The Attraction of the Duvernay

Exxon Mobil Corp. completed the purchase of Celtic Exploration Ltd. last month for a total transaction cost of CAD$ 3.1 billion including debt considerations. This transaction took place February 2013 after the Canadian government approved the deal. Experts suspect there are clues as to why the Celtic sale was so profitable. The sale includes the shale formations of the Duvernay –previously owned by Celtic- which holds an estimated 443 trillion cubic feet of total gas, 11.3 billion barrels of natural gas liquids and 61.7 billion barrels of oil. When combined together with the Montney and Muskwa shale formations, they potentially harbor 3,324 trillion cubic feet of natural gas, 58.6 billion barrels of gas liquids and 423.6 billion barrels of oil.

Unlike the Montney formation, experts say it will still take about five to six years for the Duvernay to become fully developed.  However on a positive note, the 446 land leases sold in 2011 for both areas are indications of the Duvernay’s vast potential. The largest acreages belong to Canadian Natural Resources Ltd. and Encana Corp. which already sold 49.9 percent interest to a subsidiary of PetroChina called Phoenix Duvernay Gas; and Talisman Energy, Inc. Other companies with a stake in the Duvernay include Bonavista Energy Corp.; Chevron Corp.; Athabasca Oil Corp.; Sinopec Daylight Energy, Ltd.; and Petrobakken Energy Ltd.

The amount of gas reserves that can be extracted from the Duvernay are said to be comparable to those shale formations in Texas and the northeastern portions of the United States. In these locations production is already in full swing—and surging. Operating and drilling costs are more expensive in Alberta’s most promising shale compared to that of already established operations in Texas. For instance, between the Montney and Duvernay, the former is still the winner as far as economics go. It produces $2.50 per mcf of natural gas while the latter is breaking even at $3.20 based on estimates. Due to the Duvernay  being rich in liquids, the value of the resources that are produced could easily double once it becomes fully-developed.

The prospects are bright for the Duvernay. However there are still engineering, geological, economic, social, and environmental difficulties to over come. Whether or not the above companies will be able to get past these obstacles and harness the full potential of one of Alberta’s promising shale and gain profits still remains to be seen.