Resolute (Jun 05/06) - Renewed interest in potential Arctic Islands natural gas reserves is creating a buzz in Canada's second northern-most community along with tension in Calgary boardrooms.

Nunavut's High Arctic last enjoyed petroleum exploration in 1985 and some Northern residents are encouraged it could be ramping up again, said Philip Manick Sr., Resolute economic development officer.

"It could boost the economy and it may be especially good for the young people," he said.

What's exciting folks is also creating a stir that could end up in court as two Canadian petroleum firms - one a junior and the other a giant - duke it out for control of an estimated 927 billion cubic feet of natural gas in the vast area around the community.

On May 25, the board at Canada Southern Petroleum, which controls the exploration rights to a large chunk of territory around Melville Island and Resolute, rejected a hostile takeover bid from Nosara Holding Ltd., a wholly-owned subsidiary of Petro-Canada.

Included in that are a number of significant discovery licenses.

Petro-Canada was offering US$113 million for Canada Southern.

"We believe Petro-Canada's offer is financially inadequate and fails to recognize the economic and strategic value of Canada Southern's Arctic assets," said Richard McGinity, Canada Southern chairman.

With rising geopolitical instability in key oil and gas producing areas such as the Middle East, South America and Russia, having a stable resource in the High Arctic is significant, he added.

Purchasing the assets from Canada Southern would be part of Petro-Canada's North of 60 strategy, said Michelle Harries, spokeswoman for the Canadian petroleum giant.

"The Arctic gas assets would be for future potential," she said.

Issues such as technology, price of commodities and the financial strength of potential partners mean any type of time frame for development would be long-term, she said.

With Petro-Canada being the largest leaseholder in the Arctic Islands and most likely the potential operator, Harries said the most logical step would be to consolidate ahead of future development.

A major stumbling block to developing the Islands around Resolute is that there is currently no way to get the gas out of the North to hungry southern markets.

One possible solution would be to ship liquefied natural gas (LNG) out via tankers and Petro-Canada's future LNG terminal and plant in Gros Cacouna, Que., should be operational by 2009, said Harries.

According to Petro-Canada's latest press release, the company is now considering legal action against Canada Southern based on the junior firm's shareholders' rights plan.

Petro Canada's current bid will expire on June 20.