Western Canada’s onshore plays yield comparable results to key liquids-heavy producing regions in the Lower 48 states, a positive sign once prices strengthen and demand for oilsands diluent grows, Wood Mackenzie Ltd. is estimating.

A breakeven review was conducted on more than 180 individual company assets in the Western Canadian Sedimentary Basin. As in the U.S. plays, “significant variation” was found in the economics of each core area. For many leaseholds, it’s not a moneymaking proposition today to develop some of the natural gas liquids (NGL). When the time is right, the volumes will be there, said principal analyst Peter Argiris.

“Our Western Canadian liquids production forecast is underpinned by an increasing commodity price environment and growing demand for oilsands diluent,” he said. “We anticipate an upward trajectory in volumes beginning in 2016 and peaking in 2021, with the Montney, Duvernay and Cardium formations driving volumes.”

The Duvernay formation in Central Alberta is seen driving most of the future growth in condensate and NGL production. Canada’s Energy Resources Conservation Board in 2013 estimated the play holds 443 Tcf of gas and 61.7 billion bbl of oil. Some results have been mixed, however (see Shale Daily,Oct. 2, 2014).

Within Wood Mackenzie’s coverage universe of the Duvernay, “this is projected to grow from 27,000 b/d in 2015 to over 320,000 b/d in 2025. An additional surge of liquids production is expected to come from the Montney formation, which we expect will double production from 86,000 b/d in 2015 to over 160,000 b/d in 2025.”

The volumes are there. Lacking are sufficient takeaway options as volumes increase.

“One factor that is currently front of mind is the supply/infrastructure constraints from the lighter end of the NGL stream” Argiris said. “Propane supply is at historic levels, and we have seen material price declines as a result. How this affects the remaining NGL stream — apart from diluent — from a pricing/infrastructure capacity perspective could have a negative impact on producer pricing and future activity going forward.”

The Montney and Duvernay formations in British Columbia account for most of the liquids. Still, analysts found a “wide variety” of formations and of operators that appear positioned to create value.

“In addition, the variability across core areas coupled with a fragmented corporate landscape has paved the way for consolidation” and merger and acquisition opportunities, Wood Mackenzie said.

“Highly levered operators are more likely to have a smaller, narrower liquids resource base,” according to Wood Mackenzie. “However, these are not necessarily low quality assets, as indicated by several debt-burdened companies holding assets with breakevens below $60/bbl West Texas Intermediate. The primary engine of oil production growth in Canada is still the oilsands, and the large players dominate in that sector. “

From a natural gas perspective, said analysts, “a collection of low debt, small- and mid-sized independent producers have emerged with gas producing assets that breakeven below $2.50/Mcf Henry Hub. Economics for many of these assets are supported by associated liquids production, which will remain a key determinant to development considering our depressed natural gas price outlook for AECO gas.”

Encana Corp., the biggest gas producer in Canada, has pinned 80% of its capital spending this year on only four plays, and two are the Montney and Duvernay (see Shale Daily, Dec. 16, 2014). Late last year Encana secured two rich gas premium agreements with Aux Sable Canada LP to process liquids from the Duvernay (see Shale Daily, Nov. 24, 2014; May 13, 2014). ConocoPhillips, among others, also has its sights on expanding production in Duvernay and Montney (see Shale Daily, Jan. 29).

Other Canadian operators that have holdings in the unconventional formations include oilsands developer Athabasca Oil Corp., as well as Penn West Petroleum Ltd. and Trilogy Energy Corp.

Spain’s Repsol SA also has a considerable portfolio in the region, secured in part through its takeover of Talisman Energy Inc. (see Shale Daily, Dec. 16, 2014). As well, Chevron Corp. last fall sold a 30% stake in its Duvernay holdings for $1.5 billion to Kuwait Petroleum Corp. (see Shale Daily, Oct. 6, 2014).