Canadian producers, prodded by strong demand and their inability to catch up by sticking to prevailing methods, show signs of at last adding dimensions in exploration and unconventional development to their natural gas supply strategies.

The rediscovery of exploration, as a replacement for the just-in-time supply strategy of pursuing shallow gas targets on the Canadian plains with thousands of low-cost wells into small deposits, was highlighted by a 2004 budget announcement from Talisman Energy Inc. (see Daily GPI, Jan. 15). After years of emphasizing international properties, the Calgary company dedicated half of its new-year program of C$2.35 billion (US$1.8 billion) to North America and earmarked 77% of that for gas drilling.

Talisman’s C$847-million (US$650-million) commitment to gas hunting focuses primarily on relatively deep, costly and large drilling targets along the eastern slopes of the Rocky Mountains. The company projects production growth in its gas production of 3-5% into the 900 MMcf/d range this year.

Notable targets in the Talisman portfolio include deep prospects in northwestern Alberta and northeastern British Columbia. The taste for exploration also shows in a small but successful venture into the Appalachian region of the eastern United States, where Talisman expects to spend C$85 million (US$65 million) drilling this year.

The exploration impulse reaches all the way to the Canadian Arctic. Devon Energy Corp.’s newly-appointed Canadian president, John Richels, said the Calgary subsidiary that he formerly ran is seeking partners for a revival of gas drilling in the Beaufort Sea. Devon acquired shallow-water leases off the coast of the Mackenzie Delta with its takeover of Anderson Exploration in 2001.

On the unconventional side of the supply spectrum, Fort Worth-based Quicksilver Resources Inc. and Calgary subsidiary MGV Energy Inc. highlighted spreading convictions that coalbed methane development will work in Canada. Quicksilver-MGV paid US$5.4 million to raise to 100% its ownership a 76,000-acre (118-square-mile) spread of coal properties known as Wood River about 30 miles south of the Alberta capital of Edmonton.

Quicksilver-MGV picked up a half-interest in the spread rather than let it go when it came on the Canadian asset market due to a takeover of former partner Ice Energy by a Canadian income trust. “We’re continuing to drill evaluation wells…we’re very excited about the property,” MGV president Mike Gatens said. About 20 trial wells have established reserves of five billion cubic feet and initial commercial production. Output exceeds 100 MMBtu per well.

The transaction raises Quicksilver-MGV’s profile in a central Alberta region that is rapidly becoming a hotbed of unconventional gas projects. Rich in relatively dry coal seams historically used heavily for power generation, the area is the prime target for a lineup of Canadian producers pursuing methane development including Nexen Energy and EnCana Corp.

Exploration on technological rather than geographical frontiers drives much Canadian gas activity. Even industry expansion on the “near frontier,” B.C. as opposed to the remote Arctic reaches of Canada, is becoming a matter of exploitation rather than traditional “wildcatting” or “elephant-hunting.” A survey of land acquisitions by Canadian producers in 2003 underlined their increasing reliance on refined earth science and engineering technique. Producers are spending more to buy less land that they are learning how to choose and use better, suggested the survey by FirstEnergy Capital Corp.

Industry spending to acquire drilling targets in B.C. last year jumped 119% to a record C$650 million (US$500 million) from C$296 million (US$228 million) in 2002. But the amount of BC land purchased at auctions of provincial resource rights dropped by 14% to 1.8 million acres in 2003 from 2.2 million acres in 2002.

In Alberta, still the mainstay of Canadian gas with about three-quarters of the nation’s production and reserves, spending on land grew nearly five times as fast as the volume of property purchased in 2003. The industry spent C$902 million (US$694 million) on Alberta drilling prospects in 2003, up 80% from C$502 million (US$385 million) in 2002. The amount of Alberta land acquired increased by just 13% in 2003, to 7.7 million acres from 6.9 million acres in 2002.

In Canada, for the first time, “the largest new ventures are resource plays that require more than one well per section,” FirstEnergy concluded.

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