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The ‘next big thing’ gets lift Chevron lands state-owned Kuwait company as Duvernay shale partner, raising hopes Alberta play can compete with Bakken, Eagle Ford Gary Park For Petroleum News
Chevron Canada has landed a deal to sell a 30 percent stake in its Duvernay shale properties in west-central Alberta for US$1.5 billion to Kuwait Foreign Petroleum Exploration’s subsidiary KUFPEC Canada.
The transaction represents an improved chance to answer one overriding question: Can the Duvernay, as some observers have suggested, match or surpass the Bakken and Eagle Ford for results.
In the process, Chevron has also opened up a logjam in the play, which has been rated as the hottest prospect in Alberta since the birth of oil sands development, but has been stalled by the inability of key participants to secure partners.
Chevron said the sale “demonstrates our focus on strategically managing our portfolio to maximize the value of our global upstream businesses and is consistent with our partnership strategy,” said Jay Johnson, senior vice president of upstream operations.
The company said the price being paid by KUFPEC includes cash as well as carrying a portion of Chevron’s share of the joint venture’s future capital costs, which can run to C$10 million-C$15 million per well.
The new partnership, assuming the deal closes in November, will conduct appraisal and development of liquids-rich shale resources on about 330,000 net acres in the Kaybob area of the Duvernay, about 160 miles northwest of Edmonton.
Chevron will retain a 70 percent interest in the joint venture and remain the operator.
Four years of work Chevron has been conducting horizontal drilling and completion work in the Duvernay over the past four years, starting with an exploration program of 13 wells that were completed with hydraulic fracturing and has recently embarked on a 32-well appraisal program consisting of eight pads with four wells per pad.
The work is intended to evaluate well production rates and reservoir performance, the results of which Chevron and other Duvernay players have been reluctant to disclose in detail, even though they have dropped some enticing hints.
Chevron Chief Executive Officer John Watson told a Calgary seminar in September that his company has two rigs at work and could ramp up to 10 rigs over the next decade.
“It’s as good an opportunity as we have in our portfolio based on what we’ve seen so far for liquids rich plays,” he said.
But, in a rare step for such a highly competitive area, seven companies have formed the Fox Creek Operators Group as a forum to “encourage a collaborative approach for the responsible development” of the natural resources.
The group is aiming to win over communities in the area, including First Nations, with its commitment to achieve year-round activity and deliver long-term value.
The participants, including Chevron, are Apache Canada, Athabasca Oil Corp., Encana, Shell Canada, Talisman Energy and Trilogy Energy.
Although most are financially capable of operating independently and despite estimates that the Duvernay could match some of the shale developments in the United States, they have been searching for partners to hedge their bets.
Partly as a result of that hunt, the Duvernay has been slower to deliver production results than the Bakken and Eagle Ford, but not because of any doubts surrounding the formation’s potential.
Large resource estimates A recent estimate by Robert Fitzmartyn, an analyst with FirstEnergy Capital, puts the resource potential at 330 trillion cubic feet of natural gas - making the Duvernay an obvious contender to supply gas for LNG exports - 0 43.3 billion barrels of condensate and gas liquids and 35.8 billion barrels of crude.
Not given to hyperbole, Encana Chief Executive Officer Doug Suttles has predicted his company’s stake could hold “billions and billions of barrels of condensate.”
Athabasca Oil, which is awash in cash after selling its final stake in Alberta’s Dover oil sands project to PetroChina, and Talisman Energy have both openly been scouring the marketplace for prospective partners, while China’s Sinopec has indicated it would welcome a participant in half of its holding.
Goldman Sachs, noting that the industry has invested about C$3 billion over the last five years locking up Duvernay land positions, suggested in a report there should be stronger indications of what the formation can yield over the next 12 to 18 months.
“If exploration is successful we believe resource/production growth has the potential to rival established U.S. shale oil plays given the Duvernay’s large footprint (of 3 million acres) and high quality operators,” the investment bank said.
However, it cautioned that the play must find ways to lower well costs and provide more definite information on the Duvernay’s ability to produce oil and liquids-rich gas.
Goldman Sachs issued a final warning: “We are not recommending any (E&P companies) at present for Duvernay exposure.”
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