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All for one, one for all B.C. government, consortium of 11 producers embark on joint effort to bring Horn River shale basin to commercial development Gary Park For Petroleum News
In with a bang, out with a whimper, but the end result was cause for celebration when British Columbia wrapped up government land sales for the 2008-09 fiscal year, which ended March 31.
A modest C$15 million from the year’s last auction was enough to push the total to C$2.4 billion, double the previous year’s benchmark. (For calendar 2008 the province raked in C$2.66 billion).
“The records shattered by the 2008-09 oil and gas land rights sales underscore the unprecedented growth of the B.C. energy sector,” proclaimed Energy and Mines Minister Blair Lekstrom.
And, what the B.C. government has been able to achieve by paying attention to and collaborating with the industry is spreading to the industry itself, through a novel collaborative arrangement among traditional rivals.
The goal is to prepare an untapped, unconventional resource for early development once gas prices and demand recover.
Lekstrom said technological advances in recent years have allowed exploration and drilling companies to solve the challenge of economically removing gas from the geologically complex Horn River and Montney shale and tight gas formations, which accounted for 80 percent of the sales tally.
He said the industry has long been well aware of the gas potential in those regions.
Now a host of companies, with EnCana in the forefront, are launching commercial-scale pilot programs to exploit an estimated 50 trillion cubic feet of resources.
EnCana invested heavily Until this year, EnCana was investing 50 cents of every capital budget dollar into northeastern British Columbia, which Executive Vice President Mike Graham believes could rival the Barnett shale formation in Texas.
He notes that the Horn River basin has 200 tcf of natural gas in place, enough to support B.C. production at current rates for two centuries.
To the south, the Montney play could have 500 tcf waiting to be exploited, he said.
Graham also credits the B.C. government with taking bold steps at a time when Alberta was wiping out its traditional advantages by hiking royalties.
He said B.C. has contributed C$100 million in royalty credits to EnCana, enabling the big Canadian independent to build roads and other infrastructure into what had been a largely inaccessible area.
Comparing B.C. and Alberta, Graham said, in a Globe and Mail interview: “Some listen and some don’t.”
Lekstrom referred only to a “friendly competitive environment” between the two provinces, while tactfully downplaying any suggestion that B.C. has succeeded at Alberta’s expense.
BC gets higher bids The fact remains that British Columbia attracted average bids of C$13,000 per acre for drilling licenses in the last fiscal year, compared with Alberta’s C$1 billion total and C$135 per acre average from overall sales bonuses last year and C$123 so far this year.
Lekstrom said only that what B.C. has accomplished is the result of “work we’ve done over the past few years to build a welcoming regulatory regime that’s hospitable to industry and benefits British Columbians.”
His message is that governments don’t create jobs; they just create an environment that entices industry to invest.
What Lekstrom is more focused on this year is how much activity will take place on the land sales leases that have been acquired in the past year and, so far, he is encouraged by what has taken place in Horn River and Montney.
Industry spending in B.C. last year was about C$8 billion, almost triple the level in 2001, while royalty incentives increased summer drilling in 2008 by 200 percent from 2002.
Although Lekstrom is prepared for a sharp downturn in land sales this year, and despite the sweeping capital budget cuts stemming from low gas prices and the economic squeeze, there is one growing source of hope for the Horn River play.
Unmatched industry cooperation Industry cooperation on an unmatched scale in Western Canada shows signs of improving the basin’s economics and competitiveness.
Kevin Heffernan, vice president of the Canadian Society for Unconventional Gas, said many companies that would normally be rivals are joining forces to build roads, gas plants and other infrastructure — a trend he believes could soon become more common.
The Horn River Basin Producers Group, consisting of 11 companies, is taking an anything but business-as-usual approach by working with key stakeholders and First nations on a coordinated approach to developing the resource.
Companies involved in the collaborative effort are EnCana, Devon Canada, EOG Resources, Nexen, Quicksilver Resources, Stone Mountain Resources, an Imperial Oil-ExxonMobil Canada partnership, ConocoPhillips, Pengrowth Energy Trust and Petro-Canada (which is involved in a merger deal with Suncor Energy).
Ron Spitzer, exploration vice president with Apache Canada, said the producers’ group was formed when only 40 to 50 percent of the land rights had been secured.
But, regardless of the “pretty competitive” environment, the companies started working on some “honorable goals,” and that is now proving the benefits of tackling issues in a streamlined way, he said.
Spitzer is hopeful the approach will pay off by accelerating Horn River’s commercial development.
Instead of having to deal with each individual company, pipeline proponents TransCanada and Spectra Energy and the B.C. government will be able to get a quick sense of the industry’s overall thinking, he said.
Canadian Society for Unconventional Gas President Mike Graham said companies are active in the Horn River regardless of the slump in gas prices because there is much that can be done to reduce the economic challenges and minimize the environmental impact.
In addition, Spitzer noted that cooperation will help overcome regulatory issues faced by an unconventional basin.
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