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Vol. 11, No. 1 Week of January 01, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Shell digs deep in Canada

Spends C$350M on Alberta, B.C. land in ’05, with heavy emphasis on gas prospects

Gary Park

Petroleum News Canadian Contributing Writer

Shell Canada is pointing the way to Western Canada’s gas future as it rounds up major land holdings in tight gas plays.

It has been at the forefront of recent bidding for properties in Alberta and British Columbia as the shift to resource plays gathers momentum and it joins the ranks of those unveiling huge, accelerated spending plans for 2006.

At the final auctions of 2005, Shell — which has hiked its 2006 capital budget by 60 percent to C$2.7 billion — spent C$185 million for about 110,000 acres in the two provinces, including C$86 million for 22,800 acres of oil sands leases.

But what gained the greatest attention was Shell’s continued push towards a preeminent role in Deep Basin, a tight gas play that straddles the northern Alberta-British Columbia border, further signaling the return of Canada’s second largest oil producer and refiner to the gas sector.

For C$99 million, the company picked up a 100 percent interest in seven parcels covering 66,400 acres near Hinton, in west-central Alberta, just across the border from 58,000 acres of British Columbia gas exploration lands it acquired in June for C$85 million.

Shell also acquired an interest in 20,000 acres in the northeastern British Columbia foothills that offer conventional gas exploration prospects in Triassic, Permian and other deep structures.

Mather: growing Western Canada gas production

Company President Clive Mather said Shell invested more than C$350 million in 2005 on land to support “our growth aspirations ... with these recent purchases we have more than tripled our basin-centered gas land holdings, providing us additional opportunity to grow our Western Canada gas production.”

The turning point for Shell, which had been quietly fading from Western Canada’s conventional scene, occurred in late 2004 with one of the region’s biggest finds.

The Tay River strike has been estimated at 500 billion to 800 billion cubic feet, although the sulfur content could cut the saleable gas in half.

But Mather, who has pledged to reverse the slide in the company’s gas production, said Tay River could “contribute to the future growth of our natural gas business,” applying Shell’s new technology to interpret seismic readings obtained from complex strata.

The discovery is now in production at about 50 million cubic feet per day, accounting for roughly 10 percent of Shell’s output in Canada.

Ambitious drilling program

Even before it latest land acquisitions, Shell was unveiling an ambitious drilling program.

It hiked its 2005 exploration budget for Western Canada by 30 percent to C$335 million, setting in motion an active winter schedule.

Mather said the seismic technology has opened the door to a “whole string” of possible finds, although he cautioned that the chance of further discoveries is speculative.

The emergence of tight gas plays is being underscored in the latest drilling statistics which showed the average well depth was up to 3,720 feet in November from 3,050 feet a year earlier as the number of shallower wells declined.

Total gas well completions for the first 11 months slipped to 13,250 from 14,619, reflecting a decline in shallow development wells.

Shell is one of several companies turning their attention to the deeper targets in the costly effort to replace depleting reserves.

EnCana, Talisman Energy, Anadarko Petroleum, Burlington Resources, Canadian Natural Resources, Husky Energy and Petro-Canada all have the financial means to tackle the new horizon.

But they do so against a background of some doubt by analysts, including Standard & Poor’s Ratings Services which said Dec. 19 that companies in Canada face considerable obstacles if they hope to sustain production levels.

Credit analyst Michelle Dathorne said that “while alternative natural gas may hold promise as a long-term solution for North American natural has supply, perhaps the more meaningful component of supply in the near or intermediate term lies in the development of the liquefied natural gas market.”

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