Canadian producers are riding shale gas technology imported from the United States to complete an about-face in drilling targets next year by switching over to tight oil formations.
About four-fifths of Western Canadian field activity in 2012 will tap oil embedded in dense rock with horizontal wells and hydraulic fracturing, predicts the Petroleum Services Association of Canada. With oil markets projected to stay high at a 2012 average of US$88/bbl or better, the Canadian Association of Oilwell Drilling Contractors adds that "the size of the rig fleet is expected to grow significantly."
Until shale gas in the United States glutted the North American market and gutted prices, up to four-fifths of Western Canadian drilling concentrated on gas for exports to destinations from New York to Los Angeles.
Canadian forecasters almost unanimously expect gas to stay in the range of C$4/MMBtu (U.S. dollar at par) for the foreseeable future, or at less than half the annual average prices of the market's fat years in the early 2000s. As a result, outside of northeastern British Columbia, where the industry rates the Horn River Shale formation as even richer than the Barnett Shale in Texas, additions to gas supplies are forecast to continue to taper into byproducts associated with the main action. In Alberta especially, the focus will be on gas deposits known to be rich in liquids such as condensate or natural gasoline.
The oily richness of Canadian shale and shale-like geological formations is highlighted in a new report by the National Energy Board (NEB), "Tight Oil Developments in the Western Canada Sedimentary Basin." The new form of production has jumped from near-zero to more than 160,000 b/d since Canadian producers began adapting American shale gas technology to oil-bearing formations in 2007, the NEB calculates after surveying the industry.
Although the development campaign is still in its infancy, potential new reserves in Alberta, Saskatchewan and Manitoba are estimated by industry analysts to be on the order of 40 billion bbl. Tight oil drilling in Alberta alone is expected to add production of 170,000 b/d by 2014, say reserves forecasts by the province's Energy Resources Conservation Board (ERCB).
Saskatchewan and Manitoba extensions of the main U.S. tight oil deposit, the Bakken Shale in Montana and North Dakota, currently produce 115,000 b/d but are only the tip of a Canadian resource iceberg. In addition to the Bakken, an NEB survey uncovered seven tight oil formations where Canadian producers have disclosed early production results and at least three more where exploration is under way.
The geological zones occur in all four western provinces but are biggest in Alberta. Beyond the Bakken drilling plays with at least some disclosed early results are under way in the formations of Cardium, Viking, Lower Shaunavon, Montney-Doig, Duvernay-Muskwa, Beaverhill Lake and Lower Amaranth. Drilling is also in "very early stages," with no disclosures of results yet, in zones called Second White Specks, Nordegg and Pekisko, the NEB researchers found.
"There appears to be an abundance of possible target formations, both those surrounding conventional oil reservoirs, like the muddy Cardium sandstones around the Pembina oilfield [in central Alberta], and entirely new regional resource plays like the Duvernay-Muskwa," the board report observes. "The technologies used to develop tight oil will continue to evolve, likely increasing the amount of recoverable oil from these plays."
The tight formations are understood by geologists to be "source rocks" for the freely flowing pools that put Alberta on the global oil map after the 1947 Leduc discovery 40 kilometers (25 miles) southwest of the provincial legislature in downtown Edmonton. Tight oil is a natural resource endowment that remained bottled up in layers of Alberta's vast sedimentary rock deposits that had only small pores and no flow channels out into the sponge-like traps or pools that sustained the conventional industry.
The industry showed its eagerness to tap into the previously uneconomic deposits by spending a record C$3.4 billion (U.S. dollar at par) at Alberta auctions of drilling and production leases on provincial government-owned mineral rights in 2011.
Although Western Canada has no shortage of environmental and community opponents of high-intensity industry operations such as oil sands mining and coalbed methane drilling, budding opposition to the new hydraulic fracturing (fracking) technology has yet to slow down the developing wave of tight oil drilling. Unlike in some new drilling jurisdictions in the United States where the production system has run into trouble, fracking is old hat in Alberta as a life-extending enhanced recovery method for aging conventional oil fields.
The ERCB enforces an elaborate regime -- with roots dating back to the 1930s and old conflicts among oil companies, ranchers, farmers and coal miners -- of keeping potentially hazardous oilfield materials away from the water, air and land. In Alberta the rules are given teeth by frequent inspections, done by roving police-like experts based in a province-wide network of ERCB branch offices.
Work is under way on adapting the provincial regulatory regime to the intensified versions of the technique developed with horizontal drilling and multiple-frac injections for tight oil and shale gas. A paper outlining detailed policy proposals is expected early in 2012.