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Canada on verge of first coalbed methane production EnCana-Quicksilver joint venture launch development drilling of Alberta block which has potential 9 trillion cubic feet; others invest C$100 million in CBM this year Gary Park PNA Canadian Correspondent
The final steps are being taken towards Canada’s first commercial coalbed methane development, opening the door to a possible multi-trillion-cubic-foot resource.
A joint venture by Calgary-based EnCana Corp. and Fort Worth, Texas-based Quicksilver Resources Inc. is launching development drilling of its West Palliser block in southern Alberta — the decisive move to commercialize after delivering gas into sales pipelines on an extended test basis since January.
EnCana and MGV Energy Inc., Quicksilver’s Canadian subsidiary, expect three rigs on the block will drill and complete about 150 exploration and pilot wells by the end of 2002.
Production is expected to range from 30,000 to 250,000 cubic feet per day, tapping a potential resource of 9 trillion cubic feet based on an analysis of core samples.
Quicksilver anticipates booking CBM reserves MGV chairman and chief executive officer Mike Gatens said Oct 17 the results of testing in the exploration and pilot phases points to the “first coalbed methane commercial development in Canadian history.
“This project will be very profitable for Quicksilver and is a major step for coalbed methane production in Alberta.”
Quicksilver anticipates booking CBM reserves from the development program in 2002, with the joint venture expecting proved reserves of about 1 to 2 billion cubic feet per square miles in a 340-square-mile lease. EnCana has rated the Palliser block as an ideal location for CBM extraction because of the contiguous nature of the free land and its associated mineral ownership rights and the presence of an existing gas infrastructure.
As well, the geology results in low water production rates, which help the joint venture to bring CBM production to market relatively quickly.
Drilling and completion activities are continuing on another CBM project involving EnCana lands outside the Palliser block and NCE Petrofund Corp. properties.
Three wells were recently completed on the NCE lands and are being tested.
Drilling this year in central Alberta Quicksilver is also established a new joint venture to explore for CBM on Murphy Canada Exploration Co. lands in central Alberta, where drilling is scheduled to start this year.
The Texas company is a pacesetter in the development and production of unconventional gas reserves such as CBM, shale gas and tight sands gas, bringing its important expertise to Canada where CBM has trailed far behind the Rocky Mountain region of the United States.
EnCana is also evaluating CBM prospects in central Alberta, southeast and northeast British Columbia and Nova Scotia.
Of those ventures, the most advanced is in the Elk Valley coal field of southeast British Columbia, where EnCana expected to make a decision before the end of 2002 on whether to proceed with an extended pilot project or a commercial development.
In total, an estimated C$100 million is being invested this year on CBM development, with other players including Nexen Inc., Talisman Energy Inc., Penn West Petroleum Ltd., Devon Energy Corp., Burlington Resources Inc. and ConocoPhillips.
CBM may be competitive In a statement two months ago, Pierre Alvarez, president of the Canadian Association of Petroleum Producers, said CBM is “now at the point where it may well be able to compete with some of the other opportunities in Canada. The innovation side of it is very exciting.”
Although CBM now accounts for about 7 percent of U.S. gas supplies, it has until now been considered too costly to develop in Canada.
But Alvarez said stronger gas prices and advances in technology have improved the economics.
Brian Prokop, an analyst with Calgary-based investment dealer Peters & Co., said the move from pilot phase to commercial development is important in clearing the way for future projects.
Because of relatively high finding and operating costs, CBM requires gas prices of about US$3 per thousand cubic feet, but if an operator can drill 1,000 to 2,000 wells a “whole new resource” can be opened up, Prokop said.
Size of resource a matter of dispute Given that Canada is the world’s 12th largest coal producer, it has the ingredients to become a large-scale CBM producer.
But the actual size of the resource is a matter of some dispute, with the Canadian Gas Potential Committee noting last year that a “high level of uncertainty” blurs attempts to calculate how much gas is trapped in Canadian coal seams, without even hazarding a guess at how much might be recoverable.
It rates Alberta’s deposits as having “medium” odds of holding 115 to 352 trillion cubic feet. Elsewhere the reliability factor ran in range of low to very low.
The committee said that although the total maximum resource of 352 trillion cubic feet is “very large, only 29 percent of the resource is expected in coals holding more than 3 billion cubic feet per square mile.”
Taking a cautious line, the committee said CBM is “likely to provide marketable gas to the Canadian supply in the near term — 10 to 15 years — providing current pilot production studies are successful.”
A report issued earlier this year by FirstEnergy Capital Corp. said that if estimates of 19.5 trillion cubic feet of recoverable CBM in Canada are close to accurate, the resource “will be a major industry in Canada.”
It said that the first commercial production will be a major milestone as CBM “will go from science project to a bottom line contributor.”
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