More than two years after a spectacularly expensive takeover called attention to Alberta's vast Duvernay geological formation, drilling is beginning -- and the deep shale target is turning out to be expensive to hit.
Trilogy Energy Corp. has disclosed that an initial Duvernay well by a partnership that it formed with Celtic Exploration and Yoho Resources to spread exploration risks cost $7 million by the time the trial ended in a partially completed stage last fall, down to a depth of 3,300 meters (10,800 feet) and horizontally 1,725 meters (5,640 feet) across the deposit.
The well yielded test flows of 2 MMcf/d of gas plus 75 b/d of high-value light liquids. Mechanical difficulties cut the number of rock-fracturing fluid injections that the partners were able to accomplish down to eight from a planned 15. The group predicts that, when fully completed for C$8-9 million, daily production will rise to 5 MMcf of gas plus 375 bbl of liquids.
Among exploration enthusiasts on stock exchanges, the deep shale formation has been an on again-off again hot item since mid-2008, when Royal Dutch Shell paid a premium takeover price of C$5.9 billion for Duvernay Oil.
The geological zone, which carpets a large Alberta region northwest of the provincial capital of Edmonton, is also rated by financial analysts as the star attraction in more than C$600 million of mineral rights sales at provincial government auctions since the Shell-Duvernay deal.
The Alberta Geological Survey is conducting a special Duvernay study, and the provincial government's latest royalty revisions include reduced incentive rates for the type of drilling required to tap into the formation.
While the mineral rights auction bidding is done by brokers committed to the identities of their customers secret, Chevron Corp. has disclosed that it has picked up about 200,000 Duvernay acres (312 square miles) as a potential future core area for Canadian development. Encana Corp. has also indicated interest in the formation.
The Duvernay is described as similar to the natural gas-rich Horn River Shale formation in northeast British Columbia, which was a Canadian development hot spot until prices went south. The BC target is not known so far to be rich in liquids.
But since disclosing its Duvernay team's initial costly and partial results, Trilogy has reported a stronger performance by a deep and horizontal well with multiple hydraulic fracturing injections in a better-known formation called the Montney, which straddles northern Alberta and BC.
In a northwestern Alberta production area known as Kaybob, Trilogy said its Montney well yielded 1,800 b/d of oil in an initial test. In this case, the planned 15 frack injections were successfully completed and the well's daily output has averaged 500 bbl of oil plus 1 MMcf of gas for the first month of production. Tests of a second Kaybob well using the "tight oil" drilling method have flowed 3,000 bbl plus 1.9 MMcf/d. Prior to disclosing the results, Trilogy snapped up 17,920 acres (28 square miles) of additional Montney drilling prospects beside the two successes for C$32 million.