by Glenn Taylor
Northern News Services

INUVIK (Dec 12/97) - A 25 per cent reduction in the cost of transporting oil from Norman Wells may convince oil companies to reconsider the Beaufort.

Doug Matthews is the director of minerals, oil and gas for the Department of Renewable Resources and Economic Development. Matthews is in Calgary this week speaking to oil companies about the new economics of Northern oil.

What's changed? Matthews said the GNWT has successively pressured Inter Provincial Pipelines -- which owns and maintains the Norman Wells pipeline -- to lower its transportation tariffs from $6 per barrel of oil to $4.50. The deal was reached after six months of negotiations with IPL and The National Energy Board, and should be formally concluded next month.

A 25 per cent reduction in transportation costs won't have the oil companies galloping North, but "with these new economics, we're arguing it's significantly more attractive than five years ago."

The 31-centimetre Norman Wells pipe is currently running 30,000 barrels per day to Alberta. The pipe has a capacity for 50,000 barrels, however, and with lower costs, "there's great potential there for more people to ride the line."

Low oil prices drove the companies away from the Beaufort a dozen years ago. Prices remain low at about $20 per barrel. "But we're arguing that you don't need a high price of oil" to make the Beaufort pay, he said. "What you need is consistency of price," and oil prices have lost their volatility in recent years.

Matthews said his department has spent a year and a half working out the economics of Beaufort oil production. If the world price remains at $21 US per barrel, oil companies would see an estimated 18 per cent return on investment if they exported the oil through a connector line to Norman Wells. "That's a respectable rate of return."

Matthews said he's preaching a new Northern philosophy to Calgary oil companies, not of megaprojects but of "slow and steady, incremental development." Smaller scale Beaufort oil development could put the product on-line now, to fill the excess capacity on the pipe, and could be increased as Norman Wells reserves dry up.

Matthews said most of the people who worked in the Beaufort oil patch have since moved on to new oil fields in Indonesia and Australia. He said he's in Calgary trying to convert a new generation of people in the oil business. "We're introducing the North to a whole new crowd of oil people. .. We don't expect them to rush out and order a pipe, but we're hoping they'll return to their offices and say, "let's look at this thing again. Let's see if this guy knows what he's talking about."

Matthews was asked to rate -- out of 10 -- what the odds are that the oil companies will take him up no his offer. His answer: "Dare I say, it's as high as four now." He said the chances were maybe one out of 10 before the new pipe price agreement was reached.