A series of successful natural gas wells drilled by EnCana Corp. in two emerging shales — the Haynesville Shale in Louisiana and the Horn River Basin of British Columbia (BC) — indicate that the two resource plays may be “among the largest in North America,” the CEO said Monday. Meanwhile, Chesapeake Energy Corp., the largest leaseholder in the Haynesville Shale, and Goodrich Petroleum Corp. agreed to jointly develop Goodrich’s Haynesville acreage.
Wells drilled this year in the Horn River and Haynesville play show “strong potential to deliver commercial volumes of natural gas,” EnCana stated.
“Each of these plays has been compared in size and scope to the prolific Barnett Shale in north central Texas, which currently produces more than 3 Bcf/d [in total] and continues to grow,” EnCana CEO Randy Eresman said. “EnCana has assembled large land positions in each of these emerging plays — 220,000 net acres in the heart of the Horn River Shale play and 325,000 net acres in the Haynesville Shale play fairway. These are very meaningful positions, each with the potential to ultimately achieve production levels approaching 1 Bcf/d net to EnCana, which is comparable in size to the potential we have announced in our more established plays at Montney in northeast BC and Deep Bossier in East Texas.”
The expected production from the two resource plays and higher-than-expected cash flow on strong commodity prices has led EnCana to increase its drilling program this year and look for more acreage, Eresman said. EnCana has forecast annual production growth of 7-9% this year (see Daily GPI, May 13), but Eresman did not indicate whether the increased drilling would lead to revisions in the company’s production forecasts. The Calgary-based independent is in the process of splitting its company into a stand-alone unconventional gas company and another stand-alone integrated oil company, a process expected to be completed in 2009.
“Incorporating these plays into EnCana’s already very strong portfolio has the potential to significantly accelerate EnCana’s growth rate to an even higher sustainable level,” said Eresman. “With the strong production from across our resource plays, and higher than budgeted cash flow due to robust commodity prices, we expect to increase drilling and continue expanding our land holdings in our shale play areas. At the same time, we will continue to high-grade our portfolio of assets through the divestiture of noncore properties through the balance of 2008.”
EnCana discovered the Horn River natural gas play in 2003 and is now the largest leaseholder in the basin. EnCana formed a 50/50 joint venture on a portion of the play with Apache Corp. last year, and together they are the most active drillers in the basin, with nine production wells jointly drilled. Apache drilled three horizontal wells in the basin in 1Q2008 that had initial natural gas test rates of 8.8 MMcf/d, 6.1 MMcf/d and 5.3 MMcf/d. EnCana has drilled four additional wells in various stages of completion using techniques to those successfully implemented in the Barnett Shale — large multistage fracs in long-reach horizontal wells. The first two of its recent four wells have just begun to flow, but early results indicate strong production potential, said EnCana.
Ramping up in the remote Horn River Basin “will require substantial road and pipeline installation before full-scale development can occur,” said Mike Graham, president of EnCana’s Canadian Foothills Division. “Advances in our multi-stage fracturing and horizontal drilling are expected to improve the economics of the play in the months and years ahead.”
On another front, EnCana Oil & Gas (USA) Inc. is joining in the frenzy to begin developing the Haynesville Shale. The producer acquired its first leases in the Haynesville play in 2005, and it drilled its first three vertical wells a year later. In 2007 EnCana Oil & Gas signed a 50/50 joint exploration agreement with Shell Exploration & Production, a division of Royal Dutch Shell. To date the companies have drilled three vertical and two horizontal wells and now are operating two rigs in the area. EnCana plans to operate five rigs there by year-end.
“The potential of the Haynesville Shale play was established in February with the completion of our first horizontal well,” said EnCana’s Jeff Wojahn, president of the USA Division. “The gas well flowed at an initial production rate of more than 8 MMcf/d, which would rank it amongst the most productive Barnett Shale wells. The Haynesville Shale is on the verge of transforming from an emerging play to one of significant commercial development, rivaling the quality and scope of the Barnett Shale play.”
In yet another sign that the Haynesville Shale may be more than just talk, Goodrich and Chesapeake agreed to jointly develop Goodrich’s acreage in the Bethany-Longstreet and Longwood fields of Caddo and DeSoto Parishes, LA. Chesapeake agreed to pay Goodrich $178 million for the deep rights to 10,250 net acres of leasehold. The transaction would give Chesapeake a 20% working interest in 25,000 net acres in the Bethany-Longstreet field and a 50% working interest in 10,500 net acres in the Longwood field.
Chesapeake also agreed to purchase 7,500 net acres of deep rights in the Bethany-Longstreet field from a third party for an undisclosed sum, which would bring its ownership interest in the deep rights in both fields to 50% each for Goodrich and Chesapeake. Chesapeake would operate the development. Goodrich would retain the shallow rights (through the base of the Cotton Valley sand) and the existing production and reserves with respect to its 70% interest in the Bethany-Longstreet field and its 100% interest in the Longwood field and it would retain its stake in both the shallow and Haynesville Shale rights on all of its East Texas assets. The transaction is scheduled to close by July 15. Horizontal development is slated to begin this summer with one rig dedicated to the play; a second rig is to be added in the last three months of the year.
“The proceeds we will receive upon closing will greatly strengthen our balance sheet, provide capital to begin aggressive development of the Haynesville Shale and allow us to maintain an active development program across our entire Cotton Valley trend acreage,” said Goodrich CEO Gil Goodrich.
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