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Natural gas shale trail has minor bumps TransCanada discloses one-year delay in Horn River startup; producers press ahead as costs fall and expertise boosts well yields Gary Park For Petroleum News
A growing industry consensus that weakened natural gas prices will stretch well into 2010 and some moves by producers to shut-in production in the face of record North American storage levels are putting even more of the spotlight on shale gas activity.
But the rush to exploit the unconventional resource is not without its bumps in the road and detour signs.
In its second-quarter results, TransCanada gave a fleeting insight into one, so far, minor setback, closely following its own successful binding open season this year when producers committed 378 million cubic feet per day to a C$340 million pipeline from British Columbia’s Horn River basin to tie in with the Alberta network.
The original plan was to bring the gas onstream in mid-2011, but TransCanada said the in-service date has been postponed one year.
It said producers decided to extend their construction schedule for upstream facilities to better manage project costs.
That came a week after EnCana said it was too soon to commit to full-scale commercial development in Horn River, where resource estimates have ranged up to 600 trillion cubic feet.
Sturdy future Despite these blips, the future of shale gas is sturdy.
Canadian independent Talisman Energy, which has no current plans to curtail its gas production “unless we see further price deterioration below our variable costs,” is some distance from introducing shut-ins, said Ron Eckhardt, who is soon to step down as executive vice president of North American operations.
On the contrary, Talisman plans to increase its planned 2009 spending in the Marcellus shale play of Pennsylvania, is gearing up to start drilling in New York next year once state environmental regulations are released and plans to spud at least two horizontal wells later this year to test the Utica shale in Quebec in partnership with Questerre Energy.
EnCana, for all of its reservations about Horn River, has announced that some of its internal cost savings this year will be directed to Haynesville, La., and Horn River, where it and partner Apache are disclosing strong initial production rates.
Apache executives said July 30 the company plans to stay active in Horn River, but is backing away from Alberta pending lower costs or higher gas prices.
The company said output from each of three horizontal wells at Horn River has averaged about 16 million cubic feet per day, bolstering estimates that individual wells in the play can each potentially generate about 10 billion cubic feet of gas.
The two big independents each have equal stakes in about 425,000 acres.
Needs to be cost competitive But Apache Chief Executive Officer Steven Farris said the joint venture will need to “find ways to make this play very cost competitive. We believe, however, that we will be able to drill 2,000 to 3,000 gross wells from multiwell pads over the next several decades.”
He said well rates decline “pretty quickly, like many shales,” but those rates are flattening out faster than expected.”
Apache has six wells at Muskwa in the Horn River play that are averaging 14 million cubic feet per day after more than a year of production and were completed with four to 10 fracture stimulations of varying sizes, he said.
Adding to the sense of Horn River optimism, Apache and EnCana commissioned a new hydrator and compressor facility in late June and a 42-mile, 24-inch pipeline with capacity of 700 million cubic feet per day.
The Horn River performance helped lift Apache’s first-half Canadian production to 365.55 million cubic feet per day from 359.29 million cubic feet per day.
Talisman — encouraging results Although Talisman is not involved in Horn River it is a key player in the Montney region to the south, where results from recent wells are “encouraging,” said Chief Executive Officer John Manzoni.
“We drilled a total of five wells in the second quarter and we’ll continue to build our (Montney) activity over the rest of the year,” he said.
Eckhardt said the costs in the so-called Montney Core continue to come down as the company gains experience and expertise and are pushing towards a low $3 break-even price.
Even more of Talisman’s priorities are being directed at the Marcellus shale, where its targeted well count for 2009 has been raised to 50 from 36, as costs reach its per-well target of US$4 million and some recent wells exceed 5 million cubic feet per day.
Eckhardt said the 12 gross wells drilled this year are “all proving to be very repeatable … no disappointments at all.”
He said Talisman should have more information on 30-day initial production results later this year once it has six-month data from 15 wells, which are currently yielding more than 30 million cubic feet per day.
He said Marcellus costs are dropping, partly through an increase in the number of per-well fracture stages to 10 or 11 from eight.
In the Montney Core, Talisman has drilled 12 gross wells, with the latest yielding initial 30-day production rates of 3.5 million cubic feet per day, comfortably above the original expectation of 2.6 million cubic feet per day.
Results eagerly awaited The most eagerly awaited results are from Horn River operations by the partnership of Imperial Oil and ExxonMobil, especially after an ExxonMobil executive told the Wall Street Journal that initial flow rates were 16 million to 18 million cubic feet per day — a report that Imperial has described as inaccurate.
However, ExxonMobil investor relations Vice President David Rosenthal told a conference call July 30 that the company is excited about Horn River.
He said multiple wells are planned to build on the “successful results of our 2008-09 program,” with a drilling and evaluation program scheduled to start later this year.
Imperial said it drilled four single-perforation vertical test wells in the region last winter, but is not indicating when results will be released.
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