Production is spotty, and Alberta probably need not fear that a major competitor will develop right next door. But judging by recent production results from gas companies operating in northeastern B.C., the Montney formation is starting to read a bit like the story of the miner who went looking for silver and found gold.
While most of the companies that have invested in northeastern B.C. in recent years are producing mostly natural gas and natural gas liquids (NGLs), a few have unlocked pockets of oil, thanks to recent refinements in hydraulic fracturing.
For the companies that have found oil, these wells are proving highly productive and profitable, and very good for their stock prices.
“I think there are a lot of old perceptions that there is no oil in B.C., but in fact there is,” said Raymond James Ltd. oil and gas analyst Jeremy McCrea, who is decidedly bullish about B.C.’s prospects of becoming a light-oil producer.
“It’s just only recently, in the last year or so, that the technology has more or less caught up for operators to drill these wells economically,” McCrea said. “Some of the frack designs that are going into the ground are sure bringing up some pretty strong results here.”
Alberta’s Arc Resources Ltd. (TSX:ARX), for example, pumped 100,000 barrels of light oil out of the ground in a four-month period, he said.
At $60 per barrel, that means a well that cost $5.5 million to develop produced $6 million in revenue in half a year.
“Net-net, you’re seeing these initial wells pay off within a year,” McCrea said.
Another company producing oil in the Montney is Crew Energy Inc. (TSX:CR). Like Arc Resources, it has recently been focusing most of its investment in B.C.
Arc has invested about $2 billion in B.C. in recent years, buying assets and building wells and processing plants.
“Oil is new for us,” said David Carey, Arc Resources’ senior vice-president of capital markets. “Five years ago, it would have been zero. Today it’s approximately 10,000 barrels [per day]. It’s been as high as 13,000 barrels, but the wells do decline.”
A number of other companies have also been pouring hundreds of millions of dollars into northeastern B.C. While the promise of a new market for natural gas from a nascent liquefied natural gas (LNG) industry is part of the attraction, the real draw appears to be in the liquids, such as condensate.
Condensate is used to dilute Alberta bitumen and, barrel for barrel, sells for the same price as oil.
Earlier this month, Doug Suttles, CEO of Encana Corp. (TSX:ECA), described the Montney as “one of the top five gas plays in the world.”
What makes it tops is the sheer volume of NGLs and its productivity, which has made the Montney a low-cost region to operate.
Based on some of the recent projections by Encana and other companies, David Austin, a lawyer specializing in energy for Clark Wilson LLP, said the Montney “could be more liquid than we first thought.”
Arc Resources is producing an average of 10,000 barrels of light oil per day from its Tower play near Dawson Creek, and it has great hopes that its Attachie property – which is six times the size of its Tower property – will also be an oil producer.
“We believe a significant portion of Attachie could well be an oil reservoir,” Carey said.
But lest investors get too crazy with oil fever, experts say that the oil and gas plays owned by companies like Arc and Crew may be anomalies.
“Arc and Crew and a couple of others have gotten in there and they have some nice little oil pools, but they are limited in scope, and they’re not pointing at there being huge oil resources everywhere,” said Brad Hayes, president of oil and gas consulting firm Petrel Robertson Consulting Ltd.
According to a National Energy Board estimate from 2013, the Montney formation, which straddles the B.C.-Alberta border, has an estimated one billion barrels of oil, 14.5 billion barrels of natural gas liquids and 12.7 trillion cubic metres of dry gas. Most of the oil is on the Alberta side, however.
But Arc Resources estimates its potential oil reserves at 500 million barrels on the B.C. side of the Montney. How much of that will yield to producers is the big question.
“I do not know what our recoverable will be yet,” Carey said. “It’s very early days.”
Whether there are pockets of oil and natural gas liquids in areas outside the Montney formation is something Petrel Robertson and Geoscience BC are currently trying to determine.
Their Resource Oil project will attempt to identify other areas in northeastern B.C. that may have recoverable oil and NGLs.
Even if B.C. never becomes a major oil producer, it is fast becoming a significant producer of condensate, which could be an advantage for B.C. should it develop an LNG industry, Austin said.
“If you’re getting good money for your condensate, essentially your natural gas is free,” he said. “That makes the LNG industry in British Columbia very cost-competitive.”