Canada Briefs

Dec. 12, 2014

Encana sells Alberta CBM assets to Ember

Encana Corp. has agreed to sell the majority of its Clearwater coalbed methane (CBM) assets in Alberta, Canada, to Ember Resources Inc. for US$541 million.

Ember is set to acquire 1.2 million net acres and more than 6,800 producing wells. The assets yielded 180 million cubic feet of gas-equivalent per day (MMcfed)in the second quarter.

The purchase increases Ember's total land position in the Horsehoe Canyon CBM fairway to 2.2 million net acres, and raises combined gross production to 290 MMcfed.

Ember, based in Calgary, specializes in CBM.

Encana will retain 1.1 million net acres in Clearwater, including 480,000 net acres along the eastern edge of the Horseshoe Canyon fairway.

The sale advances Encana's plan to deemphasize gas production in favor of increasing output of more-lucrative oil and NGL.

"We are unlocking additional value from non-core dry gas assets as we focus on liquids rich growth areas," said Doug Suttles, president and chief executive officer of Encana.

In recent months, traditionally gas-weighted Encana has acquired leasehold in the oil-rich Eagle Ford shale and Permian basin.

This summer, the company agreed to purchase Freeport-McMoRan Oil & Gas LLC's Eagle Ford shale assets for $3.1 billion. The deal marked Encana's entrance to the South Texas oil play, and was set to more than double company-wide oil production.

The purchase included 45,500 net acres in the Eagle Ford's oil window that yielded 40,000 b/d in the second quarter (UOGR July-August 2014, p. 8). By comparison, Encana's company-wide second-quarter production totaled 32,100 b/d.

In September, Encana secured a foothold in the Permian basin, agreeing to purchase Athlon Energy Inc. in a deal valued at US $7.1 billion. The merger will bring Encana 140,000 net acres in the oil-rich Midland subbasin with production of 30,000 boe/d.

Encana is also developing the liquids-rich Montney and Duvernay shales in Canada.

The sale to Ember is expected to close in the first quarter of 2015, pending regulatory approval.

Small operators lead Montney development

The Montney oil play in Canada offers strong economics, but the fragmentation of the play presents a hurdle for major operators seeking to build large leasehold positions, and its shallowness casts doubt on recovery factors, according to a report by IHS Energy.

"The Montney oil subplay offers robust economics, which bodes well for the commercial development of the play. But the play does face some technical challenges and its fragmentation means that we really don't have the large sweet-spot that would attract larger operators to the play," said Hassan Eltorie, principal analyst at IHS.

"A larger company would have to make many acquisitions to have an impact in the play, which would be difficult due to a lack of M&A activity," Eltorie said.

Eltorie authored Alberta Montney Oil Subplay, a play analysis issued by IHS in October.

The Canadian National Energy Board (NEB) estimates the mean, in-place unconventional oil resources in the Montney total 141.5 billion bbl. Commercially recoverable oil resources are estimated at 1.1 billion bbl. This implies a recovery factor of only 0.7% which, IHS notes, is much lower than most unconventional plays.

NEB also said the shallowness of the subplay creates uncertainty for well recovery factors, and suggests unusual technical challenges.

IHS data show the average, peak-month production rate for Montney wells fell 16% in 2013, to 351 boe/d, after rising 211% in 2011 and 124% in 2012.

This absence of steady improvement prompted some operators to reduce drilling activity in 2013, IHS said.

However, IHS said, drilling economics remain robust, and smaller operators are leading development. Operators are targeting one of two areas each, with numerous areas targeted across the play.

RMP Energy and ARC Resources are seeing strong results across the play. According to Eltorie: "ARC Resources has excelled, in particular, since its well performance has bucked the trend by recording improved rates."

Other Montney operators include Trilogy Resources, Athabasca, and Long Run Exploration.

Eltorie did not expect recent oil price fluctuations top impact Montney drilling. IHS estimates the break-even price for the average Montney well is $60/bbl. "With the current drop in oil prices averaging in the $80/bbl range, we do not think price pressure will lead to a curtailment in activity," Eltorie said.

Ferus opens merchant LNG plant in Alberta

Ferus Natural Gas Fuels Inc. has opened the largest merchant LNG facility in Canada.

The facility, in Elmworth, Atla., produces up to 50,000 gal/day of LNG and capacity is expandable to 250,000 gal/day. The LNG is being used as fuel for drilling rigs, pressure pumping equipment, water heating for well fracturing, and heavy-duty highway and off-road trucks. It also has applications in rail, mining, and remote power generation.

"Canada has an abundance of natural gas and Ferus NGF is playing a lead role in facilitating its use as a consumable engine fuel," said Dick Brown, chief executive officer of Ferus.

Ferus has also built specialized mobile storage and dispensing equipment for LNG and CNG. Ferus tube trailers are used by GE Oil & Gas as part of its Last Mile Fueling system, which converts associated gas into CNG at the wellsite. In the North Dakota Bakken shale, Statoil North America Inc. uses Ferus tube trailers to supply bifuel rigs and equipment with CNG (UOGR, May-June 2014, p. 1).

Weak gas prices, an abundant supply, and an improved emissions profile are leading natural gas to gain traction as a fuel for rigs, equipment, and vehicles in North America.

"As emission standards continuously evolve and companies strive to meet them while simultaneously finding ways to reduce operating costs, natural gas is positioned to become the fossil fuel of choice in North America," Ferus said in a release.

Company material shows that burning natural gas instead of diesel yields a 30% reduction in CO2 emissions, a 75% reduction in NOX emissions, a 90% reduction in particulate emissions, and a 99% reduction in SOX emissions.

Ferus's LNG facility is near the core of oil and gas activity in northwest Alberta and northeast British Columbia. It came online in May.

Chevron, Kufpec team up in Duvernay

Chevron Corp. has agreed to partner with Kufpec Canada, a subsidiary of Kuwait Foreign Petroleum Exploration Co., to develop acreage prospective to the liquids-rich Duvernay shale in Canada.

Under the $1.5 billion deal, Kufpec will gain a 30% working interest in 330,000 net acres in the Kaybob area, 120 mi. northwest of Edmonton, Alta. Chevron will remain operator and hold a 70% working interest.

Chevron has drilled 16 wells in the exploration area, with initial production rates as high as 7.5 MMcfd of gas and 1,300 b/d of condensate.

Chevron has begun a pad drilling program that is expected to reduce drilling costs, decrease rig cycle times, and aid in reservoir performance optimization efforts.

"We remain encouraged by the early results of our exploration program and view the Kaybob Duvernay as an exciting growth opportunity for the company," said Jeff Shellebarger, president of Chevron North America Exploration and Production Co.

Other Duvernay operators include: Royal Dutch Shell Plc, Encana Corp., Athabasca Oil Corp., and Apache Corp. This year, Duvernay operators were expected to shift from delineating the core of the play to full-scale development mode, primarily in the Kaybob area.

Kufpec will pay Chevron a portion of the $1.5 billion deal value in cash at closing, and the remainder will consist of future payments to cover a portion of Chevron's capital costs in the joint venture area.

The deal was expected to close in November.