Hail the humble resource play

January 13th, 2009
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My Open Range column from the January 2009 issue of Alberta Venture magazine:

How a sunset strategy ended up reviving North America’s natural gas industry

I remember when the newly minted EnCana Corporation began bleeding geologists. Then-CEO Gwyn Morgan explained this odd phenomenon with a fairly convincing, more-in-sorrow-than-anger delivery, but his second-in-command, Randy Eresman, appeared almost gleeful that Canada’s largest energy company was becoming an engineering outfit. The driver was something called the “resource play.” No longer would EnCana chase ever-scarcer conventional natural gas targets, which are deeply buried, hard to find and, yes, require geologists for the intellectual heavy lifting. Instead, the company would drill massive numbers of low-rate wells into shallow and easily found formations extending over vast land areas.

The resource play was sold as technically straightforward and almost infinitely repeatable, creating predictable economics. A manufacturing approach to a notoriously fickle business. It sounded logical. Also boring, depressing and innately defeatist. It was about managing the decline of North America’s aging supply basins, particularly Western Canada. The declinists had statistics on their side: after zooming in the wake of export deregulation in the late 1980s, Western Canada’s gas production had crested. Only sky-high prices were keeping it afloat. Whenever prices dipped, production slid. The resource play would make the best of this terminal malaise.

A funny thing happened on the way to the industry’s funeral. The resource play shook off its conceptual confines. Where once it was about wringing the last gas out of over-drilled regions, today it’s opening up new frontiers, from roadless tracts of northernmost British Columbia to bizarre-sounding areas like the Appalachians and the south shore of the St. Lawrence River. Where once producers had to drill hundreds or even thousands of low-rate wells each trickling gas at maybe 100,000 cubic feet per day, today they’re bringing on wells at five million to 10 million cubic feet per day, similar to top-flight conventional wells.

New reservoirs are being unlocked through an impressive convergence of technical disciplines, from the purely theoretical to the literally mud-covered. Like Randy Quaid in the closing minutes of Independence Day, geologists are yelling: “Guess what, fellas? We’re baaack!” Today’s resource plays begin with deep knowledge about the subtleties of rocks that have never before produced natural gas. Then you layer in engineering, ever-improving drilling tools, the highest-tech measurements (ever wonder how you steer a drill bit 4,000 metres underground?), materials science and chemistry. It’s almost a symphonic approach – the results can be beautiful, but every instrument needs to be in perfect tune.

The main unconventional gas reservoirs are low-permeability or “tight” sandstones and shale formations that include chemically trapped or “adsorbed” natural gas. The Barnett Shale in Texas is the ur-play. It’s now producing a staggering one trillion cubic feet of natural gas per year. To put that in perspective, all of Canada produces five to six trillion cubic feet per year. In the United States, producers – including EnCana – have since added the Fayetteville, Hainesville, Woodford and Marcellus shales and also have major tight sands plays going, like the Piceance in Colorado. Unconventional gas plays haven’t just rescued the U.S. natural gas sector, they’re driving its growth.

Here in Canada the Montney is the main new unconventional gas play, with the Horn River shale just getting going. Both are in northeast British Columbia. Improved techniques are also boosting Alberta’s original unconventional gas play, the Deep Basin. There were 157 wells drilled in the Montney and Horn River plays in 2007, according to a report by Tristone Capital. This year there should be 900. Production in the Montney is already in the hundreds of millions of cubic feet per day, while it’s just starting in the Horn River. Both plays are estimated to hold many trillions of cubic feet of natural gas resource – although how much of it can ultimately be produced will require much more drilling and production history.

Unconventional production depends heavily on specialized well-completion services like fracture stimulation. In addition to being the principal profanity on Battlestar Galactica, “fraccing” means pumping sand and oil or water into a well and expanding or creating fractures in the reservoir to enable natural gas to flow. In the old days you might run one or two fracs in vertical wells. Today the shale and tight sand plays are being cracked by drilling horizontally and fracturing six, 12, sometimes 20 times, each frac separated by high-tech composite plugs. Calgary-based service companies Trican and Calfrac are leaders at this.

This isn’t the resource play as originally pitched. It’s more of a virtuous hybrid that takes the best elements of conventional exploration, marries it to the resource play concept, accepts that yesterday’s formations aren’t going to yield tomorrow’s production, and recovers the industry’s historical optimism, the belief in buried treasure awaiting discovery.
This should seem immensely exciting to anyone with minimal knowledge about the energy industry. I’ve met plenty of easterners and Europeans who think we Albertans basically have lakes of oil sitting in our yards and we just pop out back with a couple of pails whenever we need some cash for beer and steak. Not quite. What’s going on in the remotest corner of B.C. in the middle of a -50 degree January night makes the auto industry look like a horse-and-buggy operation circa 1870.

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By George Koch