Chevron wins Beaufort drilling bid

Chevron Canada is committing to spend $103 million to explore for Arctic oil and gas in a large area of the Beaufort Sea.

Oil giant explores offshore; Calgary-based MGM Energy gets onshore licences

A Chevron sign in San Francisco in 2007. In Canada, Chevron has been awarded a federal offshore exploration licence in the Beaufort Sea, north of Herschel Island.
Chevron Canada is committing to spend $103 million to explore for Arctic oil and gas in a large area of the Beaufort Sea.

The oil giant has won an exploration licence for 205,000 hectares of seabed, off Yukon's north coast and about 100 kilometres north of Herschel Island, officials with the federal Indian and Northern Affairs Department announced this week.

But the lease does not mean Chevron can start drilling anytime soon, as federal regulators are reviewing Arctic offshore drilling regulations. As well, Chevron spokesman Chris Law said the company  does not yet know when it will bring in a rig.

"It's brand new, so [there's] a lot of work to be done before we can get to that point," Law told CBC News on Friday.

Confident it can drill safely

The National Energy Board, which regulates parts of Canada's energy sector, is reviewing its Arctic offshore drilling regulations in light of BP's massive oil spill in the Gulf of Mexico.

The board has imposed a moratorium on any new Arctic offshore wells until that review is finished. Furthermore, Chevron Canada — a subsidiary of Chevron Corp. of San Ramon, Calif. —  must obtain a permit from the NEB before it is allowed to drill.

"We're confident that we would be able to drill in a safe environmental manner and we would fulfil any obligations required by the regulatory body," Law said.

The federal exploration licence is good for up to nine years, provided that Chevron spends its promised investment on an exploration program within five years. If it does not, the company could face penalties and the potential loss of its lease.

Significant investment: Yukon

That $103-million investment Chevron is promising is significant, said Greg Komaromi, the Yukon government's assistant deputy minister of energy, mines and resources.

"If you're interested in northern development, it's an interesting turn of events to see a company bid like Chevron ... 100 million bucks to work up there," Komaromi said.

Komaromi said the Yukon government expects to see benefits from Chevron's exploration project, including the best and safest drilling technology available.

"The prime concern these days — of course, coming out of the Gulf of Mexico — is to ensure that these kinds of operations can be done safely," he said.

The Inuvialuit Regional Corp., which represents the Inuvialuit people of the western Arctic, had asked the federal government in May to make the area covered by the Chevron lease off-limits to exploration, amid drilling safety concerns stemming from the Gulf of Mexico spill.

Inuvialuit chair Nellie Cournoyea told CBC News that drilling in the Beaufort Sea is years from happening, so her organization is hoping the NEB will address concerns about Arctic drilling safety.

MGM Energy wins onshore licences

The federal government has also awarded Calgary-based MGM Energy with five exploration licences, valued at almost $8 million, to explore for gas and oil in the Northwest Territories.

If approved, the 1,200-kilometre Mackenzie Valley pipeline would run south from the Northwest Territories' Mackenzie Delta to a hub in northwestern Alberta. ((CBC))

The licences cover five parcels of land: four in the Mackenzie Delta and one in the central Mackenzie Valley corridor near Colville Lake, N.W.T.

MGM Energy says it hopes to discover natural gas that could go into the long-proposed Mackenzie Valley pipeline, assuming the pipeline is approved and built.

The company's investment shows that industry is still confident that the pipeline, which has long been held up in the regulatory process, will go ahead, said Calgary-based oil and gas analyst Doug Matthews.

'Rough slog' in Delta: analyst

"The [Mackenzie] Delta's had a rough slog in the last couple of years. I think folks up there can at least take a bit of comfort that there is still some industry interest in the Mackenzie gas project and the likelihood of it proceeding," Matthews said.

The NEB is expected to announce next month whether it will approve the Mackenzie Valley pipeline project.

John Hogg, MGM Energy's vice-president of exploration and operations, said the price his company is paying for the five parcels of land — each at $1 million to $2 million — is very affordable.

"If you go back five years ago, the average price would have been $20 million to $40 million for a block," Hogg said.

"It's partly related to the pipeline, it's partly related to the whole issue of, 'Will this work?' and I think some big companies have lost faith in the process."

Hogg noted that large oil companies like Chevron and BP, which explored onshore five years ago, are pursuing offshore exploration projects.