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CALGARY - The leader of the oil and gas company that discovered the giant Ladyfern natural gas field in Northeastern British Columbia says the company's profitability has been a disappointment as competition between owners to quickly exploit their share resulted in "value destruction."

Harvey Doerr, president of Murphy Oil Co., said his firm tried to work out an agreement with EnCana Corp. and Canadian Natural Resources Ltd. to slow down production so as to extend the field's longevity and raise profit margins.

"It became very competitive and despite attempts it wasn't possible to reach agreement among the parties to do it any differently," Mr. Doerr said in an interview.

"Murphy pushed hard. It was an extraordinarily difficult circumstance, and all companies recognize that when you get into something competitive like that, there is value destruction, and there clearly was value destruction in this process."

Murphy Oil, of El Dorado, Ark., struck the field in January, 2000. The discovery, the largest in Western Canada in 15 years, set off an exploration rush in the area, causing land prices to soar and drilling activity to escalate as oilmen hunted for similar pools.

After Murphy's discovery, EnCana and Canadian Natural, which had lands near the discovery well , drilled successfully into the reservoir, resulting in 50 wells drawing from the same pool. Murphy and its partner, Houston-based Apache Corp., had a 48% interest; Canadian Natural 30% and EnCana 22%. The companies worked out a production sharing deal to divvy up the reserves based on each of their wells' potential.

But the field has been depleting rapidly as its owners exploited it quickly. Volumes peaked last June at 700 million cubic feet per day when natural gas prices were weak, and volumes are expected to dwindle to under 100 million cubic feet by the end of next year.

Mr. Doerr said disagreement between the companies about how to exploit Ladyfern resulted in an excessive number of wells being drilled and the field being overcapitalized.

"There should have been windfall profits in something that involved taking the risks that we took, and to find something that is that unusual," Mr. Doerr said. "And there wasn't. It was very average, and that's a disappointment."

Last week, Canadian Natural said Ladyfern is depleting so quickly it won't be able to meet natural gas production expectations next year.

A spokesman for Canadian Natural was not available for comment. Alan Boras, a spokesman for EnCana, said the Ladyfern field was profitable for his company.

Mr. Doerr said hundreds of millions were spent on Ladyfern, including buying land, seismic data, services, building pipelines. Governments were big winners because of the royalties and taxes they collected in such a short period of time.

"We were never able to fill the facilities that we built, because by the time they were finished the decline had already set in. It's not a model in how you would develop something. If we owned it 100%, it would never have been taken up to the rates it was taken up and we never would have drilled as many wells."

He wouldn't be specific about Ladyfern's profitability. "It could have been fabulous. It could have been developed with substantially less money and be much more profitable for everybody involved. And chances are it wouldn't have peaked out at [a] $3 gas price environment, either."

Murphy Oil, one of Canada's largest oil and gas producers with stakes in such large projects as Hibernia, Syncrude and a heavy oil operation in Alberta, is still exploring in the Ladyfern area, he said.

But he said Ladyfern was so big it was an anomaly. The massive reservoir stretches underneath 70 square miles of swamp and forests only accessible for drilling when it's frozen.

"To find one of that size and [of] that prolific a nature again I think is a tall order. There will be more gas found and we hope that the infrastructure that we built will be amortized as more discoveries are made."

ccattaneo@nationalpost.com