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Western Canada liquids on upswing
Gary Park For Petroleum News
The leading-edge Duvernay, Montney and Cardium formations of Western Canada are expected to drive growth in the region’s liquids production, even though the Alberta oil sands remain the primary engine of growth, says Wood Mackenzie.
And after a breakeven review of more than 180 individual company assets, the research and consulting firm uncovered a “significant variation in the economics of each core area.”
But it said the results show many of the Canadian plays are capable of yielding comparable returns from key producing plays in the U.S. Lower 48.
Peter Argiris, principal analyst with Wood Mackenzie, said the firm’s production forecast is underpinned by an improving commodity price environment and rising demand for oil sands diluents.
He said an upward trajectory in volumes is expected to start in 2016 and peak in 2021, with the spotlight on the three formations.
The analysis said liquids growth will be powered largely by condensate and gas liquids from the Duvernay.
Within Wood Mackenzie’s “coverage universe,” that formation is projected to top 320,000 barrels per day in 2025 from the current 27,000 bpd, while the Montney is forecast to climb over the same period to 160,000 bpd from 86,000 bpd.
Not just Duvernay and Montney Although the Duvernay and Montney will claim the bulk of production growth, “there are a wide variety of plays and operators that are well-positioned to create value in the current price environment.”
“In addition, the variability across core areas coupled with a fragmented corporate landscape has paved the way for consolidation and additional M&A opportunities,” Wood Mackenzie said.
The report said that highly levered operators “are more likely to have a smaller, narrower liquids resource base. However, these are not necessarily low quality assets,” as demonstrated by the number of debt-burdened companies holding assets with breakeven levels below US$60 per barrel West Texas Intermediate.
Argiris noted that supply/infrastructure constraints from the lighter end of the NGL stream are “currently front of mind.”
“Propane supply is at historic levels and we have seen material price declines as a result. How this affects the remaining NGL stream (apart from diluents) from a pricing/infrastructure capacity perspective could have a negative impact on producer pricing and future activity,” he said.
Wood Mackenzie said a collection of low-debt, small- and mid-sized independent natural gas producers have gas producing assets that breakeven below US$2.50 Henry Hub prices.
“Economics for many of these assets are supported by associated liquids production, which will remain a key determinant to development considering out depressed natural gas price outlook” for Alberta’s AECO trading hub, it said.
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