"Our extensive seismic surveys, geological analysis and exploratory drilling have identified another promising resource play in the deep basin. Cutbank Ridge (Cadomin geological formation) is similar to our attractive gas development projects in Greater Sierra (Jean Marie formation) in northeast B.C. and Mamm Creek (Mesa Verde formation) in the U.S. Rockies. These resource plays are characterized by large areal extent and we believe they hold multiple TCFs of recoverable natural gas. We have successfully demonstrated that our application of technology and large repeatable drilling programs can drive down development costs in these resource plays to achieve attractive financial returns. Typical of EnCana's other large resource plays, Cutbank Ridge has potential of several hundred million cubic feet per day of long-life gas production," said Randy Eresman, EnCana's Chief Operating Officer.
Cutbank Ridge further enhances EnCana's identifiable, long-term, low-risk growth profile. We currently have about 100 rigs running company-wide and plan to drill 2,500 gas wells in the last half of 2003. Excluding the Cutbank Ridge acquisition, we are forecasting a 2003 gas sales exit rate of between 3.2 billion and 3.3 billion cubic feet per day, lifting average annual sales to achieve EnCana's full-year target of 3.0 billion to 3.1 billion cubic feet per day," Eresman said.
For the past 18 months, EnCana has been assembling the lands covering the Cutbank Ridge play. The final steps in this multi-phase acquisition were recently concluded at provincial land sales in B.C. and Alberta where EnCana invested $369 million to purchase a majority interest in 39 parcels totaling about 350,000 net acres. EnCana previously acquired about 150,000 net acres through purchases, land swaps with other companies and Crown land sales. EnCana's total Cutbank Ridge lands, centered about 50 kilometres southwest of Dawson Creek, B.C., are about 500,000 net acres.
"Cutbank Ridge is a classic resource play; the natural gas is contained in continuous tight sandstone reservoirs; the play was extensively delineated by previous industry drilling; the application of technological advances in drilling and completion techniques have now made the play economically viable; and the reservoir characteristics support long-term predictable gas production growth. In the Cutbank Ridge play, single sections are estimated, on average, to contain more than 6 billion cubic feet of recoverable natural gas, based on two horizontal wells per section. Horizontal wells are initially expected to cost about $4 million which includes drilling, completion, tying into sales pipelines and facility costs. We estimate full-cycle finding and development costs of approximately $1.50 per thousand cubic feet of gas," Eresman said.
In the exploration phase of this acquisition, EnCana examined the well logs from more than 300 previously-drilled wells in this region and drilled about 25 wells to establish production profiles. The Cadomin formation is about 8,000 feet deep and 100 feet thick. First-year production rates on each well are expected to average 1 million to 2 million cubic feet of gas per day. Tight gas resource plays are typically characterized by fairly steep first-year decline rates, followed by much shallower decline rates that average less than 15 per cent per year for years thereafter. EnCana's preliminary Cutbank Ridge development plan contemplates drilling 100 to 200 wells per year.
"This year, we have substantially stepped up investment in B.C. from $700 million to over $1 billion, which is a clear endorsement of the progressive steps taken by the B.C. government to provide the conditions required to attract these huge capital commitments. In Greater Sierra, we have increased our summer drilling to 80 wells - double our initial plan," said Mike Graham, President of EnCana's Canadian Foothills & Frontier Region. "We applaud the government for improving the investment climate through targeted royalties, upgrading of roads, the adoption of summer drilling incentives, enhanced tax competitiveness and streamlined regulatory processes. We look forward to a continuation of B.C.'s Oil and Gas Development Strategy."
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