Its rugged mountain peaks and vast, lake-dotted, glacial plains are remote and forbidding and the winters, long and harsh. Here, far from urban sprawl, one can forget about Starbucks or 30-minute pizza delivery. But Canada's Northwest Territories-nearly 1.3 million square miles in size, or about a third the land mass of the Maple Leaf country-is clearly pivotal to meeting the long-term natural gas needs of North America. Canada's National Energy Board estimates that in the magnificent desolation of the frontier Mackenzie Delta region, where drilling began as far back as the 1920s, some 9 trillion cubic feet (Tcf) of gas have been discovered-with an estimated 55 Tcf of remaining resource potential. Comparatively the NEB pegs the ultimate recoverable gas reserve potential off the eastern coast of Canada at 63 Tcf. Meanwhile, in the Fort Liard region in the southwestern part of the Territories, better than 1- to 1.5 Tcf of gas reserves have been proven up out of an estimated 7 Tcf in place. "When you look at where the greatest remaining gas potential lies in North America, clearly you have to look at the Northwest Territories," says Robert S. (Bob) Boswell, chairman and chief executive officer of Denver-based Forest Oil Corp. , the parent of Canadian Forest Oil Ltd. NYSE-listed Forest gained a foothold in the northern Mackenzie Delta/Beaufort Sea region in 1996 through its purchase of Atcor Resources, and in the Fort Liard area in 1997 through partnering with Unocal and Ranger Oil , which has since merged with Canadian Natural Resources. The firm also has holdings near the giant 600-million-barrel Norman Wells oil field in the central Mackenzie Valley. Because of the vast changes in climate-more than 75% of the Northwest Territories is in the Arctic-the mountainous terrain, the many rivers, the lack of infrastructure and roads, it's a difficult place in which to work, with fewer than 1,500 wells drilled to date, says Boswell. "But the prize is large, and the play types bigger than those remaining in the Lower 48. Here, where little more than 120,000 people live, gas discoveries are anywhere from 100 billion cubic feet (Bcf) up to a Tcf in size. Those are the kind of finds that are going to be needed during the next five to 10 years to meet the growing demand for natural gas in the U.S." President George W. Bush and Canadian Prime Minister Jean Chretien have held discussions on the Territories. "It's a vast region of natural gas supply and it's important for us to encourage exploration there, and to work with the Canadians to get pipelines coming out of the Northwest Territories to the U.S.," Bush said in a press conference. "The fact is, we've got a real energy crisis in California and it looms for other parts of the country...and in the long run, we must increase domestic gas supply." At a Canadian Association of Petroleum Producers (CAPP) luncheon in Calgary, Chretien declared, "The U.S. needs Canadian energy and ...we must develop the vast natural gas resources in the Northwest Territories and the Mackenzie Delta, and bring that gas south as soon as possible to meet market demands. Says John Mawdsley, oil and gas analyst for FirstEnergy Capital Corp. in Calgary, "We need more gas, both in Canada and the U.S. In both countries, annual gas-well production decline rates are increasing while at the same time initial flow rates in new gas wells are getting lower and lower each year." Concurrently, U.S. working gas in storage has been declining year-over-year while demand, particularly for electric-generation plants, is on the rise. Gas production from the Northwest Territories alone, potentially 1.2 Bcf per day, could help alleviate this imbalance. But the industry needs to step up development of the region's gas today if it expects to fill the anticipated Mackenzie Valley Pipeline that will come on stream during 2007-08, he adds. Boswell agrees. "If you examine Canadian gas production decline, the biggest part of it is coming from shallow wells drilled in the lower Alberta and Saskatchewan areas. The remaining growth opportunity lies in the deeper sands-below 5,000 feet-in places like the Liard Plateau, where there's around 350 million cubic feet per day of pipeline takeaway capacity. As for development of the Norman Wells, Mackenzie Delta and Beaufort Sea areas, where pipeline has yet to be built, that's a five- to-seven year project-if we start today." In the 12,000-square-mile Liard Plateau, Canadian Forest Oil has an average 50% working interest in 250,000 gross acres covering two play types. The first is the Nahanni, a 10,000- to 12,000-foot Devonian carbonate play in the Liard foothills; the second, the Mattson, is a 6,000-foot younger Mississippian sandstone play on the Liard plains. "Our entry point in Fort Liard was the P-66 well in early 1997, which missed the Nahanni," says Jim Good, Calgary-based vice president of exploration for Canadian Forest. "But we whipstocked the wellbore and drilled the P-66A that fall. It hit the Nahanni and initially produced 40 million cubic feet (MMcf) per day of gas." That was before the well started making water. Shortly before it was shut-in this March, daily gas output was down to around 5 MMcf. However, Forest and 50-50 partner Canadian Natural Resources-the operator of the well after acquiring Ranger Oil-plan a workover or whipstock of the wellbore in late 2001. After its first, early taste of success, Canadian Forest participated with Canadian Natural in three other Nahanni wells-the N-61, the C-31 and C-31A. All missed the target. Nonetheless, Canadian Forest is planning later this year to whipstock the C-31. "The key to making this play type work is hitting the thrust faults right at the leading edge-that's where you get all your fracturing, and it's the fracturing that gives you deliverability," says Good. "We know this from Amoco's discovery at nearby Pointed Mountain some 25 years ago. They drilled eight wells there, but most of the gas from that field was produced out of two wells-which were right at the leading edge of the Nahanni fault." And for Amoco , the prize was worth the cost. The Pointed Mountain Field has since produced 350 billion cubic feet of gas. Ditto for Chevron Canada, whose nearby K-29 discovery well in 1999 tapped into estimated gas reserves in place of 600 Bcf. Says Good, "The targets here have to be big to justify rig costs of C$10- to C$15 million and seismic costs from C$35,000 to C$45,000 per linear mile for 2-D to C$100,000-plus per square mile for 3-D." In fourth-quarter 2001, Canadian Forest plans to drill the F-75, a Nahanni well midway between Chevron 's K-25 discovery and the other Chevron success, the M-25. Unlike Forest's previous Nahanni wells, this one is not in mountainous terrain. "It's more like drilling in the middle of Denver versus drilling around Golden in the nearby Colorado foothills." In its pursuit of the Mattson play in the Liard area, Forest has received more-encouraging results. Together with partners Paramount Resources Ltd. and Anadarko Canada (after that firm's March buyout of Berkley Petroleum), it drilled this past winter the N-01, an 8,000-foot well that cumulatively tested 40 MMcf a day from several sands. Paramount, the operator, has brought the well onstream from just one of those sands, at 12- to 15 MMcf per day. Says Good, "We expect to drill additional [seismic] anomalies like the N-01 this coming winter. Also, given our 120,000 net acres in the Liard region, we're looking at bringing in other partners to explore this huge land position." Further north, Forest has 175,000 net acres around Norman Wells that give the company exposure to oil payout of 5,000- to 5,500-foot Devonian reefs. The company also has in the Mackenzie Delta/Beaufort Sea region a 1% to 3% interest in 22 significant discovery licenses (SDLs). "It's an area where the majors have already discovered 6 Tcf of gas and 2.5 billion barrels of oil," says Boswell. "Obviously, the drilling up of the large Tertiary and Cretacious-age play types here could dramatically increase the size of the company-once pipelines are built out of this region and Alaska." Active throughout Canada, Alaska, the Lower 48 and internationally, Forest sees natural gas as its key commodity going forward-and not just from an upstream perspective. "There's evolving technology for reforming natural gas into higher-end products-gasoline, diesel and petrochemicals," says Boswell. "These methane refineries of the future are going to displace a lot of the oil-burning refineries of the present. An independent not now invested in the crude refining end of the business has an opportunity to get into this natural gas midstream conversion technology." Chevron Canada Easily the star player of late in the Liard area is Chevron Canada. But that isn't surprising. The company has been interested in the Northwest Territories for more than 30 years and did a lot of the original geological mapping of the Mackenzie Mountains. In the late 1980s and early 1990s, it also did some drilling in the Fort Good Hope area in the central Territories and in the Liard Plateau, taking aim at Devonian-age targets. The results: inconclusive and unsatisfactory. But for frontier hydrocarbon hunters, that's part of the learning process. In 1998, Chevron Canada entered the Liard area again through a farm-in on lands held by Purcell Energy. Jim Simpson, president of Calgary-based Chevron Canada, says, "We first did extensive seismic work, then sited a well on the farm-in which targeted fractured zones that we felt were at the leading edge of some large thrust faults in the Nahanni." That well was the K-29, which in April 1999 discovered an estimated 400- to 600 Bcf of gas in place and is now producing 60 MMcf per day. Later in 1999, Chevron, again as operator, targeted the same fractured reservoir with the M-25 well, some five miles south of K-29. The result: another bonanza. Currently, the M-25's daily output is 70 MMcf. Chevron's working interest in both wells is 43.4%. Says Simpson, "The Fort Liard pool, as we call it, is not a typical geological reservoir, where you have permeability and porosity in a particular sandstone or carbonate. What you're looking at are open fractures cutting across a whole variety of different rock types." Also not typical: Chevron Canada's approach to gathering the seismic that allowed it to pinpoint K-29 and M-25. "Because of the mountainous terrain, we had to use mountain climbers to scale cliffs to shoot the seismic lines-at a cost four to five times that for normal land surveys." Again, because of the remoteness and the environmental sensitivity of the well sites, drilling costs were high-upwards of C$10 million for each well. The cost to tie into the West Coast Energy gas transmission system was about C$12 million. Further north, where the Mackenzie River flows into the Delta near the town of Inuvik (population 3,500) Chevron Canada has just finished spending about C$20 million on seismic surveys on lands it has pooled with BP and Burlington Resources . "We have interests from 33% to 50% in four or five different licensed blocks that in aggregate encompass more than 1 million gross acres," says Simpson. "What's encouraging is that this acreage is very near where Imperial Oil made its giant Taglu gas discovery 25 years ago, where Gulf Resources made its Parsons Lake gas discovery, and where Shell made its Niglintgak gas find. Those are all 1- to 2-Tcf gas fields-and the type of target we'll be pursuing." Anadarko Canada For Anadarko Canada Corp., the US$1-billion acquisition this March of Calgary's Berkley Petroleum was far from being its entry ticket into the Northwest Territories gas derby. The Canadian arm of giant U.S. independent Anadarko Petroleum already had a large footprint in the region. Last year, in a trade with Alberta Energy Corp. , Anadarko Canada received a 37.5% interest in two of AEC's exploration licenses in the Mackenzie Delta, giving it exposure to 530,000 gross acres of prospects northwest of the Parsons Lake gas field. The latter has estimated recoverable reserves of 1.3 Tcf. In return, Alberta Energy received a one-third stake in the firm's Alaska Foothills properties. Separately, in a Mackenzie Delta bidding round last summer, Anadarko Canada picked up a 100% interest in an exploration license on tract EL-407. Part onshore and part offshore, the 176,000-gross-acre tract is immediately northwest of the world-class Taglu gas field, which has recoverable reserves of 2.1 Tcf. In addition, as the result of its US$4.4-billion purchase last year of Union Pacific Resources -which itself had bought Calgary producer Norcen Energy -Anadarko Canada obtained interests in other Mackenzie Delta exploration acreage, mainly offshore in the Beaufort Sea, that Norcen had originally owned. Notably, these interests include a 15% stake in the Amauligak oil and gas field, which has estimated recoverable gas reserves of 1.4 Tcf. When Berkley came into play following Hunt Oil's hostile bid last December, Anadarko Canada had already been looking at Berkley as one of the best, if not the best, explorers of its size-not only in the Northwest Territories but throughout Canada. "It had the kind of gas growth portfolio we were seeking, to augment the solid producing and exploitation portfolio that Union Pacific Resources had in central Alberta and Saskatchewan," says Jim Emme, Calgary-based president of Anadarko Canada and a vice president of Anadarko Petroleum. "In short, it fit nicely with Anadarko's overall North American gas strategy." Berkley also fit nicely with, and helped round out, Anadarko Canada's portfolio in the Northwest Territories, giving it 182,000 prospective net acres in the greater Fort Liard area, and working interests of 21% to 100%. This includes a 21% interest in the high-profile K-29 and M-25 wells and a 50% stake in three other Liard-area wells operated by Paramount Resources-the F-36, 0-35 and N-01. "Our net production from those five wells totals 34 MMcf per day. Eastward from that, we have 50% to 100% interests in the Bovie, Arrowhead and Netla prospects," says Emme. The Berkley acquisition also gave Anadarko Canada a foothold in the Norman Wells area in the central Mackenzie Valley. This includes an 84,000-net-acre interest in the Devo prospect with EOG Resources and a 210,00-net-acre interest in the Tulita prospect with Unocal. "In the short term, we're going to see increasing gas supply coming from the Liard area, but longer term, the Mackenzie Delta is going to drive supply-and that's going to facilitate exploration along the entire Mackenzie Valley fairway," Emme says. "So we're well-positioned, from both standpoints. Currently, we're hoping to participate in six wells in the Liard area this winter, and drill in the Mackenzie Delta by the winter of 2002-03." Anderson Exploration Talk to J.C. Anderson, chairman and chief executive officer of Anderson Exploration Ltd. , Calgary, and hear an oilman who likes everything north of 60 degrees latitude in Canada. "I've been interested in the Northwest Territories ever since coming to Canada in 1966 with Amoco, when it was drilling the Pointed Mountain Field," he says. "Then, after I formed Anderson Exploration two years later and we acquired Columbia Gas in 1992, we put onstream the Kotaneelee Field in the Yukon [the field is currently producing about 70 MMcf per day of raw gas]-right across the border from Pointed Mountain." Next, as the result of Anderson Exploration's acquisition of Home Oil in 1995, it acquired-in addition to interests in 18 SDLs in the Mackenzie Delta region-a 4% interest in the Fort Liard production now coming from Chevron's K-29 and M-25. Last year, that stake increased another 1% by virtue of Anderson Exploration's buy of Calgary's Numac Inc. Stressing that geology doesn't stop at man-made borders, Anderson notes that Pointed Mountain, Kotaneelee and the spectacular K-29 and M-25 all produce from Middle Devonian carbonates in the Nahanni. But Anderson likes targets much further "north of 60." Currently, his company is the largest holder of exploration license and concession acreage in the Mackenzie Delta and shallow-water Beaufort Sea-with 1.3 million net acres on both federal and Inuvialuit lands. "What's significant is that very little additional exploration acreage will be available in the area for the next five to nine years." In addition, Toronto Stock Exchange-listed AXL has a 100% interest in a 320,000-acre exploration license in the central Mackenzie Valley near Norman Wells, and a 100% interest in three exploration permits on 263,000 acres in the Eagle Plain area of the Yukon. After extensive 3-D and 2-D seismic surveys in the Delta during the winter of 1999-2000, Anderson Exploration (40%) and Petro-Canada as operator drilled the Kurk M-15 this February some 90 miles northwest of Inuvik to nearly 10,000 feet. The well encountered gas shows but more results have not been revealed. "The rig has been moved off location and the well will be tested next winter," says Anderson. "What I can add is that nearly 300 wells were drilled in the region in the 1970s and 1980s-a high percentage with good hydrocarbon potential-and some Tcf-type gas discoveries were made nearby, at Taglu, Parsons Lake and Niglintgak, using much more rudimentary seismic technology than is available today." This past winter, more extensive 3-D and 2-D seismic was shot in the region by both companies, ahead of the planned drilling of four wells [collectively] next winter. The reservoirs in the Delta are quite different than at Fort Liard, he explains. "Up in the Delta and shallow-water Beaufort, you're looking at much younger rocks that are Cretaceous up into Tertiary, and that are more productive because of better reservoir properties, such as porosity and permeability. I have every expectation that we can nail some of these targets." And to do so, Anderson isn't holding back on the purse strings. "Our share of the work commitment in the region during the next five years is about C$380 million." Petro-Canada Kathy Sendall, Calgary-based vice president of western Canadian development and operations for Petro-Canada, says the attraction of the Northwest Territories for the oil giant is its potentially huge gas accumulations. "It's a natural extension of our gas focus in western Canada, and within the past couple of years, the stars all aligned for our entry into this area," she says. "The pricing for gas has gone up, the land claim settlements with the Inuvialuits have caused them to make a commitment to the responsible development of natural resources on their lands, and we've been able to build a strong working relationship with that community." Starting in the fall of 1999, Petro-Canada began building a large land position in the Mackenzie Delta, where it now holds some 620,000 net acres. The winter 1999-2000 Delta shoot was 78 miles of 2-D and 110 square miles of 3-D seismic. Last winter's was a 37-mile 2-D and a 440-square-mile 3-D survey. The Kurk M-15, in which AXL is a partner, was the first well to be drilled in the Delta in 10 years. "We encountered a number of gas-saturated zones, which we may test next winter with a service rig," says Sendall. There are two geologic zones of interest in the Delta, she adds. The Tertiary Taglu sands are prospective from about 3,300 to more than 13,000 feet and are generally found in the northwest portion of the Delta. The Cretaceous Kamlik sands are prospective at an average depth of about 9,000 feet in the southwest part of the Delta around Parsons Lake. And, the reserve targets in the Delta have to be significant, to be economic. If that's the case, the M-15 needs to rival Chevron's K-29. Why? Petro-Canada's net cost to drill the well was C$24 million. "A lot of that cost, however, was associated with setting up the rig infrastructure for this first well; subsequent well costs-and we plan to drill a couple of Delta wells each year during the next five years with this rig-should be less," Sendall says. This summer, the rig that drilled the Kurk well is being stored at Petro-Canada's nearby Swimming Point base camp. That rig, its crew and the site are a separate story. "We've tried to involve the community in all phases of our operations in the Delta," explains Sendall. The drilling rig that was built for the Kurk well is a joint venture of Akita Drilling and Inuvialuit Development Corp. Also, Petro-Canada trained many of the local people as well-service operators, so a high component of the crew that worked on the M-15 is Inuvialuits. In addition, the Swimming Point base camp is operated by Inuvialuit Development. And, some of the lands Petro-Canada will drill on in the future with Anderson Exploration-where it is the operator and the interest is 50-50-will be Inuvialuit. Says Sendall, "Our hope is that the Delta is going to deliver a substantial portion of our gas production growth during the next decade." Paramount Resources Among the smaller, but more experienced, operators in the southern part of the Northwest Territories is Calgary's Paramount Resources (Toronto: POU). "When we went public in 1978, we began drilling what has become some 20 modestly productive wells at Cameron Hills-well east of Fort Liard. At that time, we also drilled two very expensive dry holes in the Liard Basin itself," says Clay Riddell, Paramount president and chief executive officer. One of those dry holes-the D-29 well-was just a half-mile away from, and on the same structure as, Chevron's later K-29 discovery. But Riddell never got the chance to chase the leading edge of that Devonian thrust play. In the early 1980s, due to environmental concerns and the lack of settlement of native-land claims, a moratorium was placed on the sale of acreage in the Territories. "It wasn't until 1995 that the native Liard Band invited the Crown to post some Liard lands for bids. The Crown did, and we successfully bid on several hundred thousand acres at the southern end of the Liard Range, where we're now drilling." Paramount's batting average since 1995 is two dry holes, seven shut-in wells capable of production and three wells onstream. The latter Mattson wells include the F-36, currently producing around 10 MMcf per day; the O-35, with daily output of 4 MMcf; and the N-01, capable of producing 25 MMcf per day. In the first two wells, Anadarko Canada has a 50% interest; in the N-01, Anadarko Canada and Canadian Forest each have a third. This winter, Paramount, again as operator, plans to drill more Mattson wells, along with exploratory tests near some of those shut-in wells it has in the nearby Bovie Range. It is also going to drill with Anadarko and Forest the F-75 well-a deep, high-potential gas test on a separate structure offsetting Chevron's K-29 and M-25 wells, says Riddell. And further north, at Coleville Lake-some 90 miles north of Norman Wells-it's planning one or more 7,000-foot, Cambrian sandstone tests, where the estimated gas reserve potential is 100 Bcf-plus. Says the 42-year oil veteran who first came to the Northwest Territories with Chevron Canada in the late 1950s, "We see all these wells as big enough to fuel the company's growth during the next several years." The biggest challenge facing the company in the Territories is the "regulatory maze," he says. "It takes time to work through." Purcell Energy Created in 1993 from the merger of two smaller producers, Calgary's Purcell Energy Ltd. became listed on the Toronto exchange the following year as PEL. But in the process of reshaping the financially struggling company, new management didn't throw the baby out with the bath water. In 1987, previous management had drilled a Fort Liard Foothills gas well-the F-25A-that had caught the leading edge of the Nahanni and tested at 10 MMcf per day, explains Jan Alston, Purcell's president. "When Bruce Murray and I came on board in 1989, we saw this as something significant that wasn't drawing much attention then due to low, C$1 gas prices. So in 1991 we negotiated with the federal government an SDL, which covers the amount of land an operator can secure in perpetuity based on the test results of a discovery well. Ultimately, we were able to demonstrate to the government that the F-25A had tapped into a very large structure; it, in turn, granted us a license that covered a 12,000-acre block around the F-25A. "That was the key to moving Purcell forward-even before it was named that-because we thought the area had significant gas reserve potential and that eventually, there would be a market for those reserves at favorable prices." Throughout 1991, the pair tried to entice major oils in Calgary to farm-in on the license, but there were no takers due to still-prevailing low gas prices. "It wasn't until 1994 that we were finally able to convince Chevron Canada to farm-in on our block," says Alston. "They took a seismic option, shot some 2-D in 1996 and later some 3-D, then elected to drill a test well to earn a working interest. They drilled that test well in early 1999. It was the K-29-one of the top five onshore western Canadian gas wells ever, out of 74,000 wells." Purcell's interest in the well is 24%, just as in the subsequently drilled M-25 blockbuster. Says Alston, "These wells were a company-maker event for a junior oil like ourselves. In 1999, we only generated C$2 million of cash flow; this year, we expect cash flow to be C$43 million from record-high gas sales into the Northwest U.S." Purcell has also entered into a joint venture with Talisman Energy to explore 5,000 square miles in the greater Fort Liard region. Alston says there may be postings of land sales in first-quarter 2002, based on discussions with government and native groups. Meanwhile, Purcell as operator has gone back into its original discovery well, the F-25A, and recompleted it. "We're working to bring that gas well online this spring at an initial daily production rate of 10 MMcf. Fortunately, we still retain a 60% interest in it."