Canadian shale holds great promise

Aside from the Bakken shale play that extends north from the United States into the Canadian province of Saskatchewan, the Horn River Basin contains the best known shale deposits in western Canada. Several other unconventional resource plays in the region also have been getting attention as well in recent months, most notably the Montney, the Duvernay, and the Liard, all of which lie in whole or in part in the provinces of Alberta or British Columbia.

Enough gas is being produced from these plays that producers are moving forward with plans to process the natural gas into liquefied natural gas (LNG) with the idea to export it to markets in Asia – Japan, China, South Korea, and Taiwan in the future.

Horn River

The Horn River Basin shale play, in a remote region of northern British Columbia, is the largest known shale gas field in Canada. A large number of mostly Canadian and American companies have been busy obtaining leases in the Horn River area, and a 36-inch pipeline is being built to transport natural gas from this remote area to a tie-in point on TransCanada's existing Alberta System.

Canada's EnCana Corp. estimates the Horn River shale could hold as much as 500 trillion cubic feet of natural gas, which places the find among North America's largest discoveries. Data from other companies operating in the region, including Apache Corp., EOG Resources, and Devon Energy, helps bolster EnCana's statement.

At 500 tcf, Horn River would rank third among the big shale finds that have revolutionized North America's natural gas industry. Only the Haynesville shale in Louisiana and Texas, with 717 tcf of original gas in place, and the Marcellus shale, centered in Pennsylvania with 1,500 tcf of gas, are larger than the Horn River discovery.

Only a fraction of the original gas in place is eventually produced from shale discoveries. Some estimates have said as much as 110 trillion cubic feet could eventually flow from Horn River while the US Department of Energy pegged recoverable resources from Haynesville at 251 tcf and 262 tcf for Marcellus.

Duvernay

The Devonian Duvernay is a liquids-rich shale play located in west-central Alberta. Celtic Exploration Ltd. sunk the first horizontal well in late 2010 in the Kaybob area, about 150 miles northwest of Edmonton. The well flowed at a rate of 2.1 MMcfd of gas with 56-degree gravity condensate. Partner Yoho Resources Inc. said the well was expected to yield 75 bbl/MMcf of total liquids, including the free condensate.

Yoho sees 80 to 105 bcf per square mile of gas in place in shale 130 to 180 feet thick with 7.1% average effective porosity and 1% to 4% total organic carbon.

Encana and Chevron both hold large positions in the Duvernay play. Encana plans to further evaluate the play, which it said has demonstrated "significant liquids potential." Chevron said it accumulated 200,000 acres in play at a reasonable entry price.

Other independents that hold Duvernay acreage include Mooncor Oil & Gas, Galleon Energy, Orleans Energy Ltd., and Delphi Energy Corp., which has a large position in the Sturgeon Lake area. Another is Trilogy, a 2005 spinout from Paramount Resources Corp. Trilogy is developing the Montney and other tight sand formations at Kaybob.

Montney

Investor interest in Canada's Montney shale play has surged due to its unconventional gas reserves, securing enormous investments as operators compete for valuable areas, according to various reports. Historically, this play was largely overlooked by operators, due to low natural gas prices and low levels of reserves in the play. However, a reduction in royalty rates by the provincial government of Alberta is expected to draw increased investment to the Montney.

More than 25 major operators currently operate in the area, and strong developmental growth in the shale has rewarded leading producers such as EnCana with high-quality natural gas.

Natural gas production in the Montney shale play began in 2006, with 46 drilling permits issued, leading to production of approximately 6.94 billion cubic feet (bcf) of natural gas. Production increased throughout 2006-2010 at an average annual growth rate (AAGR) of 61.3% to reach 80.4bcf, from a total of 159 wells. Between January and October 2011, the Montney Shale produced a record 98.3 bcf of natural gas.

Liard

John Bedingfield, vice president of worldwide exploration and new ventures for Houston-based Apache Corp., is extremely bullish on the Liard discovery in northern British Columbia. In an interview with OGFJ this past summer, he said, "We have discovered what is, in my estimation, the best known shale gas reservoir in the world. Like all North American gas prospects, Liard is challenged by today's (low) gas prices, but it provides great optionality for the future. What's critical here is the size of this resource: We have a commanding position with over 400,000 acres in the heart of the play. The gas-in-place – 210 tcf – is huge."

He added that Apache's wells in the Liard are already connected to the pipeline grid and noted, "There is also an option to connect Liard to the LNG market. This is a tremendous resource that will be important for Apache in the future."

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