Companies are optimistic about Canada’s Duvernay production
Duvernay oil production is expected to average 1 million barrels of oil equivalent a day
Now that the land grab in Alberta Canada’s Duvernay shale is largely over and companies have started developing their positions, the future of the play is coming into sharper focus, and for many that future looks promising. “We expect Duvernay oil production to average 1 million barrels of oil equivalent a day (boe/d) in 2024,” Callan McMahon, an analyst at consultancy Wood Mackenzie, says. About half that production is expected to be dry natural gas, with the other half higher value crude and natural gas liquids (NGLs). The Albertan shale play holds nearly C$25 billion ($23.3bn) worth of oil, gas and natural gas liquids and will see around C$2bn of investment this year, according to McMahon.
Wood Mackenzie reckons the play holds around 13bn barrels of oil equivalent. Analysts at First Energy Capital have come to a similar figure after evaluating early drilling results, putting recoverable reserves tentatively at 53 trillion cubic feet of gas, 5.7bn barrels of NGLs and 1.6bn barrels of crude.
Companies started moving into the Duvernay shale in 2009, with the land grab peaking in 2011, when the industry paid the Albertan government $1.6bn buying up tracts of land, according to Robert Fitzmartyn, an analyst at First Energy Capital, an investment bank. In total 2.74m acres were bought up from 2007 to 2013 at a cost of C$2.8bn.
International majors have led the charge. Shell, ExxonMobil, Chevron and ConocoPhillips all have major positions in the Duvernay. But Canadian explorers are also playing a big role. Athabasca Oil owns the most acreage in the play, while Encana, Talisman and a slew of smaller independents also have significant holdings.
Those companies know a lot more about the Duvernay shale now then they did a few years ago. Around 280 wells, including 207 horizontal wells, have been drilled to date in the play. Of those, 67 are producing, with output at around 17,200 boe/d, 43% of which is liquids and the rest dry natural gas. The percentage of liquids production is expected to rise as companies target the more liquids-rich areas of the shale. Demand is high for light oil and NGLs for use as diluent in Alberta’s oil sands, while natural gas prices remain relatively low.
Although companies are learning more about the shale, there is still a lot of experimentation going on, with companies trying out different drilling and completion combinations. “The play is very much at an early stage in this regard and continues to be in [research and development] mode, and we expect that to occur for some time,” says Fitzmartyn. Costs remain relatively high in the Duvernay at between $10m to $15m and companies have yet to zero in on the shale’s sweet spots.
As with many shale plays in the early stages, infrastructure has been a problem for Duvernay’s producers. Processing the high amounts of liquids coming out of the ground and getting them to market has been especially difficult, though some relief is on the horizon. Pembina, a Canadian midstream company, is spending $115m on a 40,000 barrel per day (b/d) expansion of its Simonette pipeline that will link the Duvernay shale with processing facilities in Edmonton.
The promising early drilling results are expected to fuel further merger and acquisition (M&A) activity, especially as smaller players look for partners to help them fund the relatively high development costs. The industry has spent C$8.5bn on M&A in the Duvernay since 2009, including major deals from China’s PetroChina and Sinopec.
Athabasca Oil, for instance, has had problems funding its Duvernay operations and has long said it plans to find a joint venture partner to help it accelerate its drilling programme. The company has said that it needs to close a separate long-delayed C$1.23bn oil sands sale with PetroChina, though, before it can go ahead with a deal in the Duvernay. Potential partners have been reluctant to finalise a deal with Athabasca without assurances it will have the additional funds needed to cover its portion of development costs.
Still the company is optimistic about position in the Duvernay. “As you've seen, the more we work on this, we believe that the Duvernay play continues to get more valuable,” the company’s chief executive Sveinung Svarte told investors in May this year.