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Chevron sells 30% of Duvernay shale acreage for $1.5bn

Chevron has sold a 30% stake in its Canadian Duvernay shale acreage to a unit of with the Kuwait Foreign Petroleum Exploration Company (Kufpec) for $1.5 billion

Chevron Canada will retain a 70% stake in the acreage, located around 200 km northwest of Edmonton, in Alberta, and will remain the operator. The deal is expected to close in November. Chevron said the acreage holds liquids-rich shale resources in an area of around 330,000 net acres in the Kaybob area of the Duvernay shale play.

The purchase price includes cash paid at closing as well as a portion of Chevron Canada's share of the joint venture's future capital costs, Chevron says. Jeff Shellebarger, president of Chevron North America Exploration and Production Company, said the company was encouraged by its early exploration results at Duvernay and views the area as an exciting growth opportunity for the company. 

Test wells

Kufpec said Chevron's Duvernay test wells - drilled over the past five years - showed it is liquids-rich and comparable with the Eagle Ford shale play in the US.

Chevron Canada has drilled 16 wells at Duvernay so far and hydraulically fractured 13 of them. Chevron said test drilling showed initial production rates of up to 7.5 million cubic feet (cf) of natural gas and 1,300 barrels of condensate a day. Chevron recently began a pad drilling program which is intended to evaluate the play's potential further, optimise reservoir performance and cut costs. This will take place between 2014 and 2017. 

The move marks Kufpec's debut in the North American shale sector and is part of a long-term strategy to share knowledge with international firms and raise Kuwait's domestic oil output. Last year Kuwait produced around 3.1m barrels of oil a day (b/d). It wants to scale that up to 3.5m b/d next year, then to 4m b/d by 2020. To achieve its production targets, Kufpec will need help from international oil companies. However its heavily regulated oil sector hinders further exploration and production. Kuwait has a constitutional ban on foreign ownership of resources, which has hampered investment  in its domestic oil sector. 

The government, however, realises that to reach its 2020 oil-output target, it needs help from foreign companies and is trying to boost their presence in the country's energy sector. Shaikh Nawaf Al-Sabah, Kufpec's chief executive, said the deal with Chevron was "securing the future of the company" and provided the Kuwaiti firm with the opportunity to develop shale technology outside of Kuwait. 

The Duvernay shale play, located in west-central Alberta, is thought to be one of the most prolific shale resources in North America. Wood Mackenzie, a consultancy, estimates Duvernay holds around 13bn barrels of oil equivalent (boe) and expects production to average 1m boe a day by 2024. Around half of that is expected to be dry natural gas, with the remainder comprised of higher value crude and natural gas liquids.

The Duvernay shale play has seen increasing investment and drilling activity in recent years. As well as Chevron, Shell, ExxonMobil and ConocoPhillips have all taken major positions there, while Canadian explorers are also looking to tap into the resource's potential riches. Athabasca Oil owns the most acreage in the play, while Encana, Talisman Energy and a slew of smaller independents also have big holdings. 

The US Energy Information Administration estimates Canada has the fifth largest shale gas reserves in the world with 573 trillion cf thought to be recoverable - nearly 8% of the global estimated total. 

Vast reserves

Canadian government estimates are even more bullish, suggesting there is 2,900 trillion cf of shale gas in-place in British Columbia alone, while Alberta could have up to 1,986 trillion cf.  However access to infrastructure has been a key obstacle to generating cashflow some of Canada's large shale gas fields, especially when competing with lower costs and abundant supplies in the US. 

Getting Canada's unconventional reserves to new markets will depend on the progress of planned liquefied natural gas (LNG) export projects, curbing cost inflation and agreeing contracts with buyers, particularly in North Asian markets.

The difficulties for the sector were highlighted at the end of July when US firm Apache, Chevron's development partner for a planned LNG terminal at Kitimat on Canada's west coast, said it was pulling out of the project, citing an estimated price tag at $15 billion. Forward sales for 60-70% of gas linked to oil prices are essential for projects, such as Kitimat, to proceed, Chevron insists. Yet while preliminary construction work has begun, Chevron has yet to secure any buyers. 

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