Shell Canada Goes After Deep Gas with New Technical Team

A year after making Alberta's biggest natural gas discovery in a generation in the central part of the province near Rocky Mountain House, Shell Canada Ltd. aims to repeat the feat farther north in remote country west of Edmonton.

The firm has revealed paying C$99 million (US$85 million) for about 104 square miles of drilling prospects in the Rocky Mountains foothills near Hinton at Alberta's record oil and gas rights sale in December (see Daily GPI, Dec. 20, 2005). "The potential for this gas is incredible in Alberta," Shell communications officer Jan Rowley said in describing drilling targets that rigs will be dispatched to probe for this winter. The company calls its new objective "unconventional gas."

But the resource is the opposite of the low-pressure methane in shallow coal seams usually meant by the industry phrase in Canada. In the Hinton area, east of Jasper National Park, miles-deep wells will seek elusive "basin" gas. It occurs in large, high-pressure pools and requires special underground technology to liberate from "tight" or dense rock formations.

The purchase highlights an exploration revival among big producers with the technical abilities and money to tackle deep drilling in remote parts of Alberta and northern British Columbia. Although Shell ranks among Canada's oldest and largest gas producers, deep basin deposits are a new item for the company. "Until gas prices strengthened it really wasn't worth going after," Rowley said.

With gas prices showing no signs of toppling off current lofty levels up to 10 times the 1990s Canadian average of about C$1.50 (US$1.28) per Mcf, Shell has set a C$405 million (US$344 million) 2006 unconventional gas budget. The primary target will be deep basin gas, with a new technical team running the drilling campaign. Encouraging initial successes in the new field were scored earlier this year by four Shell wells north of Hinton in the Grande Prairie region about 400 miles northwest of Edmonton.

Production is underway and the company is considering construction of a new processing plant, Rowley said. She said basin gas has added attractions of being "sweet" and "dry" or largely free of hazardous natural contamination and close to fuel quality as it flows out of the ground. Shell's landmark discovery a year ago -- Tay River, at a depth of 5,100 meters or 16,680 feet in hill country southwest of Edmonton -- was 35% sour, or steeped in lethal hydrogen-sulphide requiring special safety, processing and community relations efforts.

The Tay well flowed 30 MMcf/d in restricted production tests of a new pool estimated to contain up to 800 Bcf of reserves in a geological "pay" zone 140 meters or 460 feet thick. Deep foothills gas has repeatedly been called to the industry's attention by agencies out to encourage an exploration revival such as the Alberta Energy and Utilities Board, the National Energy Board and the Canadian Gas Potential Committee.

The idea is to break a cycle spawned by weak prices in the 1990s, a decade marked by declining overall reserves-to-production ratios and a switch to "just-in-time gas" by the Canadian industry. The result has been a "treadmill" where companies drill more wells into ever smaller shallow targets for shrinking rewards that have the effect of driving up overall finding and development costs. Shell is only the latest producer to try breaking the cycle.

At Alberta's December drilling rights sale alone, the province posted about 224 square miles of deep targets. B.C., while more remote and costlier than Alberta, is also a hot growth area. In 2005, B.C. sold 2,318 square miles of drilling rights, in packages studded with medium to deep targets and tight geological formations.

The lineup of deep drilling producers being joined by Shell is a short who's-who of top Canadian gas producers led by Burlington Resources, Talisman Energy, Canadian Natural Resources Ltd. and EnCana Corp. Extra time, costs and risks of deep drilling are not the only barriers that limit membership in the exploration club, the Calgary investment house of Peters & Co. noted in a review of the December land auction.

Once discoveries are made, production also requires high levels of expertise and investment. Special well completion technology and strategies are needed, such as large and complex "fracturing" injections of materials to break channels into tight formations for gas to flow through. Participants "have to be well financed to endure a testing period for the optimization of the exploitation of these lands," Peters observed. High environmental standards are also enforced in deep drilling areas, which tend to be in sensitive regions closely watched by conservationists.

Environmental aspects of deep basin gas activity by Shell include minimizing land disturbance by drilling multiple wells with "directional" or angled bores from small work sites, Rowley said. The Canadian Society for Unconventional Gas estimates basin and coal sources harbor 190 Tcf of potential new reserves, chiefly in the western provinces and with Alberta leading the pack as for conventional resources.

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