to it all. And if Pennsylvania and North Dakota can do it, so may the Northwest Territories.
Peter Tertzakian is chief energy economist and managing director with Arc Financial Corp. in Calgary and provides analysis on technology and energy-related businesses to fund managers and portfolio companies.
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