BUSINESS

A gusher of black gold

Hunter makes a milestone B.C. oil find

JOHN DeMONT November 14 1988
BUSINESS

A gusher of black gold

Hunter makes a milestone B.C. oil find

JOHN DeMONT November 14 1988

A gusher of black gold

BUSINESS

Hunter makes a milestone B.C. oil find

It was an impressive sight—and a spectacular reminder that taking risks still pays off in the Canadian oil industry. On Monday, Oct. 31, as British Columbia Premier William Vander Zalm and his wife, Lillian, watched, James Gray, the stocky vice-president of Canadian Hunter Exploration Ltd., ignited a thundering gas well near Dawson Creek, B.C., sending a flame 200 feet into the grey afternoon sky. The flare was a fitting way for Calgary-based Hunter and partner BP America Inc. to celebrate the discovery of one of the biggest onshore oilfields in recent Canadian history. And it also provided a flicker of hope for Canada’s beleaguered oil and gas sector, which has been battling falling crude prices for almost two years.

Last week’s announcement was a dramatic payoff for the joint venture between Canadian Hunter and BP, which has spent $200 million since 1985 developing oil and gas prospects and acquiring land near Dawson Creek, in the province’s verdant Peace River country. The Brassey oilfield, which geologists say holds more than 20 million barrels of oil, will dramatically increase Hunter’s production and it could act as a stepping-stone for Hunter and BP to develop further oilfields in the surrounding area. The discovery is also important to British Columbia, which has large naturalgas reserves but, until now, little oil. And Hunter’s strike is also a promising development for officials at other Canadian exploration companies, some of whom had concluded that all of Western Canada’s big conventional oil and gas fields had already been found. Said Wilfred Gobert, an oil analyst with the Calgary-based brokerage firm Peters and Co. Ltd.: “Exploration companies can hold up Brassey as an example of the type of discoveries that are still out there.”

Hunter, which is 87 per cent owned by Toronto-based resource giant Noranda Inc., has made other big strikes in the past. In 1976, it was responsible for discovering one of the biggest natural-gas fields in Canadian histo-

ry—the Elmworth field in northwestern Alberta. Since 1985, Hunter’s geologists have been trying to prove that the formation containing the Elmworth field also extended into British Columbia. And in mid-1987, there were indications that there was more than just natural gas

in the area, when a Hunter rig drilling 40 km southwest of Dawson Creek exploded into a ball of flame. Since then, Hunter has hit oil in nine out of 13 wells that it has drilled on the Brassey field.

Brassey is dwarfed by the Hibernia oilfield, 200 miles southeast of Newfoundland, and Gulf Canada Corp.’s Amauligak reservoir in the Beaufort Sea, both of which are estimated to contain 500 million barrels. But finds as big as Brassey have been rare in the oil industry during the 1980s in Western Canada. At the same time, the field’s unusually high production rates—tests indicated it is capable of

producing between 5,000 and 7,000 barrels a day—have raised the prospect of other highquality reservoirs being found in the area. Said John Masters, Hunter’s president: “Brassey is a nice-sized oilfield. But its main significance is that it may lead to new fields in the area.”

Even the sharp decline in world oil prices— $16.86 a barrel now from $22.80 a year ago— has not dampened the enthusiasm of Hunter or its Cleveland-based partner. Although the Brassey field is 10,000 feet belowground— making production relatively expensive—the oil is light and clean, and, as a result, by the time the field hits its expected peak production in June, 1989, each barrel of oil should qualify for the best price available. Said B.C. Energy Minister Jack Davis: “It is oil refined by nature—it is the best.”

The B.C. treasury will also benefit from the find. As an incentive, British Columbia will forgo all petroleum royalties for two years after production begins from the field. After that, the province will get 20 per cent of the sale price of each barrel of crude—which works out to $3.37 per barrel of oil at current prices. Said John Allan, British Columbia’s assistant deputy minister of energy: “British Columbia now imports three-quarters of all its oil. The Brassey field means a lot more money will be staying in the province.” Hunter and BP have also announced the start-up of their new $2 6-million natural-gas processing plant 56 km south of Dawson Creek. The Noel gas operation, which will have the capacity to process 150 million cubic feet of gas per day, will strengthen the province’s campaign for a larger share of the rich U.S. gas market as well as the recently deregulated eastern Canadian market.

Still, the outlook for the Canadian oil industry is not promising. Although the federal government recently announced that it would spend billions financing new energy megaprojects, £ including Hibernia and heavy-oil proj2 ects in Alberta, a chronic shortfall of “ capital in the industry has left dozens of conventional western oil exploration prospects untouched. A spokesman for the Calgary-based Canadian Association of Oilwell Drilling Contractors said that at the end of October, there were 242 rigs drilling in Western Canada, compared to 362 rigs during the same period last year. Meanwhile, some industry analysts are predicting that oil prices could fall below $12 per barrel, and that would cause a further slowdown in the oil industry. But discoveries such as Brassey at least allow oilmen to dream that better days lie ahead.

JOHN DeMONT

JOHN HOWSE