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Discovery raises concern
ConocoPhillips' licence brings worry for blocked economic activity

Karen K. Ho
Northern News Services
Published Friday, March 27, 2015

NORTHWEST TERRITORIES
ConocoPhillips Canada may have applied to the GNWT for a significant discovery licence, but a slowdown in oil and gas exploration means this move is only bad news for the Sahtu region.

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Husky Energy, along with ConocoPhillips Canada, does not plan on any exploration activities this year, leading to painful economic impacts on the community of Norman Wells and the Sahtu region. - photo courtesy of Husky Energy

"If this becomes common on the part of industry to apply for and get these things, they could tie up an awful lot of acreage for a very long time with no obligation to do any work," said Doug Matthews, former director for the NWT's oil and gas division, on the phone from Tuktoyaktuk.

In February, the company submitted an application for a significant discovery declaration for the Dodo Canyon E-76 and Mirror Lake P-20 Wells on our EL470 parcel in the Canol shale play near Norman Wells.

However, the company has stated that even with any possible change from their existing exploration licence, ConocoPhillips "does not plan to conduct any further exploration activities in the foreseeable future" in the area.

With no expected activity from Husky Oil and the continued crash in crude, businesses in Norman Wells are already starting to lay off employees.

"It's going to get worse, I think," Mayor Harold McGregor told News/North.

Matthews pointed to two major problems with the nature of the significant discovery declaration for why companies like ConocoPhillips and Husky Oil are in no rush to explore their shale sites. Unlike an exploration licence, which last for nine years, and a development licence, which lasts for 25 years (unless production is occurring), there is absolutely no time limit with a significant discovery declaration.

"The company can hold the damn land forever," said the energy writer.

The second problem is the licence goes to bottom.

"It holds the land all the way down to the centre of the earth," Matthews said. In Alberta, deep rights reversion means there are specific licences for various depths, with the rest going back to the government. This doesn't happen with significant discovery licences in the NWT.

Matthews said the nature of shale also means applications like the one made by ConocoPhillips' will say since shale is present all throughout the land noted in its exploration licence, the discovery licence will need to apply to their entire land parcel as well, resulting in very little reverting back to the government.

The entire situation is the product of legislation the GNWT inherited last April, but it never had to deal with shale before.

"The industry is getting way the heck out ahead of the regulators," Matthews said. "The regulatory regime just needs to catch up with shale."

As a result of the current lack of a specific policy regarding the energy and the current poor market conditions for shale, companies like ConocoPhillips could use the terms of NWT's significant discovery licences to hold on prospective parcels of land until conditions improve - even if that doesn't happen for another 20 or 30 years.

McGregor can't wait that long to address upcoming gaps in employment. The general manager of the Sahtu Business Development Centre hopes that the GNWT can help with the construction of an all-weather road. In addition to jobs created from the infrastructure project, McGregor said the road would also result in much more activity and cut approximately 30 per cent of the current transportation costs incurred by businesses. The construction of an extended healthcare facility, expected to open in 18 months, is also expected employ 30 to 40 people. Finally, there will be jobs from a new trade centre in the town.

But for a region totalling fewer than 3,000 people, the impact of a slowdown by the oil and gas industry, potentially for many more years, could become an even harsher reality.

Matthews pointed to the oil pipeline currently in Norman Wells that goes to Alberta but is running very low. If more oil isn't found and produced to get into that pipeline, he said it's a safe bet that route would be shut down in five to ten years, and it would be very difficult to get another pipeline in place and moving.

"If the companies are sitting on their (significant discovery licences) and not doing any work, not finding any additional oil, they're doing nothing to help improve the economics of the existing pipeline, that's to the disadvantage of the GNWT and the people of the NWT."

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