Drilling for oil in the Far North's great unknown

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In the midst of the largest auction of Western Arctic oil and gas rights in Canadian history, two giant rectangles of land up for grabs in the northeastern stretches of the Beaufort Sea are particularly mysterious.

No oil and gas company has ever drilled there, and why any company would want rights to the area is difficult to understand – unless it had access to a new trove of data quietly compiled by a Texas company over the past half-decade.

Though the economic and technical hurdles to plucking oil from the Arctic remain high, that data is altering the energy industry's view of the potential in Canada's Far North, pointing to a resource that now looks larger than formerly believed. It is, in the words of data collector ION Geophysical Corp., "a world-class play."

Six years ago, the Houston-based company launched a multiyear program to peer into the subsurface below the Beaufort Sea, using sophisticated seismic and gravity equipment to identify structures that could contain oil and gas. ION, which conducts such missions in difficult-to-access places around the globe, went North four times between 2006 and 2010, assembling a grid of data that spans most of the Beaufort, including some areas of heavy ice where no one has ever looked.

Altogether, ION spent more than $150-million (U.S.), much of which it recouped – although it won't say how much – by selling the data to companies with interests in the Arctic. There has been "global" interest, said Joe Gagliardi, director of Arctic solutions and technology for ION.

What the data point to "appear to be very large prospects," he said. "The Beaufort-Mackenzie is a world-class play. It has the possibility to change the game when it comes to the world balance of oil and gas reserves."

ION has shown that sedimentary rocks that look prospective for oil extend into much deeper areas of the Beaufort than previously believed.

"The new data that ION shot was revolutionary," said John Hogg, the vice-president for exploration and operations for MGM Energy Corp., who has a long background in offshore exploration. "There's much more sand [sedimentary rock]that goes out farther than what we would have thought."

BP committed $1.2-billion (Canadian) in 2008 to drilling in the Beaufort, a decision that was the "direct result of the work of a company like ION," Mr. Hogg said. BP declined to comment.

Imperial Oil Ltd. and Chevron Corp. also made large bids after ION began selling its data. Pius Rolheiser, a spokesman with Imperial, said the company "continues to view the Beaufort Sea and our deepwater acreage there as a high potential area of opportunity."

Said Chevron spokesman Leif Sollid: "We view the Beaufort as an important future oil and gas region." Chevron is conducting its own data-gathering in the Beaufort this summer, using more refined three-dimensional seismic techniques.

Still, the road ahead is long. Seismic data is only the first step. Finding Beaufort oil means drilling in an area where a single well could cost upward of $500-million. The technical and economic challenges are so large that the Arctic remains extraordinarily challenging.

In addition, existing estimates from companies and governments suggest Canada's Arctic holds a much smaller resource than other Northern regions. Alaska's North Slope, for example, contained some 22 billion barrels of technically recoverable oil, three-quarters of which has been pumped out. By comparison, the latest government estimate of the Canadian Beaufort Sea and Mackenzie Delta, published by the National Energy Board in 1997, shows one billion barrels of technically recoverable oil.

That estimate was produced before the ION data was acquired, however, suggesting it could be amended.

Mr. Gagliardi believes it's only a matter of time before companies move to tap the Beaufort. "The low-hanging fruit for large oilfields are drying up outside of the Arctic," he said.