The Montney formation, sprawling over 50,000 square miles of northeastern British Columbia and northwestern Alberta, has been rated as one of the world’s largest natural gas resources.
The Lower Triassic play which has been targeted by conventional oil and gas techniques since the 1950s had to wait until 2005 to be developed when advances in horizontal drilling and multi-stage hydraulic fracturing made it possible to produce the resource.
The results have been captured in a study that combined the findings of Canada’s National Energy Board, British Columbia’s Oil and Gas Commission and its Ministry of Natural Gas Development and the Alberta Energy Regulator.
Their work has estimated the thick and geographically extensive siltstones of the Montney — ranging in depth from 330 feet to almost 1,000 feet — hold a “staggering” 3,000 trillion cubic feet of gas, of which 449 tcf is thought to be marketable, plus 14.5 billion barrels of natural gas liquids and 1.13 billion barrels of oil, with most of the oil confined to Alberta.
Play considered economic
The report said the Montney is “already considered one of Canada’s most economic gas plays,” with 2012 production averaging 1.7 billion cubic feet per day, or about 12 percent of Canada’s total marketable output, which represents petroleum that is recovered and ready to be used by consumers.
The Montney estimate has more than doubled the ultimate potential of the Western Canada Sedimentary basin to 821 tcf, of which 632 tcf remains after cumulative production to the end of 2012.
“The depth of the formation increases from northeast to southwest, generally along with increasing reservoir pressures and decreasing NGL and oil content. Thus, reservoir characteristics vary widely across the formation,” it said.
Gaetan Caron, chair and CEO of the NEB, said that “at current consumption rates the Montney gas resource would meet Canadian needs for 145 years.”
“The report clearly shows that Canadian energy markets will be well supplied with natural gas far into the future,” he said.
And the study emphasizes that more is likely in store as additional unconventional potential is found in unassessed shales, such as the Liard basin of British Columbia and Duvernay formation of Alberta.
Oil production from the Montney, still in its initial stages of development, flowed at an average 25,845 barrels per day last year, while natural gas liquids volumes are described as “highly uncertain, mostly because the in-place volumes (like those of oil) are also largely found in shallower areas.”
The report was released Nov. 7, just two days after Encana Chief Executive Officer Doug Suttles described the Montney as “unbelievable in scale,” representing 25 years of drilling inventory for his company and the potential to yield 2 billion cubic feet per day of gas and 50,000 bpd of oil.
It has been earmarked by Encana for up to US$800 million of joint-venture spending in 2014.
By coincidence, the report was followed on Nov. 8 by an announcement that Talisman Energy has a C$1.5 billion deal to sell 127,000 acres, or about three quarters of its Montney holding, to Malaysian-controlled Progress Energy Canada, while Enerplus said it has fetched C$130 million from the sale to an unidentified buyer of 33,300 acres.
LNG export hopes
The gas riches identified in the formation were seized on by Natural Gas Development Minister Rich Coleman — the lead cabinet minister in the provincial government’s LNG sector — as proof that the province can be the “supply hub” for LNG exports from Canada.
He said the study supports his government’s conviction that “more than ever before British Columbia can supply energy needs at home and abroad.”
Michael Dunn, an analyst with FirstEnergy Capital, said that given the number of assets on the block in Western Canada sellers may have success in finding joint-venture partners, especially in regions such as the highly rated Montney and Duvernay.
The all-cash transaction by Talisman involves prospects in the Farrell Creek and Cypress areas and is a breakthrough in what CEO Hal Kvisle said Nov. 6 is a “challenging and slow moving” market that was holding up company efforts to dispose of C$3 billion of assets in Western Canada, Norway and Colombia.
Kvisle said in a statement that the Progress deal, which includes 65,000 thousand cubic feet per day of Farrell Creek production and which was producing 11,000 barrels of oil equivalent per day by Oct. 1, is in line with other recent Montney transaction and enables Talisman to focus more on the Edson-Duvernay producing and development assets in northwestern and central Alberta.
Talisman retaining some assets
Talisman said it will retain its Groundbirch and Saturn assets as part of its 48,000 net acres of prospective Montney land.
Progress, a unit of Malaysia’s state-owned Petronas, is operator of the proposed Pacific NorthWest LNG project, which has applied for a National Energy Board license to export an initial 12 million metric tons a year of LNG, starting in late 2018.
Progress CEO Michael Culbert said the assets strengthen his company’s position in the North Montney which he said is “key to our go-forward plans” and contained sufficient resources to provide the needed 2 billion cubic feet per day of gas for Pacific NorthWest.
He said the quality of the Montney, and especially the North Montney, “have associated liquids as well as sweet gas that we feel stands up competitively with any other play in North America.”
In addition, Progress will acquire Talisman’s partnership interest in the Greater Cypress area where it has joint operations with Talisman and other operators to make it operator and the largest landholder.
Enerplus CEO Ian Dundas said his company has invested C$50 million in its Montney properties, resulting in a return of about C$3,900 per acre from the transaction.
He told a conference call the liquids content of the assets was lower than Enerplus had been targeting, but suggested the area offers “significant scope and scale” as a dry gas producer.
