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Canada's Cordova Embayment Drawing International Interest

Fledgling Canadian shale gas development is growing a new wing that is attracting Asian as well as North American investment attention as a supply source with potential to reach international scale.

Known as the Cordova Embayment, the new target figures in plans for C$324 million in additions to TransCanada Corp.'s Nova pipeline grid in northern British Columbia (BC) and Alberta as well as a development project by an expanded Canadian and Japanese drilling consortium. (The Canadian and U.S. dollars are near par.)

High expectations for the fresh supply source are apparent in a construction application filed by TransCanada-Nova at the same time as the National Energy Board (NEB) released the first formal reserves projections for a Canadian shale gas structure.

The NEB report predicted that 78 Tcf can be produced from the 11,500-square-kilometer (4,600-square-mile) Horn River Basin near the BC boundary with the Yukon and Northwest Territories (see Shale Daily, May 12).

TransCanada-Nova's initial forecast for the 3,300-square-kilometer (1,260-square-mile) Cordova Embayment, based on preliminary known results of limited and secretive exploration drilling to date, is 17.5 Tcf. The NEB filing notes that other, less conservative forecasters have circulated estimates on the order or two three times larger.

Calgary's Vero Energy Inc. has projected reserves of 115 to 206 Bcf per square mile of the Cordova Embayment formation. The exploration and production firm also estimates gas-saturated shale pay zones average 425 feet thick.

Vero's numbers make the Cordova Embayment comparable to the Horn River, where deposits are 50 to 350 meters (165 to 1,100 feet) thick and contain 130 to 265 Bcf of gas per square mile.

Both deposits are tapped with northern adaptations of horizontal drilling and multiple hydraulic fractures. BC wells including 12 to 18 hydraulic fractures (fracks) each are currently estimated to cost C$7-10 million, but industry and the NEB alike observe that expenses are coming down as experience is gained with the technology.

Overseas interest in the Cordova Embayment has been showing since mid-2010 and is on the rise. An agreement this week built an international drilling consortium on a development joint venture negotiated last fall between Calgary's Penn West Exploration and Mitsubishi Corp. (see Shale Daily, May 10).

The original deal created Cordoba Gas Resources as a vehicle for managing the Japanese industrial conglomerate's commitment of about C$850 million to the BC shale gas foray. Under the new agreement, Tokyo Gas Co., Osaka Gas, Co., Chubu Electric Power Co. and Japan Oil, Gas and Metals National Corp. are each buying 7.5% ownership interests in Cordoba Gas.

The new deal also signals that the program is liable to grow as a result of the expanded participant list. The arrangements include a commitment of C$1 billion in funding for Cordova Embayment development by the Japan Bank for International Cooperation and Bank of Tokyo Mitsubishi UFJ. Ltd.

The Japanese and Penn West are committed to working toward overseas exports via the KM LNG liquefied natural gas terminal that Canadian arms of Apache Corp. and EOG Resources are proposing to build soon on northern BC's Pacific coast near Kitimat.

The plan calls for about C$5 billion in construction of a 1.4 Bcf/d operation in two equal stages. Mitsubishi has set a goal of producing about 500 MMcf/d from the Cordova Embayment by 2014.

TransCanada-Nova, meanwhile, forecasts that traffic over the Upper Peace River area of its northern Alberta and BC grid will grow by 62% to 1.2 Bcf/d from its current 775 MMcf/d by November 2013. The new facilities are intended to collect gas from the Cordova Embayment, the Horn River Basin and conventional wells that are also still being drilled in BC.

A long-range supply forecast by TransCanada-Nova sees potential for shipments out of the northern BC and Alberta shale gas regions to hit 3.8 Bcf/d by 2026. The projections include confidential data from producers as well as known industry intentions, the pipeline company said.

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