FOCUS: UNCONVENTIONAL OIL & GAS: More companies investing in Duvernay liquids potential
Canada's Duvernay shale play is gaining the attention of more investors, including ExxonMobil Corp., which recently announced plans to acquire Celtic Exploration Ltd. in a move that will give ExxonMobil access to the play in west-central Alberta.
Talisman Energy Inc. describes the Duvernay as a marine source rock that provides much of the oil and gas developed in adjacent Devonian conventional fields, some of which were discovered in the 1940s. Numerous companies, including Talisman, are in various stages of trying to prove the Duvernay's commercial viability, the Calgary company said in a paper presented at GeoConvention 2012 in Calgary.
The Duvernay is about 3,000 m deep and is an interbedded quartz-shale source rock. One obstacle to unlocking the play is cost. Macquarie Equities Research released a 2011 report entitled "Do the Dew-vernay," which it called "big liquids, big costs, big payoff."
Only a few horizontal wells with fracturing stimulation have been completed. Early results have helped define unconventional dry gas, wet gas, and oil potential. Existing acreage values could change drastically as more information becomes available, analysts said.
Condensate currently supports the play's economics, WoodMackenzie Ltd. analysts noted in a recent report. Canadian condensate typically trades at a premium to West Texas Intermediate because of demand for diluent from the oil sands, WoodMac said.
Industry has drilled about 80 Duvernay wells with most wells being in the liquids-rich area called Kaybob, 150 miles northwest of Edmonton, WoodMac said in October. Early results indicated a sweet spot appears to be the Kaybob area in the northwestern part of the play.
Analysts expect drilling will accelerate south of Kaybob in Edson, Rimbey, Willesden Green, and Ferrier.
"We don't expect players to target either the oil or the dry gas windows aggressively for the time being," WoodMac said in its report entitled "Alberta's Duvernay shale: results support initial buzz."
Independents have accounted for most of the Duvernay headlines so far. One of the earliest success stories involved a joint venture of three independents: Trilogy Energy Corp., Celtic, and Yoho Resources Inc.
Their 17,280-acre joint venture had yielded some of the most publicized Duvernay results when this article was written. Many companies exploring the Duvernay have yet to disclose their results.
Bigger firms hold most acreage
Athabasca Oil Corp. (AOSC) and Encana Corp., both of Calgary, are the largest acreage holders in the Duvernay.
AOSC has drilled one Duvernay horizontal well at Kaybob and also completed Montney and Nordegg multistage fractured horizontal wells at Kaybob in the Deep basin (OGJ Online, Feb. 7, 2012).
Retesting of the Kaybob Duvernay well showed a stabilized flow of 800 boe/d (containing 650 b/d of 43° gravity oil), AOSC said.
In July, AOSC Pres. Sveinung Svarte said the retest results "confirm Athabasca's light oil strategy targeting the liquids-rich portion of the Western Canadian sedimentary basin."
During October, Encana reported it had two rigs drilling in the Duvernay with 12 wells planned for the year. The company has drilled seven wells (two vertical and five horizontal), and EnCana executives called early condensate yields "very promising."
In July, EnCana reported a well flowed at 1,200 b/d of condensate and 3.5 MMcfd of rich gas during its first 2 days on stream. Executives said they would release more Duvernay details late this year or in early 2013.
ExxonMobil Canada agreed to acquire Celtic, Calgary, in a $3.1 billion (Can.) transaction (OGJ Online, Oct. 17, 2012).
Celtic holds interests in 545,000 net acres in the Montney and 104,000 net acres in the Duvernay. ExxonMobil's acquisition includes Celtic's acreage in the Inga area of British Columbia, the Grande Cache area in Alberta, and interests in oil and gas properties in Karr, Alta.
In 2008, the Canadian government approved Shell Canada Ltd.'s acquisition of unconventional gas producer Duvernay Oil Corp. for $5.9 billion (Can.) (OGJ Online, Aug. 22, 2008).
Chevron Corp. has accumulated some 200,000 acres in the play and spudded its first Duvernay well last year (OGJ Online, Feb. 10, 2011). Conoco Inc. also has Duvernay holdings that it acquired with the purchase of Gulf Canada Resources Inc. in 2001.
Joint ventures common
During this year's first quarter, Trilogy participated in the drilling of its fourth joint venture Duvernay horizontal well at 5-11-60-20w5 with its partners Celtic and Yoho Resources.
The 5-11 well was spud Jan. 4 and encountered some drilling problems before being ultimately drilled to 4,352 m MD, which was 640 m short of the planned total depth. A 13-stage packer assembly was successfully run into the 873- m lateral section. The drilling cost $6 million, and the well has yet to be completed.
A 2005 spinout from Paramount Resources Corp., Trilogy has said the Duvernay formation is the basinal equivalent to the Lower Leduc reefs in central Alberta and is believed to be stratigraphically equivalent to the Muskwa shale that is being exploited in northeastern British Columbia.
Separately, Vermilion Energy Inc., Calgary, acquired 227 largely contiguous net sections on the Duvernay trend in the Edson area as Vermilion launched a new growth initiative in shale oil and liquids-rich gas resource opportunities in western Canada.
Much of the Duvernay position underlies the company's Cardium development area. Vermilion believes the nearly contiguous nature of its Duvernay-Cardium acreage will yield cost advantages. Vermilion also notes the plays' proximity to Vermilion's extensive pipeline and processing infrastructure.
Transerv Energy Ltd., West Perth, is exploring holdings in the Duvernay and other Canadian unconventional plays. The company also has interests in the Montney.
In the Duvernay, Transerv holds 21,744 net acres and a stake in a Duvernay joint venture with privately held Black Swan Energy Ltd., which is drilling two test wells, one vertical and one horizontal.
Black Swan plans to drill a vertical test well yet this year that will be cored and analyzed to determine the best orientation and well design for a horizontal well. The vertical test well is likely to be converted to a horizontal multistage frac well in early 2013, said analysts with Hartleys Ltd. ABN of Perth in an Aug. 27 research note.
Contango Oil & Gas Co., a Houston independent, owns a 5% stake in a Kaybob Duvernay project with Alta Energy Canada Partnership, which has drilled four vertical test wells. Alta Energy expects completion of its first horizontal well by yearend.
Plans call for Alta Energy to spud another horizontal well soon and to continue evaluative drilling and completions during 2013.
As of Oct. 19, Contango had invested $12.3 million of its $20 million commitment to Alta Energy. Contango expects an additional cash call of $500,000 for operating expenses late this year.
Paula Dittrick | Senior Staff Writer
Paula Dittrick has covered oil and gas from Houston for more than 20 years. Starting in May 2007, she developed a health, safety, and environment beat for Oil & Gas Journal. Dittrick is familiar with the industry’s financial aspects. She also monitors issues associated with carbon sequestration and renewable energy.
Dittrick joined OGJ in February 2001. Previously, she worked for Dow Jones and United Press International. She began writing about oil and gas as UPI’s West Texas bureau chief during the 1980s. She earned a Bachelor’s of Science degree in journalism from the University of Nebraska in 1974.
