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New life in aging basin Shell Canada, Talisman gas discoveries give hope for Western Canada Sedimentary basin, but pressure on big explorers to drill more wildcats Gary Park Petroleum News Calgary Correspondent
Canada exited 2004 with word of two of the biggest onshore natural gas finds on record.
At a time when all the talk was of fading prospects for the Western Canada Sedimentary basin and industry observers were bemoaning that lost art of wildcatting, the discoveries by Shell Canada and Talisman Energy were greeted enthusiastically.
But even more important than the size of the new plays was where and how they were achieved.
Shell made its breakthrough under a limestone shelf in the eastern foothills of the Canadian Rockies, raising hopes for others whose pockets are deep enough to absorb costs of up to C$10 million a well.
Just a month earlier, almost unheralded, Talisman notched an equally significant success in the Monkman Pass area of northeastern British Columbia.
Shell’s Tay River strike in west-central Alberta is estimated to contain 500-800 billion cubic feet, although the sulfur content could shrink the saleable gas to 360-400 billion cubic feet — still enough to match almost two year’s of the company current production.
Clive Mather, Shell Canada’s president and chief executive officer, could barely hide his delight, given the company’s steady slide over the years from the top rung on Canada’s gas production list.
He said the Foothills exploration program, designed to arrest that decline, could actually “take us beyond that objective and contribute to the future growth of our natural gas business.”
Talisman calculated its discovery at more than 200 billion cubic feet of gas in place, with the potential for more hits that could raise the cumulative total to 2 trillion cubic feet.
The Monkman well has started producing at 40 million cubic feet per day and has the capability to exceed 75 million cubic feet per day — enough for Talisman to pay off the C$16 million cost of the well within about three months, according to Chris Theal of Tristone Capital.
Talisman Chief Executive Officer Jim Buckee believes there is clear potential for many finds on the same scale in an area that could hold 2 tcf or more.
The independent, which is also employing gains in 3-D seismic, expects to spend up to C$60 million in 2005 on another four wells and has identified 30 potential drilling targets at depths of about 13,100 feet with potential of 35 billion cubic feet per well or greater.
Straddling the northern foothills across the British Columbia-Alberta border, EnCana could overshadow both of its rivals in the Cutbank Ridge play, where it has posted 33 successes from 34 wells that were drilled to only about half the depth of the Shell and Talisman wells. It plans to drill up to 1,800 wells and hopes to recover 10 tcf.
Foothills’ production entering 2004 was dominated on the eastern side by Shell at 554 million cubic feet per day and on the western side by Talisman at 181 million cubic feet per day.
Although the region is a “big boys’ game at a time when not many big boys are exploring,” the successes by Shell and Talisman could ease a “creeping feeling” that the Western Canadian Sedimentary basin is in irreversible decline, said Wilf Gobert, vice chairman of Calgary-based investment dealer Peters & Co. Shell drilled a horizontal hole Although unable to disclose competitive details about Shell’s new seismic processing techniques, spokesman Jan Rowley gave some insight into the high-tech methods used.
She told Petroleum News that the horizontal hole was drilled to a total depth of 16,800 feet using powerful computer programs to help interpret the seismic readings obtained from complex strata. Rowley said the same technology will be applied to drill a follow-up well sometime in 2005 to determine if the find is part of a broader regional play.
Buckee said the shortage in Canada of “truly undervalued assets or companies” is forcing E&P companies to return to exploration basics.
Others embarking on high-risk challenges include Anadarko Petroleum, Burlington Resources, Canadian Natural Resources, Devon Energy, Husky Energy and Petro-Canada, which all have the financial means to test their belief that technology can unlock more of the Western Canadian Sedimentary basin’s potential.
Burlington Chief Financial Officer Steven Shapiro told analysts last year that project economics are “very robust” in Canada, where Burlington’s Canadian division has more than 2 tcf of drilling inventory and plans to build momentum in 2005 and 2006.
Those companies are vital players in opening up 221 tcf of undiscovered gas, excluding coalbed methane, that the Geological Survey of Canada estimates is locked in the Western Canadian Sedimentary basin — more than four times the current market gas reserves the Canadian Association of Petroleum Producers has identified for all of Canada — although about 95 tcf is associated with “conceptual plays” that are beyond current drilling technologies. Call for revival of exploration Of the more than 400,000 wells drilled in the sedimentary basin in the past decade, less than one third were listed as exploratory and an even smaller fraction were high-risk, according to analysts Steve Hager at Canadian Discovery and Roger Smith at Suncor Energy.
Because high-risk, high-reserve opportunities have been neglected for years much of the sedimentary basin is underdeveloped, Smith said, while adding that further work will inevitably see undiscovered resources grow beyond previous estimates.
He said the reluctance to tackle higher-risk exploration stems from the “quarter-by-quarter” mentality of shareholders that has seen company leaders become more risk-averse and transfer their emphasis to short-term results.
The challenge for E&P companies in the Western Canadian Sedimentary basin is a revival of exploration, speakers told a Conference Board of Canada forum in December, given that only 25 percent of last year’s wells were designated as wildcat and few were in the high-risk category.
Glenn Gradeen, president of Rosetta Exploration, said there is an “impending and very real crisis” between the rising demand for hydrocarbons and the shrinking output.
He said that requires a shift from the “just-in-time” supply of gas that has emerged over the last 20 years in Western Canada and the less predictable focus on the creation of genuine new wealth.
Failure to return to “serious exploration” will lead to a “rocky ride over the next 20 years,” Gradeen said.
“Canada has a huge remaining hydrocarbon potential, a proven, but somewhat mature basin … what we seem to lack is the belief that there is more supply to be had,” he said.
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