While most agree the easy supply growth is over in Canada, the country’s top natural gas producer is showing it still pays to venture into the difficult parts of the western provinces.

A large, lasting drilling play in northern British Columbia, estimated at four times the size of the East Coast’s Deep Panuke project, was disclosed in a filing at the National Energy Board (NEB) by EnCana Corp.’s wholly-owned EnCana Ekwan Pipeline Inc. The modest scale of the project underlines the availability of new gas reserves within reach of the northwestern end of the established transportation grid.

The C$55 million (US$36 million) plan calls for 50 miles of 24-inch pipeline from the Fort Nelson area to connect to TransCanada PipeLines Ltd.’s NOVA grid in northwestern Alberta. EnCana Gas Marketing holds space for an initial 100 MMcf/d, plus rights to double the volume to 200 MMcf/d in 2005 then raise it again to 300 MMcf/d in 2006. EnCana told the NEB it expects to tap a BC. target called the Jean Marie for a total of 450 MMcf/d by 2005, tripling output from the formation. Some already flows in Duke Energy’s Westcoast grid in British Columbia.

At the same time, Talisman Energy reported achieving production tests exceeding 20 MMcf/d from two wells into deeper B.C. formations in a region called Monkman. With minority partners Anadarko Canada, National Fuel Exploration and Oiltec, additional drilling is planned.

EnCana presented a study by the geological consulting house of Gilbert Laustsen Jung Associates that the Jean Marie deposit is already known to hold 2.5 Tcf of proved marketable reserves. A conservative “best estimate” raises the projection to 3.8 Tcf counting probable as well as proved gas, and potentially 5 Tcf, including discoveries rated as possible with current knowledge.

The target sprawls across 11,800 square miles of drilling prospects. The most prolific reservoirs are concentrated in an underground formation described as akin to a prehistoric Australian Great Barrier Reef, in a strip three-to-five miles wide that runs south for about 175 miles through British Columbia from its boundary with the Northwest Territories. EnCana holds 3,525 square miles or 30% of the Jean Marie, drilled 77 wells into it in 2002 with 150 planned this year.

Much of the terrain is a frontier by standards of aging gas fields on the more accessible plains of Alberta and Saskatchewan. The Jean Marie so far only has an average of one exploration well drilled per 13 square miles of its area. On about 5,600 square miles, there has been too little exploration to draw geological maps yet.

Even the conservative best estimate of the gas in the Jean Marie makes it about four times the size of the EnCana’s Deep Panuke discovery, which relit the fire under gas exploration offshore of Nova Scotia since 2000. While postponing a Deep Panuke production project to await results of further drilling, EnCana is seeking permission to move ahead promptly on exploiting the B.C. field.

Unlike the more famous find called Ladyfern, which kicked off a British Columbia drilling rush two years ago with a handful of high-volume wells, but then wilted as the reserves petered out rapidly, the Jean Marie shows staying power. EnCana, which has been working on the new formation since 1998, has found that its wells each initially deliver production of 2-4 MMcf/d, then settle down to a sustained 1 MMcf/d after their first year.

While expensive by standards of shallow reserves on the southern plains of Alberta and Saskatchewan, the Jean Marie works well under current gas prices. EnCana has estimated costs of finding and developing its BC gas at C$1.25-$1.50 (US$0.83-$1) per Mcf. Costs of operating production in the region are about C$0.50 (US$0.33) per Mcf.

The BC gas development program is a technology and an exploration play and the Jean Marie must be treated gently. By conventional standards, Gilbert Laustsen Jung say the BC formation is “underpressured,” meaning the gas cannot flow through disruptions of rock formations caused by traditional drilling. EnCana uses a combination of newer approaches that avoid damaging the formation. An “underbalanced” system of gently controlling underground pressures, rather than countering them with brute force, lets the gas keep its ability to flow naturally. Horizontal drilling across the formation increases the productive areas reached by each well.

EnCana told the NEB that it expects to recover 50% of the 4.1 Tcf of gas reserves that it currently believes it has in its share of the Jean Marie formation. Gilbert Laustsen Jung, citing the sparse drilling done in the region to date, added “there should be considerable exploration upside in the subject area.”

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