NGI The Weekly Gas Market Report / NGI All News Access

Don't Count Out Western Canadian Sedimentary Basin, Says Nexen Exec

The Western Canadian Sedimentary Basin (WCSB) has "clearly" been a challenge for natural gas producers in recent years, but the success from unconventional plays in the Lower 48 has led many to revise their "gloom and doom" outlook for the region, a Nexen Inc. executive said last week.

Speaking at GasMart 2008 in Chicago, David J. Slater, managing director of Nexen Marketing U.S.A. Inc., told a near-capacity crowd that the mature WCSB has begun to find new life and new suitors. Producers finding success from maturing or difficult-to-develop gas plays in the United States have turned their eyes and technology to the WCSB to work on developing unconventional gas reserves, he said.

"Lots has happened in the last year, where the growth is coming from in Canada, and what's changed," Slater said. "Clearly over the last 18 months the WCSB's drilling has gone down, but we see that turning around. Drilling is picking up again."

Alberta, the epicenter of Canadian gas exploration, has seen its fortunes rise and fall in recent years.

"Average production per well is declining and the number of wells have increased to maintain production," he said. "It's a classic treadmill pattern...The message here is that it has plateaued, that it's a stable, mature basin."

However, WCSB's unconventional gas resources hold unknown potential, said Slater. Government and independent energy experts estimate that 25 Tcf of coalbed methane (CBM) reserves may be economically recoverable from several areas, including the Horseshoe Canyon and Mannville plays; up to 660 Tcf of CBM gas is estimated to be in place.

"The potential is enormous when you look at the gas in place, and the currently economic gas to be had," which is "growing quickly on the unconventional side" from CBM and emerging shale gas.

However, whether producers want to invest in Alberta's portion of the basin is questionable. The provincial government last year announced it was revising its royalty regime for oil and gas producers. The new royalty scheme, which takes effect in January, led several of the province's top producers to move some of their gas operations from Alberta to neighboring British Columbia (BC) and Saskatchewan. Already, the results of the royalty changes have had an effect on the province. In the past year Alberta's gas production receipts have fallen; BC's are up.

"CBM activity is slowing down, but the new royalty regime will actually favor CBM growth if the price of gas remains at current levels," said Slater. There's been a "fairly steep growth curve that plateaued last year, and there is a forecast extrapolating a new curve going forward. We could see a steepening of the curve as there is a more aggressive ramp-up, certainly next year."

Northeastern BC's gas growth also is becoming a positive, Slater said. The biggest draw now is the Horn River Basin, and Nexen is thick in the middle of the emerging shale play (see NGI, April 28).

Nexen estimated in April that its Horn River acreage contains 3-6 Tcf of recoverable contingent reserves. EOG Resources Inc., whose acreage is parallel to Nexen's, estimated it has 6 Tcf of reserves in the play. And Apache Corp., which is partnering with EnCana Corp. on some acreage, reported that three horizontal wells drilled there over the winter test-flowed at rates of 8.8 MMcf/d, 6.1 MMcf/d and 5.3 MMcf/d (see NGI, April 14).

"This is an exciting play," Slater said. Pointing to the reserves estimates announced in the basin just this year, Slater said, "that's a tremendous amount of gas out there. All three companies are working diligently to explore...and they are testing up their plans."

Although many are predicting the slow decline of the WCSB, the basin has had "relatively stable production since 2002," said Slater. "We've certainly seen a decline in the past year, but if you look at the National Energy Board, a very independent forecaster, their [WCSB gas production forecast] flat lines until 2010." After that, the amount of gas expected to be produced in the WCSB "is lower than we are currently producing. If you look at the actuals, there's a case to be made for the basin to be flat lining or for turning back to a production increase."

In just the past month, Slater said, "we see a bit of a supply response right now in the basin...The Alberta basin has surprised in the past, and I wouldn't be surprised if it surprises in the future. We may very well see this basin flat line because of cost pressures...Cost pressures explain a lot of what we have observed in the past 18 months."

For North America's eastern markets, "the reality is, the WCSB is a huge basin in the grand scheme of things, and it is a significant source of supply for the Lower 48. It has been that in the past, and I think it will continue to be that in the future."

©Copyright 2008 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

Comments powered by Disqus