Calgary-based Husky Energy Inc., one of Canada’s largest integrated producers, better known for a portfolio of heavy oil prospects, on Tuesday announced a two-year extension of a farm-out and joint venture agreement with privately held Trident Exploration Corp. to develop natural gas from coal (NGC) and coalbed methane (CBM) in central Alberta. The agreement calls for another 120 wells to be drilled over the next two years in the Fenn Rumsey area.

Capital costs for drilling and associated facilities is pegged at approximately C$40 million, of which Husky will pay 30%. Husky also will earn a 50% interest in the production. The new agreement covers more than 250 net sections of Husky land, upon which Trident will drill a minimum of 40 additional wells in the remainder of 2004 and have the option to drill a minimum of 80 wells in 2005. Trident, also based in Calgary, has drilled 192 NGC wells to date, including 72 in the Mannville Formation, 94 in the Horseshoe Canyon Formation and 26 exploration wells for other NGC play types.

Trident will manage production, and Husky will be the operator of the facilities and other infrastructure required to transport and process the gas. It is estimated that Husky’s lands in the Fenn Rumsey area have 500 Bcf gross natural gas resource in place in coals and interbedded sands.

“The development of this block of land will allow Husky to benefit from the NGC economics without Husky committing major risks associated with NGC exploration and development,” said Husky CEO John C.S. Lau. “This farm-out and joint venture agreement positions Husky and Trident as front runners in the emerging NGC energy sector in Western Canada.”

Husky has long been a leader in heavy oil production on and offshore Canada, but in recent months, its interest in gas exploration appears to be growing. In mid-July, Husky purchased privately held Temple Exploration Inc. for C$115 million, giving it 4,400 boe/d of oil and gas production, including 19 MMcf/d and 1,284 bbl/d of oil (see Daily GPI, July 16). It also has increased its gas exploration commitment in the Mackenzie Delta, in anticipation of the proposed gas pipeline to the Lower 48, and it is evaluating the potential to produce and transport gas from its White Rose oil field offshore Newfoundland and Labrador (see Daily GPI, June 16; June 2).

Since first setting up an agreement in 2002, Husky and Trident have successfully drilled more than 50 NGC wells in the Fenn Rumsey area. With 32 wells tied-in, current production is approximately 6 MMcf/d, shared 50-50 between Husky and Trident.

“Trident is pleased that Husky elected to expand our joint venture agreement,” said Trident CEO Jon Baker. “We think Husky’s decision to do so reflects well on Trident’s abilities to be a strong partner on NGC exploration and development. This joint venture agreement allows both companies to benefit from each other’s relative strengths. Husky owns significant infrastructure in the Fenn-Drumheller area and can tie in production quickly with minimal costs.”

Husky and Trident will be exploring for NGC in east central Alberta from the regionally extensive coal seams of the Horseshoe Canyon Formation. The Alberta Geological Survey estimates this formation contains upwards of 70 Tcf of natural gas resource. Average well production rates of 120-180 Mcf/d are projected over the joint venture lands, according to Husky.

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