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Talisman Goes Unconventional, Adds Acreage in Marcellus, Montney

November 9, 2009
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Calgary's Talisman Energy Inc. has substantially increased its holdings in the Marcellus Shale in Pennsylvania and the Montney Shale in British Columbia and plans to increase its unconventional natural gas development programs across the continent in the coming year, the company said last week.

"We have positioned ourselves for a significant increase in drilling and production in the Marcellus Shale next year and are planning to move segments of our Montney Shale play to commercial development at the beginning of next year," said Paul Smith, executive vice president, North American Operations.

In the two plays, Talisman this year has added about 170,000 net acres through a combination of acquisitions and swaps for C$570 million. The company now holds around 350,000 net acres of "Tier 1" land in these two areas, with the potential for 4,800 net drilling locations, said Smith.

"We have seen excellent drilling results in the Pennsylvania Marcellus and each well looks better than the previous one," said Smith. "Average drilling and completion (D&C) costs are down to US$4.3 million/well. Our average assumption for expected ultimate recovery (EUR) over all Tier 1 acreage has increased by 17%, to 3.5 Bcf/well, with the last five wells displaying EURs of 6 Bcf.

"Average 30-day initial production (IP) rates for wells drilled year-to-date was 4.5 MMcf/d, with the last six wells at 5 MMcf/d or better. We are currently producing over 50 MMcf/d sales gas and expect to exit the year at approximately 70 MMcf/d."

With its growing development in Pennsylvania, Talisman is opening an office in Pittsburgh "because it makes sense to shift our center of gravity and manage the rapid growth of our U.S. shale development programs closer to the majority of our activity," said Smith. Talisman also will keep its field office in Horseheads, NY.

Twenty pilot wells now planned this year in the Montney Shale and commercial development "in some areas" is expected by the beginning of next year. Talisman expects to exit this year at a rate of 50 MMcf/d in the Montney, and it's also drilling the first of two planned horizontal wells in Quebec.

Talisman started commercial development in the Marcellus Shale late in 2008 (see NGI, Aug. 4, 2008). Year-to-date, the company has drilled 31 gross wells (27 net) with 60 horizontal wells planned by year's end. Talisman also has added a third rig and plans to move to six rigs by the end of the year. Production was 5 MMcf/d at the beginning of the year and is currently more than 50 MMcf/d (working interest), with an estimated exit rate of 70 MMcf/d.

Average D&C costs in the Marcellus are down to US$4.3 million/well, while the average EUR has increased by 17% to 3.5 Bcf/well, with the last five wells in the Marcellus at 6 Bcf, the company said. Thirty-day IP rates for all wells drilled year-to-date have averaged 4.5 MMcf/d, with the last six wells at 5 MMcf/d or more.

Talisman began 2009 with 140,000 acres in the Marcellus play, 90,000 of which the company internally high-graded as Tier 1 acreage. Through a combination of land acquisitions (at an average cost of US$3,250/acre) and land swaps, Talisman has added more than 90,000 acres in the Pennsylvania portion of the shale year-to-date, doubling its acreage to more than 180,000 acres. Talisman estimates that it has about 1,800 net well locations on this acreage.

The company expects a full-cycle break-even on Marcellus leasehold of about US$4/MMBtu. In total, Talisman currently holds 214,000 net acres in the Pennsylvania portion of the play. Most of the leasehold is concentrated around Bradford and Tioga counties in northeastern Pennsylvania.

Talisman's focus in the Montney Shale this year has been in the Greater Groundbirch, Greater Farrell and Greater Cyprus areas. The company expects to complete 20 pilot wells this year, including 11 horizontal wells, moving to commercial development at the beginning of next year. Talisman's estimated full-cycle break-even cost is about C$4/Mcf.

The producer began this year with 178,000 acres in the Montney Shale and has added more than 80,000 acres at an average cost C$3,500/acre, doubling its acreage to what it considers to be the sweet spot of 166,000 acres. Talisman said it believes it has about 3,000 net well locations on its acreage. In total, the company now has 270,000 net acres in the play.

As it bulks up on North American shale, Talisman also is restructuring its operations into two businesses, "Shale" and "Conventional," Smith said. Jim Fraser, who has headed Talisman's Marcellus program, will be in charge of the Shale unit while Jonathan Wright, who was leading Talisman's business in Malaysia, will run the company's Conventional operations.

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