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Rush to exploit Ladyfern gas find results in “value destruction”
Gary Park, PNA Canadian correspondent
Over-heated competition is being blamed for turning the Ladyfern natural gas field in British Columbia from Canada’s most prolific onshore discovery in 15 years into a footnote in history in less than three years.
Just last spring, Lehman Brothers said the field had single-handedly raised Canada’s gas production by 2 percent in a year.
At its peak, Ladyfern was pumping almost 700 million cubic feet per day, or 12 percent of British Columbia’s total gas flow.
Now a dispute among the key players over how to develop Ladyfern coupled with an influx of water into two wells seems likely to see the field fade into oblivion by late in 2003.
From the outset, Murphy Oil Co., which made the initial find in January 2000, and a number of analysts warned that the rush to exploit Ladyfern was destined to result in “value destruction.”
Murphy blames intense competition Murphy and its partner Apache Corp., with a combined 48 percent interest, tried to strike a deal with the other key players — Canadian Natural Resources Ltd. 30 percent and EnCana Corp. 22 percent — to restrain the rate of production, prolong the field’s life span and boost its profit margin.
Murphy President Harvey Doerr said that in such an intensely competitive environment — where hundreds of millions of dollars were being poured into land acquisitions, seismic data and infrastructure — the field became overcapitalized and producers denied themselves the chance for handsome profits.
“We were never able to fill the facilities that we built, because by the time they were finished the decline had already set in,” he told the Financial Post. “It’s not a model of how you would develop something.”
If the producers had shown greater restraint, they could have developed Ladyfern for “substantially less money and (it) would have been much more profitable for everybody involved.”
Instead, gas flows are expected to fall below 100 million cubic feet per day next year.
Decline sooner than expected Canadian Natural chairman Allan Markin told a conference call Nov. 6 that production “started its steep decline” in the third quarter, far sooner than expected.
“We always expected 70 percent production declines, but were unsure when they would commence,” he said.
Randy Eresman, EnCana’s president of onshore operations, agreed the Ladyfern wells “are definitely on decline,” with his company’s share slumping to 70 million cubic feet per day from 170 million a year ago.
But EnCana has given no indication of unhappiness with its returns from Ladyfern.
Steve Laut, Canadian Natural’s vice-president of operations, noting that the pool was “very complex and difficult to predict in size and behavior,” said the problems have been compounded by water hitting the wells sooner than anticipated.
Doerr and Markin have said the chances of finding another Ladyfern in the same area are remote, although Doerr is confident more gas will be discovered and, if it is, he hopes the lessons of Ladyfern will see future infrastructure amortized over a longer period.
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