Providing coverage of Alaska and northern Canada's oil and gas industry
March 2013

Vol. 18, No. 11 Week of March 17, 2013

Talisman claims ‘stellar results’

But plans to divest dry gas holdings in North Duvernay; Encana says it wouldn’t move reservoir; would leave it ‘exactly where it is’

Gary Park

For Petroleum News Bakken

Talisman Energy has posted some of the most definitive results yet from the Duvernay — northern Alberta’s Bakken — as it prepares to “divest all or a portion” of its North Duvernay holdings despite what Chief Executive Officer Hal Kvisle rates as some “stellar results.”

In the meantime the emerging liquids-rich play in west-central and northern Alberta is generating strong praise for the Alberta government’s fiscal regime. The industry has so far drilled 95 Duvernay wells (62 horizontal and 33 vertical), with 40 wells on production.

Brendan McCracken, who leads the Duvernay team at Encana, told a Calgary unconventional resources conference that if his company had the option to move the Duvernay reservoir to anywhere it wanted in North America “my thinking is we would leave it exactly where it is.”

The Duvernay qualities he identified were the Alberta government’s fiscal and royalty incentives, a surface environment suited to a resource play hub and access to infrastructure and the service sector.

C$4 billion spent

The conference heard that the industry has so far spent more than C$4 billion on the Duvernay play, of which C$2.57 billion has gone to 3.1 million acres in the high-grade liquids fairway of the play where land fetched an average C$6,000 an acre.

McCracken said Encana got in early, assembling 460,000 gross acres for only a fraction of the C$6,000 and believes it has “over half of the high-grade fair in the liquids-rich window.”

Talisman shares the common view that the South Duvernay is the best bet because of its liquids content, while North Duvernay is largely a dry gas play.

The company holds a total of 350,000 net acres in the formation, which is frequently placed in the same category as the Eagle Ford in Texas.

Paul Smith, Talisman’s executive vice president of North American operations, told analysts this month that the company’s first well on the South Duvernay yielded about 1,000 barrels of liquids for every 1 million cubic feet of natural gas.

Talisman now estimates it has a prospective resource of 600 million barrels of oil equivalent on the South Duvernay where it has drilled three and completed two wells.

Initial drilling results

Smith said the initial 11-03-041-05W5 well was completed “with a relatively short lateral of only 3,500 feet and with only five effective frac stages.”

Over an initial 30-day production period it averaged about 300 bpd of condensate (50 degree API oil) to establish the liquids content.

The second well, 02-06-042-05W5, flowed 1.1 million cubic feet per day of gas with a condensate yield of 110 barrels, he said.

The third well has not been completed and a fourth well is currently under way, while two or three more should come onstream this year, Smith said.

He said Talisman is now working on plans for a phased development operation for the South Duvernay, starting in 2014.

In the North Duvernay Talisman has 159,000 acres in the Kaybob area, which Chevron initially developed in the 1950s and has recently returned to the area.

Three pilot wells in north

The company has drilled three pilot wells on the northern lands and each was completed with an average of six stages per well. They have delivered average initial 30-day production rates of 3.2 million cubic feet per day and 60 barrels of field condensate.

Smith said Talisman is also counting on an additional 290 bpd of natural gas liquids from each of the wells, which he translated into an optimized development well with a 5,000-foot lateral and 12 stages yielding 6.5 million cubic feet of gas and 700 barrels a day of condensate.

As part of Talisman’s drive to focus its North American portfolio on the near term, the company would prefer to dilute its North Duvernay position through outright sale.

Kvisle said the company’s North American acreage is too large for the company, often touted as a target for a takeover bid, to develop on its own.

“We are simply not a large enough company, we do not have the financial resources,” he said, in announcing that North Duvernay and the Montney shale lands in northeastern British Columbia could see a complete exit by Talisman, a sale, or a joint venture.

Tax regime ‘huge leg up’

McCracken said Alberta’s deep gas holiday and new shale well program are a “huge leg up ... on an after-tax, after-royalty basis the Duvernay actually winds up delivering superior returns to some of its sister peer plays in the United States.”

Although the Eagle Ford delivers much better returns than the Duvernay on a cost basis before taxes and royalties, the Duvernay delivers “superior returns” once taxes and royalties are taken into account, he said.

“You can look at wells that are making (100 barrels per million cubic feet) and go down dip and make (300 barrels per million cubic feet) and that doesn’t really happen in any other liquids-rich plays in North America,” he said.

“When you consider that condensate is trading at about a $14 per barrel premium to WTI, that’s a pretty good news story from a commercial standpoint.”

McCracken said Encana currently has two rigs actively drilling and has drilled 10 gross wells (eight horizontal and two vertical). Four horizontals are producing and three of them are the longest horizontals in the play.

The Ferrier 12-04-42-8W5 has a 7,200 foot lateral and was completed with 23 frac stages and registered 50 barrels of condensate per million cubic feet of gas. The 30-day initial production rate was 3.5 million cubic feet.

The Saxon 16-5-62-24 well has a 4370 foot lateral completed with 12 stages and an IP-30 rate of 6.4 million cubic feet per day with 200 barrels of condensate per million cubic feet.

In response to a question, McCracken said there is still limited information on how the play will develop, noting that a lot of Encana wells are restricted because it has to use spare infrastructure capacity.

Encana said the Duvernay shale on its wells is found at depths of 8,200 feet to 13,100 feet with a gross thickness of 65 feet to 230 feet.

Encana estimates it has 9.1 billion barrels of oil equivalent initially-in-place on its lands, with an estimated ultimate recovery of 4 billion to 9 billion cubic feet equivalent per well.

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