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B.C. showered with changes Neufeld sees oil, gas as way to ‘revitalize’ economy; new gas plays to gain from reforms Gary Park Petroleum News Calgary Correspondent
Troubled by the rapid depletion of the once-prized Ladyfern natural gas discovery, British Columbia has is chasing a rebound.
Energy and Mines Minister Richard Neufeld unveiled sweeping changes on May 30 to its energy royalties and regulations that are tailored to benefit the Greater Sierra field, Canada’s hottest current gas play, and the Foothills of the Canadian Rockies.
“Our goal is to develop B.C.’s oil and gas industry to revitalize the economy, create new opportunities ... and improve B.C.’s competitive position,” he said in a statement.
Neufeld said the oil and gas strategy is an “integral component” of his government’s strategy for the province’s heart lands, including the resource-rich interior and northeast.
15 percent of U.S. natural gas Northeastern British Columbia is also a vital element in Canada’s struggle to sustain production and continue meeting about 15 percent of the United States’ gas needs.
The announcement is an extension of a two-year campaign by the Liberal government of Premier Gordon Campbell to turnaround a decade of despair in British Columbia’s mining, forestry, fishing and tourism sectors.
With the petroleum industry seen as the underpinning of recovery, the sector is projected to contribute C$1.77 billion to government coffers this fiscal year, compared with C$1.44 billion in 2002-03. And that makes no allowance for income taxes from sector workers.
The major elements of the new strategy include:
• Royalty credits of up to C$10 million a year towards the construction, upgrading and maintenance of road infrastructure in support of resource exploration and development and stabilizing employment in remote communities.
• Upgrading 110 miles of a road northeast of Fort St. John to allow summer use and make exploration and development a year-round activity in a muskeg region that is inaccessible to heavy equipment.
• Lower royalties for less productive wells to promote development of marginal plays.
• Royalty credits for deep-gas exploration to advance high-cost, high-risk projects, with wells in the Foothills eligible for credits of up to C$4.1 million..
• Royalty credits for summer drilling to stretch operations beyond the usual three or four freeze-up months. Credits will be more than offset Neufeld said that turning the taps down on some royalties will be more than offset by higher returns from taxes and drilling permits.
“At the end of the day we will see an increase in revenue of about C$250 million (a year), ” he said.
The changes have been welcomed by the Canadian Association of Petroleum producers, which has lobbied for a fiscal and regulatory regime that puts British Columbia on the same footing as Alberta.
The association's president, Pierre Alvarez, said in a statement that the British Columbia government “clearly understands the economic potential of the province’s petroleum resources and the need to remain competitive in an increasingly global industry.”
He predicted the reforms will “spur long-term investment by our industry” by allowing companies to “pursue resources that would otherwise have been left untouched.”
Last year, it was calculated that profits in British Columbia averaged about 19 percent after accounting for operating costs, capital costs, royalties, prices\differentials and taxes, compared with about 24 percent in Alberta and 37.5 percent in the Lower 48. Greater Sierra front and center Front and center is Greater Sierra, which EnCana, after years of quietly assembling the pieces, is openly extolling as a big part of its future.
A combination of the government’s push to open up roads along with EnCana’s own use of wooden mats to access swampy sites will let EnCana speed up development to its projected level of 300 million cubic feet per day by 2005, or about 10 percent of its North American volumes.
EnCana chief operating officer Randy Eresman told analysts in May that the company plans 50 to 60 wells this summer (boosting the year’s tally to about 150) and hopes for a “proportionally larger summer program going forward.”
With all of the attention on Ladyfern, EnCana, using brokers, stole a march on its rivals five years ago by starting to round up nearby Greater Sierra properties before land prices hit the stratosphere.
Eresman registered his surprise by remarking “it’s almost unheard of for one company to capture this high a percentage of any play.”
Now, with analysts projecting that Ladyfern will effectively be drained by the end of 2004 after peaking a year ago at 665 million cubic feet per day, the spotlight is shifting to Greater Sierra’s discovery of 5 trillion cubic feet and Talisman Energy’s deep find a year ago at Monkman, in partnership with Anadarko Canada, National Fuel Exploration and Oiltec Resources, that could unlock 1 trillion cubic feet of recoverable reserves, plus its successes this year.
Other than proximity, however, there is not much in common with Ladyfern and Greater Sierra. Greater Sierra tight gas Ladyfern is high porosity; Greater Sierra is tight gas, which usually requires some form of stimulation to produce; Ladyfern had well production of up to 100 million cubic feet per day; average wells at Greater Sierra are restricted to about 3 million to 4 million cubic feet per day.
Along with cooperation with First Nations and regulatory authorities, EnCana has relied heavily on technology, notably horizontal and under-balanced drilling techniques, to turn what a company official said last year was “potentially 5 trillion cubic feet from nothing to a resource.”
Without those tools, EnCana has suggested the field might have been uneconomic. Now, summer drilling has moved Greater Sierra even higher on its ranking list.
One of the leaders in deep-well drilling, Talisman has shown it is ready to pay the C$12 million-C$16 million per well for the high rewards in a tricky environment.
From its six-well Monkman program this year, it has drilled and put into production two wells, both of which tested at rates of better than 20 million cubic feet per day.
Talisman’s partners in this year’s successes were Burlington Resources Canada, Dominion Exploration Partnership and Enco Resources.
The potential of the deeper play means the Monkman region “will continue to be a long-life, high value, core natural gas area for Talisman,” the company said.
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