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Utica Shale Exploration Draws U.S., Canadian Producers

Another week, another North American natural gas shale to be explored. Following the encouraging results reported by Forest Oil Corp. earlier this month, Canadian junior explorer Gastem Inc. has begun the first phase of a drilling development program on the New York state side of the emerging Utica Shale gas play, which extends from Quebec into New York.

The Utica Shale is one of several gas shales making headlines in recent weeks, but it's not a new discovery. Several producers from the early 1950s until the late 1980s explored the Utica Shale region of Quebec, and in particular the St. Lawrence Lowlands, looking for oil. Because no significant oil reservoirs were discovered, a lot of the producers moved on. Now with gas prices higher and technical drilling innovations improving gas output in shale across North America, Gastem has joined a growing army of producers that are renewing their interest in once abandoned plays.

Gastem holds exploration and development rights to more than 1.1 million acres of land in the shale's core, which crosses the St. Lawrence Lowlands and the Gaspe Peninsula in Quebec. Gastem's upcoming development also would give it an option to acquire more of the shale leasehold in New York.

Denver-based Forest said just a few weeks ago that it had discovered natural gas in its Utica Shale holdings in Quebec, where it works 269,000 net acres (see NGI, April 7). Based on technical data and a pilot well program conducted last year, Forest estimated that the preliminary net resource potential on its acreage is estimated to be 4 Tcfe. First production is expected in 2009 with the potential for a full-scale drilling program in 2010 and beyond.

Forest for the past two years has used lease and farm out agreements with producers that include Gastem to build its Utica Shale position. Most of Forest's holdings are in the St. Lawrence Lowlands in Quebec, where it drilled two vertical pilot wells in 2007 to a total depth of 4,800 feet. Production rates tested up to 1 MMcfe/d.

Now as it begins its development program in the New York state portion of the play, Montreal-based Gastem plans to drill and fracture three vertical wells by the end of June. If the results prove positive, Gastem would drill two more vertical wells and a horizontal well by the end of the year.

Under an option agreement with privately held Utica Energy LLC in the New York leasehold, Gastem would earn a 65% interest in the 29,000 acres if it completes its development program by mid-January 2009. Utica Energy would retain the remaining stake. Utica Energy last summer drilled, completed and tested two Utica Shale wells with encouraging results, Gastem noted. So far a detailed technical overview, budgetary evaluations and schedule have been completed, Gastem said. Review work on wells drilled and fractured by Utica Energy also has been completed, and a rig and other services have been secured.

"Other prospective intervals identified during logging will also be tested for potential gas production, notably the Marcellus [Shale] and the Oneida," said Gastem. The U.S. operations would be owned and directed by subsidiary Gastem USA.

Gastem's St. Lawrence Lowlands projects include the Dundee Block, comprised of 49,895 hectares; the St. Jean Block, covering 95,000 hectares; the Yamaska Block with 46,000 hectares; and a 10% interest in the St. Simon well. It also owns properties in the Gaspe Peninsula region, which includes the Matapedia North and South Blocks consisting of 138,511 and 36,050 hectares, respectively; and a 10% interest in the PEA-3 well. In addition, the company has rights to participate with a 25% interest in the Amber Bank project in West Virginia and a 33% interest in the Watts Lake project in Alberta. Gastem was incorporated in 2002.

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