ARCHIVED - Bidding Opens on 5 Parcels in the Mackenzie Valley, N.W.T.

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Bulletin
Volume 2, Number 5
November 1995

Call for Bids Opens

A Call for Bids for oil and gas exploration rights in the Central Mackenzie Valley of the Northwest Territories opens on November 25, 1995 and closes March 26, 1996.

Bids are invited for exploration rights to five parcels totalling 375,087 hectares (approximately 1,444 square miles).

This is the second year in a row that a call for bids is being held in this region. This is in keeping with the policy to regularize the rights issuance process in order to encourage responsible natural resource development in the North and to foster economic and employment opportunities for northerners.

Successful bidders will be announced and licences awarded soon after the call closes. Each exploration licence will confer the exclusive right to drill and test for petroleum. Successful exploratory drilling during the term of the exploration licence will entitle the explorer to apply for and receive a significant discovery licence or a production licence.

Exploration History of Parcels

Parcels posted for bid are numbered 1 through 5 from north to south (see maps).

Parcels 1 and 2 (see map 1) lie in the northeastern corner of Peel Plain. The Mackenzie River takes a grand sweep to the west at this latitude, breaking through the escarpment of middle to upper Devonian rocks which confine it to the eastern edge of Peel Plain further upstream. This change in direction marks a geological boundary between Peel Plain and the relatively high standing Carnwarth Platform to the north.

Map 1

Parcel 1 comprises 99,560 hectares immediately to the northwest of existing exploration licence 371 awarded to Foxboro Ltd. in May 1995 in exchange for a work proposal of $1.1 million. The parcel straddles both banks of the Mackenzie River for a distance of 50 km. North of the river, the parcel includes lands where the Gwich'in own the surface.

Parcel 2 straddles the Gwich'in and Sahtu settlement regions and comprises 138,170 hectares some 30 km south of parcel 1 and west of exploration licence 371. The parcel skirts lands where the Gwich'in own both surface and sub-surface rights along part of its western edge. Parcel 2 also includes some areas where the Gwich'in own the surface.

Both parcels are down-dip of the erosional subcrop of the Canol Shale beneath shallow Lower Cretaceous cover. This Middle-Upper Devonian unit is the principal oil-prone source rock in the area. Seepages from the Canol into overlying Cretaceous sandstones are present within the subcrop belt, notably at Rond Lake. Potential reservoirs within the area are Lower and Middle Devonian carbonates, and include the possibility of build-ups seeded on the Hume Platform and the top of the Hare Indian Formation (Kee Scarp reefs isolated from the main reef complex to the south).

Only a handful of wells have been drilled in the area. A gas kick was taken from the Middle Devonian carbonate interval in the Shell Tree River H-08, 30 km down dip from Parcel 1, indicating porosity development in the middle Devonian carbonates. As a secondary and shallower objective, an extensive Lower Cretaceous drainage system is incised into the top Paleozoic unconformity across this entire area. Potential reservoir sandstones occur within the Gilmour Lake Member.

Parcels 3, 4 and 5 (see map 2) lie further south and east in the vicinity of the Norman Wells field. This area, known as the Mackenzie Plain, has seen recurrent exploration since the discovery of the Norman Wells field in 1920. A total of 76 exploratory wells has been drilled. Exploratory drilling has occurred in two main cycles; from 1964 to 1974, and from 1984 to 1991.

Map 2

Parcel 3 comprises 3,508 hectares and is located in the Sahtu Settlement Region a few kilometres due north of Norman Wells.

Parcels 4 and 5 are also located in the Sahtu Settlement Region, west of Fort Norman, and comprise 47,693 and 86,156 hectares respectively. Parcel 4 straddles both banks of the Mackenzie River a few kilometres west of Fort Norman. It flanks the eastern boundary of exploration licence 372 awarded to Ranger Oil Limited and Unocal Canada Exploration Limited in May 1995 in exchange for a work proposal of $3.2 million. Parcel 5 flanks the western boundary of the same exploration licence and is located south of the Mackenzie River. Both parcels include lands where the Sahtu are surface owners.

Exploration close to Norman Wells has focussed on the search for another Devonian Kee Scarp reef, the prolific reservoir in the large Norman Wells field. However, other plays exist, notably in Cretaceous sandstones with interfingered oil-prone source rocks, in older Middle and Lower Devonian carbonates, Ordovician to Silurian carbonates and in Cambrian strata underlying the regionally extensive Saline River salt.

Sahtu and Gwich'in Surface

The Land Claim Settlement Agreements reached with the Gwich'in and Sahtu of the Mackenzie Valley provide certainty to the use and ownership of land; they define rights and legal title to specific areas. Approximately 30% of the surface in the Gwich'in Settlement Region is owned by the Gwich'in while approximately 14% of the surface in the Sahtu Settlement Region is owned by the Sahtu. The Land Claim Agreements contain specific provisions dealing with commercial access and provision of benefits. Interested parties are encouraged to obtain a copy of the appropriate agreement from the Frontier Information Office of the National Energy Board in Calgary.

Operational Considerations

Parcel 1 borders the Mackenzie River, facilitating barging of equipment to exploration sites.

Parcel 2 will require cross-country transport of equipment over some tens of kilometres from a staging site along the Mackenzie.

Parcel 3, a few kilometres due north of Norman Wells, is easily accessible from the town site.

Parcels 4 and 5 lie south of Norman Wells and a large proportion of these lands are on the south bank of the Mackenzie River. Heavy equipment can be transported via ice road after freeze up, or by barging during the summer.

Parcels 3, 4 and 5 lie close to, or are intersected by the 12 inch Norman Wells pipeline which runs south from the field to Zama, Alberta.

Selection of Winning Bids

Exploration licences will be awarded to the bidders that propose to spend the highest amount doing exploratory work on the parcel during the first period of the term.

The minimum value of "work proposals" for any parcel selected is $1 million secured by a work deposit representing 25% of the amount bid. The work deposit is refunded on a proportionate basis as allowable expenditures are incurred on the parcel during the first period of the term.

About "Allowable Expenditures"

The following "allowable expenditures" are used to calculate refunds of work deposits and rentals.

These "allowable expenditures" may also be used to assist in the determination of the value of bid submissions. For instance, an explorer proposing to spend $1 million would recover the 25% work deposit in its entirety by conducting 100 km of 2-D seismic, or 30 km of 3-D seismic, or by conducting a 10-day drilling program.

By the same token, while an explorer may plan to carry out an exploration program consisting of 100 km of 2-D seismic and a 15-days drilling program, suggesting a bid submission of $2.5 million, the 25% work deposit ($625,000) would be refundable against any of the "allowable expenditures" listed, not only against the work program. In effect, one could recover this work deposit by shooting a 250 km 2-D seismic program.

In the case of group seismic shoots, claims for allowable expenditures will be treated as follows: where the holder of an exploration licence commits to purchase seismic data through a group shoot prior to acquisition of the data, the company may claim that portion of the seismic line falling within the boundaries of that exploration licence as if the line was shot as part of an exclusive program. Companies should note that pre-approval of certain classes of programs will be required from the Northern Oil and Gas Directorate.

Term of Exploration Licences

The term of exploration licences issued for parcels 1 and 2 will be nine years, consisting of two consecutive periods of five and four years each. For parcels 3, 4 and 5, the term will be eight years, divided into consecutive periods of four years each.

The drilling of a well during the first period of the term qualifies the licence holder to retain the licence for the second period, whether or not the total amount bid has been spent.

Rentals, levied in Period 2 only, are also refundable as long as expenditures are incurred on the parcel during the second period of the term.

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