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A lot riding on gas-rich Utica shale in Quebec
Gary Park For Petroleum News
A stable of juniors is looking to a couple of thoroughbreds to lead the field to riches in what has emerged as one of the best resource bets in North America.
Talisman Energy and Forest Oil are rolling out plans for various shale properties, with the province of Quebec suddenly thrust into the spotlight.
Wellington West Capital Markets analyst Kim Page said the presence of majors gives weight to the Utica and Lorraine plays in the St. Lawrence Lowlands.
If the play becomes commercially viable, “the return opportunity … is very high,” he said.
Vic Vallance of Fraser Mackenzie, Northern Rivers Capital Management hedge fund manager Alex Ruus and Sprott Asset Management Chief Executive Officer Eric Sprott are all hitching their wagons to the juniors.
But it may take Talisman and Forest to establish that new fracturing technologies can unlock the full potential of the shales — something they are gearing up to tackle.
Forest focusing onshore Having pulled out of the Gulf of Mexico to focus on the “repeatable, low-risk opportunities” of onshore North America — the strategy that has made EnCana so successful — Forest is already buoyed by results from two vertical wells in the Utica shale, which have tested at 1 million cubic feet per day.
Based on its holdings of 339,000 gross acres and 270,000 net acres, Forest has rated its net unrisked potential at 4.12 trillion cubic feet, with two prospective horizons, and access to major markets in the northeastern U.S.
Forest, which has several junior partners in the region, said its Quebec assets may hold as much as 4 tcf and describes the Utica shale as having similar rock properties to the Barnett shale in Texas.
It has scheduled three horizontal wells this summer, is targeting initial production in 2009 and plans to start full-scale drilling in 2010.
Talisman working unconventional potential in North America Talisman, in deciding to jettison several global assets and concentrate heavily on evaluating its unconventional resource potential in North America, could spend up to C$130 million over the next 18 months on its Utica and Lorraine holdings alone.
It plans to test three to four pilot areas, drilling six vertical and 10 horizontal wells, as it aims to enter the development phase about mid-2010.
Once it has drilled four wells by early 2009 it expects to have 760,000 net acres on land that has an estimated 48 tcf of original gas in place at 75-350 billion cubic feet for every 640 acres. Well costs at depths of 5,000-9,000 feet are calculated to cost C$5 million each.
Market gains posted by a number of smaller players The “ponies” in the field include Gastem, Questerre Energy, Junex, Altai Resources, Epsilon Energy and Petrolympic, all of which have posted staggering market gains on what were mostly penny stocks entering 2008.
Sprott Asset, which holds 14 percent of Gastem, 15 percent of Questerre and 13 percent of Altai, started to build those interests late in 2007.
Northern Rivers owns 11 percent of Gastem through its four funds — a fact that Ruus said “reflects how bullish we are.”
When Forest started drilling on Gastem’s property last summer, he “became convinced that there was probably a commercial discovery” in Quebec.
Page initiated coverage of Gastem, Questerre and Junex in late May, confident the most prospective area of the Utica play has the potential for about 25 tcf of recoverable resource.
He believes Junex, with 1.2 million acres making it the largest land-holder in the Lowlands, could be sitting on 1.25 tcf of gas.
However, Questerre Chief Executive Officer Michael Binnion has injected some cautionary notes, suggesting the engineering and commerciality still pose risks and are the main issues that the Talisman and Forest programs will address over the next 18 months.
“We have a play that in terms of its potential value is currently being risked as a full exploration play,” he told a Calgary investor conference. “We think we’re past the exploration phase, but we certainly are not into the proven commerciality phase.”
Binnion said much more information is needed on the recovery rates per well and what the decline curve will look like.
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