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Alberta, British Columbia turn attention to coalbed methane
Gary Park
Interest in the potential of coalbed methane is stirring in British Columbia and Alberta, where the governments are stepping up plans to tap an estimated 650 trillion cubic feet of reserves.
Representatives of 110 companies attended the third annual Coalbed Methane Conference in Calgary on Oct. 12, including an array of industry heavyweights such as Conoco Canada Ltd. (formerly Gulf Canada Resources Ltd.), Anadarko Canada Corp., Devon Energy Corp., PanCanadian Energy Ltd., Alberta Energy Co. Ltd. and Suncor Energy Inc.
The strongest message they got was from British Columbia Energy Minister Richard Neufeld, who said his government is pledged to strip away excess regulations and accelerate the approval and permitting process for companies interested in exploring for and developing coalbed methane.
With several companies embarking on coalbed methane pilots in British Columbia, the government of Premier Gordon Campbell is making development of its coalbed methane resource, estimated at up to 250 trillion cubic feet, a matter of urgency.
“We’re developing a royalty regime that makes sense for this industry,” Neufeld said. “In this new model, we’ll take into account the higher initial costs of putting CBM projects on stream.”
Alberta more cautious Alberta Energy Minister Murray Smith reflected his government’s more cautious approach to coalbed methane, while noting that energy is one of the top priorities of the Bush administration, given renewed concerns over security of supply from the Middle East.
“Energy in all its forms has returned to the public consciousness as a crucial underpinning of North America’s economic well-being,” said Smith. “Coalbed methane is No. 1 on the hit parade (of innovative ideas to develop unconventional resources).”
Like British Columbia, he said, Alberta has been actively consulting with the industry about the future of developing its coalbed methane reserves, placed at about 400 trillion cubic feet, which is far greater than estimates of Alberta’s conventional gas resources.
Smith said the key to successful coalbed methane development is the future North American demand for gas.
Helping meet U.S. energy needs is a vital consideration for Alberta, which already supplies 16 percent of all the gas consumed in the United States.
He said the fact that the United States already draws about 7 percent of its gas from coalbed methane “tells me we’re on to something. As we look forward to coalbed methane and other sources of energy ... the opportunities are truly colossal.”
Royalty regime a concern But the Alberta Department of Energy also indicates it will move carefully in setting up a royalty regime for coalbed methane. “We want to know if the industry can make a normal profit from the development of the resource and whether there is still money that can be captured for royalty purposes,” said a spokesman.
He said Alberta acknowledges the high cost associated with developing a new resource and “may be willing to adjust the royalty structure to account for that.”
The spokesman said that if changes are needed to the current fiscal regime for conventional gas to lower the costs and promote early development of coalbed methane “it may be worth the investment.”
Neufeld said his department is still finalizing a royalty regime that takes into account issues raised by the industry, including water disposal, blow-out prevention, lease size, well spacing and land-tenure provisions.
He said four separate coalbed methane projects are proceeding in northeastern British Columbia, while the Alberta Energy Co. has started a 21-well program in southeastern British Columbia, where in-place gas is estimated at 4.2 to 21 trillion cubic feet.
As well, the government has issued calls for bids on Vancouver Island and the Telkwa coal field in the province’s north-central interior. Further calls for land nominations are expected in southern regions.
“We want to get the word out that British Columbia is open for business and we want any company interested in CBM or any kind of natural resource extraction to come and invest their money,” Neufeld said.
Alberta-U.S. partnerships In Alberta, producers are making tentative steps toward developing partnerships with U.S. companies that have experience with coalbed methane plays in Wyoming, Colorado and New Mexico.
PanCanadian Energy has signed a joint venture with MGV Energy Inc., a subsidiary of Forth Worth, Texas-based Quicksilver Inc., which produces coalbed methane in Michigan. The deal, with an initial budget of C$30 million, calls for development of prospects on PanCanadian’s Palliser properties covering 1 million acres in south-central Alberta.
The partnership is proceeding this fall with a series of pilot wells, following up exploration wells drilled earlier this year, and is upbeat about its chances of launching Canada’s first commercial coalbed methane play.
Quicksilver President and Chief Executive Officer Glenn Darden said decisions should be made late this year or early in 2002 once the commercial prospects have been quantified “What we see so far is very encouraging,” he said.
As for the economics, Darden said gas prices in the range of $2 to $3 per thousand cubic feet “would work very well indeed.”
As part of a bid to expand its knowledge base, Suncor has signed a letter of intent with Rocky Mountain Gas Inc., a subsidiary of U.S. Energy Corp., to acquire interests in coalbed methane prospective properties in Montana.
Ken Sinclair, chairman of the Canadian Coalbed Methane Forum, representing 37 resource companies and government agencies, said the chances of commercial production hinge on engineering, interpretation of the data, the price of gas and the ability of companies — especially experienced U.S. companies — to build land positions in Canada.
The problem for U.S. producers “is that there are no big parcels of land for them to buy, so they’ve got to farm in or start a joint venture,” he said.
But he said the Canadian companies are not unhappy with that situation “because they’ve got very limited technical expertise” and welcome the know-how that American companies can bring north of the border.
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