Encana Corp. now holds close to 12.7 million net acres of natural gas potential spread across North America, but it continues to look for the next big play — and that may be just around the corner, CEO Randy Eresman said Thursday.
Speaking at the Morgan Stanley Energy Ideas Conference, Eresman said there is a “high likelihood” that Encana will announce additional plays as the year progresses. “They are so new we can’t discuss them, but we are working on them today,” he said.
But the Calgary-based producer doesn’t have to rely on finding new resources in the near-term. Its “three key areas” to explore for natural gas today are the Haynesville Shale, which includes the Mid Bossier region of Texas, and two shale basins in British Columbia, the Montney and Horn River.
“Each of those plays has the potential to grow to over 1 Bcf/d,” said the CEO.
In the Haynesville Shale, Encana now holds around 430,000 net acres. The leasehold is overlaid by the Mid Bossier gas play, “which we feel has comparable potential to Haynesville,” said Eresman.
Most of Encana’s drilling this year has been land retention wells. However, the producer’s plans to build a “gas factory” there is under way — a project that allows cost savings by installing more wells per pad.
By the end of this year the Haynesville unit should be producing 325,000 MMcfe/d net; by the end of 2015, production is forecast to exceed 1 Bcf/d.
One reason for the optimism are results from the Brent Miller Field in the Sabine Sub Business unit in the Mid Bossier play.
“We’re only one well into it,” Eresman said in his review of the Blackstone A43H well. It initially produced at 25 MMcf/d over 30 days, but with some tweaking on the pressure, “it jumped up to 32 MMcf/d…It’s a fairly incredible well…”
The Blackstone well was drilled for around $12 million; it’s 14,000 feet deep and has a 5,000-foot horizontal. “Costs came in very nicely for this depth,” Eresman said. It’s the potential of what the field could be like.”
Encana holds 275,000 net acres in the Horn River and 700,000 net acres in the Montney play — two prospects that hold enormous potential, said the CEO.
One reason the shale plays are compelling is that there are no land retention issues there, as in the United States, which allows the producer to hold the leases longer without drilling, Eresman noted. “You move right into optimization and can see how the cost structures might ultimately play out.”
In the Horn River area, Encana has begun building some of its initial gas factories. To date 50 wells have been drilled; 13 were producing at the end of 2009. Forty more wells are to be drilled this year, with a target of 100 MMcf/d production by year’s end.
“We believe the play has the potential to be a Barnett [Shale]-type size or greater,” he said. “But we’re going to need a lot of capacity built out of the area over time…
Costs in the play already have dropped “fairly dramatically” since Encana entered the basin. The producer is using various techniques to find gas, with 20 wells per pad, which it hopes to “copy” to other plays stateside. Some of the wells require longer well lengths, which extend through lease boundaries — a situation that would have to be resolved through pooling arrangements in U.S. plays, Eresman acknowledged.
Encana is the largest leaseholder in the Montney Shale, and it’s work there still is emerging. However, gas factories also are planned as the play is developed, said Eresman.
The CEO also touted Encana’s prospects in the Michigan Basin Collingwood Shale on Michigan’s Lower Peninsula (see Daily GPI, May 10). The shale play underlies the Utica Shale, an upper extension of the Marcellus.
Encana acquired 250,000 net acres for around $150/acre. “Now it’s up to $2,000 an acre, and that’s with only one well drilled in the play,” said Eresman.
“Leasing in the play is at an incredible pace right now,” he said. “We like the potential of the play…it’s liquids rich and in a state with a history of activity, a good regulatory environment…We’re not forced to drill wells as in many other areas, and we will retain the lease for about seven years.”
Encana, which spun off most of its oil assets into Cenovus last year, today is all about unconventional natural gas.
“We believe unconventional natural gas is the right energy for future, and we are working diligently to make sure we are positioned that way,” said Eresman. Among other things the producer is working “actively” with America’s Natural Gas Alliance “to improve the level of public communication and the transparency of the business.”
Alluding to the black eye suffered by the energy industry since the Gulf of Mexico oil spill disaster, Eresman said, “We…recognize that our license to operate is earned every day…We try to present ourselves as good corporate citizens…”
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