The oil patch is days away from its first peek into the prospects for a potential new energy play in the Northwest Territories.
MGM Energy Corp. is on the cusp of making public early results from a well drilled into the Canol shale oil play in the central Mackenzie River valley near Norman Wells, NWT. Although several wells have been drilled into an underground formation that could yield a new supply of oil, this will be the first time results are made public.
A news release from Calgary-based MGM, which is working with Royal Dutch Shell PLC, is likely “early next week,” said John Hogg, vice-president of exploration and operations.
Early drilling into the Canol has raised hopes for a boom in northern energy development, with highly speculative estimates that the region could yield a billion barrels of oil. If the Canol is developed, it will be done with the long horizontal wells and hydraulic fracturing that has produced oil and gas in places such as Pennsylvania and North Dakota. The MGM well, however, has been drilled and fractured vertically, meaning it will provide only a partial insight, at best, into how much oil can be extracted
Companies such as MGM are also warning of a series of northern obstacles that have already scuttled some plans, as energy ambitions collide with fears of environmental degradation in a vast region unaccustomed to industrial development.
Under federal terms, companies have nine years to look for energy in the North; if they find enough, they can apply for a significant discovery licence that confers long-time rights to the land.
But MGM, for example, declined to drill a horizontal well after being ordered by the NWT’s Sahtu Land and Water Board last fall to complete an environmental assessment before doing so. That process could take three years, Mr. Hogg warned Tuesday at an Arctic oil and gas conference in Calgary.
A three-year assessment can remove “30 per cent of your time,” said Eric Hanson, supervisor of Central Mackenzie Valley exploration for ConocoPhillips, which has drilled two wells in the region this year, and hopes to drill two horizontal wells in 2014.
A three-year delay would have a “huge impact,” particularly because companies can only work between January and March in a region served by rivers and ice roads, he said. Companies are also wary of spending too much time on a project with reasonable odds of failure.
“That’s something people have to understand is there’s probably only a 30 per cent chance in these resource plays of moving to the next step, which is the piloting,” Mr. Hanson said.
There is substantial industry desire to look for northern oil. In July, 2011, MGM, Husky Energy Inc., ConocoPhillips Canada Resources, Shell Canada and Imperial Oil Resources Ventures committed, in total, to spend $534-million on work in the central Mackenzie area. In recent weeks, Ottawa has asked companies to declare their interest in land across a vast region of the Mackenzie Valley and Nunavut Arctic Islands, an initial step toward attracting more spending promises.
But as companies spend more time in the NWT, they are discovering the difficulty of working in a region with very little oil and gas infrastructure. For example, MGM had to truck sand to the Mackenzie Valley, and truck south all of its waste, including drilling muds and non-potable water. Even human waste has to be trucked to Alberta, because no disposal facilities exist in the NWT.
Thus, a NWT well costs companies four to five times what it might cost in Alberta or British Columbia.