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British Columbia fires up gas enthusiasm Single sale almost doubles Alberta’s first-half performance; prompts B.C. optimism that Horn River development could occur in 2010 Gary Park For Petroleum News
British Columbia has jolted Western Canada out of its 2009 land sales slumber, unloading 21 licenses in its scorching-hot Horn River shale gas region for C$179 million, setting the stage for full-scale development in 2010.
In the midst of a North American gas glut and a sluggish drilling year, the industry gave a ringing vote of support to the future of gas as an energy source by notching the biggest sale in any Canadian province this year.
British Columbia Energy Minister Blair Lekstrom said the successful bids were triple the combined sales in the first five months of 2009 and the ninth largest in the province’s history.
“It is a clear indication that there is strong investment interest in B.C.’s burgeoning oil and gas industry,” he said.
Lekstrom said he now hopes British Columbia, backed by royalty and infrastructure incentives designed to spur development of its unconventional shale and tight gas resources, can now demonstrate that economic recovery of the Horn River gas is economically viable.
He said B.C. now views the shale strongholds in Texas and Louisiana as tougher competition than neighboring Alberta.
“We look at all the jurisdictions involved in this (resource). Our goal is to be the most competitive jurisdiction in North America,” he declared.
The 21 parcels sold in the June sale covered 63,611 hectares (157,183 acres) at an average per-hectare price of C$2,804. The strongest competition was focused on eight drilling licenses which accounted for C$173 million at prices ranging from C$2,100 to C$11,765 per hectare, with one parcel claiming C$62.5 million.
Imperial, Exxon big bidders Not all of the successful bidders disclosed their identities, but a partnership of sister companies Imperial Oil and ExxonMobil Canada, which has already secured a foothold in the region, spent a combined C$111 million for a number of parcels covering almost 46,000 hectares, underscoring the corporate belief that Horn River could yield significant resource additions and production volumes.
Other leading producers such as EnCana, Nexen, Apache and EOG Resources are all active in the region, reporting flows from wells completed last winter in excess of 6 million cubic feet per day.
British Columbia has reached the midway point in its 2009 land sales year with total revenues at C$246 million from 163,144 hectares at an average C$1,000 per hectare, but no one in the industry or government expects the province will come anywhere close to last year’s record haul of C$2.6 billion.
In contrast, Alberta has collected a total of only C$96 million from its first-half auctions of conventional and oil sands rights.
The Canadian Association of Petroleum Producers called the latest British Columbia sale a clear sign that gas is the “fuel of the future” because of its relatively clean-burning properties and its sustainable nature.
That follows reports in the United States that new shale gas fields could meet current U.S. demand for 100 years, although much work is needed to show that the reserves match expectations that shale deposits in North America could reach 1,200 trillion cubic feet.
Time to ramp up A spokeswoman for Talisman Energy told the Financial Post that her company, although a leading player in British Columbia’s Montney gas play and Quebec’s lowlands, does not expect an early increase in Canada’s gas reserves as a result of the shale activity.
She said it will take the next few years for the plays to ramp up.
Murray King, an analyst with FirstEnergy Capital, said the technological advances needed to develop shale gas on a large scale must resolve issues such as the environmental impact of new drilling methods on water supplies.
He said the economics of shale gas will become more attractive when gas prices regain levels of US$7-$9 per thousand cubic feet over the next three years or so.
A spokesman for EnCana said the abundance of shale gas potential, backed by solid U.S. data, should give governments and the industry reason to shift away from coal-fired electricity plants and gasoline-powered motor vehicles.
He said that once the supply is established, money can be spent on infrastructure to use gas to fuel the North American economy.
Peter Tertzakian, chief energy economist at ARC Financial, said the fact that the fuel does not have to be imported into North America makes the supplies even more secure, makes the gas more affordable than oil, keeps the development spending at home — all features that could see gas build market share in electricity generation.
One of the major technological gains is the use of extended-reach horizontal wells and increased well fractures, allowing producers to extract more gas from the shale rocks.
In the space of a year, companies have doubled the number of “fracs” in a single hole, allowing EnCana to reduce its planned Horn River wells this year to 24 from 40, with some producers now estimating Horn River could be profitable with gas prices at only US$4 per million British thermal units.
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