[Oilguy]

What does it take to build up a new region for oil and gas development? Obviously, the resources have to be in place and economically recoverable. But it is not as easy as just sticking a drill into the ground and pumping out oil and gas.

Even with significant oil and gas reserves trapped in shale, a variety of factors need to come together to turn a given region into a significant producer. To begin with, there needs to be enough companies willing to take risks on major drilling projects. Next, there needs to be enough capital behind those companies to make projects viable. And once explorers find and prove commercial quantities of oil and gas, there needs to be infrastructure in place to move the energy to market.

That last piece – building the storage tanks, compressor stations, and pipelines that will transport product to refineries – is a sure sign that a region is starting to make a name for itself. Only when it becomes apparent that oil and gas will be recovered in significant volumes will companies put millions of dollars on the line for the infrastructure.

This combination of full exploration and development along with infrastructure build out is beginning to happen in the Montney Shale, a formation that stretches across western Alberta into northeast British Columbia. The area is expected to hold 450 trillion cubic feet of natural gas and 14.5 billion barrels of natural gas liquids and 1.12 billion barrels of oil.

One particular area in the Montney that is beginning to attract significant attention is Elmworth, located just outside of Grande Prairie, Alberta. Companies are stepping up their capital expenditures in the area as it is showing signs of being very productive. Encana (NYSE: ECA) is the biggest player in this region, and has drilled in excess of 47 wells, all targeting the Montney resource and each coming back with positive results. Encana drilled 7 wells in the second quarter of 2014, with initial production rates of about 12 to 14 million cubic feet per day (MMcf/d), and higher than expected liquids production. They have six rigs active in the Montney and had drilled 50 net wells by the middle of the year.

In a sign of the company’s confidence in its future production, it constructed a compressor station capable of handling 100 MMcf/d at its Pipestone project, located in the Elmworth area. Encana estimates that there is 25 years’ worth of drilling on its acreage alone, with a potential of 2 billion cubic feet per day (bcf/d) and more than 50,000 barrels of oil per day (bpd).

One smaller company, NuVista (TSE: NVA), is also posting exceptional results. In its latest corporate presentation stated that it will have 32 wells on production in the Montney by the end of 2014, double the number that it started with at the beginning of the year. The results that have been released to date show wells with initial production rates ranging from 916 to 1,770 boe/d – which are further showcasing the exceptional nature of the Montney in this particular area. The company is now averaging about 18,030 barrels of oil equivalent (boe/d) in production per day.

In fact, NuVista has done so well thus far that it is actually running into infrastructure constraints, which is why the company is working to expand processing facilities. Near its Bilbo field, a new pipeline came online in October that will allow NuVista to ramp up production. NuVista also contracted with SemCAMS, a pipeline owner, to take another 30 MMcf/d from NuVista’s holdings in the Elmworth
region.

And it is in the Elmworth area where more companies are turning their attention. NuVista just completed a major purchase of acreage in the Elmworth in August 2014, acquiring 12.5 more sections for $2.91 million per section (640 acres). As companies like NuVista and Encana drill the Elmworth, they are finding that it is rich in natural gas liquids and oil. For 2015, NuVista plans on building another compressor station at its Elmworth block.

An even smaller company is making a move to graduate from its small cap positioning to that of a junior producer. Blackbird Energy (TSX Venture: BBI) also completed a major land acquisition, and the intriguing part about this acquisition was the close proximity of the acquired land to NuVista’s newly purchased acreage and the price it appeared to pay for the land (approximately $300,000 per section). Both companies appear to believe that the Elmworth is going to be a hot play, and are not waiting for bigger players to move in. Blackbird is drilling back to back wells in its Elmworth acreage, one targeting the Upper Montney which has been exploited by Encana and another targeting the Middle Montney, which Nuvista and other producers in the area have been targeting.

Blackbird is also focused on establishing infrastructure to tie in its wells for production. At the end of September, the company signed a memorandum of understanding with Mistral Energy that could see the construction of gas gathering systems. If and when it is completed, the system will take 20 MMcf/d of natural gas from Blackbird’s fields, which could eventually be expanded to handle 35 MMcf/d. Mistral’s system will have a total capacity of 50 MMcf/d – with potential to expand to 70 MMcf/d – and will allow other companies to tie into the system. Then there will be an 8 inch pipeline that will run south to connect to yet more proposed processing infrastructure.

All of the companies mentioned above are poised for value creation due to the promise of the Montney. But intermediate players like NuVista – and especially emerging producers like Blackbird – could see the biggest boost to their share price as they report impressive initial production rates from their wells. NuVista is predicting that its overall production for 2015 will climb to 23,500-25,000 boe/d, up from an expected average of 17,750-18,500 boe/d for 2014.

The smaller Blackbird hopes to transform its prime land block at Elmworth into a productive acreage. It expects to complete its two wells by January 2015, which will be a huge moment for the company. Blackbird could see its share price jump to a new level if its two wells come back with positive results effectively proving up its acreage.

What are we to make of all of this? It would be one thing if a few companies were just drilling some test wells or doing some geological assessments to figure out how much oil and gas sat beneath them. But, when a multitude of companies start pouring millions of dollars into gas gathering and processing infrastructure, you have to figure that they know they are sitting on a bounty. And it isn’t just one company. They are all doing it, and all at the same time. The Montney is getting hot.

By. James Stafford of Oilprice.com

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Source: http://oilprice.com/Energy/Energy-General/As-Excitement-Builds-in-the-Montney-Companies-Seek-More-Infrastructure.html

By. James Stafford of Oilprice.com

[Plantagenet]

No wonder the Saudis are in a panic and trying to crush the tight shale industry. How many more giant oil fields are going to get discovered in shales? It seems like every few months there is another giant shale oil discovery. The Saudis are going to get drowned in shale oil at this rate....

There really are quite a surprisingly large number of these prospective tight shales out there. I'd never heard of the Montney Fm, before and suddenly another 14 BILLION bbls of oil is on tap there---and that means the Montney is potentially bigger then the Bakken, by the way.


Ho-Hum....another giant Shale Oil discovery

[coffeeguyzz]

Plant, that is correct in that more and more areas will open up to potential/actual development. What's seldom mentioned is the possibility to have more "Springer" plays come into production. The Springer was unveiled at Continental's last analyst/investor presentation in August as a new 100 foot or so pay zone above their Woodford play. With this new discovery, Hamm has said that Continental may actually recover more hydrocarbons from this so called SCOOP area than even from the Bakken.
There may yet prove to be any number of hydrocarbon-bearing tight rock formations that the continuously evolving extractive processes will enable to be economically produced.

[copious.abundance]

I've been reading about this one for, like, 5 years.

[Paulo1]

re: "What are we to make of all of this?"

What I hear it is unlikely LNG in BC will be built before 2030 and that was before the oil price collapse. What is to be done with the production? Cap it and wait?

[KingM]

re: "What are we to make of all of this?"

What I hear it is unlikely LNG in BC will be built before 2030 and that was before the oil price collapse. What is to be done with the production? Cap it and wait?

The oil price collapse sure as hell ain't going to last until 2030.

[Tanada]

Rockdoc123 pointed me towards this shale field in Canada so I did a news search and found this report from just a five weeks ago.

CALGARY, Alberta, Jan. 28 (UPI) -- Spending $380 million to build a stronger footprint in the Montney shale basin in Canada fits with creating a low-risk profile, Enbridge Inc. said.

Enbridge acquired gas plants and pipeline infrastructure associated with the shale basin in British Columbia from the Canadian subsidiary of Murphy Oil Corp.

"This acquisition fits extremely well with Enbridge's low risk value proposition and supports our key priority of extending and diversifying growth," C. Gregory Harper, president of gas pipelines and processing, said in a statement.

The acquisition comes as companies are streamlining their portfolios and swapping assets in an effort to survive a market downturn characterized by declining crude oil prices. For Murphy, the divestment monetizes its assets in the Montney basin so it can focus on other areas of the North American unconventional shale business. Murphy this week reported a net loss for the fourth quarter of $416 million.

The federal National Energy Board in Canada estimates the Montney shale formation holds as much as 449 trillion cubic feet of marketable natural gas. According to the NEB, the marketable gas reserve estimate makes the Montney shale one of the largest basins of its kind in the world.

Harper said the Montney shale basin has a long record of generating reliable cash flows for operations.

"They also enhance our natural gas footprint within the Montney, one of the most attractive gas plays in North America," he said in a statement.

http://www.upi.com/Business_News/Energy ... 453982522/

[ROCKMAN]

T - Yes...rather old news. The Montney exceeded production in BC from all other plays, including conventional, over 6 years ago. More than 2 years ago the cumulative production from the Montney play surpassed 3.2 Tcf, up from just 25 Bcf at the start of 2005. In 2014 the play had over 2,000 active gas wells, essentially all of which are post-2005 horizontals. Daily product levels are presently at 2.8 Bcf/d. For the math challenged: that about 1 Tcf/year...and that was 4 years ago.

Old news for sure. And let's not forget that most of that growth came at the time of very high oil prices. Of course even at lower oil prices the Montney won't disappear. But this post seem to saying some new and big has just arrived at a time of low oil prices. Not exactly the history.

We could just as equally point excitedly at two other great plays that boomed during that same time frame: the Eagle Ford and Bakken. Yes indeed: 2005 thru 2014 were very exciting times in the oil patch. LOL

[Synapsid]

Tanada,

A connection I've been keeping an eye on is NG from the Montney being sent to the oil sands. There's a good deal of infrastructure in place in Alberta already so I wouldn't expect that getting it there is going to be a problem, and it would be a neat little package, with an NG source nearby a major customer with excellent growth prospects...oh, wait...

Well, someday maybe.

[Tanada]

Tanada,

A connection I've been keeping an eye on is NG from the Montney being sent to the oil sands. There's a good deal of infrastructure in place in Alberta already so I wouldn't expect that getting it there is going to be a problem, and it would be a neat little package, with an NG source nearby a major customer with excellent growth prospects...oh, wait...

Well, someday maybe.

I think the math on the extraction costs is fuzzy enough for someone to be able to make a profit at the current prices. Here is a graphic I found of how much extraction costs in Alberta fell from 2010 to 2013, prices given here show that we are now back above break even for some project after spending just two months below break even when the oil market bid price was those levels. People seem to be so short term thinkers when it comes to these things, the price of WTI was over $40/bbl right through the end of 2015 and only fell below that level after the first of the year when it was clear Iran would be increasing their exports due to sanctions being lifted.

Now that WTI is back in the $35 range again with nothing indicating they have any reason to fall any time soon Alberta oil sand projects are moving closer to being cash flow positive if they are not quite there yet, and as prices creep slowly upward they just get better and better.

[ROCKMAN]

T - I just realized I misread your link. Enbridge isn't building or drilling sh*t in the Montney trend. LOL. They are BUYING existing infrastructure and production. Buying it from Murphy Oil which has seen its stock price decline more then 75% in the last few years. They are not jumping into the Mintney because it's still a great trend to drill but because they can buy in cheap from a distressed owner...Murphy. I think using "building" is intensionally trying to make reader think this an expansion of the play and not just an expansion of Enbridge.

The economics of drilling they Montney has little or nothing to do with this acquisition IMHO. It was based upon the cost to PRODUCE existing Montney wells...not drill new ones. At least not until prices recover significantly.

It would be similar to implying that the Eagle Ford is a viable drilling target today because someone paid $380 million for some PRODUCING WELLS. Wells that might have cost $800 million to drill and complete.

[Tanada]

T - I just realized I misread your link. Enbridge isn't building or drilling sh*t in the Montney trend. LOL. They are BUYING existing infrastructure and production. Buying it from Murphy Oil which has seen its stock price decline more then 75% in the last few years. They are not jumping into the Mintney because it's still a great trend to drill but because they can buy in cheap from a distressed owner...Murphy. I think using "building" is intensionally trying to make reader think this an expansion of the play and not just an expansion of Enbridge.

The economics of drilling they Montney has little or nothing to do with this acquisition IMHO. It was based upon the cost to PRODUCE existing Montney wells...not drill new ones. At least not until prices recover significantly.

It would be similar to implying that the Eagle Ford is a viable drilling target today because someone paid $380 million for some PRODUCING WELLS. Wells that might have cost $800 million to drill and complete.

Sounds like that feeding frenzy you have predicted is about to kick into high gear ROCKMAN!

Seems that you have been through earlier cycles of this pattern, how does this usually play out? What I mean is, will the selling proceed like a row of dominoes nice and orderly and predictable, or is it more like a house of cards collapse where it is catch as catch can?

[ROCKMAN]

T - How will it play out compared to the 80's bust? Do you recall companies by the name of Gulf Oil, Mobil Oil, Phillips Petroleum, Getty Oil, Tenneco, Pennzoil,Texaco, etc. And countless smaller companies that no one here ever heard of?

You every hear of the Dodo bird or carrier pigeon? Similar histories. LOL