Arctic Gas, NWT and Nunavut
Franco-Nevada has 428 Bcf of contingent recoverable natural gas resources, net to Franco-Nevada, in the Drake Point, Hecla, King Christian and Roche Point gas fields located on and offshore Melville Island, approximately 700 miles northeast of the Mackenzie River Delta in the Arctic Ocean. This represents working interests ranging between 3% and 15% in these natural gas resources. The stated resources are an estimate of the contingent recoverable resources, net to Franco-Nevada, as evaluated by GLJ Petroleum Consultants Ltd., independent reservoir engineers, as at November 2008.
The Drake Point field was discovered in 1969 by Panarctic Oils Ltd. Between 1969 and 1986 over 130 wells were drilled at a cost of greater than C$254 million. This drilling led to the discovery of the Hecla field in 1972 as well as other fields in which Franco-Nevada has an interest. Reserves are located in the Jurassic Borden Island Formation and the gas zones average 100 ft in thickness. These zones have good porosity, high permeability and the gas has no associated liquids or hydrogen sulphide. Geographic remoteness has prevented their commercialization to date. Suncor has the largest ownership stake in these fields while several other companies, including Exxon Mobil Corporation and Imperial Oil Limited, own smaller stakes. Although no operating agreement is currently in place, management believes that Suncor will be the operator of these fields when and if they are commercialized. In January 2005, Canadian Energy Research Institute released a report it had prepared for the Department of Indian and Northern Affairs Canada entitled “The Economics of High Arctic Gas Development: Expanded Sensitivity Analysis”. This report considered four development schemes and assumed production of 1,000 MMcf/d over a 20 year production period from the Drake and Hecla fields. The four development schemes considered were Liquefied Natural Gas (“LNG”) delivery to North America’s eastern seaboard, LNG delivery to West Greenland for transhipment to carriers accessing other markets, Compressed Natural Gas delivery to a Mackenzie Corridor pipeline and Gas to Liquids delivery to North America’s eastern seaboard. The capital costs of these schemes ranged between $4.9 billion and $6.3 billion in 2005 Canadian dollars.
