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April 2010

Vol. 15, No. 17 Week of April 25, 2010

Cardium drives Alberta land sales

Gary Park

For Petroleum News

Alberta’s upstream has suddenly gone upbeat, at least when it comes to government sales of exploration rights.

The province ended the first quarter with total revenues of C$454 million from its bimonthly auctions, compared with C$56 million for the same period of 2009, and extended that run in the first April sale, which netted almost C$113 million, compared with a sickly C$6.25 million at the same sale last year.

Even more significantly, spending to date this year has soared to an average C$567 per hectare (2.471 acres) from C$124, reaching a staggering peak of C$18,193 per hectare for a C$9.3 million license acquired at Drayton Valley, in central Alberta, by Scott Land & Lease for an unidentified buyer. Another was sold for an average C$10,312 per hectare.

Leading the way is the Pembina area of central Alberta, where the industry is re-entering areas that have been heavily drilled, but are offering a second chance.

The Pembina Cardium play, which has been under continuous development for more than 50 years and was once rated as the “world’s largest oil field” based on land area, is at the forefront. The field has yielded 1.7 billion barrels, but it believed to have 10 billion barrels of oil in place that is now accessible with the arrival of multistage horizontal drilling.

Penn West big player

At least 15 exploration and production companies have swarmed into the Cardium light, sweet oil play this year, where Penn West Energy Trust owns rights to about half of the geological formation.

Penn West Chief Executive Officer Bill Andrew believes the original oil in place “could easily be 10 billion barrels (and) a 20 to 30 percent recovery rate is a realistic prospect.”

Delphi Energy is typical of the junior companies active in the Cardium, reporting that its first horizontal well produced 985 barrels per day over a five-day period and, since being placed on production, has averaged 530 bpd of 36-40 degree API light oil and 600,000 cubic feet of gas.

Andrew credits a number of juniors for initiating the play, but believes it takes larger producers like Penn West to develop the field.

He said Penn West has the resources to run pilot projects and develop the best methods for producing from difficult reservoirs.

Once the juniors have built up their production levels most are ready to sell to larger operators, Andrew said.

Potential with new technology

He is so optimistic about the Cardium and the use of new technology that he is hopeful the long-term decline in conventional oil production from the Western Canada Sedimentary basin can be reversed, after peaking at 1.74 million bpd in 1973 and sliding under 1 million bpd in 2008, with Alberta’s output over the same period slumping from 1.43 million bpd to 505,000 bpd.

Andrew said that as technology advances, formations such as the Cardium will see higher estimates of original oil in place, noting that production so far has been concentrated within permeable sweet spots.

For the first quarter, total Canadian land sales fetched C$538 million, five times higher than a year earlier when collapsing commodity prices and equity markets forced the industry into a hasty retreat.

Other than the peak years of 2006 to 2008, the successful bidding outpaces all of the years in the past decade. The average price in the first quarter has also recovered to C$519 per hectare from C$183 in the same period of 2009.

Of the other major producing provinces, British Columbia has entered a cooling off period, raising C$43l.2 million, only C$3.5 million ahead of last year, although per hectare averages have climbed to more than C$1,000 from C$771, while Saskatchewan has surged to C$39.5 million from C$6.3 million.






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