Exxon & Imperial Oil hint BC gas bonanza

Company News Alert

Exxon results hint at B.C. gas bonanza (RTGAM)

David Ebner

Vancouver — The first results from Exxon Mobil Corp.'s exploration of the large Horn River natural gas field in British Columbia suggest there could be even more gas in the area than previously predicted.

Exxon, the world's largest publicly traded energy company, arrived late to Horn River, staking a claim in the untested southern area of the region last year. Last month, the company and its majority-owned Canadian arm, Imperial Oil Ltd., spent more than $100-million to buy the rights for more land adjacent to its original holdings.

On Thursday, Exxon said tests of its first couple of wells drilled last winter flowed at about two million cubic feet a day. Company spokesman Patrick McGinn wouldn't characterize the result or say whether Exxon was happy with it.

“It was just a first look to see what might be below ground,” Mr. McGinn said.

Though the conservative Irving, Tex.-based company is mostly mum, the news is yet another positive sign for Horn River, which is believed to be the largest gas discovery in Canadian history.

Located north of the town of Fort Nelson in rugged and remote northeastern B.C., Horn River is a shale gas play, a type of gas reservoir that has been unlocked with new drilling technology. The most prolific such field is the Barnett in Texas.

In the past two years, a rush of gas from other shale gas fields has produced an unexpected surge in supply, which suggests North America has far more gas than the industry had thought.

For Horn River, years of work and billions of dollars will be required to develop the field, if it lives up to early promise.

Roads, pipelines and processing facilities all need to be built.

Also, the region is far from customers, so competition with other fields in Texas and Louisiana is intense.

Still, EnCana Corp., which discovered Horn River in 2003, has already said it could eventually exceed what the Barnett currently produces.

“We're at the early stages in Horn River,” EnCana spokesman Alan Boras said. “It has tremendous potential. There's a lot of gas.”

Exxon, especially, is expected to move slowly. The company's focus is profit and return on capital, not growth, said analyst William Lacey of FirstEnergy Capital Corp.

“It's another endorsement for the region,” Mr. Lacey said. “But Exxon is pretty conservative. I don't think they're going to rush out to develop.”

The Exxon test wells were drilled vertically in to the earth and the well bore was punctured by a single perforation, a general test to see how much gas might flow from below ground.

Production wells at Horn River are initially drilled vertically and then kick horizontally. Along the horizontal leg, which usually extends more than a kilometre, the well bore is punctured eight or more times and the tight rock is fractured by pumping a high-pressure mix of water and sand into the gas field to get the commodity to flow.

Shale gas could mean the brutal swings in the price of natural gas, from manic highs to deep lows, might moderate in the next decade as ample supply is balanced against demand, with producers more able to turn taps on and off rather than just pushing new production to market regardless of the need for the commodity.

While early production results from shale are strong, there is a debate whether the resource can actually increase long-term North American supply. Instead, it might simply mitigate declines from aging conventional gas fields, whose output falls more than 20 per cent each year.

Current production from Horn River is small at about 100 million cubic feet of gas a day. That's roughly 2.5 per cent of what Barnett produces today and less than 1 per cent of total Canadian production.

Significant production from Horn River likely won't emerge until 2012 or 2013.