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October 2009

Vol. 14, No. 42 Week of October 18, 2009

Letting the good times roll

Gains in drilling, completion technology improve economics of B.C.’s Horn River, Montney plays; province hopes for strong winter

Gary Park

For Petroleum News

The revving up of activity in British Columbia Horn River and Montney-Doig gas formations, which the provincial government is hoping will result in a benchmark winter drilling season, has seized the attention of Enbridge.

Steve Letwin, vice president of natural gas transportation at the pipeline giant, said the Alliance pipeline from northern B.C. and Alberta to Chicago could be enlarged by up to 300 million cubic feet per day to handle new volumes from the shale plays.

The decade-old Alliance, which was designed to break TransCanada’s stranglehold on gas transportation in Western Canada, currently has capacity for 1.3 billion cubic feet per day. Enbridge now owns 50 percent of the system.

Letwin told reporters after his company’s annual investor day in Toronto that the reserve estimates for Horn River and Montney are “huge (and) Alliance is in a perfect position to benefit” from development of the vast resources.

Letwin said EnCana, Nexen, EOG Resources and Apache believe Horn River wells could hold more than 60 trillion cubic feet of potential reserves, while the tight gas play in Montney has shown similarly encouraging results.

Other calculations have climbed as high as 1,000 tcf.

Issue economic recovery

However, Michael Mazar, an analyst with BMO Capital markets, told a Playmakers Symposium held by Houston-based PLS Inc. in Calgary on Oct. 6 that his firm assumes 250 tcf of original gas in place, of which 25 tcf to 50 tcf is thought to be economically recoverable.

He noted that EnCana could have a recoverable 10 tcf, Apache 8.5 tcf and EOG and Devon Canada each about 5.5 tcf.

Mike Dawson, president of the Canadian Society for Unconventional Gas, said Enbridge’s interest is further evidence that Horn River and Montney are on the verge of becoming major growth areas, suggesting Horn River could surpass 1 billion cubic feet per day after 2012.

But he said it will take time and higher gas prices for the plays to attain their full potential.

Other speakers at the symposium painted an optimistic picture for both plays, based largely on the gains in drilling and completion technology.

Mazar, who rated Horn River next to Barnett on the shale list, said larger wells in the basin have lowered the breakeven drilling cost to C$5.05 per thousand cubic feet, down about 16 percent in the past year, putting it on a competitive footing with other North American shale operations.

Based on a gas price of C$6 per thousand cubic feet, BMO said the average Horn River well costs about C$9 million, while finding and development costs run to 98 cents, generating a mean after-tax internal rate of return of 21 percent.

Driving these economic gains is the increase in the number of fracturing stages per horizontal well to between 14 and 16, lowering service costs and allowing the use of longer laterals, Mazar said.

B.C. access challenge

But the challenge for northern British Columbia is accessing the remote location and getting the gas to market, although the use of drilling pads and fit-for-purpose rigs may ease some of those difficulties.

BMO is forecasting Horn River production of more than 4 bcf per day by 2015, assuming takeaway capacity is available.

To that end, key investments are being made, including EnCana’s C$400 million addition of 400 million cubic feet per day of processing capacity by early 2011 and the British Columbia government’s offer of C$187 million towards regional infrastructure.

In addition, TransCanada is weighing a C$340 million pipeline to carry 1 bcf per day out of the region by late 2012 and plans are in the works to ship gas to an LNG plant on the B.C. coast for export to Asia.

Montney is also reaping the benefits of improved technology, along with reduced industry costs, putting the play on the top shelf of nonshale areas, the symposium was told.

Jeff Tonken, chief executive officer of Birchcliff, said his company has drilled 22 horizontal and 28 vertical wells in the Montney-Doig areas over the past three years, with per-well horizontal costs averaging C$5 million, including drilling, completion and tie-in, enabling the company to book 314 bcf in gas reserves.

Since moving to horizontals, Birchcliff has lowered the time taken to drill, fracture and bring a well onstream to two days from five to 15 days, Tonken said.

He said technology “gets better every day and we see that he who owns the land and takes advantage of the technology is going to get significantly better reserve recovery.”

“Our goal is to get more reserves at a cheaper cost from fewer wells and that’s what technology is doing for us,” he said.

Drilling phase in B.C.

Following blockbuster land sales in 2007 and 2008, British Columbia is now entering the drilling phase, anxious to learn what capital programs will be assembled for 2010 and beyond.

For the first nine months of 2009, operators secured 532 new well permits, down 30 percent from last year because of weak gas prices, but far less than the 44 percent decline in Alberta and 61 percent drop in Saskatchewan.

Aside from the major players, there is strong interest among juniors in exploration and evaluation, with the list including such little-known companies as Stone Mountain Resource, Kodiak Bear Energy and Storm Gas Resource, although EnCana leads the pack as operator of 90 wells in Horn River since 2001.






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