Thorunn Howatt
Northern News Services

Yellowknife (Nov 19/01) - A commitment to spend big bucks looking for oil and gas in the Arctic should persist despite a drop in natural gas prices.

The federal government hopes exploration companies will continue a trend of leasing Northern lands in search of natural gas. Three calls for nominations were launched by the Department Indian Affairs and Northern Development Oil and Gas Directorate last week.

The calls are part of the rights issuance process in the territories. At the end of the process, the company that has promised to spend the most money looking for oil and gas will be issued a licence. The system promotes frontier work projects.

"It is an industry-driven process in that they say what lands they are interested in exploring," said the department's director, Mimi Fortier. "It carries them through to contractual obligations, it lays out the type of licence they will get at the end of the day."

If industry expresses interest in some parcels of lands by the deadline then it is taken to the ministry for recommendation whether to include those pieces of land in a call for bids. The three areas listed in the call include the central Mackenzie Valley, the Beaufort Sea-Mackenzie Delta and the Arctic Islands of Nunavut. Answers to the calls must be received by the directorate by mid-December for the Northwest Territories properties and Jan. 7 in Nunavut.

Last year's call resulted in five parcels being committed to in the central Mackenzie region. No one showed any interest in Nunavut.

The resulting term of exploration licences that would be issued in the subsequent call for bids will be either eight or nine years.

"If they undertake all the work they don't leave any money on the table but if don't undertake all that work, proportionately 25 per cent of their deposit is kept by the federal government," said Fortier.

Last year's annual call resulted in nearly $800 million in exploration commitments. But energy prices have fallen sharply since then.

"It's definitely likely to affect things. The industry is responsive to the commodity prices and when their budgets are supplemented by higher revenues they are a little more excited by frontier areas," said Fortier.

When the revenues aren't there exploration is often an energy company's first department cut because it is not producing any revenues.

"As commodity prices have come off, certainly that will affect the prices those lands will go for, as oil prices today are down below $19 but most people see that as short term," said Canadian Association of Petroleum Producer's vice-president Greg Stringham.

Most explorers in the Northwest Territories are focusing on gas and longer term prospects are still quite promising, said Stringham. "People are looking at the North as a longer-term opportunity."

Recently in a land sale offshore of Nova Scotia's east coast, producers stepped up to the table, committing about $500 million. This was on the heels of last year's Arctic commitments of about $800 million to be spent over the next five years.

"On the oil side of the business it is very hard, with global politics, to any degree, with certainty but on the natural gas side the demand for natural gas is very high," said Stringham.

Recent estimates from the U.S. Energy Information Agency have put slightly smaller but still very robust forecasts over the next 10 to 20 years of natural gas demand growth in the U.S. -- mostly for power generation.

"With that growth being still anticipated it is hard to see how the prices that we're at right now will be able to justify that demand growth in the future," Stringham said.

He said doesn't believe energy prices will return to last year's highs. "Petro-Canada is proceeding with their drilling and others are others are proceeding with exploration," he said.