British Columbia offshore dusted off

Gary Park

For Petroleum News

Out of the spotlight for almost three years, the oil and natural gas future of British Columbia’s offshore got a fresh airing this month when a geologist and exploration consultant suggested public pressure held the key to development.

Henry Lyatsky, president of Lyatsky Geoscience Research and Consulting in Calgary, said that until the British Columbia government is won over, the exploration bans — which have kept the issue out of the spotlight for three years — will remain in place.

He told a Calgary conference hosted by the Vancouver-based Fraser Institute that “When people want stuff to happen it happens fast,” adding that the initial push should be directed at the general public, not the government, or special interest groups.

Departing British Columbia Energy Minister Richard Neufeld, once an outspoken advocate of opening up the region and the driving force behind the creating of a government team to promote the offshore potential, has recently conceded that the issue is essentially in neutral.

No headway lobbying

Neufeld said he hopes that the senior government will eventually realize that offshore exploration and development is being conducted safely and yielding “huge economic value.”

In a 2001 study of the B.C. offshore’s potential, the Geological Survey of Canada rated the median in-place resource potential of four basins — Queen Charlotte, Tofino, Georgia and Winona — at 41.8 trillion cubic feet of gas and 9.8 billion barrels of oil.

The first three basins were lightly explored in the 1960s, with Shell Canada drilling eight wells in the Queen Charlotte basin and six in the Tofino, while marine surveys were conducted by Chevron Canada in 1971.

Lyatsky said other basins exist in the offshore, but he is less optimistic about them, given the shortage of known source rocks and seeps.

He was not discouraged by the prospect of earthquakes damaging oil and gas facilities because a “lot of that stuff is handled routinely in other parts of the world,” including a decade of commercial operations in the stormy, ice-infested waters off Newfoundland.

Lyatsky said there is no reason to rule out British Columbia when offshore development occurs elsewhere in Canada and around the world.

Montney play the exception

But he said the consequence is that costs are not likely to ease up in the area as the activity level climbs above 2008 when Royal Dutch Shell arrived on the scene.

Speaking to a BMO Capital markets unconventional gas conference in New York, Dielwart said ARC now has an identified resource of 8.1 trillion cubic feet — 3.5 tcf in its Dawson field (the trust’s main producing property in the Montney) and 4.6 tcf in its West Montney acreage.

The trust entered the play six years ago when it acquired privately owned Star Oil & Gas for C$710 million, operated the first wells drilled into the play and in 2005 completed the first horizontal well.

Dielwart said ARC believes there are other prospective horizons “where we fully expect to see significant additional gas discovered.”

Key question recovery

Dielwart believes ARC can achieve an ultimate recovery factor of “well in excess of 50 percent” and other Montney operators are talking about 60-65 percent.

With 25 percent currently booked, ARC is counting on at least another 500 billion cubic feet, or just short of 100 million barrels of oil equivalent of reserves in the drilled-up area of Dawson alone.

He said only a token amount of reserves have been assigned in West Montney, including the trust’s Sunrise discovery which tested at more than 10 million cubic feet per day after it was drilled more than a year ago.

Even if ARC is limited to recovering 25 percent of the gas-in-place that will still double its reserves over the next several years, Dielwart said.

Since buying the Dawson property, the trust has seen its output grow from 20 million to 45-50 million cubic feet per day and aims to build its Montney volumes to 170 million cubic feet per day and has a “very conservative” recoverable resource target of 300-350 million cubic feet per day, he said.

Dielwart said ARC’s 2009 budget of C$170 million in the Montney includes completion of a 60 million cubic-foot-per-day gas plant this quarter.

He said Montney reserves are being added for about C$1.50 per thousand cubic feet, while per-well costs were cut to about C$5 million last year from C$8 million in 2005; but as wells become deeper, the fracturing work increases, bumping costs up to C$5 million-$6 million.

However, Dielwart cautioned that although the Montney is “very low exploration risk in terms of finding gas,” there’s no guarantee that every well can be economic, despite what some companies claim.

He said gas prices can drop below C$5 per thousand cubic feet and ARC can “still have very, very attractive prospects.”

—Gary Park