Hot on Horn River: numbers proving out

Three wells validate EOG’s belief in British Columbia play; CEO Mark Papa rates its three wells among the best in the basin

Gary Park

For Petroleum News

EOG Resources is now producing the numbers to support its enthusiasm for British Columbia’s emerging Horn River shale gas play.

Having previously rated its potential reserves at 6 trillion cubic feet, EOG disclosed Nov. 3 that three wells drilled in the area flowed at 16 million, 12 million and 9 million cubic feet per day.

Chairman and Chief Executive Officer Mark Papa described the three as “among the best completed by anybody to date in the Horn River basin.”

He said the Muskwa formation of the Ootla area just south of the Northwest Territories is estimated to hold 4 billion to 6 billion cubic feet per well and “we think those reserves-per-well estimates are probably going to be extremely conservative,”

Based on EOG’s experience in the Barnett shale of Texas and the Bakken light oil play of North Dakota, Papa said 20 to 30 wells will be required to craft the right fracture stimulation recipe.

“We’re getting these pretty darn good wells up there in Canada with just roughly our fourth or fifth wells, so we think there’s probably going to be a lot of improvement,” he said.

The volume from EOG’s largest well is triple production from an early Horn River well last year and double the size of a well reported by EnCana in October.

Gary Thomas, EOG’s senior executive vice president of operations, said the company expects to drill 13 or 14 wells in 2009, but Papa doubts significant pipeline takeaway will be available before 2011.

Papa said the price of natural gas will be a factor in EOG’s commitment to explore, given that typical Horn River wells currently cost about C$10 million each (a figure EnCana hopes to lower to C$6 million).

He said drilling and development will be curbed if the benchmark gas price is about US$7 per thousand cubic feet, but will step up the pace at US$8 or higher, when company output could grow by 14 percent. “We don’t intend to run up our debt chasing US$7 gas,” he said.

Papa questions oversupply

“The big surprise next year will be that the supply growth to the U.S. is considerably lower than probably anybody is predicting today,” he said.

Papa told analysts EOG expects the Barnett shale will add 300 million cubic feet per day when it peaks in 2009.

Separately, ARC Energy Trust said it will spend about half of its 2009 capital budget of C$585 million in the Montney area, which spills from British Columbia into Alberta, with C$140 million earmarked for the Dawson area, where an independent reserve update provided a 15 percent boost to the trust’s total reserves.

UBS analyst Grant Hofer said the new reserve numbers are expected to result in strong finding and development costs in years to come.

“The trust is now moving aggressively from building its Montney resource to exploiting it,” he said. “ARC’s Montney play has clearly evolved into a company-maker for what was already an exceptional oil and gas company.”

Hofer said the only drawback from recent developments at ARC is the need for external capital to fund an expanded budget and that won’t be helped by the current environment.

But ARC, hopeful that debt and equity markets will improve in 2009, is emphatic that the Montney play is too significant to ignore or delay.

Talisman trims further

Chief Executive Officer John Manzoni said the independent expects to spend C$1 billion this year in the Montney area and could have up to 13 rigs drilling the play in 2009 after picking up more than 20,000 acres at a high working interest.

When Talisman’s 2009 capital budget is unveiled in January, Manzoni said the Montney and the Marcellus shale play in Pennsylvania, where pilot results have been successful, will likely attract the bulk of spending, noting the company is “aggressively high-grading our capital spending plans to do only those projects with the highest returns.”