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Providing coverage of Alaska and northern Canada's oil and gas industry
September 2006

Vol. 11, No. 37 Week of September 10, 2006

Seven shale gas plays pinpointed

New Geological Survey of Canada report narrows the field of shale formations to those meriting ‘immediate and intense’ study

Gary Park

For Petroleum News

As with coalbed methane, Canada has lagged well behind the United States in the exploitation of its massive shale gas prospects.

But the pace could be picking up, helped by a new 103-page report by the Geological Survey of Canada which helps narrow down the best formations in the Western Canada Sedimentary basin.

The report identifies the so-called Colorado Group formations as an “excellent” opportunity and “perhaps the best” because of its shallow potential shale gas intervals.

It covers most of the basin’s mature exploration/production regions “with numerous well penetrations, extensive infrastructure and local markets — and resides at shallow depths through most of its area of occurrence,” the report says.

Evaluation began with 50 geographical units

The evaluation started with 50 geographical units across Canada that were rated as potential shale gas targets, shortened the list to 16 regional-scale units with enough prospectivity to merit further study to better understand their economic potential and finally settled on seven plays which the survey says merit “immediate and intense” geological study.

The seven plays were selected because of their “excellent geological potential and additional factors of geographic location, proximity to infrastructure and/or relation to known conventional and unconventional plays.”

Study author Tony Hamblin believes the “first successful shale gas plays in Canada will emerge” from the prospects which spread from significant depths in the Foothills region of the Alberta Rockies, to modest depths in eastern Alberta and Saskatchewan and near-surface prospects in Manitoba.

The survey says active shale exploration is “driven by the powerful economic incentives of moderate exploration costs, low risk/high success rates and slow production declines over long lifespans.”

Although Canada has yet to designate any of its gas production as shale in origin, the survey says it is possible there has been “an unrecognized, but active and successful, example” of a play.

It says some production from the Milk River gas field of southeastern Alberta “bears some resemblance” to shale gas production in the United States.

Some of same concerns as other unconventional plays

The report cautions that shale gas can face some of the same concerns and opposition as other unconventional plays, such as coalbed methane, which face environmental challenges because of their drilling densities, the widespread distribution of the resource, the extensive land-use footprint and the impact on groundwater.

Those suspicions can be stirred because success in developing shale gas requires a company to assemble a “commanding land position to capture the economics of scale before knowledge of its intentions becomes public,” the report says.

It urged the industry to “engage in informative and honest dialogue with all stakeholders from the beginning,” while the onus is on governments to “create the right regulatory environment before exploration becomes too far advanced.”

Given that the major U.S. plays — Barnett, Lewis, Ohio/New Jersey and Antrim, which account for about 4 percent of total gas production in the U.S. — have different characteristics, the survey says companies must evaluate the plays separately to properly assess the economic possibilities.

Hamblin says in his conclusions that the “precise controlling factors present will require imaginative use of the known examples, combined with a healthy dose of unconventional thinking.”

Analysts call opportunity hot, say learning curve steep

Speaking at a shale gas conference in Calgary earlier this year, consultant Basim Faraj described shale gas as the “hottest opportunity in Western Canada in recent years. The presence of multiple target formations, experienced drilling operators, access to extensive infrastructure and the enormous revenue potential make shale gas the prime upcoming resource,” he said.

However, Richard Moorman, an analyst with New Orleans-based Hibernia Southcoast Capital, cautioned the conference that investors need “stamina and patience” because the exploration and production phases involve a steep learning curve.

He noted that in the Barnett Shale it is not unusual for 60 percent of a well’s initial production to be lost within the first year, although the “economics of the Barnett are stellar.”

Moorman said technologies applied to other tight gas plays can translate to the shale community, suggesting that fracture techniques used at 20,000 feet might succeed in shales at 10,000 to 15,000 feet.

Canadian industry leaders have suggested the pace of commercial development of shale gas will be tied to three factors: Whether the Mackenzie Gas Project proceeds, how fast LNG import facilities are opened in North America and the long-term price of gas.

The Canadian Society for Unconventional Gas has made a pitch for Canada to follow the U.S. lead and offer a tax credit program to speed up exploration and production of unconventional gas resources, given that development of Canadian shales for oil and gas can move ahead faster because of U.S. knowledge of the geology, resource potential and technical aspects of production.






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