The Northwest Territories could face a repeat of its disappointment with the stalled Mackenzie Gas Project, this time in shale oil, unless authorities speed up approvals for drilling wells into the region’s most promising prospect, says the head of an exploration company.
MGM Energy Corp. chief executive officer Henry Sykes said regulatory hurdles are the main reason he believes that production growth in the Northwest Territories’ Canol shale play in the Central Mackenzie Valley will not mirror the industry’s success in the prolific Bakken oil fields of North Dakota.
He made the comments as a delegation of 18 NWT government and aboriginal leaders completed a fact-finding tour of Bakken hydraulic fracturing, or fracking, operations in North Dakota and Saskatchewan. The aim of the trip was to help plan for what officials are hoping could be the North’s next big resource development.
Besides MGM, Husky Energy Inc. and ConocoPhillips Co. are among companies seeking to develop the Canol, near Norman Wells, NWT. Some highly speculative estimates have pegged potential reserves at around a billion barrels.
“It takes so long to get anything done in Northern Canada today that if more Bakkens develop in the U.S., by the time we finally decide that it’s okay to develop the Canol, we may find ourselves in the same position as the Mackenzie Gas Project – nobody needs the product any more,” Mr. Sykes said in an interview.
Following years of planning and regulatory hearings, the $16.2-billion Mackenzie pipeline has ground to a halt as the rapid development of shale gas resources much closer to North American markets pressured prices and squeezed the economics of the Imperial Oil Ltd.-led proposal.
It has been a major disappointment for the territory, where residents have been counting on the jobs and economic development the project would generate. The Canol holds out hope for sizable energy development, though exploration is still in the early stages.
The territorial government is also optimistic about offshore activity in the Beaufort Sea, though any drilling is at least seven years off.
The NWT officials travelled to the Bakken last week to get a first-hand look at drilling sites, study spinoff economic opportunities and to talk to representatives about what has, and has not, gone well as the boom has intensified.
“The one message that we’ve heard from state reps down here is that they are glad to see us here,” David Ramsay, NWT’s minister of industry, tourism and investment, said as he travelled between sites. “If they could do it all over again, they’d plan better. That’s the positive thing that we have. We have the ability to plan because we’re just in the early stages of this Canol play.”
North Dakota oil production has surged to near 875,000 barrels a day, up fivefold in five years, outstripping pipeline capacity to move it to market, triggering a massive expansion of oil transport by rail and straining municipal and state public services.
Mr. Ramsay said he is not particularly worried about the environmental impact of fracking, the method by which companies pump sand and chemicals down wells to fracture shale rock, allowing the oil to flow to the surface. The technology has been used for years in Canada and the United States, he said.
“In the Northwest Territories, there’s permafrost so there are going to be some issues there,” he said. “But I don’t think it’s going to be anything we can’t deal with. We’re hopeful that we’ll learn as much as we can here and take that information back home as we continue to move forward developing our resources.”
MGM was planning to drill on acreage in the Canol, but halted operations after withdrawing its application last year in response to a demand by the regulator, the Sahtu Land and Water Board, for an environmental assessment. Not all developers have had to proceed with them.
“Those environmental assessments can take years and cost millions of dollars and in the meantime you can’t do anything. So we just stopped working,” Mr. Sykes said. “We’re not going to be drilling there this winter because the well we had hoped to drill was not approved.”
Mr. Sykes said another reason the Canol’s development will not be as frenzied as the Bakken is that Canadian authorities would never allow the amount of flaring that is occurring in North Dakota. There, it is estimated that as much as a third of the natural gas produced with the oil gets burned off.
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