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Forest announces big-time shale gas play Quebec might be Canada’s next gas frontier; play along St. Lawrence River, close to pipelines, first production next year Gary Park For Petroleum News
Suddenly, it’s no longer pie-in-the-sky.
The prospect of Quebec becoming Canada’s next natural gas frontier, once the fervent hope of a clutch of junior E&P companies, has become believable with word from Forest Oil that it has struck the big-time with a new shale gas play along the St. Lawrence River that has a preliminary resource estimate of 4 trillion cubic feet and could start deliveries to the U.S. Northeast in a couple of years.
A 62-mile fairway on both sides of the river between Montreal and Quebec City — 269,200 net acres leased or farmed out to Forest — produced 1 million cubic feet per day from two vertical test wells. Two horizontal wells with a four-stage fracture stimulation per well are now scheduled for 2008 to refine drilling and completion techniques.
First production is expected in 2009, with the potential for a full-scale drilling program in 2010 and beyond.
Forest Chief Operating Officer John Ridens likened the Utica shale to the prolific Barnett shale of north Texas.
But, unlike the Barnett, where gas sells at a slight discount to the New York Mercantile Exchange, Utica gas will sell for a $1.05 per thousand cubic feet premium to the Nymex because the field is only 400 miles from New York City and other key gas markets.
Ridens estimated that gives the Utica play a $1.50-per-thousand-cubic-foot jump on the Barnett “coming out of the ground.”
Play in early stages While cautioning that the Quebec play is still in the early stages, Forest pinpointed a number of positives: The shale is at a shallow depth; rock properties are comparable to other more established shale plays; the gas has minimal impurities; and there is nearby access to pipelines, one a 24-inch diameter and one a 20-inch line.
The Utica shale sprawls across the Appalachian basin, covering thousands of square miles, with depths varying from more than 9,000 feet in the southern portion of New York state to 1,000 feet in the east and tens of feet in the west.
In broad terms, the Utica has test depths of 2,300 to 6,000 feet, compared with 4,500 to 9,000 feet in the Barnett.
Forest’s initial estimates call for a 20 percent recovery rate of the gas in place, or about 1.7 tcf based on 100-acre spacing.
It has calculated the discovered resource at 93 billion cubic feet per section and the unrisked potential at 1.3-2.2 billion cubic feet per well. Applying Forest’s estimated spacing there could be about 800 wells.
The New York State Energy Research and Development Authority has said the fractured Utica shale has the potential to be an economic gas play, but more work is needed to deal with the geologic and reservoir properties.
Calgary-based Questerre Energy, one of the most active juniors in Quebec, has a 7.5 percent gross overriding royalty convertible to a 20 percent working interest on the Forest licenses.
Questerre Chief Executive Officer Michael Binnion said the results are “very encouraging” from a program that is “still in the pilot stage.”
He said Questerre would hold about 350,000 net acres in the St. Lawrence Lowlands after earnings by Forest and Talisman Energy.
“As we were one of the first companies to recognize the potential of the Lowlands we are confident that we have secured the premium acreage,” he said.
Quebec has good fiscal terms The Quebec government is so anxious to attract oil and gas exploration that it has some of the best fiscal terms in the world, Binnion said in the early days of Questerre’s exploration.
“If we were to make (a big find) in Quebec it would be like discovering a whole new basin,” he said in 2005.
One of the targets is an extension of the Trenton Black River play in Appalachia, straddling the U.S.-Canada border, where Talisman has been producing about 100 million cubic feet per day over recent years from the U.S. side, while moving into Quebec under a farm-in deal with Questerre.
In the 1950s companies such as Shell Canada and Husky Energy explored Quebec for hydrocarbons. Two commercial finds in the 1970s were produced and turned into gas storage.
But a new geological model, developed in the late 1990s, was a major step toward the Forest breakthrough.
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