Over the last few years Shell Canada Ltd. has acquired more than 300,000 acres worth of potential resource in the tight gas play around the Grand Prairie area of west-central Alberta. The company is now expecting to grow production from zero to about 100 MMcf/d by the end of next year and is well on the way to doing so, Ian Kilgour, Shell Canada senior vice president, exploration and production, said at a conference Wednesday.

“We’ve got early production of around 25 MMcf/d this year, limited by infrastructure capabilities,” Kilgour told attendees at Peters & Co. Ltd.’s 2006 North American Oil & Gas conference in Toronto. “We’re expanding a gas plant in the area, building some pipeline to get the full potential of this play onstream in 2007.”

Kilgour said the plan is to grow production to about 300 MMcf/d by the end of the decade “and further beyond that as we acquire more land position.”

For instance, last year Shell Canada doubled its tight gas sands holdings when it acquired 58,000 acres in northeastern British Columbia for $85 million (see Daily GPI, June 24, 2005) and ended the year by tripling its Canadian gas land holding (see Daily GPI, Dec. 20, 2005).

“So our ambition on the unconventional gas plays is to go from essentially nowhere in 2004 to be a top-five player by the end of the decade. And we’re on track to achieving that target,” Kilgour said.

Harboring unconventional gas ambitions is hardly out of the ordinary for an E&P company these days. In Shell Canada’s case, where exploration and production is one of three business units, it’s important to note that the company is not abandoning the deep, sour gas wells that brought it to the dance oh so many years ago.

“We are in the natural gas business in western Canada and have been for over 50 years,” Kilgour said. “We invest in a discreet part of the Western Canadian Sedimentary Basin, what we call the high technology end of the gas business, deep sour gas plays and unconventional gas. And over the years we’ve been investing to offset natural decline in the basin.”

Stronger gas price signals of late have made it much easier for Shell Canada to justify investing in its legacy basins to the extent the company has “turned the corner” on gas production decline. “We are growing our natural gas production in 2006,” said Kilgour. “Production in 2006 will exceed 2005, and I’m fairly confident that as we walk forward into 2007 we’ll see the same story. This not only offsets decline of about 10-15% in our particular gas field in the west, but also is growing production and replacing reserves accordingly.”

The Foothills area of Alberta has been the “anchor and foundation” of Shell Canada’s gas business for more than 50 years and remains one of the company’s core asset areas. “We have very, very significant assets, sour gas processing assets in the southwestern part of the province along the Rocky Mountains,” said Kilgour. “We’ve made investments over recent years to increase the capture area of these assets to ensure they remain full and the utilization is high and the unit cost performance therefore remains competitive.”

Noteworthy of late is exploration success the company has enjoyed in northeast British Columbia, said Kilgour, “and, surprisingly enough, even around areas like Waterton [in southern Alberta], close to the U.S. border, which is a gas field that we’ve been developing for over 40 years. We still see exploration opportunities in these mature fields because of the complexity of these deep Rocky Mountain thrust sheets.

“So, in the Foothills game — the deep, high technology sour gas game — we are a leader, and there is still plenty of running room, we believe, to continue to grow the business.”

Shell Canada’s exploration and production (E&P) unit operates four sour gas processing facilities in the Foothills region and a number of sour gas wells in northeast British Columbia. The four gas plants are Caroline, Jumping Pound, Burnt Timber and Waterton. The E&P business also has an interest in the Sable Offshore Energy Project (SOEP) and the proposed Mackenzie Delta pipeline, as well as involvement in coalbed methane and an interest in the Orphan Basin offshore Newfoundland.

Kilgour conceded that his company’s activity offshore Nova Scotia has been checkered. “I’m pleased to tell you that that corner is also turning, and we’re seeing very much improved performance from the field offshore Nova Scotia,” he said. “In September our production rates are the highest we’ve seen for the last two years, and we’re seeing improved performance from some infill wells we’ve recently drilled.” He said the good news is welcome after some tough early years (see Daily GPI, March 5, 2003).

Shell Canada has a 20% stake in a wildcat in the Orphan Basin. The well spudded in August in 7,500 feet of water with a total drilling depth of about 24,000 feet. Well results will be available later this year, Kilgour said. “We’ll see if there’s any hydrocarbon potential here in the next few months.”

As for the Mackenzie Delta pipeline, which has been plagued by delays (see Daily GPI, Aug. 4), certification is expected from Canada’s National Energy Board some time next year, Kilgour said.

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