Exxon Discovers Canadian-Sized Gas Prize

Folks... you thought shale gas was big. You've been impressed by the America's jump in gas reserves - a prelude, to be precise. You've been impressed with the size of shale fields, that we have a 100-year supply of gas, that the whole world now wants to learn from our success. Folks... this isn't going to end anytime soon.

Congratulations, Canada. The Horn River Field, it turns out, may be the best shale play in N America:

Exxon is most encouraged by the exploration of 250,000 acres it has leased in the Horn River Basin, in northern British Columbia. Mr. Cejka said results from the first four wells lead the company to conclude that each well will produce between 16 million and 18 million cubic feet of gas a day.

That's five times the size of average wells in Texas's Barnett shale and comparable to big wells in Louisiana's Haynesville shale, two major shale-gas fields that already have moved the U.S. natural-gas market from scarcity to abundance.

Though Exxon is better known as the nation's largest oil company, "We are really interested in shale gas," Mr. Cejka said, detailing the company's push into the energy-exploration business, which was once dominated by scrappy independent companies.

[...]

Other energy companies also are excited about the Horn River field. "This may be the best shale play in North America," said Michael Graham, an executive vice president at EnCana Corp., a Calgary company that already has a big Horn River presence. Mr. Graham said EnCana's latest wells are approaching Exxon's in terms of initial production.

Exxon's Mr. Cejka said that his company also has pieced together substantial leases in prospective shale-gas formations in Germany, Hungary and Poland, and is still adding acreage. Tests on two wells in Hungary, where Exxon and partners hold 400,000 acres, are expected this year. It will be the first time the shale there has been tested.

"Depending on how that goes, we'll either be patting ourselves on the back or walking away," Mr. Cejka said.

The company also plans 10 wells on 750,000 acres it holds in northern German's Lower Saxony Basin this year to better study the geology.

- Brewskie

Leaving Canadian Gas Out to Freeze

Not long ago, when peakers and technologically ignorant experts were lamenting America's gas fate, they pointed to Canada, where America was obtaining 15% of her gas, and her production decline.

How quickly things change. With new gas supplies, yanks are saying, "Thanks, but no thanks, hosers."

A new natural gas pipeline in the United States is allowing cheap gas from the Rockies to displace more than 10% of Canada’s gas exports to the Midwest United States, forcing more Canadian gas into storage and lowering natural gas prices for Canadian producers.

The 1,679 mile, $4.4 billion Rockies Express pipeline, or REX, is providing about 1.5 billion cubic feet per day (bcf/d) of cheap gas from the Rockies through the Midwest to Ohio. The latest section of REX just opened June 29 (www.rexpipeline.com).

The new pipeline is displacing about 600 million cubic feet per day (mmcf/d) of Canadian production, says Jack Weixel, director of Energy Analysis for Bentek Energy. Bentek provides specialized energy pipeline information to clients in the oil and gas sector in North America. Weixel estimates the mid-continent corridor of pipelines send just over 5 bcf/d of gas, net, to the United States from Canada (some western Canadian gas goes back into Southern Ontario via Michigan).

[...]

Normally Canadian gas would flow through to the big consuming area of the US Northeast, but that market is having a lot less demand this year. Weixel says he sees slightly less Canadian gas being pushed off the grid in the fall, but adds that Canada needs to go find new markets for its gas.

“The US has solved its own problem, and we are less reliant on Canadian
gas. It’s still an important part, especially in the Northeast, but not so much for Midwest or California.” A new pipeline, called RUBY, is already being
planned to take Rockies gas to California -- another big market for Alberta gas,
Weixel says.

The Liquid Natural Gas export terminal from Kitimat, on the west coast of British Columbia, is a great idea for the Canadian industry he says. Alberta needs to do more to develop export markets for its natural gas.

Weixel adds,

“We could see US$2 gas (per mcf). It’s definitely possible. We haven’t seen the production declines down here yet. Rigs are dropping but they are more efficient
now. And the success rate is much higher in drilling wells into these new shale formations. (The production decline) is coming, but not as foretold as everybody
thought it would be.”

The displacement of Canadian gas imports was reported here earlier, plus the questionable need for the Alaska Natural Gas Pipeline (which carries an estimated price tag of $26 billion).

Amazing how quickly things change.

- Brewskie

Halifax Finds Addidtional Shale G... Zzzzz....

Hmm? Oh yeah... Halifax found load boats more shale gas in southern New Brunswick - making the gas reserves much larger than previously thought. Shale gas... 'bout as exciting as seeing a sparrow now days (kidding;))

Shares in a Halifax junior exploration company went up Friday with news that the company’s discovery of shale gas in southern New Brunswick is much larger than originally believed.

Corridor Resources Inc. announced that an independent study carried out in June estimates that 67.3 trillion cubic feet of shale gas is contained at Frederick Brook in the Sussex/Elgin sub-basins.

This is three times the volume expected, according to an analyst’s report.
Shares in Corridor Resources were up 49 cents, or by 20 per cent, in late afternoon trading at $2.89 on the Toronto Stock Exchange.

- Brewskie

No Need for Arctic Gas; Alberta in Trouble?

Several posted articles postulated that shale gas may wipe out the need for gas from Alaska's North Slope, or from Canada's frigid Mackenzie Valley; a post from canada.com confirms the same:

Abundant cheap supplies of natural gas from new shale deposits, plus growing imports of liquefied natural gas flowing into the United States, push back by 15 years the need for Arctic gas and make it difficult for higher-cost gas from Western Canada to compete, says pipeline executive Steve Letwin.

The North American natural gas industry is "overbuilt," pointing to weak prices for a long time, said Mr. Letwin, Houston-based executive vice-president, gas transportation and international, at Canadian pipeline giant Enbridge Inc.

Years of worry about supply shortages because of the maturing of conventional supplies have been replaced by worries there aren't enough customers for the 1,200 trillion cubic feet of natural gas in shale deposits -- enough to last a century -- found in the past three years, plus liquefied natural gas coming from offshore that is "needed like a hole in the head," Mr. Letwin said in an interview.

"The biggest issue that we now have is [insufficient] demand," said Mr. Letwin. "And in the absence of demand, you are going to see a price for gas that is going to be kept between US$5 and US$7 for a long time to come."

[...]

Shale producers in the United States can make money at low prices, he said. But the trend is not promising for natural gas stranded in the Arctic, which has
been waiting for decades for pipelines to be built so it can be commercialized.

Another canada.com post speculates that America's shale gas resources may hurt Alberta's
fiances, of which has been a producer of gas exported to the US:

Major shale gas discoveries in the southern United States are threatening the financial lifeblood of Alberta: the royalties the province collects from natural gas, Premier Ed Stelmach says.

[...]

Energy companies aren't drilling in Alberta because of the new finds and a ``very, very depressed gas market right across North America,'' the premier explained.

He said the major new finds, including some estimated at a trillion cubic feet in Louisiana and Texas, are much closer to the market than Alberta ``and these are serious consequences for the revenue side in government.''

Stelmach couldn't say how much of an impact there will be on provincial revenues in terms of a dollar amount, but said ``royalties are at least a good third of our revenue stream.''

- Brewskie

EnCana to U.S.: "Shale Gas for Hosers?"

EnCana, Canada's largest independent natural gas producer, looks to siphon some sweet shale gas from the U.S., and learn a thing or two about fracing (pronounced "fracking"). In fact, she looks to be producing half her natural gas in the near future... from the U.S.

Perhaps you think of this as benign. "Big flippin' doo-doo," you say, "why's this so important?"

Because the yanks are innovators of shale gas extraction: others in the West are looking to us for help. Europe is in study mode to gauge its shale gas potential; Canada, too. As I mentioned before, shale gas is expected to meet half of N. America's natural gas needs by 2020. Big things are expected from this, and developed nations want our know-how.

From canada.com:

Canada's largest independent natural gas producer, which released strong first quarter results Wednesday, said this year it will redirect $290 million US from other areas toward its promising Haynesville leases on the Texas- Louisiana border.

The addition will bring EnCana's investment in the play up to $580 million, about 13 per cent of the company's $4.6-billion capital budget dedicated to oil and gas programs in Canada and the United States.

Technology broke open opportunities to produce shale gas, once notorious for being a difficult resources to make economical, EnCana president Randy Eresman said.

[...]

Tough times, but EnCana is well braced...

Calgary-based EnCana holds about 435,000 net acres in the Haynesville shale play, as well as one of the largest land positions in northeastern British Columbia's Horn River play - about 260,000 net acres.

The company has committed to reducing costs across the board by 10 per cent this year, and part of the savings will be reallocated to programs like the Louisiana resource, where labour and service costs are cheaper and the infrastructure to carry the fuel to market is extensive, he said.

The company reported earnings of $962 million US, up from $93 million a year prior.

[...]

Good/bad?

Eresman warned EnCana could cut its $6.1-billion capital budget later this
year if natural gas prices remain in a trough.

If demand doesn't drain current high storage inventories, or there are no supply disruptions from hurricanes, natural gas prices could drop below $3.50, forcing more wells to be shut in, analysts say.

- Brewskie

More Canadian Tar Goo Research

(Hat tip: Next Big Future)

This piece is about Excelsior's Energy Limited experimental situ combustion bitumen-recovery process called, "Combustion Overhead Gravity Drainage."

Excelsior has developed the COGD process in cooperation with Hot-Tec Energy Inc., a private company affiliated with members of the In-situ Combustion Research Group from the Department of Chemical and Petroleum Engineering at the Schulich School of Engineering, University of Calgary. The In-situ Combustion Research Group is a global leader in the application of in situ combustion recovery processes.

The company said it expects that the application of the COGD recovery process could result in significantly improved bitumen economics through both enhanced recovery gains and substantial reductions in the amount of required water, fuel gas and diluent.

As a result, the company will be focussing its resources towards an experimental in situ COGD pilot project. A project application will be submitted in the second quarter of 2009 with anticipated regulatory approval in approximately one year for the subsequent implementation and commissioning of the pilot in the first quarter of 2011.

[...]

The COGD process is expected to bring a significant reduction in water usage for steam generation by up to 80% compared to a similar sized SAGD process. It is expected to yield a significant reduction in fuel gas consumption for steam generation by up to 80% compared to a similar sized SAGD process, as COGD uses the in situ energy of the bitumen which would otherwise be unrecoverable.

It also involves a reduction in diluent demand as a result of potential in situ bitumen upgrading and a reduced environmental impact through decreased water draw and water recycling, decreased fuel gas and diluent demand.

All of these should significantly improve project economics as COGD recoveries are estimated to be as much as 50% greater than SAGD recoveries, and capital and operating costs are estimated to be considerably lower than comparable SAGD projects.

COGD employs an array of vertical air injector ignition wells above a horizontal production well located at the base of the bitumen pay zone. A short initial period of steaming prepares the cold bitumen for ignition and develops enhanced bitumen mobility in the reservoir. Upon ignition a combustion chamber develops above and along the length of the horizontal well with combustion gases segregated in the upper part of the reservoir and hot bitumen flowing by gravity into the horizontal production well.

- Brewskie

InterOil's Giant Gas Blowout

Another natural gas post. Read this... it's a whopper...

InterOil (IOC) is a Canadian integrated (exploration assets, refinery, near distribution monopoly) located in Papua New Guinea [PNG]. After having struck two earlier profusely flowing natural gas and liquids wells (flowing at 102 and 105MMcf/d respectively), they hit an absolute killer with Antelope1, which
flowed at a whopping 382MMcf/d.

According to Seeking Alpha,

• 382MMcf/d with the pipe only 30% open for safety reasons, and the log indicated that the permeability at the top did not allow the lower section of the reservoir to contribute to the flow test. That is, all the gas just came from the top 12% of the reservoir.

• 5000bb/d in condensates.

• 792 meters (2300ft) of net pay zone, which is more than three times the size of the biggest American well (650ft), and the gas / water contact has not even been determined yet.

• The largest calculated absolute open flow [CAOF] at 17.7 Billion cubic feet of natural gas per day.

• 8.4% average porosity.

• From the seismics, the Antelope field is 14 x 7 kilometres.

That's BIG. She continues...

Just three wells flow 600MMcf/d, more than enough to supply the daily needs of an LNG facility. This is roughly equivalent to the daily productivity of Southwestern Energy (SWN), enterprise value of 10.5 billion. It is larger than the daily production of Ultra Petroleum (UPL), enterprise value of roughly $6 billion. The record-breaking well by itself has larger daily production than the entire corporation of Range Resources, enterprise value $7.3 billion.

And all that with just three wells, with seismics indicating plenty of potential left for more. This leads to another important point, how InterOil’s location and quality of its resource provides it with a large cost advantage over most competitors for the most lucrative LNG market in the world, Asia Pacific.

Reserve Reports

These might not provide much ‘wow’ factor either, as these reports tend to concentrate on what can be proven now, not on how much more there might very well be (according to seismics), so they have a conservative bias and are
unlikely to come close to the numbers going around on the boards (6-12Tcf) or InterOil (11Tcf).

Valuation

Raymond James in a recent research report used two valuation methods, a net asset valuation [NAV], and comparing it with similar deals.

For the NAV exercise, they used the following assumptions: 6.9Tcf of gas , 60% working interest, 50% risk factor, $0.75/Mcf multiple, very conservative in the light of “Asia’s premium priced (typically $10+/Mcf) LNG market and valuations in the depressed U.S. gas market (typically $1.50 to $2/Mcf) and 69MMBbls of condensates at $10 per barrel and risked the same way.

They arrive at a NAV of $55.52 per share, roughly 2.5 times current prices, with substantial upside to both the amount of gas, its valuation, and reducing the risk factor (with independent reserve reports).

Perhaps even more interesting was Raymond James comparing a possible InterOil deal with Nippon Oil buying AGL’s 3.6% stake in the PNG exploration interest and LNG facility planned by OilSearch and Exxon, for $800 million last December.

Arguing InterOil’s assets are comparable to those for sale in the above transaction, a 25% stake would fetch $5+ billion and put the enterprise value at a whopping $22 billion. All this suggests that, longer-term, this stock can only move in one way, and that is up.

- Brewskie

Using Nuclear Power (Errr... Thermal Batteries;)) to Bake Tar Sands

It's called "Mordor of the North:" a vast environmental holocaust larger than Florida, stripped of forests, scarred from mining, with polluted "seas" that place Down Chemical high on Patrick Moore's best environmental stewards list. But since we're too lazy to got back to 19th century farming, and with renewals still out of reach for a bit, we regrettably have no choice but to rely on the blood of the earth - even if... sometimes, and tragically, that mean literally beating that blood out of Mother Nature's face.

Vast amounts of natural gas are required during tar sands' separation process, where water is superheated into steam to separate the bitum; egg heads grind gears day and night researching improved/alternative methods to reduce costs.

Hyperion has floated this idea: use a hot-tub sized nuclear generator, placed underground, to power the process to sip oil out of tar sands, displacing the need to transport and burn natural gas.

Excerpt found below:

Yeah, it’s an unusual target market — and Hyperion is an unusual company. Hyperion claims that those mining an average oil field could save as much as $2 billion a year if they used the company’s technology instead of natural gas to power the process. Oil fields are also remote locations, where the costs of transporting fuel for power cut into the bottom line.

Tar sands developers, like the military, which Hyperion is also targeting, could also be, for lack of a better word, less squeamish about controversial forms of power — the industry is already routinely the target of attack by environmentalists.

But Hyperion also appears to be trying to distance its marketing from the “nuclear” elephant in the room. The term nuclear does not appear once on its latest news release — surprising, given it’s the crux of the technology. Instead it’s using terms like “thermal battery,” explaining the module as one that utilizes the “energy of low-enriched uranium fuel.” We figure anyone who’s going to plunk down $25 million for the device would figure it out.

Deliveries are expected to hit 2014, pushed back from 2013.

Some will undoubtedly find this controversial, but Canadian tar sand extraction and processing is already controversial enough. Wouldn't we rather use nuclear power - which commits no greenhouse emissions, and has plenty of uranium at disposal (this is Canada) - for tar sand processing over natural gas, which does contribute CO2 emissions and is in finite (though ludicrous) quantities? Smell the air of "Modor of the North," wither your lungs like Golem, decide for yourself.

- Brewskie

Cleaning Canadian Tar Sand Water

(Editor's note: What a busy week! There's hardly been time to post anything, much-the-less studying up on energy.)

Canadian tar sand production is a dirty, nasty business. It's relatively common knowledge that Canadian tar sands must be mined; vast amounts of water, super-heated by nat. gas, is necessary to separate the bitumen from the sand. This in effect leaves behind highly polluted, toxic man-made lakes where the polluted water is stored.

CNFO offers a solution to this. It's press release states: "it has been engaged by Premere Resources Corporation to develop a new application of its desalination technology to clean waste water from heavy oil and tar sands processing."

More from the press release states:

Large amounts of brine water are created in the processing of heavy oil. CNFO will adapt its desalination process to clean this waste water so that it may be reused instead of discarded as an environmental waste product.

Forty percent of Canada's oil production is from tar sands. The large amount of salt water produced in this process has become an increasing threat to the environment. CNFO's technology will address this threat by separating the clean water from the pollutants so that the fresh water can be reused. This will reduce the amount of water consumed in production and the amount of environmental waste produced by the process. There is more oil stored in tar sands than in all conventional reserves combined. Production of oil from tar sands is expected to increase significantly in the next several years.

This still doesn't dilute the fact that, because of the vast mining operation, the land suffers terrible scars as a result. One can even see the mining's effect from lower orbit in space. However, we are forced to rely on hydrocarbons for the moment to power our lifestyle - nobody, save for boondoggled hermits, wishes to embrace a 19nth century or Mad Max lifestyle. The unpardonable environmental sins, though, should give us extra incentive to move onto the sustainable 21st century lifestyle, and make hydrocarbons obsolete.

Let's move; chop-chop!

- Brewskie

- Brewskie