Friday, February 26, 2010

Alberta Benefits From Duvernay Shale Gas Play

Alberta, Canada is benefiting greatly from a newly developing Shale Gas Play centered around a geological rock formation called the "Duvernay". Some very serious money is being spent by some big players in acquiring land leases from the government of Alberta. This will benefit everyone in Canada and adjacent American states that use Canadian gas.

Alberta shale gas play creates a buzz

Duvernay resource set to fuel land sales worth hundreds of millions

Alberta's two drilling rights auctions in March are expected to bring in hundreds of millions of dollars, thanks to interest in a long-known shale gas play called Duvernay that is being unlocked by some new technology.

Chris Theal, global head of oil and gas research for Macquarie Securities, said interest in the play, which is southeast of Grande Prairie in northwestern Alberta, was largely responsible for the surprising $384-million Dec. 16 provincial land sale.

That single sale brought in more money for the Alberta treasury than the $347 million raised to that point in 2009 and was the highest sale of non-oilsands rights since December 2006.

The sales next month will be even more lucrative for the government and move the boundaries for the play farther north into the Peace River Arch, Theal told a gas conference this week.

"There are 2,100 sections of land posted in those two land sales," said Theal, noting 1,122 sections in the first sale and 748 in the second.

"I think the March 10 land sale is going to be in the neighbourhood of $800 million or $900 million. ... Technology that is responsible for what we know in northeastern B.C. could open up another resource play here in the western Canadian basin."

To put it in perspective, the Alberta government is budgeting just $650 million from land sales for all of the 2010-11 fiscal year. Its biggest annual non-oilsands land sale tally was $1.8 billion in 2005.

It's not known who bought the land in December because most companies buy through agent companies. However, Theal said the play is deep, and expensive drilling will require deep-pocketed companies such as EnCana, Talisman Energy and Canadian Natural Resources.

It is expected the Duvernay will be tapped by horizontal wells with multistage fracture stimulation, although no such wells have yet been drilled.

The Duvernay play provided the name for the company called Duvernay Oil Corp., a big player in the Horn River that was sold to Shell Canada for $6 billion in 2008.

Alberta posted its largest February sale in 14 years last month, raising $106 million. Theal agreed with other observers that the companies that bought the land were targeting the much shallower Cardium tight oil play.

Mike Dawson, president of the Canadian Society for Unconventional Gas, said at the same conference that Alberta has not invested as much effort in unconventional gas as other regions.

He added that the deep Duvernay play covers twice as much area as B.C.'s much-touted Horn River Basin, and Alberta also has the little-explored deep Colorado shale plays to explore.

"We have a sleeping giant in shale gas which really is in the very early stages of exploration, with a minimal amount coming from Alberta," he said.

In a later interview, he added: "The companies that are sitting there with deep pockets are saying we want to be early movers even if it takes five years to develop it because if we don't have the land, we can't develop the resource."

He considers the Montney formation in northeastern Alberta to be tight sand gas, not shale.

Both Theal and Dawson said they expect the oil and gas industry to get a shot in the arm from the province's upcoming competitiveness review.

"I think the Alberta government finally gets it," Dawson said.

Both said the government should recognize that tight gas and shale gas plays have huge upfront costs by allowing them a royalty holiday until the wells are paid for.

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