WCSB unconventional plays draw renewed investor interest

Western Canada is attracting more investor interest as extensive unconventional inventory, and improving market access strengthen the long-term investment case.

New analysis from Geologic suggests the WCSB offers significantly more growth potential and undeveloped land in the Canadian assets than in the U.S. like the Permian Basin.

Geologic’s Bruce Hancock, Director, Geoscience, said increasing productivity, excess processing capacity, and a stable and improving regulatory environment are strengthening the investor business case.

The Montney, covering 130,000 sq. km and containing over 440 tcf of recoverable natural gas and billions of bbls of oil and NGLs, has been the primary focus for investment.

Recent deals include Ovintiv Inc.’s $3.3 billion acquisition of Paramount Resources Ltd.’s Grande Prairie assets, and its $3.8 billion deal for NuVista Energy, along with Shell plc’s $22 billion acquisition of ARC Resources.

Part of the Montney’s appeal is how much of it remains undeveloped, Hancock said, pointing to the ARC deal where around half of the acreage acquired by Shell is undrilled.

Growing LNG demand strengthens Montney outlook

The current influx of investment has targeted oil and liquids rich opportunities, but with LNG exports expanding natural gas will increase in importance.

“The key is the feedstock for future LNG pipeline capacity to the west coast. Right now, there is currently 2.1 bcf/d that goes from Dawson to Kitimat,” said Hancock. “It is going to be increased to 5 bcf/d over the next number of years with the addition of seven or eight compressor stations along the Coastal Link pipeline that moves the gas.”

The availability of processing capacity adds to its cost competitiveness, he said.

“The capital cost has already been built in. I can just drill to fill now.”

The stacked development potential in the Montney is another advantage, said Maureen Stonehouse, senior geologist for Geologic’s quarterly exploration publication geoXPLORER.

“It’s a very thick reservoir. There is up to 200 to 300 metres of total thickness with multiple stacked benches that haven’t been developed yet.”

In B.C. the Upper and Middle Montney are the targets, said Stonehouse. In Alberta, operators are drilling multiple benches in Middle Montney in the Pouce Coupe area, with Advantage Energy drilling four different landing zones at Glacier.

“In some of the other Middle Montney, there’s only one or two wells landed, so there’s room to optimize and drill quite a bit more.”

Moving south to the Wembley Pipestone area, the Lower Montney begins to thicken, with some wells landing within that zone, she said.

“You still have three wells landing in the Middle Montney and in some areas where there’s only one well landed in the Lower Montney. So again, there’s remaining inventory.”

At Kakwa, the Lower Montney continues to thicken, with some operators landing two wells within the zone, she said.

“This is relatively new. And the Upper Montney still has 2 or 3 landing zones as well.”

With persistently low natural gas prices, oil and condensate has been driving investment, she said, pointing to Shell’s acquisition of ARC’s Kakwa assets. Condensate production from Kakwa comes in at approximately 116 bbls per mmcf of natural gas.

“The ARC CEO recently said that 70 per cent of its revenue came from its 40 per cent liquids production.”

Duvernay shale growth draws new foreign investment

The Duvernay shale play has also attracted foreign investor attention, with privately held Cygnet Energy acquiring Kiwetinohk Energy for C$1.4 billion, adding to its Duvernay and Montney asset base. U.S. royalty company Northern Oil and Gas Inc. recently bought a 25 per cent non-operated interest in the oil focused East Shale Basin from Parallax Energy for $350 million.

Activity in the Duvernay has been expanding from the Kaybob and East Shale Basin to what is called the West Shale Basin centered around Willesden Green, close to the Homeglen Rimbey Reef complex, said Hancock.

As the play continues to develop, it could attract investors looking for early stage, long life reserve assets.

Paramount Resources has built a significant position at Willesden Green (over 500 sections), with production averaging almost 29,000 boe/d in the first quarter.

Spartan Delta Corp. has 815 net sections, with 14,000 boe/d of production to the north of Paramount Resources.

Private operator, Teine Energy, has amassed approximately 730 sections to the north at Carrot Creek, with production around 10,000 boe/d in the central portion of the West Shale Basin.

While not as thick as the Montney, the Duvernay is 40 to 50 metres thick, the Duvernay has oil saturation as high as 50 per cent, said Stonehouse.

“It’s really an up-and-coming area. It’s got quite a bit of development that’s happened recently, but also lots of potential in the future.”

Like the Montney, the target is oil and condensate, said Alex M.D. Renaud, Geologic’s senior engineering advisor for reservoir and production.

The pentanes plus or condensate are feedstock to oilsands operations as diluent, he said.

“You’re not going to send six API crude oil down a pipeline, so there’s a big demand for these hydrocarbon liquids for blending considering the significant growth we’re seeing in oilsands development.”

Other NGLs supply the petrochemical industry, he added, and propane and butane are increasingly being exported off the west coast.

“There’s going to be demand for what’s coming out of the Duvernay and that’s why I think many people are interested in pursuing assets through there.”

Deep Basin condensate growth adds new investment potential

The Deep Basin Spirit River play could also generate some investor interest, said Hancock.

“It’s really interesting in the Spirit River, how many good wells are now being drilled by companies like Peyto and Tourmaline. You are seeing 15 to 20 million a day gas wells being drilled in there.”

“And it’s an interesting story. It’s always been considered a gas play. Well, there’s liquids in there.”

Advanced drilling and completions technology boosts WCSB performance

Like in the U.S., Canadian unconventional operators are focused on balancing well productivity with drilling and completions efficiency, said Rhonda Gravel, Manager, Technical Advisory Group.

“Starting with completed lengths, the Duvernay, Montney, and Spirit River are all following that same upwards trend to varying degrees, but basically, it’s been increasing over the last 10 years across the board.”

Operators on both sides of the border seem willing to accept a small reduction in well productivity to capture efficiency savings, she said.

Completions designs have been customized to match geology, she said, with higher proppant intensity in the Montney and greater fluid volumes pumped in the deeper Duvernay play.

Overall, operators are balancing efficiency with maximizing production, she said.

Aside from extended reach wells, Canadian operators are taking advantage of simulfracs and trimulfracs pioneered in the Permian Basin and using automation to speed drilling and fracking operations.

AI decision making is also increasing, she said.

“Right now, operators are tiptoeing into it with a lot of parallel decisions being made and kind of tracking how it’s doing alongside human made decisions.”

“And on the maximizing production side, there’s always a focus on frac design and geology, picking the best rock, but also a little bit more push into advanced diagnostics.”

“So, it’s lots of real time analysis in the frac and drilling side, helping us make some better decisions.’