Mining, Oil & Gas

History of Oil and Gas in the NWT

Introduction

As significant new hydrocarbon reserves have become more difficult to find in the southern parts of the Western Canadian Sedimentary Basin, interest is once again focused on Canada’s north. Although we have a tendency to think of the north as an unknown frontier for the oil industry, in reality it has experienced a number of cycles of interest dating back more than a hundred years.

Geological knowledge of the northern basins has advanced beyond a rudimentary stage. Roughly 1900 wells have been drilled north of 60 latitude. The knowledge gained from drilling is combined with thousands of kilometres of seismic and extensive surface mapping. Both industry and government have completed many reports directly and indirectly addressing the hydrocarbon potential of the various regions of the north. A number of previously discovered oil and gas pools have proven reserves; several are under current production, or have produced in the past. However, development of what has been discovered is still at a very immature level; and many new discoveries are yet to come. The activity of the past has left a legacy of information that will serve as a handy springboard for future efforts.

The goal of this paper is to provide historical context for those interested in the exploratory efforts that are currently underway and yet to come.

Physiographic Regions of the Northwest Territories

From Petroleum Exploration in Northern Canada
The Early Years

Petroleum exploration in the north pre-dates the arrival of Europeans to this part of the world. For centuries the aboriginal people had known about and used hydrocarbons from oil seeps along the Mackenzie River. Their primary use of this material was likely for sealing the seams of their birchbark canoes. A limited trade for this commodity may have taken place.

Dogrib Canoemen crossing Great Slave Lake, Ca 1920

NWT Archives

European explorers gradually became acquainted with the occurrences of oil seeps and their significance to the indigenous people. Alexander Mackenzie was shown an oil seep near the present-day site of Norman Wells during his travels down the Dehcho (Great River). Many of the fur traders to the region noted occurrences of seepages or bituminous sands or shales. Records demonstrate trade in tar among the trading outposts. A large oil seep at Rond Lake near Fort Good Hope is particularly noted in trade journals as a source of tar that was scooped into kegs for trade with other outposts.

R.G. McConnell of the Geological Survey of Canada was expansive in his descriptions of oil seeps along the Mackenzie when he wrote in 1889: “The Devonian rocks are nearly everywhere more or less petroliferous and over large areas afford promising indications of the presence of oil in workable quantities”. He demonstrated remarkable prescience in his statement: “The possible oil country along the Mackenzie valley is thus seen to be almost co-extensive with that of the valley itself. Its remoteness from the present centres of population and its situation north of the still unworked Athabasca and Peace River oil field will probably delay its development for some years to come, but this is only a question of time.” He could compare his findings with oilfields already known in Ontario (Petrolia), Pennsylvania, Russia (Baku) and elsewhere in the world.

Early 20th Century

T.O. Bosworth, a respected consulting geologist of the time (A Report on the Prospects of Obtaining Oil in the Regions of the McKenzie River, Great Slave Lake, Slave River and Athabasca River), was influential in spurring practical, economic development of the Norman Wells area. On a trip through the north in 1914 he examined many of the known oil seeps and the surrounding rock from which they sprang. His favourable impressions and his professional stature ensured that his findings would not be forgotten despite the intervention of World War I.

Imperial Oil geologist T.A. Link selected the first drilling location in 1919 in an area that had been recommended by Bosworth. It was in the middle of a seepage area at a convenient landing location on the Mackenzie River near the present day site of Norman Wells. Drilling commenced early in the summer of 1920 and by late August an oil-bearing zone was encountered at 783 feet. The primitive cable tool method of drilling in use at that time could not contain the flow of oil that spurted from 6” casing to a height of 75’ above the derrick floor.

Turning on Norman Wells "Gusher" Ca 1922

NWT Archives

Upon arrival back in Edmonton in October, Link was quoted (misquoted?) by the Edmonton Journal as saying: “this is the greatest oilfield in the world – stretching to the Arctic”. Similar grandiose reports were made in newspapers across the country; however an anticipated rush to the north did not happen because imported crude oil was much cheaper than the likely cost of the newly discovered oil. Nevertheless, Imperial Oil took no chances in solidifying their position in the area by staking many claims the next spring. Claims for rights to hydrocarbons at that time were handled much like those for minerals; stakes were set in the ground at the corners of the land being claimed by the interested company.

The timing of the Norman Wells discovery coincided roughly with Turner Valley in Alberta; both discoveries demonstrated the potential for production from Paleozoic rock, which was already known to exist in great volume throughout western Canada.

Development of the Norman Wells field proceeded slowly. Imperial built a small refinery in 1933 to serve local needs for petroleum products processing 840 barrels per day by 1939. However, contemporaneous gold discoveries at Yellowknife overshadowed the economic importance of this small oilfield.

World War II

As World War II intensified, the United States became fearful of an attack on Alaska by the Japanese. To ensure a secure inland supply of oil to support defense operations in Alaska, the American and Canadian governments signed the Canol (Canadian Oil) agreement. The agreement called for an expansion of the Norman Wells field and construction of a 600-mile pipeline to a refinery in Whitehorse, Yukon. From Whitehorse, oil traveled along a second pipeline to the U.S. army base in Fairbanks, Alaska. Drilling development of the field accelerated dramatically (60 new wells) and production was boosted. At the height of operations, the Canol pipeline carried 3000 barrels of oil per day.

After the war the pipeline was dismantled and re-cycled (for other pipelines) in Alberta. The pipeline right-of-way remains to this day as a pathway used by hikers and mountain-bikers to travel deep into the interior of the Territories and Yukon. Abandoned vehicles, metal scrap, remnant oil stains and assorted debris along the route bear silent witness to a time when the environment was not viewed as a priority.

Derelict U.S. Army truck along Canol Trail

NWT Archives
Fifties and sixties – Southern Territories

In the post war years - and especially following the discovery of the Devonian reef oil field at Leduc, Alberta– the western Canadian hydrocarbon frontier pushed ever-farther north. The trail of Devonian reefs led explorationists from Leduc up to Zama in northwestern Alberta. By the mid-fifties exploration efforts were underway in the southern Territories in the Cameron Hills and directly southwest of Great Slave Lake.

In 1954 J.C. Sproule and Associates mapped surface structures that indicated possible fault closures in the southern Territories. Subsequent test hole drilling and the drilling of Briggs Rabbit Lake No. 1 and 3 confirmed closure against faults when gas was tested from the Devonian Sulphur Point formation. In 1959 Shell Canada Ltd. drilled four Alexandra test holes in the Tathlina area, all of which were abandoned. Several other companies drilled close to the Alexandra wells, also without success. During this time many kilometres of seismic were shot in the region by a number of companies, including Imperial Oil, Amerada, Scurry-Rainbow, Amoco and others.

Other companies explored further west on the Liard Plateau. Amoco drilled the first well in the general region (1957), in northeastern British Columbia, at Beaver River B-63K, which was completed as a gas well. Amoco also made the first Northwest Territory discovery –and the largest in the region – in 1966 at Pointed Mountain

The large number of geological/geophysical reports covering these areas on file at the National Energy Board of Canada is testimony to the level of interest for this area during that era. As a result of favourable results in the Cameron Hills and the Liard Plateau, and despite the unliklihood of short-term economic returns, roughly 350 wells were drilled in the southern Territories during the fifties and sixties.

50 and 60s –High Arctic

Concurrent with the activity in the southern Territories, interest in the far north – the Arctic Islands – was building as more became known about the geology of the region. In the late fifties reconnaissance level studies by Yves Fortier of the Geological Survey of Canada (GSC) confirmed great thicknesses of sedimentary cover and a variety of possible trapping structures. The oil industry expressed an eagerness to explore these remote lands, but was delayed until the federal government, under then Prime Minister Diefenbaker, could assemble a regulatory framework.

The first Arctic Island well was drilled in the winter of 1961-62 by Dome Petroleum on Melville Island. Other wells followed on Cornwallis and Bathurst Islands. Although these initial wells were abandoned, they proved the technical feasibility of high Arctic drilling.

Drilling on Melville Island

The great Canadian Oil Patch, Gray, Earle

By the late sixties Panarctic Petroleum, a consortium of industry and government, was formed to further Canadian based exploration efforts in the Arctic. In 1969 Panarctic made a significant gas discovery at Drake Point on Melville Island.

50s and 60s – Mackenzie Delta/Beaufort Sea As exploration proceeded in the high Arctic, interest was also focused on the Mackenzie Delta, which was likened to the Niger or Mississippi Deltas. Reconnaissance level ground and air studies took place as early as 1957 by major industry players such as Dome, Chevron, Gulf, Esso and others. The first successful onshore well (oil discovery) in the Mackenzie Delta was drilled in 1969 at Atkinson Point on the Tuktoyaktuk peninsula. This was closely followed by a significant gas discovery at Parson’s Lake in 1970.

A highly significant turning point for northern hydrocarbon exploration occurred in 1967 with the huge oil discovery in neighbouring Prudhoe Bay, Alaska. Financial investors for the first time became fully convinced of the potential of the north

Arctic Islands
Indian and Northern Affairs Canada
Beaufort Sea / Mackenzie Delta
The seventies

Momentum for northern exploration continued as the “oil shock” of the early seventies made the general public aware of how precarious previously reliable sources of hydrocarbons were. By that time, production within the United States – even including the large contribution from Prudhoe Bay – could not meet internal needs, and it became ever more dependant on imported supplies.

Activity in the Beaufort Sea/Mackenzie Delta accelerated throughout the early seventies with the drilling of many onshore and offshore wells. Fleets of reinforced drill ships were used to withstand the rigours of moderately deep water in the Beaufort Sea. However, the first Beaufort Sea wells were drilled from artificially built islands of silt. Dome Petroleum and Gulf were instrumental in developing the technology for the construction of stable islands in moderately deep waters.

Drilling continued in the Arctic Islands both onshore and offshore on man-made ice-islands. Panarctic was to eventually prove reserves of 17.5 trillion cubic feet of gas. An oil discovery was also made at Bent Horn N72 on Cameron Island (now in the Territory of Nunavut).

Berger Inquiry - 1977

Northern exploration was set back after the release of the Berger Inquiry in 1977, which recommended a 10 year moratorium on the construction of a pipeline up the Mackenzie to southern markets. This was done so that land claims with aboriginal groups could first be settled, and social and environmental concerns could be addressed. Without a pipeline, there would be no chance of benefiting in the short or medium term from the primarily gas prone fields found up to that time. Much to the disappointment of Dome and others, large reserves of oil, which could be more readily transported and bring quick financial returns, had not been discovered.

The eighties

Despite the Berger moratorium, activity in the Mackenzie Delta and Beaufort Sea continued into the mid-eighties. This was largely due to very favourable tax incentives put into place by the Trudeau government of the time, which actively encouraged Canadian self-sufficiency in energy and viewed activity in the far north essential for asserting sovereignty. The oil patch, in general, was enjoying an unprecedented boom as energy prices remained high throughout the early eighties.

The notorious National Energy Program (NEP) put into effect by the Trudeau government in 1980 acted to promote activity in the far north, but at the same time dampened activity in the southern parts of the Territories. Under the NEP, companies were entitled to write off more than 100% of their exploration costs in the north.

One of the biggest developments of the eighties took place at Norman Wells where Imperial Oil undertook an aggressive development program for the field. Production was boosted considerably and a pipeline built to connect with Zama, Alberta. This remains one of Imperial’s biggest producers.

In 1985 oil production commenced at Bent Horn on Melville Island with a shipment of 100,000 barrels of oil destined for a refinery in Montreal. These shipments continued, sometimes twice annually, until the late nineties.

Panarctic Bent Horn Facility

Don Smith, Arctic Experiences

In 1985 oil prices fell precipitously, dragging down hydrocarbon exploration in general. This coincided with the dismantling of the NEP under the Mulroney government and the end of the generous tax incentives that largely drove activity in the Mackenzie Delta/Beaufort Sea.

The first significant aboriginal land claim settlement in the Territories took place in 1984 with the Inuvialuit lands of the western Arctic. With this settlement the Inuvialuit took control of future work in the Mackenzie Delta/Beaufort Sea.

The nineties to present day

More land claim settlements followed in the early nineties with the Gwich’in (southern Mackenzie Delta) and the Sahtu (central Mackenzie Valley, Colville Hills, Great Bear Lake Region). The majority of land in the Northwest Territories was again available for exploration. The Inuvialuit took advantage of their control by tying in two wells in Ikhil that are used to supply gas to the town of Inuvik.

Steadily rising gas prices since the late nineties have created a strong impetus for renewed exploration throughout the north, especially considering that most northern fields are gas-prone. New pipelines to southern markets are connecting recent large discoveries on the Liard Plateau by Forest Oil, Chevron, Paramount and others. The Cameron Hills and other parts of the southern Territories have also experienced a recent upturn in activity because production from these areas can be relatively easily tied in to the south.

Chevron et al Liard K-29

Chevron Canada Ltd.

The Liard Plateau area has particularly received recent attention through the sheer size of its discoveries. It is on-trend geologically to other large foothill discoveries in northeast B.C. that can be described as “world-class”. Initial production rates of 50 million cubic feet per day have been achieved.

In August of 2000 the federal government made new lands available for exploration in the Mackenzie Delta/Beaufort Sea. Bids for these lands of roughly $400,000,000, and work commitments of $1 billion, signaled the industry’s eagerness to return to the north in full force.

Forecast

Activity levels will stay high so long as oil and gas prices remain strong. Much will depend on the eventual route(s) chosen to transport natural gas from the Arctic coastline to the south. If a route through Alaska is chosen, gas on the American side of the Beaufort Sea would be preferentially, developed over gas in the Mackenzie/Beaufort.

Regardless of the decision on pipeline routing, gas from the Liard Plateau and southern territories will be developed because of its relative closeness to markets and the high gas prices that appear likely to prevail for some time to come. The major remaining obstacle to further development in the Dehcho region is the issue of unsettled land claims. The Dehcho process, aimed at reaching a settlement in the southern territories, is underway and progressing well.