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Going deep in Canada’s Deep basin Leaders of Tourmaline Oil return to favorite hunting ground in northern Alberta-BC, chasing prize estimated 30 years ago at 440 tcf Gary Park For Petroleum News
Backed by a proven pedigree, Tourmaline Oil has taken less than three years of active operations to put itself among the frontrunners in the Deep basin play that straddles the northern Alberta-British Columbia border and is rated by some analysts as the next big play in the Western Canada Sedimentary basin.
At the helm as chief executive officer is Mike Rose, who founded Berkley Petroleum in 1993 and sold out to Anadarko in 2001 for C$1.6 billion, then launched Duvernay Oil, which was acquired in 2008 by Royal Dutch Shell for C$5.9 billion.
Now he and a leadership team of former Duvernay executives are back in their favorite hunting ground in Deep basin, a liquids-rich, tight-gas play that pioneering geologists estimated 30 years ago could hold 440 trillion cubic feet of recoverable gas — and were scoffed at for their troubles.
The arrival of horizontal drilling and multistage fracturing technologies has changed that view, attracting a swarm of believers, many of them drawn by Rose’s philosophy. Understanding geology the secret In the simplest terms, he said the secret to building an oil and gas company is understanding the geology — once the essential building block of successful petroleum ventures.
What a company needs is “really good people who know how to do it and there are fewer of those around,” Rose said, adding the Tourmaline’s leaders are all over the age of 35, which represents considerable accumulated experience.
To those who might view Tourmaline’s decision makers as dull because they return to Deep basin “again and again and again,” he suggested the doubters should take a closer look at the basin’s broad statistics.
Rose said that although 18 tcf of gas has been produced in the Alberta sector of the Deep basin, using new technologies to drill out reserves in existing wells and adding another two wells for every section would add another 12 tcf.
He said technology just keeps making Deep basin better, estimating the play is not yet halfway through its productive life.
Tourmaline has assembled more than 1 million gross acres, with an average 65 percent working interest, which Rose translates into a possible platform for 50,000 barrels of oil equivalent per day.
But he said the price of natural gas will determine how long it takes his company to reach that objective.
Infrastructure control key Rose said Tourmaline’s strategy is to establish two or three large exploration and production areas where it controls the infrastructure and has large drilling inventories.
It’s already well on the way, suggested Robert Cooper, vice president of energy research at Mackie Research Capital, which credits Tourmaline with doing a “lot right” by owning gas plants and pipeline gathering systems.
To be successful in producing Canadian gas “you have to be a low-cost producer … and Tourmaline’s got a really good handle on how to do that,” he said.
The company’s inventory now stands at about 2,700 vertical wells at two wells for each section, plus 100 Alberta Montney and 150 British Columbia Montney horizontal well locations.
Victor Rodburg, an analyst with Clarus Securities, described the Alberta Deep basin as the “next big resource play in Western Canada, with staggering amounts of original gas in place of up to 100 billion cubic feet for each section.”
He said the Nikanassin tight-sand formation in the basin has yielded initial production rates of 15.9 million and 24.2 million cubic feet per day from two Shell horizontal wells.
Plays on investors’ radar screens Ray Kwan, an analyst with Macquarie Equities Research, said Deep basin shale and tight oil plays are “popping on to investors’ radar screens” and are likely to become a significant trend over the next five to 10 years as producers tackle the tightest and largest oil-in-place rocks.
He estimated the shales contain more than 40 billion barrels of original oil-in-place.
Other companies active in Deep basin include Lone Pine Resources (the newly established Canadian subsidiary of Forest Oil) with 129,000 net acres, Enerplus Resources with 80,000 net acres of high working interest properties and Peyto Exploration.
Before the spinoff of Lone Pine, Forest Oil said it planned to spend US$175 million this year on its Deep basin/Evi properties, drilling about 50 gross wells.
Cinch Energy acquired To expand its Deep basin holdings, Tourmaline struck a deal in late May to acquire Cinch Energy for C$205 million, gaining proved plus probable reserves of 13.5 million boe and production of 3,740 boe per day for about C$43,000 per flowing boe, boosting its 2P reserves to about 178 million boe and putting itself on track for 2012 output of 44,500-46,500 boe per day.
The assets also include 87,580 net acres of undeveloped land, the bulk of which are jointly owned with Tourmaline.
Tourmaline completed a C$227 million initial public offering last November and raised C$174 million earlier in May through a sale of 6.33 million common shares, with some of the proceeds being used to raise this year’s capital spending to C$450 million from C$350 million. The 2010 capital budget was C$295 million.
The company said it plans to drill up to 35 wells on its two largest properties over the next 18 months, targeting liquids-rich gas prospects, as part of an accelerated five-year development program.
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