MORE POTENTIAL DEVONIAN ECONOMICS OUTLINED FOR WESTERN CANADA BASIN

Ramesh R. Waghmare,
Louise Roux,
Calvin Brackman
Natural Resources Canada
Ottawa

This article presents further details on the analysis of economic potential in the Devonian system of the Western Canada sedimentary basin.

The previous study,1 published as Bulletin 452 by the Geological Survey of Canada, a sector of Natural Resources Canada, presented an analysis of the economic potential in the five cost regions of the Devonian system.

This article gives estimates for all 25 mature plays comprising the cost regions of the Devonian system. Estimates of economic potential by play are analyzed for both the full-cycle and half-cycle cases at two representative plant gate prices of natural gas: $44.13/thousand cu m ($1.25/Mcf) and $88.25/thousand cu m ($2.50/Mcf).

Before summarizing the previous study and describing the analytical extensions, it is useful to define the terminology.

TERMINOLOGY

The term supply price refers to the plant gate price of natural gas and co-products required to recover all costs including a minimum discounted cash flow rate of return on investment.

The economic potential of a play, at a given price, is the sum of resources for pools with estimated supply prices less than or equal to the given price.

Burdened economic potential measures potential under the fiscal regime existing at the time of analysis. The price-economic potential relation is defined as the supply curve or marginal cost curve.

A supply curve is said to be elastic if an x percent rise in plant gate price of natural gas leads to a greater than x percent rise in expected economic potential. If the percentage rise in expected economic potential is less than x percent, the supply curve is called inelastic. Naturally, an elastic supply curve is better news for future supply availability than an inelastic supply curve.

Supply curves can be drawn under full-cycle or half-cycle assumptions to provide estimates of economic potential at different stages of investment cycle. Full-cycle analysis includes all exploration, development, production, and overhead costs but excludes the cost of acquiring land rights. Half-cycle analysis includes exploration costs and is relevant to development investment decisions when exploration costs are already incurred. Both full-cycle and half-cycle curves have been drawn for the burdened case.

PREVIOUS WORK

Part I of GSC Bulletin 452 presented a geological play analysis and resource assessment of the Devonian system of the WCSB. Part II presented estimates of economic potential for a reference case and also described the under-lying methodology and assumptions.

The study included supply curves and estimates of economic potential for five cost regions of the WCSB. The methodology involved estimation of supply price for each individual pool using project economics.

Estimates of economic potential were given for two plant gate prices of natural gas, $44.13/thousand cu m ($1.25/Mcf) and $88.25/thousand cu m ($2.50/Mcf). The lower price represented low plant gate prices of natural gas prevailing at the time the study commenced, while the higher price was a consensus forecast of the expected long term price. Prices were expressed in 1990 Canadian dollars.

For the reference case, the study concluded that in the burdened full-cycle case, 16% of the recoverable resources in the Devonian would be economic at $44.13/thousand cu m ($1.25/Mcf) and 43% at $88-25/thousand cu m ($2.50/Mcf). The corresponding percentages for the burdened half-cycle case were 45% and 75%, respectively.

In terms of volume, economic potential in the burdened full-cycle case, including both the mature and conceptual plays, was estimated to be 8.5 tcf and 22 tcf, respectively, at the two prices. In the half-cycle case, the corresponding estimates were 24 tcf and 39 tcf, respectively.2

FURTHER ANALYSIS

GSC Bulletin 452 presented estimates of economic potential for each of the five cost regions in Alberta and British Columbia. The current study gives estimates for all the 2-5 mature plays comprising the five cost regions of the Devonian system. Such disaggregated analysis is more useful than aggregate estimates for allocating investment among plays.

Figs. 1 (37164 bytes) and 2 (44895 bytes), respectively, show elastic and inelastic supply curves under the full-cycle case. Figs. 3 (36395 bytes) and 4 44567 bytes) do so for the half-cycle case. The curves show estimated economic potential at different plant gate prices of natural gas.

Tables 1 (43486 bytes) and 2 (47842 bytes), respectively, provide estimates of economic potential at the two selected prices of $44.13/thousand cu m ($1.25/Mcf) and $88.25/thousand cu m ($2.50/Mcf). Each table gives full-cycle and half-cycle estimates of economic potential, measured in terms of volume and as a proportion of recoverable potential.

Major observations with regard to the supply curves and Tables 1 and 2 are given below.

In the full-cycle case, supply curves for six plays-Slave Point platform-Adsett, Slave Point reef complexes-Cranberry, Leduc isolated reef-Westerose, Leduc/Nisku reef complexes-Windfall, Swan Hills shelf margin-Kaybob South, and Keg River isolated reef-Yoyo, are elastic in the range of natural gas prices between $44.13/thousand cu m ($1.25/Mcf) and $88.25/thousand cu m ($2.50/Mcf). In the half-cycle case, in addition to the supply curves for these plays, the curve for Parkland is also elastic. The remaining curves are relatively inelastic over most of the price range considered.
Five of six elastic plays account for the majority of economic potential, irrespective of the assumed price or whether the full-cycle or half-cycle is considered. In all cases, five plays account for 57-67% of the economic potential in the Devonian system. They are represented in Fig. 1 (37164 bytes) for the and Fig. 3 (36395 bytes) for the half-cycle case.
In general, the larger is the volume of recoverable potential of a play, the larger is the volume of economic potential. Plays with large potential usually contain large undiscovered pools. This implies that the size of a play, measured by the volume of undiscovered resources, is an important indicator of play prospectivity. However, other factors such as exploration success rates, depth, distance to pipelines, terrain, and proportions of nonassociated/solution and sweet/sour gas also affect the prospectivity of plays. For example, recoverable potential of Kaybob South is 50% larger than Yoyo's. But Yoyo has a much higher expected exploration success rate, and the play is expected to be shallower relative to Kaybob South. As a result, Yoyo is expected to be economic in the full-cycle case even at a low price of $44.13/thousand cu in ($1.25/Mcf), while Kaybob South, though a much larger play, requires a much higher price to make it economic to explore, develop, and produce.
The importance of factors other than pool size also explains the lack of any significant correlation between the volume of economic potential and the proportion of recoverable potential that is economic.

REFERENCES

Dallaire, S.M., Waghmare, R.R., ,and Conn, R.F, Devonian gas resources of the western Canada sedimentary basin: Part II, Economic Analysis, Bull. 452, GSC, 1993.
Waghmare, R.R., Dallaire, S.M., and Conn, R.F., Western Canada's Devonian resource significant even at low gas prices, OGJ, Nov. 29, 1993, pp. 105-109.