Touted from the beginning, as hundreds of millions of dollars were being invested in land rights, as the next Bakken or a match for the Eagle Ford of Texas, the Duvernay formation of central and northern Alberta is quietly measuring up to original hype.
But the more encouraged they are by their early exploration results, the more operators are hammering home the point that the play is still in its early stages of development.
And the more interest builds, the more observers are calling for greater information-sharing and upstream cooperation, especially among junior companies.
BMO assessment upbeat
The Duvernay was the source rock that launched Canada’s petroleum industry 65 years ago and, like the Bakken, is now poised for a rebirth as a vast source of natural gas and natural gas liquids.
If any numbers were needed to reinforce optimism they have been provided by BMO Capital Markets which has done an assessment of the Duvernay shale basin, which covers 50,000 square miles in central Alberta, with an estimated 7,500 square miles within the thermally mature or “wet” gas window.
BMO estimates the liquids-rich gas window could hold as much as 750 trillion cubic feet of gas, while preliminary reports indicate 75 to 115 barrels of liquids for every 1 million cubic feet of gas.
Executives from Talisman Energy, Celtic Exploration and Trilogy Energy were among those offering some of the first results at a TD Securities conference in Calgary earlier this month.
Coinciding with the conference, a joint technical study done for the Alberta government by three organizations urged Duvernay players to co-operate wherever possible and take steps to lower development and operational costs and spur commercialization.
'One well, one location’ mindset prevails
While some larger companies have embraced a number of shared efforts, many operators continue to explore based on a “one well, one location” mindset, said the report by Mike Dawson, president of the Canadian Society for Unconventional Resources, Peter Howard, president of the Canadian Energy Research Institute, and Mark Salkeld, president of the Petroleum Services Association of Canada.
“This approach does not enable cost savings to be achieved,” the report said. “Many junior companies, who may have a limited inventory of well prospects and a limited exploration budget, rely on acquiring their service providers in small windows of opportunity when the equipment becomes available from larger projects.”
That denies those companies the chance to realize the cost savings of a multi-well program, the report said.
“We all recognize there are some significant challenges in the oil and gas sector right now, particularly in the gas sector,” Dawson said. “We see it in terms of prices and we see it in terms of companies shifting their focus away from dry gas opportunities.”
The question, he said, is what can be done to help the industry over the next three or four years, until gas prices start to recover.
He said the objective of the report is to encourage improved production rates, ultimate recoverable volumes and reduce finding and development costs.
Ziff study adds recommendation
A joint multi-client study by Ziff Energy Group and Gas Processing Management added its recommendation to lower capital and operating costs in the Duvernay and similar plays by calling for better utilization of gas processing capacity in northwestern Alberta.
The study estimated C$2.7 billion could be saved in capital investment through 2020.
Bill Armstrong, a GPM principal and study co-author, said major players have shown interest in the strategy, “but the really hard work has yet to be done by the producers and processors. It’s just hard to get the ball rolling.”
First hints of favorable results
While these options are being explored, Duvernay operators are issuing the first hints of encouraging results.
Talisman, which holds 360,000 net acres, expects to have six wells completed by year’s end, said Ron Broen, vice-president of the shale division.
“We haven’t released our results yet, but we’re very pleased with what we’re seeing in the industry and very encouraged, despite these being early days with this play,” he said.
Talisman chief executive officer John Manzoni had previously said that although evaluation work will take time, the liquids-rich content of the Duvernay could match the Eagle Ford.
However, there will be “lots of people who get all excited very quickly, but this is a long game,” he said.
“The Duvernay has the potential to be Alberta’s very own liquids-rich shale, which would be fantastic if it works. I think you’ll find through the course of 2012 as industry drills a number of wells, there’ll be some mixed results in the early stages, but nothing we see so far is discouraging.”
Celtic Exploration CEO David Wilson told the TD conference that the wet gas leg in his company’s Kaybob Duvernay leases is indicating 75-115 barrels per 1 million cubic feet of gas, with drilling potential ranging from 4 to 8 wells per section.
He said Celtic was “pretty aggressive” in drilling its early wells and, on the basis of results, decided to increase its gross land holdings to 138,000 acres.
Currently Celtic, as operator, has three production wells, with Trilogy and Yoho Resources as equal partners, is about bring a horizontal well on stream and is completing four more wells.
Wilson said that so far the liquids content has averaged about 100 barrels per 1 million cubic feet of gas.
Trilogy chief financial officer Michael Kohut, whose company has 128,000 net acres in the Duvernay, half of them in the gas/condensate window, said Trilogy has information-sharing agreements with most of the major companies drilling in the area.
“We’re trying to find the best way to drill and complete wells,” he said. “It’s an interesting play and it’s got lots of potential, we think. But it’s early days.”
Svarte says shale output could exceed 1M bpd
Sveinung Svarte, chief executive officer of Athabasca Oil Corp., said after his company’s annual meeting in May that the “next Bakken” could come from Alberta’s tight and shale oil prospects in the Duvernay, Montney, Nordegg, Swan Hills and other areas.
He said the province’s just-emerging tight and geologically-complex shale plays are just starting to be developed and could eventually surpass 1 million barrels per day, from the current 50,000 bpd.
Svarte said AOC’s drilling results in the first quarter led to the discovery of a prolific Duvernay oil pill on its Kaybob property, where a well produced about 6,100 bpd of 44-degree API oil and tested at a final rate of 650 barrels of oil equivalent per day.
Backed by those results, AOC, which holds about 2 million acres of petroleum and natural gas rights, is hopeful it will exit 2012 at the high end of its 10,000 bpd target.
Editor’s note: The Duvernay and Muskwa shales are the same formation, but named differently in different areas: the shale is called the Duvernay in central Alberta and called the Muskwa in northwest Alberta and northeast British Columbia.
