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British Columbia enters CBM age Joint venture by two juniors leads host of majors into commercial coalbed production, despite widespread condemnation of resource Gary Park For Petroleum News
There’s never been any shortage of industry heavyweights poking and prodding around British Columbia’s coalbed methane prospects and no shortage of big numbers to inflate hopes of a rich future.
Equally, there has been no shortage of opposition to coalbed methane development in the province, which partly explains why British Columbia has lagged so far behind Alberta.
In the end, it has taken a relatively obscure partnership — Vancouver-based junior explorer Canada Energy Partners and Houston-based driller GeoMet — to launch commercial production of the province’s coalbed methane resource.
Over many years industry powerhouses — Shell Canada, EnCana, BP, Talisman Energy and Chevron among them — have drilled test wells and conducted experimental projects in British Columbia’s widely scattered coal-bearing formations, generating talk of at least 90 trillion cubic feet of recoverable gas, more than all of Canada’s currently estimated remaining conventional gas resources and the equivalent of 50 years’ worth of conventional production in the province.
But those prospects have collided with stiff opposition from environmentalists, landowners, municipal governments, aboriginal communities and the Montana state government.
Resistance ratchets up The resistance ratcheted up three months ago when the Union of British Columbia Municipalities unanimously passed a resolution demanding that Premier Gordon Campbell halt Shell Canada’s coalbed methane drilling in the Klappan deposit of northwestern British Columbia, where First Nations staged a blockade of drilling equipment.
At the same time, environmental groups said they were preparing to petition the provincial government for a 10-year moratorium on all coalbed methane development.
“We’ve got rednecks, commercial fishermen, sport fishermen, First Nations, municipal leaders, you name it — a broad spectrum of people who don’t find this (development) acceptable,” said Doug Donaldson, mayor of Hazelton, B.C., and a supporter of the resolution. “I don’t think the provincial government can ignore this any longer.”
A poll taken earlier in 2008 found that 70 percent of northwestern B.C. residents opposed Shell Canada’s work in an area that flows into three major rivers — Skeena, Nass and Stikine, a major confluence of fish and wildlife.
The Alberta-based Pembina Institute, an environmental think-tank, also released a study in spring 2008 that said commercial coalbed methane development in the headwaters area would be an “irresponsible experiment” which could “lead to increased runoff, increased erosion and increased sediment loans in streams (which) would affect overall salmon health … and could damage spawning grounds.”
The study — done by GW Solutions, a Vancouver Island-based consulting firm — calculated that if 1,000 wells were drilled in Shell Canada’s lease of more than 1 million acres then more than 4 square miles of land would be cleared for well pads, roads and pipelines.
It said there were “key information gaps” relating to geology, ecology and hydrology in the area and more research was needed to determine the full extent of the environmental risk.
The government responded in December by imposing a two-year freeze on Shell Canada’s drilling program.
Companies press ahead Despite that setback for the northwestern region, Canada Energy Partners and GeoMet (which is operator and holds a 50 percent working interest through its wholly owned subsidiary Hudson’s Hope Gas) have pressed ahead in northeastern B.C., home to a well-established thriving gas industry.
They said gas sales have started from eight wells on their 51,000-acre property in the Peace River coalbed methane project of northeastern B.C.
Canada Energy Partners reported that four core holes and 12 production wells have been drilled so far, targeting an average coal thickness of 52 feet and an average gas content of 400 cubic feet per ton.
To date, C$45 million has been invested by Canada Energy Partners and its partners in acquiring lands, exploration and development.
Neufeld sees benefits B.C. Energy Minister Richard Neufeld, soon to leave the provincial government for a seat in the Canadian Senate, said in a statement that “unconventional gas development plays an important role in British Columbia’s future energy security. Investment in coalbed gas development and the realization of gas royalties and taxes from coalbed gas production and sales will help fuel the province’s economy,” he said.
In further bolstering the outlook for the resource, while making a concession to the concerns raised, he said his department “looks forward to continuing to work with industry to allow the sector to succeed, while balancing economic and social priorities and protecting our environment and quality of life.”
Neufeld told the Vancouver Sun he never thought it would take so long to bring his province’s coalbed methane into the commercial stream.
“It will be a little bit slower than what I had hoped for and maybe, in retrospect, that’s not a bad thing. I think you do have to let people get accustomed to it and now that we have one area that’s producing coalbed gas into a sales line, that’s good news we can talk about in the rest of the province.”
Hudson’s Hope Mayor Karen Anderson offered enthusiastic backing for the GeoMet subsidiary — which has been “really forthright with us” — and the working relationship that has been built up, in contrast to “some horror stories” from coalbed methane development in the United States.
Familiarity helps Canada Energy Partners President and Chief Executive Officer Ben Jones agreed there has been “real resistance” to coalbed methane throughout British Columbia.
“Our area is about the only one that has been sailing along … with bumps, some stormy weather, but it has continued to sail,” he told the Vancouver Sun.
He said residents in northeastern B.C. are more familiar with oil and gas operations than those elsewhere in B.C., which has helped keep their project on track.
A native of Baton Rouge, La., Jones acquired his first coalbed methane lease in B.C. in 2001, at the same time the government was enthusiastically touting the resource’s potential, by paying less than C$50 an acre in an area where recent bids have multiplied that payout by about 100-fold and companies such as Talisman are talking about investments of C$7.5 billion over the next decade.
Talisman said it plans to develop 38,400 acres, with a piloting schedule that includes two rigs in the current quarter and three rigs in the third and fourth quarters to complete four horizontal and three vertical wells. The facility could be on-stream by November.
Canada Energy Partners said in a recent news release its Peace River project is immediately south of Talisman’s project, where Talisman said C$300 million was spent acquiring leases and where it drilled several vertical wells, one of which tested at 4 million cubic feet per day.
Jones drew a sharp distinction between the benefits of conventional gas and coalbed methane development, arguing that the best production from a conventional well occurs on the first day, after which “everything is downhill … whereas in coalbed methane it’s exactly the opposite.”
But he acknowledged it may take several years for Canada Energy Partners to recoup its “sunk costs,” although the company could enjoy a positive cash flow based on its lease-operating costs this year.”
Canada Energy Partners Chairman John Proust said his company secured financing before the financial crisis and has C$16 million on hand to carry it well into 2010.
GeoMet Chief Executive Officer Darby Sere said his company expects to build its gas sales from the Peace River project for many years.
Eight wells first phase The current eight wells onstream represent the first phase of a project with 315 potential well locations (based on 160- acre spacing). Canada Energy Partners expects to release an updated independent reserve report in February.
A 2009 development program will be finalized by the partners in the current quarter and a multiwell production drilling program should start in July.
The role of coalbed methane in Canada’s gas future was underscored by the National Energy Board in November when it said overall gas production in Western Canada could drop by 5.9 percent over a three-year period, while coalbed methane volumes could rise by 200 million cubic feet per day.
The British Columbia government is eager to become part of that equation, changing legislation last year to open up interior basins, where the terrain is rugged and infrastructure is almost nonexistent.
The amendments are designed to “encourage and accelerate” exploration for conventional and unconventional oil and gas in the untapped basins in the Nechako area, which has been hard hit economically by a mountain pine beetle infestation.
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