What is the Montney Formation - Where is the Montney Shale Located? The Montney
Shale Natural Gas Field is located in British Columbia, Canada and extends into Alberta. The Montney Shale Play
is located in the Dawson Creek area just south of the Horn River Shale as well as the Duvernay Shale. Higher natural gas prices have caused companies to look at unconventional resource plays
such as shale formations to extract natural gas. Geologists have known about the Montney Shale for a long time.
Low natural gas prices combined with the lack of technology has caused this shale play to be ignored. Until Now!
The Montney Shale formation is a shale rock
deposit located deep below British Columbia, Canada. Natural Gas can be found in large quantities trapped in this tight
shale play. Companies have been sweeping up land leases all across this area with the goal to explore and drill for
the natural gas. There has also been oil found to the north, west, and south of the Montney Shale which could turn this
shale field into an oil play someday.
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How is Natural Gas extracted from the Montney Shale? Companies drill vertical wells in the
Montney formation and then drill across or horizontally. In most cases, drilling a horizontal well can net you up to
five times more natural gas then a vertical well. The cost of drilling a horizontal well is roughly double that
of a vertical well. New fracturing techniques have really made these shale plays like the Montney Shale, profitable.
Companies shoot millions of gallons of water with the combination of sand at high pressures at the shale rock causing it to
fracture. In most shale formations, an 8-12 stage fracturing program is used to get at the natural gas. This can
take 30-45 days versus back in the 1980's it took 60-75 days to complete. This is possible thanks to new and improving
technology that is being used now a days causing the shale plays to be even more profitable then ever before.
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Record Land Leasing in the Montney Shale
area! Back in 2008, the shale gas land grab was off the charts. It is estimated that the Montney Shale
holds up to 50 trillion cubic feet of natural gas while the Horn River Shale has the potential to be much greater. While it is a bit early to tell, this isn't stopping companies from leasing
land at record prices. On July 18th, 2008, British Columbia Oil & Gas rights auction set a new
record of $610 million dollars for the right to drill at British Columbia's Montney Shale area. A total of 146
parcels covering 134,196 hectares ( average of $4,596 per hectare ) were won with some buyers paying up to $32,500 per
hectare for drilling rights. ( 1 Hectare is equal to 2.47 Acres ) This brings the total so far
this year in British Columbia for shale rights leasing to nearly 1.5 billion dollars! One Parcel just West of Dawson Creek
sold for $157 Million Dollars. This would appear to be one of the core areas in the Montney Shale formation.
The Montney Shale natural gas field is heating up! Encana started
snapping up land years ago for $800 a hector ( roughly $324 an acre ) and is the largest operator in this play to date.
Shortly before the $610 million auction in July, Shell Canada bought Duvernay Oil Company for C$5.9 billion dollars. Duvernay had 450,000 acres in the Montney Shale and Alberta's Deep
Basin.
April 21, 2010 - Encana ( ECA ) Entered into farm-out agreement with Kogas Canada Ltd.
(KOGAS), which will invest up to C$565 million over three years towards earning a 50 percent interest in about 154,000 acres
of land in the Horn River shale play and Montney formation in the Greater Sierra and Cutbank Ridge key resource plays
February 2011 - Encana (ECA) sells Montney Formation stake to PetroChina for C$5.4 billion - Encana Corporation (TSX, NYSE: ECA) has signed a Co-operation Agreement
with PetroChina International Investment Company Limited, a subsidiary of PetroChina Company Limited, that would see PetroChina
pay C$5.4 billion to acquire a 50 percent interest in Encana’s Cutbank Ridge business assets in British Columbia and
Alberta. Under the Co-operation Agreement, the two companies would establish a 50/50 joint venture that would ambitiously
grow natural gas production from the Cutbank Ridge lands for years ahead. Under the agreement, PetroChina would pay
C$5.4 billion to acquire a 50 percent interest in the Cutbank Ridge business assets, an interest that represents current daily
production of about 255 million cubic feet equivalent per day (MMcfe/d), proved reserves of about 1.0 trillion cubic feet
of natural gas equivalent (Tcfe), as at the end of 2010, and about 635,000 net acres of land straddling the British Columbia
and Alberta boundary. The planned joint venture infrastructure, on a 100 percent basis, includes about 700 million cubic
feet (MMcf) per day of processing capacity, about 3,400 kilometres of pipelines and the Hythe natural gas storage facility.
The business assets in this planned joint venture include the majority of Encana’s Montney, Cadomin and other natural
gas assets on a portion of the company’s British Columbia and Alberta lands. Under the planned joint venture, each company
would contribute 50/50 to future development capital requirements. Encana will initially operate
the joint venture’s assets and market the production. Following the completion of the transaction, the joint venture
would operate under the direction of a joint management committee - Link
Companies Drilling in the Montney
Shale - Montney Shale Stocks
Encana ECA - Encana (ECA) Montney Shale - Cutbank Ridge Partnership agreement helps recognize value on a slice of
Encana's vast resource potential "Earlier today we announced our Cutbank Ridge partnership agreement with
Mitsubishi Corporation. The Japanese global integrated business enterprise is investing C$2.9 billion for a 40 percent interest
in the Cutbank Ridge Partnership, which holds about 409,000 net acres of our undeveloped Montney natural gas lands in British
Columbia. Encana will own 60 percent and Mitsubishi will own 40 percent of the Partnership. Mitsubishi will pay approximately
C$1.45 billion on closing, which is expected to occur later this month, and Mitsubishi will invest approximately C$1.45 billion
in addition to its 40 percent of the Partnership's future capital investment for a commitment period, which is expected to
be about five years, thereby reducing Encana's capital funding commitments to 30 percent of the total expected capital investment
over that period. This investment recognizes the enormous value contained in a portion of our resource potential, and it is
another validation of the quality of our land base," Eresman said.
Talisman Energy TLM - Talisman Energy ( TLM ) has been very active in the Montney Formation - We consolidated our
Montney joint venture with Sasol and began the
development of the Farrell Creek area, as well as making good progress understanding long-term monetization options for the
gas from that area. In the fourth quarter last year, we produced about 55 million cubic feet a day from the Montney as a whole and about 35 million cubic feet a day from Farrell Creek. In Farrell
Creek in the Montney, we'll also reduce activity substantially, moving to a full rig program for this year. Talisman capital
spend is low since we only pay 12.5% of the total, but we'll reduce the pace of development, both in light of gas prices and
to ensure we optimize capital efficiency as we build understanding of the different zones which make up the very thick Montney
shale. We've been encouraged by the early results in terms of liquids yields from a step-out pad in the east of the play,
which came online in the last few weeks.
As a result of sort of $3 NYMEX, $2.50 AECO, we're clearly going to put
the brakes on the program in the Montney and
preserve our carry that we have in place with Sasol. We'll be reducing, as John has already said, from the 10 rigs that we've
been running at last year down to 4 rigs, which I think is the prudent and right thing to do in the current environment as
we continue to come up the drilling and completions learning curve, and indeed, continue to develop the play. Not surprisingly,
in a 50,000-acre position, as we started our first year of real development, we're going to see some variability. I mean,
we still see variability in the Marcellus 3 years in and multiple of hundreds of wells in. And so yes, we have seen some variability.
That variability will allow us, as we continue to develop the play, to pick those zones that are giving us higher-than-average
EURs and avoid for the time being the zones that are giving us lower-than-average EURs in the play. In terms of liquids, we've
always expected liquids as we move east in our Farrell Creek position. And plus it's literally very early days. We brought
on our first step-out pad out towards the east of the play only last week. We clearly have indications of condensate and liquids
at surface. And we're just generally encouraged by that. It's confirming our suspicions that the play gets increasingly liquids-rich
as we move east.
Montney Shale Map
Montney Formation Map
Approach Resources AREX - AREX has been drilling in the Montney Shale play - ( From Seeking Alpha ) The first three wells targeted the Montney and the Doig we have stimulated the [inaudible] in the other two wells, we are waiting on the pipeline
connection so we can flow test these wells. The play continues to be robust in that there are a lot of players out there paying
extremely high prices for acreage, but until we get this pipeline in we can’t really flow test these wells. The Montney
structure in itself looks good. One thing about the Montney
in this area is nothing more than a tight gas plate. It is just like our Ozono Northeast plate, except it has a little more
pressure to it, it has variability’s just like a normal [inaudible] would have, porosity variability’s, permeability
variability’s, you can look at the development around the core fields, the Dawson Creek Field, where Douvenet is working,
where Ark is working, and they are working on core areas that have higher porosity.
Occidental Petroleum - OXY -
Occidental is testing the Montney Shale and will be providing details at a later time.
Apache APA - Apache is testing the Montney, Doig, and Cadomin Shale formation - Our Noel tight
gas project in the Montney area ramped up to
100 million a day by the end of the fourth quarter. 14 wells are drilled in 2010 with continued development of locations in
the Cadomin & Doig formations. This activity will continue in 2011 with 11 more wells. The team's ability to optimize
cost by moving to multilateral and pad development will make Noel a profitable project even at current gas prices. We have
75 additional locations identified in the Cadomin & Doig.
Canadian Natural Resources (CNQ) - Canadian Natural has 385,000 acres on the Duvernay play and 766,000 acres of Montney lands. All acquired
over time and at relatively low cost compared to land prices seen in the last 2 to 3 years.
Canadian Natural's Montney land position is one of the largest positions in Canada. As you can see on Slide 15 we have the second
largest land base in the Montney.
Our gas plan for 2012, Slide 16, targets production to increase by 3% in 2012,
even though we're drilling 9 fewer wells, and is driven mostly by gas acquisitions made in 2011. Capital is up roughly $100
million, as we perceive the expansions of our liquids-rich Septimus Montney gas development, where we will drill 17 wells and expand the plan from 60 million to 120 million cubic
feet a day. Set up in the Septimus plan is expected November 2012, that's the increase, even with low gas prices, our liquids-rich
Septimus development competes for capital with oil. Later this month, we'll connect Septimus to a deep cut facility, which
will take liquids recovery to 45 barrels 1 million of condensate mix, plus an additional 45 barrels 1 million of ethane. Although
low gas prices are challenging for our gas assets, they make our returns on our thermal heavy oil assets even greater.
Murphy Oil MUR - Murphy Oil (MUR) Montney Shale - In Western Canada, we have 6 rigs operating between
the Montney acreage at Tupper. Drilling continues in the Montney
to fill out the Tupper West facilities with a continued focus of managing development and production growth from our dry gas
opportunities pending some level of price support
