Photograph courtesy of Northern Cross
Since the days of the Klondike Gold Rush, Yukon and mining have gone hand in hand. But these days there’s hope to develop another resource extraction industry in the territory – oil and gas. It’s not without its challenges though, as Northern Cross (Yukon) Ltd. is well aware. From the remoteness and the lack of infrastructure to a populace that’s unfamiliar with – and sometimes resistant to – oil and gas extraction, the company’s road to production is bound to be bumpy.
“Our preference would be to focus on something of a conventional nature.”
But Richard Wyman, the president of Northern Cross, isn’t backing away from the challenge. Despite calling the opportunities to develop conventional oil and gas resources in Yukon “modest” when compared to Alberta or B.C., he says, “The probabilities are that there’s both natural gas and crude oil to be found.” Plus, “The Yukon is an energy-intensive region, it’s got a cold climate, there’s a natural local appetite to consume either crude oil or upgraded product or natural gas.” But that market will need to grow and infrastructure to support energy firms working in the region will also need to be developed before companies like Northern Cross really strike gold.
Northern Cross’s interests are largely in the Eagle Plain region of northern Yukon. The company holds rights to about 5,000 square kilometers, but for the last three years it has focused most of its attention on a 400-square-kilometer area in the southern portion of its holdings. “We’re just scratching the surface,” Wyman says. The region Northern Cross has focused on initially is close to the Dempster Highway, which cuts across northern Yukon in a northeasterly direction and which provides year-round road access to the remote region.
Drilling decisions for the first four wells were made in part to satisfy commitments to the Yukon government to spend at least $20 million on the area in question. Wyman said the company has far exceeded those commitments, and has spent closer to $100 million, thanks in large part to investment from CNOOC International Inc. “This investment provides Northern Cross with the capital to honor its commitments in Yukon and provides longer term financial and technical support to advance Northern Cross’s business plan,” the company says on its website. With its obligations to the Yukon government now satisfied, decisions surrounding the next round of drilling will be based largely on geological information garnered from the first four wells and a seismic program completed last winter.
Unlike explorers tapping into prospective resource plays in Alberta, B.C. or Saskatchewan, Northern Cross is working with limited geological data. Some exploration did take place in the area prior to 1994, when the company was founded. In the 1950s, ’60s, and ’70s, about 30 vertical wells were drilled. The four wells Northern Cross has drilled in the region so far have all been vertical as well. “The unconventional resources, though, are going to be longer term,” Wyman says. “Our preference would be to focus on something of a conventional nature.”
That’s not true for other operators working in Yukon, particularly in the Liard Basin in the southeastern part of the territory. EFLO Energy Inc. is conducting natural gas exploration in the Liard, specifically in the Kotaneelee field. The area shares the same geological opportunities currently being exploited in northeast B.C. and the company currently has a 53.65 per cent general interest in a project in the field. It’s seeking to increase its share of the project to as much as 68 per cent, while Apache Corp. owns 32 per cent of the project.
Photograph courtesy of Northern Cross
During presentations before a Yukon government committee examining the potential risks and benefits of hydraulic fracturing in January 2014, H. Wayne Hamal, the chief operating officer of EFLO, noted that the Kotaneelee gas field produced more than 230 billion cubic feet of conventional gas before it was acquired by EFLO. “EFLO feels there remains significant volumes of both conventional and shale gas resources,” Hamal told the committee.
He went on to explain that “The existing infrastructure enables immediate delivery of produced gas through an existing dehydration gas plant and a Spectra Energy Corp. pipeline for delivery to Canadian and U.S. markets.” EFLO also believes that Kotaneelee gas could be chilled to form liquefied natural gas and “distributed throughout the Yukon to enable a less expensive, cleaner alternative fuel for power generation and vehicle consumption.”
“We’re living in a world of uncertain outcomes still, so we’re not quite at a point where we can declare we’re a sustainable business.”
The long-term success of EFLO in the Liard Basin may depend on the government’s pending decision to allow hydraulic fracturing to take place in the territory. During his presentation, Hamal said that the conventional resources in the Kotaneelee gas field might have five to 10 producing years remaining, while the shale potential has an estimated 50-year production life. In other potential oil and gas basins in the Yukon, activity is virtually nonexistent. While oil and gas exploration in the Beaufort-Mackenzie Basin in the Northwest Territories, for instance, is bustling there has been limited activity in the Yukon. According to the territorial government, “drilling on the Yukon portion of the basin to the west has been very limited. Three wells were completed showing no hydrocarbons and limited reservoir potential.”
Northern Cross is alone in its efforts to develop the Eagle Plain. One of the major challenges it faces, as did its predecessors in the ’70s, is the Eagle Plain’s distance from the oil field service and supply line industry. Yukon doesn’t have a developed service industry, so Northern Cross has to use what’s available out of B.C. and Alberta, a service line that’s some 2,000 to 3,000 kilometers long, according to Wyman. “If you were trying to conduct a similar operation to what we’re doing in Eagle Plain and did it in Alberta, you’d be no more than a few hours away from a supply center and you’re much closer to any kind of infrastructure related to emergency services in case you need it.”
The distance from emergency services means Northern Cross, which is still the only operator working to develop the Eagle Plain, must have appropriate emergency evacuation procedures and contingency plans in place, which layers on extra costs for the company. “You have to have redundancy and pieces of equipment so that if something has an unscheduled outage, you can seamlessly continue to operate with backup equipment,” Wyman says. “It’s not a forgiving place if you lose power and it’s January and it’s 45 degrees below outside.”
While Northern Cross is still firmly in the exploration phase, Wyman is hoping to bring some production online in the near future. “We’re in an area where there is no oil and gas infrastructure,” he says. “It’s going to be expensive to put all that stuff into place so we want to be pretty darn sure that we know what kind of resource mass we’re dealing with before we take the next steps.” Wyman’s crossing his fingers that the company discovers oil rather than natural gas. “As long as you can get a truck into a well that produces oil, you can start to move it. You can’t do the same thing with gas. It needs more infrastructure in place to get it into a shape so that you can transport it to market.”
Northern Cross has estimated the cost to transport oil to market from Eagle Plain will be in the range of $20 to $30 a barrel, depending on which markets it is delivered to. The company’s options range from trucking oil to existing terminals that can receive crude oil in northeastern B.C. or northwestern Alberta, or terminals that don’t exist yet in places like Skagway or Haines, Alaska.
Another uncertainty for the company is the price threshold at which production becomes cost effective. At this point, the current commodity prices for oil are high enough to allow for oil production, but the company would require a natural gas discovery of a certain mass to justify production given the infrastructure requirements – either a pipeline or a means of liquefying. “The main thing is that this is still an exploration project. We haven’t defined resources that can be earmarked as potential for commercial development yet, so I’m hoping that the interpretation of the seismic data will identify targets that will in turn become discoveries so we can take the next steps towards potential development,” Wyman says. “We’re living in a world of uncertain outcomes still, so we’re not quite at a point where we can declare we’re a sustainable business,” he added.
Despite the challenges, there are some things working in Northern Cross’s – and therefore the energy industry’s – favor in Yukon. A land use plan for northern Yukon accommodates oil and gas development in that region. No land use plan exists yet in the southeast, however, and a recent controversy over the government’s land use planning process in the Peel Watershed region has resulted in a legal challenge.
The Yukon government has included oil and gas development as part of its long-term energy and economic development agenda and the territory has a comprehensive policy and regulatory framework under which the oil and gas industry operates. What’s needed now, at least from Wyman’s perspective, is a discovery that’s big enough to be commercially developed.
Land Title Legalities
In July, Northern Cross wasn’t conducting any fieldwork on the Eagle Plain and only two or three caretakers were at the company’s camp, all of them Gwich’in. Northern Cross’s activities have been primarily conducted in the traditional territory of the Vuntut Gwitchin First Nation, although some of the seismic work was also conducted within the traditional territory of the First Nation of Na-Cho Nyäk Dun. Both First Nations are self-governing and have settled land claims.
Under the Yukon Oil and Gas Act, companies must reach a benefits agreement with any affected First Nations and the territorial government before carrying out any oil and gas-related activity. Wyman couldn’t provide the details of the benefits agreement between Northern Cross and the Vuntut Gwitchin, noting the agreements are only made public if all three parties agree.
He estimated that between 20 and 30 per cent of staff are hired from the territory, with a significant number of them hailing from Old Crow, the fly-in-fly-out Vuntut Gwitchin community in the northern part of the territory. He suggested that in the past around 20 per cent of the company’s spending has benefited Yukon businesses and people. Wyman said he hopes that percentage will increase over time, but again pointed to the underdeveloped oil and gas service sector.
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